<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
VORNADO REALTY L. P.
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(Exact name of Registrant as specified in its charter)
Delaware 22-3506990
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Park 80 West, Plaza II, Saddle Brook, New Jersey 07663
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (201) 587-1000
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act
Units of Limited Partnership Interest
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Table of Contents
Item Page
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1. Business 3
2. Financial Information 8
3. Properties 17
4. Security Ownership of Certain Beneficial Owners and
Management 22
5. Directors and Executive officers 22
6. Executive Compensation 23
7. Certain Relationships and Related Transactions 23
8. Legal Proceedings 23
9. Market Price of and Distributions on the Registrant's Common
Equity and Related Security Holder Matters 23
10. Recent Sales of Unregistered Securities 23
11. Description of Registrant's Securities to be Registered 23
12. Indemnification of Directors and Officers 32
13. Financial Statements and Supplementary Data 33
14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 33
15. Financial Statements and Exhibits 33
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PART I
ITEM 1. BUSINESS
GENERAL
Vornado Realty L.P. (including the operations of Vornado
Realty Trust prior to the conversion described below, the "Operating
Partnership") is a Delaware limited partnership. It commenced operations on
April 15, 1997, when Vornado Realty Trust ("Vornado")1, a real estate investment
trust ("REIT"), converted to an Umbrella Partnership REIT (UPREIT) by
transferring all or substantially all of the interests in its properties and
other assets to the Operating Partnership, of which Vornado is the sole general
partner. As a result of such conversion (referred to herein as the
"Consolidation"), Vornado's activities are conducted through the Operating
Partnership.
The Operating Partnership owns, leases, develops, redevelops
and manages retail, office and industrial properties primarily located in the
Northeast and Midatlantic regions of the United States. It currently owns (i)
fifty-eight shopping center properties in seven states and Puerto Rico,
containing 10.5 million square feet; (ii) all or portions of nine office
building properties in the New York City metropolitan area (primarily in
Manhattan) containing 4.2 million square feet; (iii) eight warehouse/industrial
properties in New Jersey containing 2.0 million square feet; and (iv)
approximately 29.3% of the common stock of Alexander's, Inc., a Delaware
corporation ("Alexander's"), which has nine properties in the New York City
metropolitan area.
RECENT ACQUISITIONS
Simultaneously with the formation of the Operating
Partnership, Vornado consummated the acquisition of interests in all or a
portion of seven Manhattan office buildings (the "Mendik Properties") and
certain management and leasing assets held by the Mendik Group (Bernard H.
Mendik, David R. Greenbaum and certain entities controlled by them) and certain
of its affiliates (the "Mendik Transaction"), which will be operated as the
Mendik Division. The consideration for the Mendik Transaction was approximately
$656 million, including $264 million in cash, $177 million in limited
partnership units of the Operating Partnership and $215 million in indebtedness.
Vornado financed the cash portion of the Mendik Transaction by means of a public
offering of Series A Convertible Preferred Shares of Beneficial Interest,
liquidation preference $50.00 per share.
In addition, on April 15, 1997, the Operating Partnership
entered into a Credit Agreement with Union Bank of Switzerland pursuant to which
the Operating Partnership borrowed $400,000,000. The loan bears interest at the
rate of LIBOR plus .625% (6.31% at April 15, 1997) and matures, assuming
exercise of extension options, on April 14, 1998.
On April 18, 1997, the Operating Partnership acquired The
Montehiedra Town Center located in San Juan, Puerto Rico, from Kmart Corporation
("Kmart") for approximately $74,000,000, of which $63,000,000 is newly-issued
ten year indebtedness. The Montehiedra shopping center, which opened in 1994,
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1 The Operating Partnership has filed certain portions of the following
documents of Vornado Realty Trust as Exhibits to this Form 10:
a) Annual Report on Form 10-K for the year ended
December 31, 1996;
b) Quarterly Report on Form 10-Q for the period ended
March 31, 1997;
c) Notice of 1997 Annual Meeting of Shareholders and
Proxy Statement; and
d) Current Report on Form 8-K, dated March 12, 1997, as
amended by the Form 8-K/A, dated March 12, 1997.
Information concerning Vornado Realty Trust set forth in this Form 10
is derived from the foregoing documents.
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contains 525,000 square feet, including a 135,000 square foot Kmart store. In
addition, the Operating Partnership agreed to acquire Kmart's 50% interest in
the Caguas Centrum Shopping Center, which is currently under construction,
located in Caguas, Puerto Rico. This acquisition is expected to close in 1998.
Further, on May 7, 1997, the Operating Partnership acquired a
mortgage loan from a consortium of banks secured by a mortgage on the office
building located at 90 Park Avenue, New York, New York. The purchase price of
the mortgage loan was approximately $185,000,000. The mortgage loan, which is in
default, has a face value of $193,000,000.
SHOPPING CENTERS
The Operating Partnership's shopping centers are generally
located on major regional highways in mature densely populated areas. The
Operating Partnership believes its shopping centers attract consumers from a
regional, rather than a neighborhood, marketplace because of their location on
regional highways and the high percentage of square feet dedicated to large
stores. These shopping centers accounted for 92% of rental revenue for the years
ended December 31, 1996 and 1995 and 44% of rental revenue on a pro forma basis
for the recent acquisitions for the year ended December 31, 1996. The occupancy
rate of the shopping center properties was 91% and 90% as of April 1, 1997 and
1996, respectively, and has been over 90% in each of the past five years.
As of March 31, 1997, approximately 80% of the square footage
of the shopping centers was leased to large stores (over 20,000 square feet) and
over 93% was leased to tenants whose businesses are national or regional in
scope. The Operating Partnership's large tenants include destination retailers
such as discount department stores, supermarkets, home improvements stores,
discount apparel stores, membership warehouse clubs and "category killers."
Category killers are large stores which offer a complete selection of a category
of items (e.g., toys, office supplies, etc.) at low prices, often in a warehouse
format. The Operating Partnership's large store tenants typically offer basic
consumer necessities such as food, health and beauty aids, moderately priced
clothing, building materials and home improvement supplies, and compete
primarily on the basis of price. The Operating Partnership believes that this
tenant mix mitigates the effects on its properties of adverse changes in general
economic conditions. Substantially all of the Operating Partnership's large
store leases are long-term with fixed base rents and provide for step-ups in
rent typically occurring every five years.
In addition, the Operating Partnership's leases generally
provide for additional rents based on a percentage of tenants' sales. Of the
Operating Partnership's $87,424,000 of rental revenue in 1996, base rents
accounted for approximately 99% and percentage rents accounted for approximately
1%. The leases generally pass through to tenants the tenant's share of all
common area charges (including roof and structure, unless it is the tenant's
direct responsibility), real estate taxes and insurance costs and certain
capital expenditures. As of March 31, 1997, the annual rent per square foot for
the shopping centers was $9.51.
From 1992 through 1996, property rentals from shopping centers
were $56,900,000, $61,900,000, $64,700,000, $74,300,000 and $80,000,000,
respectively. At March 31, 1997, no single shopping center property accounted
for more than 5.8% of the total leasable area of the Operating Partnership's
shopping center properties or more than 9.3% of property rentals for such
shopping center properties.
OFFICE PROPERTIES
The Operating Partnership's office properties are located in
the New York City metropolitan area (primarily in Manhattan) and are primarily
managed and leased by its Mendik Division. The properties are centrally located,
professionally managed and maintained, attract high-quality tenants, and are
modern structures or have been modernized to successfully compete with newer
buildings.
Of the nine properties, five were constructed in the 1960s,
one was constructed in the 1950s, one was constructed in the 1930s and two were
constructed in the 1920s. In 1988, the Mendik Division initiated an extensive
renovation program in order to retain tenants and assure the continued
competitiveness
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of these properties. Approximately $85 million was expended at the properties
(excluding the redevelopment costs associated with 570 Lexington Avenue) for
building improvements and equipment upgrades (excluding the costs of tenant
improvements). As a result of this recently completed renovation program, the
Operating Partnership believes that the properties have state-of-the-art
infrastructure and are well positioned to compete with other Class A office
properties in their respective submarkets.
The office properties currently are leased to over 375
tenants, which are engaged in a variety of businesses, including financial
services, investment banking, publishing, computer technology, health care
services, accounting and law. The average lease term of a tenant's lease is
eleven years. Leases typically provide for step-ups in rent periodically over
the term of the lease and pass through to tenants the tenant's share of
increases in real estate taxes and operating expenses for a building over a base
year. Electricity is provided to tenants on a submetered basis or rent inclusion
basis. Leases also typically provide for tenant improvement allowances for all
or a portion of the tenant's initial construction of its premises. At March 31,
1997, no single tenant accounted for more than 5% of the Operating Partnership's
total leasable office property square footage.
Office properties accounted for 52% of the pro forma rental
revenue for the year ended December 31, 1996. The occupancy rate of the
properties was 92% as of April 1, 1997. As of March 31, 1997, the annual rent
per square foot for the office properties was $28.49. In addition to managing
the Operating Partnership's office buildings, the Mendik Division manages other
properties in the New York City Metropolitan area which contain approximately
5,600,000 of rentable square feet.
MAJOR TENANTS
Only one of the Operating Partnership's tenants, Bradlees,
represented more than 3% of pro forma revenues for the year ended December 31,
1996. Bradlees accounted for 10.5% of total pro forma property rentals.
In June 1995, Bradlees filed for protection under Chapter 11
of the U.S. Bankruptcy Code. The Operating Partnership currently leases 17
locations to Bradlees. Of these locations, 14 are fully guaranteed by Stop &
Shop Companies, Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold
NV, a leading international food retailer, and one is guaranteed as to 70% of
the rent.
RELATIONSHIP WITH ALEXANDER'S
The Operating Partnership owns 29.3% of the common stock of
Alexander's. (See "Interstate Properties" for a description of Interstate
Properties' ownership of Vornado and Alexander's.) In addition, the Operating
Partnership lent Alexander's $45,000,000.
Alexander's has nine properties (where its department stores
were formerly located) consisting of:
Operating properties:
(i) the Rego Park I property located in Queens, New York;
(ii) a 50% interest in the 427,000 square feet of mall stores at
the Kings Plaza Shopping Center (the "Kings Plaza Mall")
located in Brooklyn, New York;
(iii) the Fordham Road property located in the Bronx, New York;
(iv) the Flushing property located in Flushing, New York; and
(v) the Third Avenue property located in the Bronx, New York.
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The occupancy rate of Alexander's operating properties was 73% as of
April 1, 1997.
Non-operating properties to be redeveloped:
(vi) the Lexington Avenue property which comprises the entire
square block bounded by Lexington Avenue, East 59th Street,
Third Avenue and East 58th Street in Manhattan, New York. This
Property is owned by a limited partnership in which
Alexander's is the general partner and owns approximately 92%
of the limited partnership interests. Alexander's
redevelopment plans include razing the existing building and
developing a large, multi-use building, requiring capital
expenditures in excess of $300 million. No development
decisions have been finalized;
(vii) the Paramus property which consists of 39.3 acres of land,
including its former store building, located at the
intersection of Routes 4 and 17 in Paramus, New Jersey.
Approximately 9 acres located on the property's periphery are
subject to condemnation by the State of New Jersey.
Alexander's and the New Jersey Department of Transportation
(the "DOT") are negotiating an agreement, pursuant to which
the DOT will pay approximately $14.7 million for the acreage
subject to condemnation and grant Alexander's the right to
develop up to 550,000 square feet on the remaining acreage.
The agreement with the DOT is subject to negotiation of final
documentation and to certain municipal approvals. Alexander's
is considering razing the existing building and developing a
two or three level shopping center on the site. The estimated
total cost of such redevelopment is between $60 million and
$70 million. No development decisions have been finalized;
(viii) the Kings Plaza Store, a 339,000 square foot anchor store,
which is one of the two anchor stores at the Kings Plaza Mall
Shopping Center. In January 1997, Sears leased 289,000 square
feet at this location for use as a full-line department store
expected to open in the last quarter of 1997; and
(ix) Rego Park II, comprising one and one-half blocks of vacant
land adjacent to the Rego Park I location.
The Operating Partnership expects to provide a portion of the
financing required for Alexander's redevelopment projects. None of the
redevelopment plans for the non-operating properties above have been finalized.
See Item 3. "Properties - Alexander's".
Property rentals from Caldor, which filed for relief under
Chapter 11 of the United States Bankruptcy Code in September 1995, represented
approximately 36% of the Alexander's consolidated revenues for the three months
ended March 31, 1997 and the year ended December 31, 1996. In June 1997, Caldor
rejected its Fordham Road lease. Alexander's will file a claim for damages based
on such rejection. The annual base rental under this lease was $3,537,000
(approximately 19% of Alexander's consolidated revenues). The loss of property
rental payments under the Caldor leases (for the Flushing and Fordham Road
Properties) could have a material adverse effect on the financial condition and
results of operations of Alexander's.
The Operating Partnership manages, develops and leases the
Alexander's properties under a management and development agreement (the
"Management Agreement") and a leasing agreement (the "Leasing Agreement")
pursuant to which the Operating Partnership receives annual fees from
Alexander's.
Alexander's common stock is listed on the New York Stock
Exchange under the symbol "ALX".
Interstate Properties
As of March 31, 1997, Interstate Properties owned 21.9% of the
common shares of beneficial interest (assuming the conversion of all Operating
Partnership units) of Vornado and 27.1% of Alexander's
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common stock. Interstate Properties is a general partnership in which Steven
Roth, David Mandelbaum and Russell B. Wight, Jr. are partners. Mr. Roth is the
Chairman of the Board and Chief Executive Officer of the Company, the Managing
General Partner of Interstate Properties, and the Chief Executive Officer and a
director of Alexander's. Messrs. Mandelbaum and Wight are trustees of
Vornado and are also directors of Alexander's. Effective March 2, 1995, for a
three-year period, the Operating Partnership and Interstate Properties agreed
not to own in excess of two-thirds of Alexander's common stock or enter into
certain other transactions with Alexander's, without the consent of the
independent directors of Alexander's.
COMPETITION
The leasing of real estate is highly competitive. The
principal means of competition are rent charged, location, services provided and
the nature and condition of the facility to be leased. The Operating Partnership
directly competes with all lessors and developers of similar space in the areas
in which its properties are located. Demand for retail space has been impacted
by the recent bankruptcy of a number of retail companies and a general trend
toward consolidation in the retail industry which could adversely affect the
ability of the Operating Partnership to attract or retain tenants.
ENVIRONMENTAL REGULATIONS
Under various Federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up certain hazardous substances released at a
property, and may be held liable to a governmental entity or to third parties
for property damage or personal injuries and for investigation and clean-up
costs incurred by the parties in connection with the contamination. Such laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the release of such hazardous substances. The presence
of contamination or the failure to remediate contamination may adversely affect
the owner's ability to sell or lease real estate or to borrow using the real
estate as collateral. Other Federal, state and local laws, ordinances and
regulations require abatement or removal of certain asbestos-containing
materials in the event of demolition or certain renovations or remodeling and
also govern emissions of and exposure to asbestos fibers in the air. The
operation and subsequent removal of certain underground storage tanks are also
regulated by Federal and state laws. In connection with the ownership, operation
and management of its properties, the Operating Partnership could be held liable
for the costs of remedial action with respect to such regulated substances or
tanks or related claims.
Each of the Operating Partnership's properties has been
subjected to varying degrees of environmental assessment, which generally did
not include soil sampling or subsurface investigations, at various times. The
environmental assessments did not reveal any environmental condition or
liability that the Operating Partnership believes will have a material adverse
effect on the Operating Partnership's business, assets or results of operation.
However, there can be no assurance that the identification of new areas of
contamination, change in the extent or known scope of contamination, the
discovery of additional sites, or changes in cleanup requirements would not
result in significant costs to the Operating Partnership.
EMPLOYEES
The Operating Partnership has 135 employees.
SEGMENT DATA
The Operating Partnership operates in one business segment -
real estate. The Operating Partnership engages in no foreign operations.
The Operating Partnership's principal executive offices are
located at Park 80 West, Plaza II, Saddle Brook, New Jersey 07663; telephone
(201) 587-1000. The Mendik Division is located at 330 Madison Avenue, New York
City, New York 10017; telephone (212) 557-1100.
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ITEM 2. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Vornado Realty Trust
Pro forma (Predecessor) Pro forma
3 Mos. Three Months Year
Ended Ended March 31, Ended
March 31, --------------------------------- Dec. 31,
1997 (1) 1997 1996 1996 (1)
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<S> <C> <C> <C> <C>
Operating Data (in thousands, except unit and per unit amounts)
Revenues:
Property rentals $ 42,391 $ 22,467 $ 21,337 $ 181,712
Expense reimbursements 8,948 6,210 6,881 40,195
Other income 620 620 392 2,819
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Total Revenues 51,959 29,297 28,610 224,726
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Expenses:
Operating 19,789 8,507 8,914 83,180
Depreciation and amortization 8,977 2,967 2,835 35,559
General and administrative 2,113 1,845 1,189 8,162
Amortization of officer's deferred
compensation expense 6,249 6,249 -- 2,083
Costs incurred in connection with the merger
Vornado, Inc. into Vornado Realty Trust -- -- -- --
Cost incurred upon exercise of a stock option
by an officer and subsequent repurchase of
a portion of the shares -- -- -- --
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Total Expenses 37,128 19,568 12,938 128,984
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Operating income 14,831 9,729 15,672 95,742
Income (loss) applicable to Alexander's:
Equity in income (loss) (61) (61) (136) 1,679
Depreciation (150) (150) (157) (571)
Interest income on loan 1,616 1,616 1,802 6,848
Equity in net income of
Management Companies 729 -- -- 3,326
Equity in net income of investees 667 217 1,141 3,418
Interest income on mortgage note receivable 612 612 594 2,579
Interest and dividend income 2,561 1,518 871 5,667
Interest and debt expense (7,413) (4,078) (4,223) (31,708)
Net gain on marketable securities 287 287 358 913
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Income before income taxes 13,679 9,690 15,922 87,893
Provision (benefit) for income taxes -- -- -- --
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Net income 13,679 9,690 15,922 87,893
Preferred unit distributions (4,950) -- -- (19,800)
Preferential allocations (2,593) -- -- (10,372)
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Net income applicable to Class A units $ 6,136 $ 9,690 $ 15,922 $ 57,721
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Weighted average number
of Class A units 26,549,698 26,549,698 24,464,478 24,603,442
Net income per Class A units $ .23 $ .36 $ .65 $ 2.35
Cash distributions declared
per Class A Unit $ .64 $ .64 $ .61 $ 2.44
* Does not include special distribution
of $3.36 per unit of accumulated
earnings and profits paid in June 1993
Balance Sheet Data
As at:
Total assets $ 1,194,580 $ 561,485 $ 471,742 $ 1,198,460
Real estate, at cost 1,140,683 397,663 383,975 1,144,069
Accumulated depreciation 324,627 154,016 142,328 319,437
Debt 398,651 232,197 243,178 399,322
Partnership equity (deficit) 722,191 269,262 196,083 729,186
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</TABLE>
<TABLE>
<CAPTION>
Vornado Realty Trust
(Predecessor)
Year Ended December 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Operating Data (in thousands, except unit and per unit amounts)
Revenues:
Property rentals $ 87,424 $ 80,429 $ 70,755 $ 67,213 $ 63,186
Expense reimbursements 26,644 24,091 21,784 19,839 17,898
Other income 2,819 4,198 1,459 1,738 913
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Total Revenues 116,887 108,718 93,998 88,790 81,997
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Expenses:
Operating 36,412 32,282 30,223 27,994 27,587
Depreciation and amortization 11,589 10,790 9,963 9,392 9,309
General and administrative 5,167 6,687 6,495 5,890 4,612
Amortization of officer's deferred
compensation expense 2,083 -- -- -- --
Costs incurred in connection with the merger
Vornado, Inc. into Vornado Realty Trust -- -- -- 856 --
Cost incurred upon exercise of a stock option
by an officer and subsequent repurchase of
a portion of the shares -- -- -- -- 15,650
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Total Expenses 55,251 49,759 46,681 44,132 57,158
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Operating income 61,636 58,959 47,317 44,658 24,839
Income (loss) applicable to Alexander's:
Equity in income (loss) 1,679 (1,972) -- -- --
Depreciation (571) (417) -- -- --
Interest income on loan 6,848 6,343 -- -- --
Equity in net income of
Management Companies 1,855 788 -- -- --
Equity in net income of investees -- -- -- -- --
Interest income on mortgage note receivable 2,579 -- -- -- --
Interest and dividend income 3,151 5,439 7,489 11,620 8,555
Interest and debt expense (16,726) (16,426) (14,209) (31,155) (33,910)
Net gain on marketable securities 913 294 643 263 2,779
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Income before income taxes 61,364 53,008 41,240 25,386 2,263
Provision (benefit) for income taxes -- -- -- (6,369) 1,080
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Net income 61,364 53,008 41,240 31,755 1,183
Preferred unit distributions -- -- -- -- --
Preferential allocations -- -- -- -- --
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Net income applicable to Class A units $ 61,364 $ 53,008 $ 41,240 $ 31,755 $ 1,183
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Weighted average number
of Class A units 24,603,442 23,579,669 21,853,720 19,790,448 16,559,330
Net income per Class A units $ 2.49 $ 2.25 $ 1.89 $ 1.60 $ .07
Cash distributions declared
per Class A Unit $ 2.44 $ 2.24 $ 2.00 $ 1.50* $ 1.15
* Does not include special distribution
of $3.36 per unit of accumulated
earnings and profits paid in June 1993
Balance Sheet Data
As at:
Total assets $ 565,204 $ 491,496 $ 393,538 $ 385,830 $ 420,616
Real estate, at cost 397,298 382,476 365,832 340,415 314,651
Accumulated depreciation 151,049 139,495 128,705 118,742 111,142
Debt 232,387 233,353 234,160 235,037 341,701
Partnership equity (deficit) 276,257 194,274 116,688 115,737 (3,242)
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</TABLE>
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ITEM 2. SELECTED CONSOLIDATED FINANCIAL DATA - (continued)
<TABLE>
<CAPTION>
Pro forma Vornado Realty Trust Pro forma
3 Mos. (Predecessor) Three Year
Ended Months Ended March 31, Ended
March 31, ------------------------- Dec. 31,
1997 (1) 1997 1996 1996 (1)
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<S> <C> <C> <C> <C>
Operating Data (in thousands, except unit and per unit amounts)
Other Data Funds from operations (2):
Net income applicable to Class A units $ 6,136 $ 9,690 $ 15,922 $ 57,721
Depreciation and amortization
of real property 8,870 2,681 2,612 34,553
Straight-lining of rental income (2,696) (669) (642) (11,530)
Leasing fees received in excess
of income recognized 454 454 514 1,805
Losses/(gains) on sale of
securities available for sale -- -- -- --
Proportionate share of adjustments
to income from equity investments
to arrive at funds from operations 368 74 10 17
Costs incurred in connection
with the merger/upon exercise of
a stock option -- -- -- --
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Funds from operations $ 13,132 $ 12,230 $ 18,416 $ 82,566
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Cash flow provided by (used in):
Operating activities $ 20,561 $ 19,753 $ 18,202 $ 109,377
Investing activities $(334,573) $ (283) $ 22,691 $(321,988)
Financing activities $ 269,690 $(16,739) $(34,348) $ 243,457
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</TABLE>
<TABLE>
<CAPTION>
Vornado Realty Trust
(Predecessor)
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Operating Data (in thousands, except share and per share amounts)
Other Data Funds from operations (2):
Net income applicable to Class A units $ 61,364 $ 53,008 $ 41,240 $ 25,386 $ 2,263
Depreciation and amortization
of real property 10,583 10,019 9,192 8,842 8,778
Straight-lining of rental income (2,676) (2,569) (2,181) (2,200) (2,200)
Leasing fees received in excess
of income recognized 1,805 1,052 -- -- --
Losses/(gains) on sale of
securities available for sale -- 360 (51) (263) (846)
Proportionate share of adjustments
to income from equity investments
to arrive at funds from operations (1,760) 539 -- -- --
Costs incurred in connection
with the merger/upon exercise of
a stock option -- -- -- 856 15,650
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Funds from operations $ 69,316 $ 62,409 $ 48,200 $ 32,621 $ 23,645
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Cash flow provided by (used in):
Operating activities $ 70,703 $ 62,882 $ 46,948 $ 27,725 $ 17,607
Investing activities $ 14,912 $(103,891) $(15,434) $ 1,350 $ 14,800
Financing activities $(15,046) $ 36,577 $(32,074) $(56,433) $ 4,384
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</TABLE>
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(1) The unaudited condensed consolidated pro forma financial information
set forth above presents (i) the condensed consolidated pro forma
statement of income for the Operating Partnership for the three months
ended March 31, 1997 and for the year ended December 31, 1996 as if the
Mendik Transaction and certain related transactions were consummated
and the offering by Vornado of Series A Preferred Shares of Beneficial
Interest, liquidation preference $50.00 per share (the "Offering") and
the use of proceeds therefrom had occurred on January 1, 1997 and 1996,
respectively and (ii) the condensed consolidated pro forma balance
sheet information of the Operating Partnership as of March 31, 1997 and
December 31, 1996 as if the Mendik Transaction and certain related
transactions were consummated and the Offering and the use of proceeds
therefrom had occurred on March 31, 1997 and December 31, 1996.
The unaudited condensed consolidated pro forma financial information is
not necessarily indicative of what the Operating Partnership's actual
results of operations or financial position would have been had the
Mendik Transaction and related transactions been consummated and had
the Offering and the use of proceeds therefrom occurred on the dates
indicated, nor does it purport to represent the Operating Partnership's
results of operations or financial position for any future period. The
results of operations for the period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year.
The unaudited condensed consolidated pro forma financial information
should be read in conjunction with Vornado's Consolidated Financial
Statements and notes thereto included in Vornado's Annual Report on
Form 10-K for the year ended December 31, 1996 and Quarterly Report on
Form 10-Q for the period ended March 31, 1997 and the financial
statements of the significant entities involved in the Mendik
Transaction included in Vornado's Current Report on Form 8-K, dated
March 12, 1997, as amended by the Current Report on Form 8-K/A, dated
March 12, 1997; copies of such financial statements and notes thereto
are filed as exhibits hereto and are incorporated herein by reference.
In management's opinion, all adjustments necessary to reflect the
Mendik Transaction and the related transactions and the Offering and
the use of proceeds therefrom have been made.
(2) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs.
Funds from operations should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flows as a measure of liquidity. The Company's
definition of funds from operations does not conform to the NAREIT
definition because the Company deducts the effect of the
straight-lining of property rentals for rent escalations.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
The Operating Partnership's revenues, which consist of
property rentals, tenant expense reimbursements and other income were
$29,297,000 in the quarter ended March 31, 1997, compared to $28,610,000 in the
prior year's quarter, an increase of $687,000 or 2.4%.
Property rentals were $22,467,000 in the quarter ended March
31, 1997, compared to $21,337,000 in the prior year's quarter, an increase of
$1,130,000 or 5.3%. Of this increase (i) $569,000 resulted from property rentals
received from new tenants in excess of property rentals lost from vacating
tenants, (ii) $285,000 resulted from the Operating Partnership's purchase of an
office building in June 1996 and (iii) $276,000 resulted from step-ups in leases
which are not subject to the straight-line method of revenue recognition.
Tenant expense reimbursements were $6,210,000 in the quarter
ended March 31, 1997, compared to $6,881,000 in the prior year's quarter, a
decrease of $671,000. This decrease primarily reflects a corresponding decrease
in operating expenses passed through to tenants.
Operating expenses were $8,507,000 in the quarter ended March
31, 1997, as compared to $8,914,000 in the prior year's quarter, a decrease of
$407,000. This decrease resulted primarily from lower snow removal costs
partially offset by higher real estate taxes.
Depreciation and amortization expense for the three months
ended March 31, 1997 did not change significantly from such expense for the
prior year's period.
General and administrative expenses were $1,845,000 in the
quarter ended March 31, 1997, compared to $1,189,000 in the prior year's
quarter, an increase of $656,000. This increase resulted primarily from cash
compensation attributable to the employment of Vornado's President.
The Operating Partnership recognized an expense of $6,249,000
in the quarter ended March 31, 1997 representing one-quarter of the amortization
of the $25,000,000 deferred payment due to Vornado's President. The balance of
the deferred payment will be amortized in 1997.
Income applicable to Alexander's (loan interest income, equity
in loss and depreciation) was $1,405,000 in the three months ended March 31,
1997, compared to $1,509,000 in the prior year's quarter, a decrease of
$104,000.
Income from investment in and advances to Vornado Management
Corp. ("VMC") was $217,000 for the three months ended March 31, 1997 as compared
to $1,141,000 in the prior year's quarter. Income from investment in and
advances to VMC for the three months ended March 31, 1996 reflected additional
fee income of $794,000 earned by VMC relating to the substantial completion of
the redevelopment of Alexander's Rego Park I property.
Investment income (interest income on mortgage note
receivable, interest and dividend income and net gains on marketable securities)
was $2,417,000 for the quarter ended March 31, 1997, compared to $1,823,000 in
the prior year's quarter, an increase of $594,000 or 33%. This increase resulted
from income earned on the proceeds from the December 1996 public stock offering.
Interest and debt expense for the three months ended March 31,
1997 did not change significantly from such expense for the prior year's period.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
The Operating Partnership's revenues, which consist of
property rentals, tenant expense reimbursements and other income, were
$116,887,000 in 1996, compared to $108,718,000 in 1995, an increase of
-10-
<PAGE> 11
$8,169,000 or 7.5%. Property rentals from shopping centers were $80,001,000 in
1996, compared to $74,255,000 in 1995, an increase of $5,746,000 or 7.7%. Of
this increase, (i) $3,800,000 resulted from rental step-ups in existing tenant
leases which are not subject to the straight-line method of revenue recognition
and (ii) $2,000,000 resulted from expansions and an acquisition. Property
rentals received from new tenants were approximately the same as property
rentals lost from vacating tenants. Percentage rent included in property rentals
was $936,000 in 1996, compared to $959,000 in 1995.
Property rentals from the remainder of the portfolio were
$7,423,000 in 1996, compared to $6,174,000 in 1995, an increase of $1,249,000 or
20.2%. Of this increase, $650,000 resulted from the purchase of an office
building in June 1996.
Tenant expense reimbursements were $26,644,000 in 1996,
compared to $24,091,000 in 1995, an increase of $2,553,000. This increase
reflects a corresponding increase in operating expenses passed through to
tenants.
Other income was $2,819,000 in 1996, compared to $4,198,000 in
1995, a decrease of $1,379,000. This decrease resulted primarily from (i)
including management and development fee income from Alexander's in "Income from
investment in and advances to Vornado Management Corp." rather than in "Other
income" for a full year in 1996, compared to six months in 1995 and (ii) the
recognition of leasing fee income in the first quarter of 1995 from Alexander's
of $915,000 applicable to 1993 and 1994 (no leasing fee income was recognized
prior to 1995 because required conditions had not been met), partially offset by
(iii) the increase in management, development and leasing fees from Interstate
Properties.
Operating expenses were $36,412,000 in 1996, compared to
$32,282,000 in 1995, an increase of $4,130,000. Of this increase, (i) $3,100,000
were passed through to tenants and consisted of higher snow removal costs of
$1,500,000, increased real estate taxes of $1,000,000 and other common area
maintenance expense increases of $600,000 and (ii) $500,000 resulted from
increases in rent expense and other property expenses. In addition, in 1995
operating expenses were partially offset by real estate tax refunds and other
miscellaneous income of approximately $500,000.
Depreciation and amortization expense increased by $799,000 in
1996, compared to 1995, as a result of expansions and an acquisition.
General and administrative expenses were $5,167,000 in 1996,
compared to $6,687,000 in 1995, a decrease of $1,520,000. This decrease resulted
primarily from a reduction in corporate office expenses caused by the third
quarter 1995 assignment of the Company's Management and Development Agreement
with Alexander's to VMC.
In December 1996, the Operating Partnership recognized an
expense of $2,083,000, representing one month's amortization of the $25,000,000
deferred payment due to Vornado's President. The balance of the deferred payment
will be amortized in 1997.
Income applicable to Alexander's (loan interest income, equity
in income (loss) and depreciation) was $7,956,000 for the year ended December
31, 1996, compared to $3,954,000 in the prior year, an increase of $4,002,000.
This increase resulted from (i) lower operating losses at Alexander's caused by
the commencement of rent at the Rego Park I property in March 1996, (ii) the
recognition of $2,053,000 of non-recurring income as a result of the reversal of
a liability which is no longer required and (iii) interest income on the loan to
Alexander's for a full year in 1996, compared to a ten month period in 1995. The
Operating Partnership believes that its share of Alexander's losses (which are
non-cash), combined with its fee income and interest income, will not have a
negative effect on its results of operations, liquidity and financial condition.
In July 1995, the Operating Partnership assigned its
Management Agreement with Alexander's to VMC. In exchange, the Operating
Partnership received 100% of the non-voting preferred stock of VMC which
entitles it to 95% of the economic benefits of VMC through distributions. In
addition, the Operating Partnership lent $5,000,000 to VMC for working capital
purposes under a three-year term loan bearing interest at the prime rate plus
2%. VMC is responsible for its pro rata share of compensation and fringe
benefits of employees and 30% of other expenses which are common to both Vornado
and VMC. Income from investment in and advances to VMC was $1,855,000 for the
year ended December 31, 1996, compared to $788,000 for the period from July 6th
to December 31, in 1995. Income from investment in and advances to VMC for the
year ended December 31, 1996 reflects additional fee income earned by
-11-
<PAGE> 12
VMC in the first quarter of 1996 relating to the substantial completion of the
redevelopment of Alexander's Rego Park I property.
Investment income (interest income on mortgage note
receivable, interest and dividend income and net gains/(losses) on marketable
securities) was $6,643,000 for 1996, compared to $5,733,000 in 1995, an increase
of $910,000 or 15.9%. This increase resulted from higher net gains on marketable
securities and the yield earned on the mortgage note receivable exceeding the
yield earned on the investment of such funds in 1995.
Vornado operates in a manner intended to enable it to continue
to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986
as amended. Under those sections, a REIT which distributes at least 95% of its
REIT taxable income as a dividend to its shareholders each year and which meets
certain other conditions will not be taxed on that portion of its taxable income
which is distributed to its shareholders. Vornado has distributed to its
shareholders an amount greater than its taxable income. Therefore, no provision
for Federal income taxes is required.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994
The Operating Partnership's revenues, which consist of
property rentals, tenant expense reimbursements and other income were
$108,718,000 in 1995, compared to $93,998,000 in 1994, an increase of
$14,720,000 or 15.7%.
Property rentals from shopping centers were $74,255,000 in
1995, compared to $64,665,000 in 1994, an increase of $9,590,000 or 14.8%. Of
this increase, (i) $6,067,000 resulted from expansions of shopping centers and
acquisitions of retail properties, (ii) $2,823,000 resulted from rental step-ups
in existing tenant leases which are not subject to the straight-line method of
revenue recognition and (iii) $628,000 resulted from property rentals received
from new tenants exceeding property rentals lost from vacating tenants.
Percentage rent included in property rentals was $959,000 in 1995, compared to
$887,000 in 1994.
Property rentals from the remainder of the portfolio were
$6,174,000 in 1995, compared to $6,090,000 in 1994, an increase of $84,000 or
1.4%.
Tenant expense reimbursements were $24,091,000 in 1995,
compared to $21,784,000 in 1994, an increase of $2,307,000. This increase
reflects a corresponding increase in operating expenses passed through to
tenants.
Other income was $4,198,000 in 1995, compared to $1,459,000 in
1994, an increase of $2,739,000. This increase resulted primarily from the fee
income recognized in connection with the Management Agreement and Leasing
Agreement with Alexander's including $915,000 applicable to 1993 and 1994
recognized in the first quarter of 1995 (no leasing fee income was recognized
prior to 1995 because required conditions had not been met). In addition to the
Management Agreement fee income included in other income in 1995, $2,250,000 of
such fees was earned in 1995 by VMC and is included in the caption "Income from
investment in and advances to Vornado Management Corp." in the Consolidated
Statements of Income.
Operating expenses were $32,282,000 in 1995, compared to
$30,223,000 in 1994, an increase of $2,059,000. Of this increase (i) $1,484,000
resulted from real estate taxes from expansions and acquisitions, which were
passed through to tenants, and (ii) $258,000 resulted from bad debt expenses
primarily due to tenant bankruptcies.
Depreciation and amortization expense increased by $827,000 in
1995, compared to 1994, primarily as a result of property expansions.
General and administrative expenses were $6,687,000 in 1995,
compared to $6,495,000 in 1994, an increase of $192,000. This increase is the
net of increases from (i) payroll expenses of $1,017,000, (due to additions to
staff and bonuses), and (ii) professional fees and other corporate office
expenses of $305,000, offset by (iii) the reduction in expense of $1,130,000
resulting from the assignment of the Management Agreement with Alexander's to
VMC in the third quarter of 1995.
For the period from March 2, 1995 through December 31, 1995,
the Operating Partnership's equity in Alexander's losses amounted to $1,972,000.
In addition, during the same period the Operating Partnership recognized
interest
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<PAGE> 13
income on its loan to Alexander's of $6,343,000 and fee income from its
Management Agreement and Leasing Agreement with Alexander's of $2,973,000
(excluding $2,250,000 earned by VMC).
Income from investment in and advances to VMC consists of
dividend income of $565,000 and interest income of $223,000.
Investment income was $5,733,000 for 1995, compared to
$8,132,000 in 1994, a decrease of $2,399,000 or 29.5%. This decrease was caused
by (i) lower interest income resulting from the use of cash for the Alexander's
investment and (ii) net gains on marketable securities being $349,000 less than
in the prior year.
Interest and debt expense was $16,426,000 in 1995, compared to
$14,209,000 in 1994, an increase of $2,217,000 or 15.6%. Of this increase,
$1,046,000 resulted from borrowings under the revolving credit facility to
temporarily fund the investment in Alexander's and $1,134,000 resulted from a
decrease in interest capitalized during construction.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1997
Cash flows provided by operating activities of $19,753,000 was
comprised of (i) net income of $9,690,000 (ii) adjustments for non-cash items of
$8,732,000 and (iii) the net change in operating assets and liabilities of
$1,331,000. The adjustments for non-cash items are primarily comprised of (i)
amortization of deferred officer's compensation expense of $6,249,000, (ii)
depreciation and amortization of $3,228,000 and (iii) equity in loss of
Alexander's of $211,000 offset by (iv) the effect of straight-lining of rental
income of $669,000.
Net cash used in investing activities of $283,000 was
primarily comprised of capital expenditures.
Net cash used in financing activities of $16,739,000 was
primarily comprised of dividends paid.
Three Months Ended March 31, 1996
Cash flows provided by operating activities of $18,202,000 was
comprised of (i) net income of $15,922,000 and (ii) adjustments for non-cash
items of $2,383,000, less (iii) the net change in operating assets and
liabilities of $103,000. The adjustments for non-cash items are primarily
comprised of depreciation and amortization of $3,090,000, plus equity in loss of
Alexander's of $293,000, offset by the effect of straight-lining of rental
income of $642,000. Further, during this period in connection with the rejection
of a lease by an Alexander's tenant "Leasing fees and other receivables"
decreased by $1,717,000 and "Deferred leasing fee income" correspondingly
decreased. "Leasing fees and other receivables" of $490,000 were collected
during this period. These amounts have been included in "Changes in assets and
liabilities: other" in the Consolidated Statements of Cash Flows and are part of
the net change in operating assets and liabilities shown in item (iii) above.
Net cash provided by investing activities of $22,691,000 was
comprised of (i) proceeds from sale or maturity of securities available for sale
of $41,192,000, offset by (ii) the Operating Partnership's investment in a
mortgage note receivable of $17,000,000 and (iii) capital expenditures of
$1,501,000.
Net cash used in financing activities of $34,348,000 was
primarily comprised of (i) the net repayment of borrowings on U.S. Treasury
obligations of $30,036,000 and (ii) dividends paid of $14,813,000, offset by
(iii) the proceeds from borrowings of $10,000,000.
Funds from Operations for the Three Months Ended March 31,
1997 and 1996
Management considers funds from operations an appropriate
supplemental measure of the Operating Partnership's operating performance. Funds
from operations were $12,230,000 in the quarter ended March 31, 1997, compared
to $18,416,000 in the prior year's quarter, a decrease of $6,186,000 or 34%.
Funds from operations for the quarter ended March 31, 1997 reflect an expense of
$6,249,000, representing one-quarter of the amortization of the deferred payment
due to Vornado's President and $594,000 of related cash compensation. The
following table reconciles funds from operations and net income:
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<PAGE> 14
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Net income $ 9,690,000 $ 15,922,000
Depreciation and amortization of
real property 2,681,000 2,612,000
Straight-lining of property rentals
for rent escalations (669,000) (642,000)
Leasing fees received in excess
of income recognized 454,000 514,000
Proportionate share of adjustments
to Alexander's income/(loss)
to arrive at funds from operations 74,000 10,000
------------ ------------
Funds from operations * $ 12,230,000 $ 18,416,000
============ ============
</TABLE>
- ----------
* As used herein, funds from operations does not conform to the NAREIT
definition because of the effect of straight-lining of property
rentals for rent escalations.
Funds from operations does not represent cash generated from
operating activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs. Funds
from operations should not be considered as an alternative to net income as an
indicator of the Operating Partnership's operating performance or as an
alternative to cash flows as a measure of liquidity. Below are the cash flows
provided by (used in) operating, investing and financing activities:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Operating activities $ 19,753,000 $ 18,202,000
============ ============
Investing activities $ (283,000) $ 22,691,000
============ ============
Financing activities $(16,739,000) $(34,348,000)
============ ============
</TABLE>
Bradlees accounted for 22% of property rentals for the year ended December 31,
1996. In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Operating Partnership currently leases 17 locations to
Bradlees. Of these locations, 14 are fully guaranteed by Stop & Shop Companies,
Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a leading
international food retailer, and one is guaranteed as to 70% of the rent. During
1996, Bradlees rejected three leases and assigned one lease to Kohl's Department
Stores, Inc. These four leases are fully guaranteed by Stop & Shop. In January
1997, Bradlees received Bankruptcy Court approval to close one of the two stores
whose leases are not guaranteed by Stop & Shop. Montgomery Ward & Co., Inc.
remains liable with respect to the rent it was obligated to pay as a previous
lessor on eight of the leases guaranteed by Stop & Shop approximately 70% of
current rent.
In January 1996, the Operating Partnership provided $17
million of debtor-in-possession financing to Rickel which is operating under
Chapter 11 of the Bankruptcy Code. The loan is secured by 27 of Rickel's
leasehold properties and has a remaining term through January 1998, plus a one
year extension, but is due not later than the date on which Rickel's plan of
reorganization is confirmed. The loan bears interest at 13% per annum and at a
fixed rate of LIBOR plus 7.50% for the extension period. In addition, the
Operating Partnership receives a loan origination fee of 2% for each year the
loan is outstanding.
Alexander's has disclosed in its annual report on Form 10-K
for the year ended December 31, 1996, that its current operating properties
(five of its nine properties) do not generate sufficient cash flow to pay all of
its expenses, and that its four non-operating properties (Lexington Avenue,
Paramus, the Kings Plaza Store and Rego Park II) are in various stages of
redevelopment. As rents commence from a portion of the redevelopment properties,
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<PAGE> 15
Alexander's expects that cash flow will become positive. Alexander's estimates
that the fair market values of its assets are substantially in excess of their
historical cost and that there is additional borrowing capacity. Alexander's
continues to evaluate its needs for capital, which may be raised through (a)
property specific or corporate borrowing, (b) the sale of securities and (c)
asset sales. Further, Alexander's may receive proceeds from condemnation
proceedings of a portion of its Paramus property. Although there can be no
assurance, Alexander's believes that these cash sources will be adequate to fund
cash requirements until its operations generate adequate cash flow. The
Operating Partnership expects to provide a portion of the financing required
for Alexander's redevelopment projects. None of the redevelopment plans for the
non-operating properties have been finalized.
In December 1996, Michael D. Fascitelli became the President
of Vornado and was elected to Vornado's Board. Mr. Fascitelli signed a five year
employment contract under which, in addition to his annual salary, he received a
deferred payment consisting of $5,000,000 in cash and a $20,000,000 convertible
obligation payable at Vornado's option in 459,770 of its Common Shares or the
cash equivalent of their appreciated value. Accordingly, cash of $5,000,000 and
459,770 Common Shares are being held in an irrevocable trust. The deferred
payment obligation to Mr. Fascitelli vests as of December 2, 1997. Further, Mr.
Fascitelli was granted options for 1,750,000 Common Shares of Vornado.
On April 15, 1997, Vornado consummated the acquisition,
through an operating partnership, of interests in all or a portion of seven
Manhattan office buildings and certain management and leasing assets held by the
Mendik Group and certain of its affiliates. Simultaneously with the closing of
this transaction, and in connection therewith, Vornado converted to an Umbrella
Partnership REIT (UPREIT) by transferring (by contribution, merger or otherwise)
all or substantially all of the interests in its properties and other assets to
The Mendik Company, L.P., a Delaware limited partnership which has been renamed
Vornado Realty L.P. (the "Operating Partnership"), of which Vornado is the sole
general partner. As a result of such conversion, the Vornado's activities will
be conducted through the Operating Partnership.
The consideration for the Mendik transaction was approximately
$656,000,000, including $264,000,000 in cash, $177,000,000 in the limited
partnership units of the Operating Partnership and $215,000,000 in indebtedness.
Vornado financed the cash portion of this transaction with the proceeds of a
public offering completed on April 9, 1997, of 5,750,000 Convertible Preferred
Shares of Beneficial Interest, liquidation preference $50.00 per share. The
preferred shares bear a coupon of 6-1/2% and are convertible into common shares
at $72-3/4 per share. The offering, net of expenses, generated approximately
$276,000,000.
Also, on April 15, 1997, the Operating Partnership entered
into a Credit Agreement with Union Bank of Switzerland pursuant to which the
Operating Partnership borrowed $400,000,000. The loan bears interest at the rate
of LIBOR plus .625% and matures, assuming exercise of extension options, on
April 14, 1998.
On April 18, 1997, the Operating Partnership announced that it
acquired The Montehiedra Town Center located in San Juan, Puerto Rico, from
Kmart Corporation ("Kmart") for approximately $74,000,000, of which $63,000,000
is newly-issued ten year indebtedness. The Montehiedra shopping center, which
opened in 1994, contains 525,000 square feet, including a 135,000 square foot
Kmart store. In addition, the Operating Partnership agreed to acquire Kmart's
50% interest in the Caguas Centrum Shopping Center, which is currently under
construction, located in Caguas, Puerto Rico. This acquisition is expected to
close in 1998.
Further, on May 7, 1997, the Operating Partnership acquired a
mortgage loan from a consortium of banks secured by a mortgage on the office
building located at 90 Park Avenue, New York, New York. The purchase price of
the mortgage loan was approximately $185,000,000. The mortgage loan, which is in
default, has a face value of $193,000,000.
The Operating Partnership anticipates that cash from
continuing operations, net liquid assets, borrowings under its revolving credit
facility and/or proceeds from the issuance of securities will be adequate to
fund its business operations, capital expenditures, continuing debt obligations
and the payment of dividends.
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<PAGE> 16
ECONOMIC CONDITIONS
At December 31, 1996, approximately 80% of the square footage
of the Operating Partnership's shopping centers was leased to large stores (over
20,000 square feet). The Operating Partnership's large store tenants typically
offer basic consumer necessities such as food, health and beauty aids,
moderately priced clothing, building materials and home improvement supplies,
and compete primarily on the basis of price. The Operating Partnership believes
that this tenant mix mitigates the effects on its properties of adverse changes
in general economic conditions. However, demand for retail space continues to be
impacted by the bankruptcy of a number of retail companies and a general trend
toward consolidation in the retail industry which could adversely affect the
ability of the Operating Partnership to attract or retain tenants.
Substantially all of the Operating Partnership's leases
contain step-ups in rent. Such rental increases are not designed to, and in many
instances do not, approximate the cost of inflation, but do have the effect of
mitigating the adverse impact of inflation. In addition, substantially all of
the Operating Partnership's leases contain provisions that require the tenant to
reimburse the Operating Partnership for the tenant's share of common area
charges (including roof and structure, unless it is the tenant's direct
responsibility) and real estate taxes thus passing through to the tenants the
effects of inflation on such expenses.
Inflation did not have a material effect on the Operating
Partnership's results for the periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share". The statement is effective for
fiscal years ending after December 15, 1997. The Operating Partnership believes
that this pronouncement will not have a material effect on its net income per
share.
-16-
<PAGE> 17
ITEM 3. VORNADO PROPERTIES
The Operating Partnership leases 27,000 square feet in Saddle Brook,
New Jersey for use as its executive offices and 16,000 square feet in
Manhattan, New York for its Mendik Division.
The following table sets forth certain information as of March 31, 1997
relating to the properties owned by the Operating Partnership.
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PER
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 SQ. FT.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS
(MENDIK DIVISION)
NEW YORK Two Penn Plaza, 1978 2.7 1,474,526 76 $ 28.29
Manhattan
Eleven Penn Plaza, 1980 1.3 956,280 68 27.74
Manhattan
1740 Broadway, 1990 0.7 551,301 21 33.89
Manhattan
866 United Nations Plaza, 1978 2.1 384,815 83 31.13
Manhattan
Two Park Avenue, 1986 1.0 946,697 41 23.61
Manhattan
330 Madison Avenue, 1979 0.8 770,828 46 34.77
Manhattan
570 Lexington Avenue, 1994 0.3 433,342 17 29.67
Manhattan
825 Seventh Avenue, 1996 0.5 149,000 1 7.65
Manhattan(8)
NEW JERSEY Paramus(4) 1987 3.4 118,225 25 17.29
---- --------- --- -----
TOTAL OFFICE BUILDINGS 12.8 5,785,014 378 28.37
---- --------- --- -----
VORNADO'S OWNERSHIP INTEREST 11.1 4,153,373 28.49
---- --------- -----
SHOPPING CENTERS
NEW JERSEY Atlantic City 1965 17.7 135,774 -- -- --
Bordentown 1958 31.2 178,678 -- 4 6.54
Bricktown 1968 23.9 259,888 2,764 19 10.14
Cherry Hill 1964 37.6 231,142 63,511 13 8.38
Delran 1972 17.5 167,340 1,200 5 5.32
Dover 1964 19.6 172,673 -- 13 5.98
East Brunswick 1957 19.2 219,056 10,400 6 10.95
East Hanover 1962 24.6 271,066 -- 16 10.21
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION/
PERCENT PRINCIPAL OPTION
LOCATION LEASED(1) TENANTS EXPIRATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OFFICE BUILDINGS
(MENDIK DIVISION)
NEW YORK Two Penn Plaza, 84% Digital Equipment 1998
Manhattan Information Builders, Inc. 2013/2023
Eleven Penn Plaza, 96% Times Mirror 2001
Manhattan General Mills 2002
1740 Broadway, 100% Mutual of New York 2016/2026
Manhattan William Douglas McAdams 2007
866 United Nations Plaza, 97% Bear Stearns 1997
Manhattan
Two Park Avenue, 98% Times Mirror 2010/2025
Manhattan Smith Barney 1998
330 Madison Avenue, 97% BDO Seidman 2010/2015
Manhattan
570 Lexington Avenue, 37%
Manhattan
825 Seventh Avenue, 100% American Broadcasting 1999
Manhattan(8) Companies
NEW JERSEY Paramus(4) 65%
---
TOTAL OFFICE BUILDINGS 89%
---
VORNADO'S OWNERSHIP INTEREST 92%
---
SHOPPING CENTERS
NEW JERSEY Atlantic City -- --
Bordentown 100% Bradlees(2)(3) 2001/2021
Shop-Rite 2011/2016
Bricktown 99% Caldor 2008/2028
Shop-Rite 2002/2017
Cherry Hill 94% Bradlees(2)(3) 2006/2026
Drug Emporium 2002
Shop & Bag 2007/2017
Toys "R" Us 2012/2042
Delran 95% Sam's Wholesale 2011/2021
Dover 98% Ames 2017/2037
Shop-Rite 2012/2022
East Brunswick 97% Bradlees(3) 2003/2023
Shoppers World 2007/2012
T.J. Maxx 1999
East Hanover 97% Home Depot 2009/2019
Marshalls 2004/2009
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PER
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 SQ. FT.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hackensack 1963 21.3 207,548 59,249 20 14.92
Jersey City 1965 16.7 222,478 3,222 11 12.09
Kearny 1959 35.3 41,518 62,471 4 6.64
Lawnside 1969 16.4 145,282 - 3 9.07
Lodi 1975 8.7 130,000 - 1 8.50
Manalapan 1971 26.3 194,265 2,000 7 8.84
Marlton 1973 27.8 173,238 6,836 10 8.44
Middletown 1963 22.7 179,584 52,000 22 12.19
Morris Plains 1985 27.0 171,493 1,000 18 11.04
North Bergen 1959 4.6 6,515 55,597 3 25.78
North Plainfield(4) 1989 28.7 217,360 - 16 8.73
Totowa 1957 40.5 201,471 93,613 8 15.96
Turnersville 1974 23.3 89,453 6,513 3 5.98
Union 1962 24.1 257,045 - 12 17.48
Vineland 1966 28.0 143,257 - 4 6.95
Watchung 1959 53.8 49,979 115,660 6 17.80
Woodbridge 1959 19.7 232,755 3,614 11 13.12
NEW YORK 14th Street and Union
Square, Manhattan 1993 0.8 231,770 - 1 9.92
Albany(Menands) 1965 18.6 140,529 - 2 6.35
Buffalo(Amherst)(4) 1968 22.7 184,832 111,717 10 6.77
Coram(4) 1976 2.4 103,000 - 1 2.22
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION/
PERCENT PRINCIPAL OPTION
LOCATION LEASED(1) TENANTS EXPIRATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pathmark 2001/2024
Today's Man 2009/2014
Hackensack 97% Bradlees(3) 2012/2017
Pathmark 2014/2024
Rickel Home Center 2003/2013
Jersey City 97% Bradlees(3) 2002/2022
Shop-Rite 2008/2028
Kearny 89% Pathmark 2013/2033
Rickel Home Center 2008
Lawnside 100% Home Depot 2012/2027
Drug Emporium 2007
Lodi 100% National Wholesale 2013/2023
Liquidators
Manalapan 100% Bradlees(3) 2002/2022
Grand Union 2012/2022
Marlton 100% Kohl's(2)(3) 2011/2031
Shop-Rite 1999/2009
Middletown 97% Bradlees(3) 2002/2022
Grand Union 2009/2029
Morris Plains 97% Caldor 2002/2023
Shop-Rite 2002
North Bergen 100% A & P 2012/2032
North Plainfield(4) 96% Kmart 2006/2016
Pathmark 2001/2011
Totowa 97% Bradlees(3) 2013/2028
Home Depot 2015/2025
Marshalls 2007/2012
Turnersville 100% Bradlees(2)(3) 2011/2031
Union 100% Bradlees(3) 2002/2022
Toys "R" Us 2015
Cost Cutter Drug 2000
Vineland 51% Rickel Home Center 2005/2010
Watchung 96% B.J.'s Wholesale 2024
Woodbridge 99% Bradlees(3) 2002/2022
Foodtown 2007/2014
Syms 2000
NEW YORK 14th Street and Union
Square, Manhattan 100% Bradlees 2019/2029
Albany(Menands) 100% Fleet Bank 2004/2014
Albany Public Mkts.(5) 2000
Buffalo(Amherst)(4) 96% Circuit City 2017
Media Play 2002/2017
MJ Design 2006/2017
Toys "R" Us 2013
T.J. Maxx 1999
Coram(4) 100% May Department Stores(5) 2011
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PER
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 SQ. FT.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Freeport 1981 12.5 166,587 - 3 11.50
New Hyde Park(4) 1976 12.5 101,454 - 1 13.55
North Syracuse(4) 1976 29.4 98,434 - 1 2.74
Rochester 1971 15.0 147,812 - 1 5.86
(Henrietta )(4)
Rochester 1966 18.4 176,261 - 1 6.05
PENNSYLVANIA Allentown 1957 86.8 262,607 353,938 18 9.68
Bensalem 1972 23.2 208,174 6,714 13 7.49
Bethlehem 1966 23.0 157,212 2,654 12 5.05
Broomall 1966 21.0 145,776 22,355 5 8.31
Glenolden 1975 10.0 101,235 - 3 10.74
Lancaster 1966 28.0 179,982 - 7 4.32
Levittown 1964 12.8 104,448 - 1 5.98
10th and Market
Streets, Philadelphia 1994 1.8 271,300 - 2 7.94
Upper Moreland 1974 18.6 122,432 - 1 7.50
York 1970 12.0 113,294 - 3 4.64
MARYLAND Baltimore(Belair Rd.) 1962 16.0 205,723 - 3 4.83
Baltimore(Towson) 1968 14.6 146,393 6,800 7 9.63
Baltimore(Dundalk) 1966 16.1 183,361 - 17 6.49
Glen Burnie 1958 21.2 117,369 3,100 4 5.90
Hagerstown 1966 13.9 133,343 14,965 6 3.12
CONNECTICUT Newington 1965 19.2 134,229 45,000 4 6.28
Waterbury 1969 19.2 139,717 2,645 10 7.64
MASSACHUSETTS Chicopee 1969 15.4 112,062 2,851 3 4.85
Milford(4) 1976 14.7 83,000 - 1 5.26
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION/
PERCENT PRINCIPAL OPTION
LOCATION LEASED(1) TENANTS EXPIRATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Freeport 100% Home Depot 2011/2021
Cablevision 2004
New Hyde Park(4) 100% Bradlees(6) 2019/2029
North Syracuse(4) 100% Reisman Properties 2014
Rochester 47% Hechinger(5) 2005/2025
(Henrietta )(4)
Rochester 41% Hechinger(5) 2005/2025
PENNSYLVANIA Allentown 98% Hechinger 2011/2031
Shop-Rite 2011/2021
Burlington Coat 2017
Factory
Wal*Mart 2024/2094
Sam's Wholesale 2024/2094
T.J. Maxx 1998/2008
Bensalem 89% (2)(3) 2011/2031
Shop-Rite 2011/2031
Bethlehem 78% Pathmark 2000/2023
Super Petz 2005/2015
Broomall 100% Bradlees(2)(3) 2006/2026
Glenolden 100% Bradlees(2)(3) 2012/2022
Lancaster 51% Weis Markets 1998/2018
Levittown 100% (2)(3) 2006/2026
10th and Market
Streets, Philadelphia 62% Kimco Realty Corporation 2010/2035
Upper Moreland 100% Sam's Wholesale(2) 2010/2015
York 100% Builders Square 2009/2018
MARYLAND Baltimore(Belair Rd.) 100% Food Depot 1999/2004
Y? Innovatyve 2002/2007
Baltimore(Towson) 100% Staples 2004
Cost Saver Supermarket 2000/2020
Drug Emporium 1999/2004
Baltimore(Dundalk) 97% A & P 2002/2017
Ollie's 1998/2008
Manor Shops 1998
Glen Burnie 78% Pathmark Stores, Inc.(5) 2005
Hagerstown 100% Big Lots 2002/2012
Pharmhouse 2008/2012
Weis Markets 1999/2009
CONNECTICUT Newington 100% (3) 2002/2022
The Wiz 2007/2027
Waterbury 100% Toys "R" Us 2010
Shaws Supermarkets 2003/2018
MASSACHUSETTS Chicopee 93% Bradlees(3) 2002/2022
Milford(4) 100% Bradlees(3) 2004/2009
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
LEASABLE BUILDING
SQUARE FOOTAGE
-------------------------
YEAR OWNED BY NUMBER
ORIGINALLY LAND OWNED/ TENANT ON OF ANNUALIZED
DEVELOPED AREA LEASED BY LAND LEASED TENANTS RENT PER
LOCATION OR ACQUIRED (ACRES) COMPANY FROM COMPANY 3/31/97 SQ. FT.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Springfield 1966 17.4 8,016 117,044 2 11.25
TEXAS Lewisville 1990 13.3 34,893 7,204 14 13.62
Mesquite 1990 5.5 71,246 - 14 13.90
Dallas 1990 9.9 99,733 - 8 9.25
PUERTO RICO Montehiedra 1997 57.1 525,378 - 95 15.39
(SAN JUAN)
------- ---------- --------- --- ------
TOTAL SHOPPING CENTERS 1,239.2 9,310,460 1,236,637 509 9.51
------- ---------- --------- --- ------
WAREHOUSE/ E. Brunswick 1972 16.1 325,800 2 2.28
INDUSTRIAL
E. Hanover 1963-1967 45.5 941,429 12 3.80
Edison 1982 18.7 272,071 1 2.75
Garfield 1959 31.6 486,620 3 3.46
TOTAL WAREHOUSE/ ------- ---------- --- ------
INDUSTRIAL 111.9 2,025,920 18 3.30
------- ---------- --- ------
OTHER Montclair 1972 1.6 16,928 1 17.00
PROPERTIES
Rahway(4) 1972 - 32,000 1 4.88
------- ---------- --- ------
TOTAL OTHER PROPERTIES 1.6 48,928 2 $ 9.07
------- ---------- --- ------
GRAND TOTAL 1,365.5 17,170,322 1,236,637 907
======= ========== ========= ===
GRAND TOTAL VORNADO'S
OWNERSHIP INTEREST 1,363.8 15,538,681 1,236,637
======= ========== =========
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION/
PERCENT PRINCIPAL OPTION
LOCATION LEASED(1) TENANTS EXPIRATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Springfield 100% Wal*Mart 2018/2092
TEXAS Lewisville 87% Albertson's(7) 2055
Mesquite 95%
Dallas 80% Albertson's(7) 2055
PUERTO RICO Montehiedra 99% Kmart 2072
(SAN JUAN) Builders Square 2072
Marshalls 2010/2025
Caribbean Theatres 2021/2026
---
TOTAL SHOPPING CENTERS 91%
---
WAREHOUSE/ E. Brunswick 97% Popsicle Playwear 2000/2005
INDUSTRIAL IFB Apparel 2001/2006
E. Hanover 94% Various Tenants
Edison 100% White Cons. Ind. 1998/2001
Garfield 38% Popular Services 2007
& Various Tenants
TOTAL WAREHOUSE/ ---
INDUSTRIAL 81%
---
OTHER Montclair 100%
PROPERTIES
Rahway(4) 100%
---
TOTAL OTHER PROPERTIES 100%
---
GRAND TOTAL 89%
===
GRAND TOTAL VORNADO'S
OWNERSHIP INTEREST 90%
===
</TABLE>
(1) Represents annualized monthly base rent including tenant pass-through of
operating expenses(exclusive of tenant electricity costs) for office properties.
Excludes ground leases and rent for leases which had not commenced as of March
31, 1997, which are included in percent leased.
(2) Montgomery Ward & Co., Inc.(a previous lessor) remains liable on such lease
including the rent it was obligated to pay - approximately 70%.
(3) These leases are either fully guaranteed by Stop & Shop, a wholly-owned
subsidiary of Royal Ahold NV, or in the case of Totowa, guaranteed as to 70% of
rent.
(4) Ground and/or building leasehold interest
(5) The tenant has ceased operations at these locations but continues to pay
rent.
(6) Bradlees received Bankruptcy Court approval in January 1997 to close this
store.
(7) Square footage excludes Albertson's which owns its land and building.
(8) The Operating Partnership owns a 50% interest in this property.
<PAGE> 21
ITEM 3. ALEXANDER 'S PROPERTIES
The following table shows the location, approximate size and leasing
status as of March 31, 1997 of each of Alexander's properties.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE BUILDING SQUARE AVERAGE
LAND SQUARE FOOTAGE/ ANNUALIZED
FOOTAGE ("SF") NUMBER OF BASE RENT PERCENT
LOCATION OWNERSHIP OR ACREAGE OF FLOORS PER SQ. FOOT (1) LEASED TENANTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
NEW YORK:
Rego Park - Queens Owned 4.8 acres 351,000/3 (2) $27.79 100% Bed Bath & Beyond
Circuit City
Marshalls
Old Navy
Sears
Kings Plaza Shopping Center 50% 24.3 acres 427,000/2 (2)(4) 30.37 81% 120 Tenants
& Marina (Kings Plaza Mall) Owned
Brooklyn
Fordham Road - Bronx Owned 92,211 SF 303,000/5 11.54 - (5)
Flushing - Queens Leased 44,975 SF 177,000/4 (2) 16.35 100% Caldor
Third Avenue - Bronx Owned 60,451 SF 173,000/4 4.33 100% An affiliate of Conway
---------
1,431,000
REDEVELOPMENT PROPERTIES
Lexington Avenue - Manhattan 92% 84,420 SF 591,000/6 (6)
Owned
Kings Plaza Store - Brooklyn Owned Included in 339,000/4 Sears
Shopping Center
above
Rego Park II - Queens Owned 6.6 acres --
NEW JERSEY:
Paramus, New Jersey Owned 39.3 acres (7) 340,000/3 (6)
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION/
OPTION
EXPIRATION
- -------------------------------------------------------
<S> <C>
OPERATING PROPERTIES
NEW YORK:
Rego Park - Queens (3)
(3)
2008/2021
(3)
2021
Kings Plaza Shopping Center Various
& Marina (Kings Plaza Mall)
Brooklyn
Fordham Road - Bronx
Flushing - Queens 2027
Third Avenue - Bronx 2023
REDEVELOPMENT PROPERTIES
Lexington Avenue - Manhattan
Kings Plaza Store - Brooklyn (3)
Rego Park II - Queens
NEW JERSEY:
Paramus, New Jersey
</TABLE>
(1) Average annualized base rent per square foot does not include rent for
leases which had not commenced as of March 31, 1997.
(2) Excludes parking garages operated for the benefit of Alexander's.
(3) The Bed Bath & Beyond, Circuit City and Old Navy leases are expected to
commence in the second quarter of 1997. The Sears lease is expected to
commence in the last quarter of 1997.
(4) Excludes approximately 150,000 square feet of enclosed, common area space.
(5) Caldor rejected its lease effective June 6, 1997.
(6) Alexander's is evaluating redevelopment plans for these sites which may
involve razing the existing buildings.
(7) Approximately 9 acres are subject to condemnation.
-21-
<PAGE> 22
INSURANCE
The Operating Partnership carries comprehensive liability, fire, flood,
extended coverage and rental loss insurance with respect to its properties with
policy specifications and insured limits customarily carried for similar
properties. Management of the Operating Partnership believes that the Operating
Partnership's insurance coverage conforms to industry norms.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the caption
"Principal Security Holders" on pages 10 through 12 of Vornado's Proxy Statement
and Notice of Annual Meeting of Shareholders to be held on May 28, 1997 (the
"Proxy Statement"), copies of which are attached as an exhibit to this Form 10
and incorporated by reference herein.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Operating Partnership is managed by Vornado, its general
partner. The following is a list of the names, ages, principal occupations and
positions with Vornado of the executive officers and the positions held by such
officers during the past five years. All executive officers of Vornado have
terms of office which run until the next succeeding meeting of the Board of
Trustees of Vornado following the Annual Meeting of Shareholders unless they are
removed sooner by the Board.
<TABLE>
<CAPTION>
Principal Occupation, Position and Office (current
and during past five years with Vornado unless
Name Age otherwise stated)
---- --- -----------------------------------------------------------------
<S> <C> <C>
Steven Roth 55 Chairman of the Board, Chief Executive Officer and Chairman
of the Executive Committee of the Board; the Managing
General Partner of Interstate Properties, a developer and
operator of shopping centers and an investor in securities and
partnerships; Chief Executive Officer of Alexander's, Inc. since
March 2, 1995 and a Director since 1989; Director of
Insituform Technologies, Inc.
Michael D. Fascitelli 40 President and a Trustee since December 2, 1996; Director of
Alexander's, Inc. since December 2, 1996; Partner at Goldman,
Sachs & Co. in charge of its real estate practice from December
1992 to December 1996; and Vice President at Goldman, Sachs
& Co., prior to December 1992.
Bernard Mendik 67 Co-Chairman of the Board since April 28, 1997 and Chief
Executive Officer of the Mendik Division since April 15, 1997;
Chairman of the Board of Directors of Mendik Realty from
1990 until April 15, 1997.
David R. Greenbaum 45 President of the Mendik
Division since April 15, 1997; President of
Mendik Realty from 1990 until April 15,
1997.
Richard T. Rowan 50 Vice President - Real Estate
Joseph Macnow 51 Vice President - Chief Financial Officer; Vice President -Chief
Financial Officer of Alexander's, Inc. since August 1995
</TABLE>
Information relating to the Directors of the Registrant appears on
pages 3 through 4 of the Proxy Statement, copies of which are attached as an
exhibit to this Form 10 and incorporated by reference herein.
-22-
<PAGE> 23
ITEM 6. EXECUTIVE COMPENSATION
The Operating Partnership is managed by Vornado, its general
partner. The information required by this item appears under the caption
"Executive Compensation" on pages 14 through 19 of the Proxy Statement, copies
of which are attached as an exhibit to this Form 10 and incorporated by
reference herein.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption
"Executive Compensation -- Certain Transactions" on pages 19 through 22 of the
Proxy Statement, copies of which are attached as an exhibit to this Form 10 and
incorporated by reference herein.
ITEM 8. LEGAL PROCEEDINGS
The Operating Partnership is from time to time involved in legal
actions arising in the ordinary course of its business. In the opinion of
management, after consultation with legal counsel, the outcome of such matters
will not have a material effect on the Operating Partnership's financial
condition or results of operations.
ITEM 9. MARKET PRICE AND DISTRIBUTION
There is no established public trading market for the units of the
Operating Partnership. As of June 11, 1997, there were 211 holders of record
of units.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Mendik Transaction in April 1997, the
Operating Partnership issued 2,841,524 units to the Mendik Group and certain of
its affiliates pursuant to an offer that satisfied the requirements of the
exemption from registration provided by Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Operating Partnership has issued five classes of units of
limited partnership interests: Class A Units, Class C Units, Class D Units,
Class E Units, and Series A Preferred Units (collectively, the "Units"). The
material terms of the Units, including a description of the different classes of
Units to be issued by the Operating Partnership and a summary of certain
provisions of the First Amended and Restated Agreement of Limited Partnership,
dated as of April 15, 1997 (the "Partnership Agreement"), of the Operating
Partnership, are set forth below. The following description of the terms and
provisions of the Units and certain other matters does not purport to be
complete and is subject to, and qualified in its entirety by, reference to
applicable provisions of Delaware law and the Partnership Agreement. A copy of
the Partnership Agreement is filed as an exhibit hereto and incorporated by
reference herein.
GENERAL
Holders of Units hold a limited partnership interest in the
Operating Partnership, and all holders of Units are entitled to share in cash
distributions from, and in the profits and losses of, the Operating Partnership.
Holders of Units will have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership Act"). The Units are not listed on
any exchange or quoted on any national market system. The Partnership Agreement
imposes certain restrictions on the transfer of Units, as described below.
Distributions will vary among the classes of holders of Units. See
"--Distributions; Allocations of Income and Loss" and "--Series A Preferred
Units" below.
-23-
<PAGE> 24
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
the Partnership Act, except that the Partnership Agreement requires the business
of the Operating Partnership to be conducted in such a manner that will permit
Vornado to be classified as a REIT under Section 856 of the Code, unless Vornado
ceases to qualify as a REIT for any reason. In furtherance of the foregoing, the
Operating Partnership may enter into partnerships, joint ventures or similar
arrangements and may own interests directly or indirectly in any other entity.
Vornado, as the general partner of the Operating Partnership, has
the exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
In particular, the limited partners expressly acknowledge in the
Partnership Agreement that the general partner is acting on behalf of the
Operating Partnership's limited partners and Vornado's shareholders
collectively, and is under no obligation to consider the tax consequences to
limited partners when making decisions for the benefit of the Operating
Partnership. Vornado and its trustees and officers will have no liability to the
Operating Partnership or to any partner or assignee for any losses sustained,
liabilities incurred or benefits not derived as a result of errors in judgment
or mistakes of fact or law or any act or omission if Vornado acted in good
faith.
ABILITY OF VORNADO TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF
INTEREST
Vornado generally may not conduct any business other than through
the Operating partnership without the consent of the holders of a majority of
the limited partnership interests (not including the limited partnership
interests held by Vornado in its capacity as a limited partner in the Operating
Partnership). Other persons (including officers, trustees, employees, agents and
other affiliates of Vornado) are not prohibited under the Partnership Agreement
from engaging in other business activities and are not required to present any
business opportunities to the Operating Partnership. In addition, the
Partnership Agreement does not prevent another person or entity that acquires
control of Vornado in the future from conducting other businesses or owning
other assets, even though such businesses or assets may be ones that it would be
in the best interests of the limited partners for the Operating Partnership to
own.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for distributions, as determined
in the manner provided in the Partnership Agreement, to Vornado and the limited
partners in proportion to their percentage interest in the Operating
Partnership, subject to the distribution preferences described below. As general
partner of the Operating Partnership, Vornado will have the exclusive right to
declare and cause the Operating Partnership to make distributions as, when and
if Vornado deems appropriate or desirable in its sole discretion. For so long as
Vornado elects to qualify as a REIT, Vornado will make reasonable efforts (as
determined by it in its sole discretion) to make distributions to partners in
amounts such that Vornado will be able to pay shareholder dividends that will
satisfy the requirements for qualification as a REIT and avoid any Federal
income or excise tax liability to Vornado. The Partnership Agreement provides
for the allocation to the general partner and the limited partners of items of
Operating Partnership's income and loss.
Generally , the value of each Unit, regardless of its class, will
equate to one common share of beneficial interest, par value $0.04 per share
("Common Share"), of Vornado (with the exception of the Series A Preferred Units
which will equate to one $3.25 Series A Preferred Share of Beneficial Interest,
liquidation preference $50.00 per share ("Series A Preferred Share") of
Vornado); however, Class C, Class D, Class E and Series A Preferred Units have
special priorities in the distributions paid by the Operating Partnership. The
Partnership Agreement provides that the Operating Partnership will make
distributions (as, when and if declared by Vornado) in the order of preference
provided for in the Partnership Agreement. The order of preference in the
Partnership Agreement provides that distributions will be paid first to Vornado
as necessary to enable Vornado to pay REIT Expenses and then to holders of
preferred units as required by the terms of such preferred units. See "--Series
A Preferred Units" below. The Partnership Agreement defines "REIT Expenses" to
mean (i) costs and expenses relating to the continuity of existence of Vornado
and any Person in which Vornado owns an equity interest, (ii) costs and expenses
relating to any offer or registration of securities by Vornado, (iii) costs and
expenses associated with preparing and filing periodic reports of Vornado under
federal, state and local laws (including SEC filings), (iv) costs and expenses
associated with Vornado's
-24-
<PAGE> 25
compliance with laws, rules and regulations applicable to it, and (v) all other
operating or administrative expenses incurred by Vornado in the ordinary course
of its business.
Thereafter, distributions will be paid first to holders of limited
partnership interests of any class ranking senior (as to distributions or
redemption or voting rights) to Class C Units, Class D Units and Class E Units,
if any class of such Units is then outstanding. Distributions will be paid
second to holders of Class D Units and Class E Units (pro rata based on the
ratio of the total number of Class D Units or Class E Units, as applicable, to
the aggregate number of Class D Units and Class E Units taken together on the
relevant Partnership Record Date) for any unpaid past cumulated distributions
and then to holders of Class D and Class E Units a quarterly amount equal to
$1.0075 per Unit. Distributions will be paid third to Class C Unit holders for
any unpaid past cumulated distributions and then to holders of Class C Units a
quarterly amount equal to $0.845 per Unit. Class C Unit holders will also share
in any distribution per quarter to Class A Unit holders above $0.845 per Unit,
and Class D and Class E Unit holders will share in any distribution per quarter
above $1.0075 per Unit.
Class C Units will automatically convert to Class A Units when the
distributions per quarter paid to holders of Class A Units equals the per
quarter distribution specified above for Class C Unit holders for four
consecutive quarters following the Consolidation. Class D and Class E Units will
automatically convert to Class A Units when the distributions per quarter paid
to holders of Class A Units equals the per quarter distribution specified above
for Class D and Class E Unit holders for four consecutive quarters following the
Consolidation. Until such time as all Class C, Class D and Class E Units have
been converted into Class A Units, the Partnership Agreement prohibits the
Operating Partnership from issuing any class of limited partnership interests
ranking senior (as to distributions or redemption or voting rights) to Class C
Units or Class D Units or Class E Units, unless either (1) such limited
partnership interests are substantially similar to the terms of securities
issued by Vornado and the proceeds of the issuance of such securities have been
contributed to the Operating Partnership or (2) the issuance of such limited
partnership interests has been approved by the holders of a majority of the
Class C, Class D and Class E Units issued in the Consolidation and then
outstanding (taken together as a group).
Prior to the automatic conversion of Class C Units to Class A Units
and prior to the automatic conversion of Class D and Class E Units to Class A
Units as described above, Vornado is permitted to cause the Operating
Partnership to make a distribution to holders of Class A Units of cash (subject
to an aggregate maximum amount for both such distributions of $1,500,000)
representing any funds from operations that could have been and were not
distributed to holders of Class A Units (without requiring pro rata
distributions to holders of Class C Units or Class D and Class E Units, as
applicable) during the twelve calendar quarters preceding the quarter in which
such distribution is made.
LIABILITY OF VORNADO AND LIMITED PARTNERS
Vornado, as general partner of the Operating Partnership, will be
liable for all general recourse obligations of the Operating Partnership to the
extent not paid by the Operating Partnership. Vornado will not be liable for the
nonrecourse obligations of the Operating Partnership.
The limited partners in the Operating Partnership will not be
required to make additional contributions to the Operating Partnership. Assuming
that a limited partner does not take part in the control of the business of the
Operating Partnership and otherwise acts in conformity with the provisions of
the Partnership Agreement, the liability of a limited partner for obligations of
the Operating Partnership under the Partnership Agreement and the Partnership
Act will be limited, subject to certain exceptions, generally to the loss of
such limited partner's investment in the Operating Partnership represented by
his or her Units. Under the Partnership Act, a limited partner may not receive a
distribution from the Operating Partnership if, at the time of the distribution
and after giving effect thereto, the liabilities of the Operating Partnership,
other than liabilities to parties on account of their interests in the Operating
Partnership and liabilities for which recourse is limited to specified property
of the Operating Partnership, exceed the fair value of the Operating
Partnership's assets, other than the fair value of any property subject to
nonrecourse liabilities of the Operating Partnership, but only to the extent of
such liabilities. The Partnership Act provides that a limited partner who
receives a distribution knowing at the time that it violates the foregoing
prohibition is liable to the Operating Partnership for the amount of the
distribution. Unless otherwise agreed, such a limited partner will not be liable
for the return of such distribution after the expiration of three years from the
date of such distribution.
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The Operating Partnership has qualified to conduct business in the
State of New York and may qualify in certain other jurisdictions. Maintenance of
limited liability may require compliance with certain legal requirements of
those jurisdictions and certain other jurisdictions. Limitations on the
liability of a limited partner for the obligations of a limited partnership have
not been clearly established in many jurisdictions. Accordingly, if it were
determined that the right, or exercise of the right by the limited partners, to
make certain amendments to the Partnership Agreement or to take other action
pursuant to the Partnership Agreement constituted "control" of the Operating
Partnership's business for the purposes of the statutes of any relevant
jurisdiction, the limited partners might be held personally liable for the
Operating Partnership's obligations.
EXCULPATION AND INDEMNIFICATION OF VORNADO
The Partnership Agreement generally provides that Vornado, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained, liabilities
incurred or benefits not derived as a result of errors in judgment or mistakes
of fact or law or of any act or omission, if Vornado carried out its duties in
good faith. In addition, Vornado is not responsible for any misconduct or
negligence on the part of its agents, provided Vornado appointed such agents in
good faith. Vornado may consult with legal counsel, accountants, appraisers,
management consultants, investment bankers and other consultants and advisors,
and any action it takes or omits to take in reliance upon the opinion of such
persons, as to matters that Vornado reasonably believes to be within their
professional or expert competence, shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of
Vornado, the trustees and officers of Vornado and such other persons as Vornado,
may from time to time designate against any judgments, penalties, fines,
settlements and reasonable expenses actually incurred by such person in
connection with the proceeding unless it is established that: (i) the act or
omission of the indemnified person was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the indemnified person actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the indemnified person had reasonable cause to believe that
the act or omission was unlawful.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF VORNADO'S INTERESTS
The Partnership Agreement provides that the limited partners may not
remove Vornado as general partner of the Operating Partnership with or without
cause. In addition, the Partnership Agreement prohibits Vornado from selling all
or substantially all of its assets or entering into a merger or engaging in a
reclassification, recapitalization or change of the terms of any of its
outstanding Common Shares unless, in connection therewith, all limited partners
(other than Vornado and entities controlled by it) will have the right to elect
to receive, or will receive, for each Unit an amount of cash, securities or
other property equal to the Conversion Factor (as defined in the Partnership
Agreement) multiplied by the greatest amount of cash, securities or other
property paid to a holder of shares of beneficial interest of Vornado, if any,
corresponding to such Unit in consideration of one such share.
The Partnership Agreement does not prevent a transaction in which another
entity acquires control (or all of the shares) of Vornado and that other entity
owns assets and conducts businesses outside of the Operating Partnership.
RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS
Generally, the limited partners may not transfer any of their rights
as a limited partner for a period of one year after the closing of the
Consolidation without the consent of Vornado, which consent Vornado may withhold
in its sole discretion. Any attempted transfer in violation of this restriction
will be void ab initio and without any force or effect. Beginning one year after
the closing of the Consolidation, such limited partners (other than Vornado and
certain members of the Mendik Group and its affiliates) may transfer all or any
portion of their Units without restriction as long as they satisfy certain
requirements set forth in the Partnership Agreement. In addition, such limited
partners (other than Vornado) may dispose of their Units following the
expiration of an initial holding period of one or two years after the closing of
the Consolidation (the "Initial Holding Period") by exercising their Unit
Redemption Right(as defined below). See "--Redemption of Units" below.
The right of any permitted transferee of Units to become a
substituted limited partner is subject to the consent of Vornado, which consent
Vornado may withhold in its sole and absolute discretion. If Vornado does not
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consent to the admission of a transferee of Units as a substituted limited
partner, then the transferee will succeed to the economic rights and benefits
attributable to such Units (including the Unit Redemption Right described
below), but will not become a limited partner or possess any other rights of
limited partners (including the right to vote).
REDEMPTION OF UNITS
At any time after the Initial Holding Period (subject to certain
limitations), holders of Units (other than Series A Preferred Units) have the
right to have their Units redeemed in whole or in part by the Operating
Partnership for cash equal to the fair market value, at the time of redemption,
of one Common Share for each Unit redeemed or, at the option of Vornado, one
Common Share for each Unit tendered (the "Unit Redemption Right"). Subject to
certain limitations, holders of Units (other than Vornado) may exercise their
Unit Redemption Right by providing notice to the Operating Partnership after the
expiration of the Initial Holding Period. Unless Vornado elects to assume and
perform the Operating Partnership's obligation with respect to the Unit
Redemption Right, as described below, a redeeming limited partner will receive
cash from the Operating Partnership in an amount equal to the market value of
the Units to be redeemed. The market value of a Unit for this purpose will be
equal to the average of the closing trading price of a Common Share on the New
York Stock Exchange for the ten trading days before the day on which the
redemption notice was given (the "Cash Redemption Price"). In lieu of the
Operating Partnership's acquiring the Units for cash, Vornado will have the
right (except as described below, if the Common Shares are not publicly traded)
to elect to acquire the Units directly from a limited partner exercising the
Unit Redemption Right, in exchange for either cash or Common Shares, and, upon
such acquisition, Vornado will become the owner of such Units. In addition, any
Class C, Class D or Class E Units acquired by Vornado in connection with
satisfaction of the Unit Redemption Right will automatically convert to Class A
Units upon acquisition by Vornado. Upon exercise of the Unit Redemption Right,
the limited partner's right to receive distributions for the Units so redeemed
or exchanged will cease. At least 1,000 Units (or all remaining Units owned by
the limited partner if less than 1,000 Units) must be redeemed each time the
Unit Redemption Right is exercised. The redemption generally will occur on the
tenth business day (or, if Vornado's Common Shares are not then publicly traded,
the 30th business day) after the notice to the Operating Partnership, except
that no redemption or exchange can occur if delivery of Common Shares would be
prohibited either under the provisions of Vornado's Declaration of Trust or
under applicable Federal or state securities laws as long as the Common Shares
are publicly traded.
In addition to the foregoing, during the period from the 91st day
after the closing of the Consolidation until the first anniversary of the
Consolidation holders of Class E Units will have the right to redeem those Units
for cash at a 6% discount from the then applicable Cash Redemption Price.
In the event that a limited partner exercises his or her Unit
Redemption Right within two years of the closing of the Consolidation then:
(i) if such partner's Units are redeemed or purchased for cash, the
receipt of such cash will be conditioned upon Vornado's satisfaction that any
Transfer Taxes payable by reason of such partner's failure to satisfy the
retention requirement are paid or adequately provided for; and
(ii) if Vornado purchases such partner's Units for Common Shares
then, as a condition to receiving such Common Shares, the redeeming partner will
be required to place in escrow with the Operating Partnership an amount equal to
the transfer taxes which would have been incurred by reason of such partner's
failure to satisfy the retention requirement if such partner had disposed of
such Common Shares on the date of such partner's exercise of the Unit Redemption
Right. To the extent not used to pay transfer taxes, the escrowed funds will be
released to the partner two years after the Consolidation.
In the event that the Common Shares are not publicly traded but
another entity whose shares are publicly traded owns more than 50% of the shares
of Vornado (referred to as the "Parent Entity"), the Unit Redemption Right will
be determined by reference to the publicly-traded stock of the Parent Entity and
the general partner will have the right to elect to acquire the Units to be
redeemed for publicly traded stock of the Parent Entity. In the event that the
Common Shares are not publicly traded and there is no Parent Entity with
publicly-traded stock, the Unit Redemption Right would be based upon the fair
market value of the Operating Partnership's assets at the time the Unit
Redemption Right is exercised (as determined in good faith by Vornado), and
Vornado and the Operating Partnership would be obligated to satisfy the Unit
Redemption Right in cash, payable on the thirtieth business day after notice to
the Operating Partnership of exercise of the Unit Redemption Right.
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NO WITHDRAWAL BY LIMITED PARTNERS
No limited partner has the right to withdraw from or reduce his or
her capital contribution to the Operating Partnership, except as a result of the
redemption, exchange or transfer of Units pursuant to the terms of the
Partnership Agreement.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
Vornado is authorized, without the consent of the limited partners,
to cause the Operating Partnership to issue limited partnership interests to
Vornado, to the limited partners and to other persons for such consideration and
upon on such terms and conditions as Vornado deems appropriate. The Operating
Partnership also may issue partnership interests in different series or classes.
Until such time as all Class C, Class D and Class E Units issued in the
Consolidation are no longer outstanding (whether by conversion, redemption or
otherwise), the Partnership Agreement prohibits the Operating Partnership from
issuing any class of limited partnership interests ranking senior (as to
distributions or redemption or voting rights) to Class C Units or Class D Units
or Class E Units, unless either (1) such limited partnership interests are
substantially similar to the terms of securities issued by Vornado and the
proceeds of the issuance of such securities have been contributed to the
Operating Partnership or (2) the issuance of such limited partnership interests
has been approved by the holders of a majority of the Class C, Class D and Class
E Units issued in the Consolidation and then outstanding (taken together as a
group). If Units are issued to Vornado, then Vornado must issue shares of
beneficial interest in connection therewith and must contribute to the Operating
Partnership the proceeds received by Vornado from such issuance. Consideration
for partnership interests may be cash or any property or other assets permitted
by the Partnership Act. No limited partner has preemptive, preferential or
similar rights with respect to capital contributions to the Operating
Partnership or the issuance or sale of any partnership interests therein.
MEETINGS; VOTING
Meetings of the limited partners may be proposed and called only by
Vornado. Limited partners may vote either in person or by proxy at meetings. Any
action that is required or permitted to be taken by the limited partners may be
taken either at a meeting of the limited partners or without a meeting if
consents in writing setting forth the action so taken are signed by limited
partners owning not less than the minimum number of Units that would be
necessary to authorize or take such action at a meeting of the limited partners
at which all limited partners entitled to vote on such action were present. On
matters in which limited partners are entitled to vote, each limited partner
(including Vornado to the extent it holds Units) will have a vote equal to the
number of Units he or she holds. At this time, there is no voting preference
among the classes of Units. A transferee of Units who has not been admitted as a
substituted limited partner with respect to such Units will have no voting
rights with respect to such Units (even if such transferee holds other Units as
to which it has been admitted as a limited partner) and Units owned by such
transferee will be deemed to be voted on any matter in the same proportion as
all other interests held by limited partners are voted. The Partnership
Agreement does not provide for annual meetings of the limited partners, and the
Operating Partnership has been informed by Vornado that it does not anticipate
calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by
Vornado. Subject to the limitations described below, Vornado will generally have
the power, without the consent of any limited partners, to amend the Partnership
Agreement as may be required to reflect any changes to the agreement that
Vornado deems necessary or appropriate in its sole discretion, provided that
such amendment does not adversely affect or eliminate any right granted to a
limited partner that is protected by the special voting provisions described
below.
The Partnership Agreement provides that it generally may not be
amended with respect to any partner adversely affected by such amendment without
the consent of such partner if the amendment would (i) convert a limited
partner's interest into a general partner's interest, (ii) modify the limited
liability of a limited partner, (iii) amend Section 7.11.A of the Partnership
Agreement (prohibiting Vornado from taking any action in contravention of an
express prohibition or limitation in the Partnership Agreement without the
written consent of all partners adversely affected thereby or such lower
percentage as may be specifically provided for in the Partnership Agreement or
under Delaware law), (iv) amend Article V (describing distributions), Article VI
(describing allocations of income and loss for capital account purposes), or
Section 13.2.A(3) (providing for distributions, after payment of partnership
debts, among partners
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according to their capital accounts in connection with a winding up of the
Operating Partnership), (v) amend Section 8.6 (providing redemption rights) or
(vi) amend the provision being described in this paragraph.
In addition, except with the consent of a majority of the limited
partners (excluding Vornado and entities controlled by it) Vornado may not amend
Section 4.2.A (authorizing issuance of additional limited partnership
interests), Section 5.l.C (requiring that if Vornado is not a REIT or a publicly
traded entity it must for each taxable year make cash distributions equal to at
least 95% of the Operating Partnership's taxable income), Section 7.5
(prohibiting Vornado from conducting any business other than in connection with
the ownership of interests in the Operating Partnership except with the consent
of a majority of the limited partners, excluding Vornado and any entity it
controls), Section 7.6 (limiting the Operating Partnership's ability to enter
transactions with affiliates), Section 7.8 (describing limits on partners'
liabilities to the Operating Partnership), Section 11.2 (limiting Vornado's
ability to transfer its interests in the Operating Partnership), Section 13.1
(describing the manner and circumstances in which the Operating Partnership will
be dissolved), Section 14.1.C (setting forth the limitations on amendments being
described in this paragraph) and Section 14.2 (describing the rules governing
meetings of partners).
BOOKS AND REPORTS
Vornado is required to keep the Operating Partnership's books and
records at the principal office of the Operating Partnership. The books of the
Operating Partnership are required to be maintained for financial and tax
reporting purposes on an accrual basis. The limited partners will have the
right, subject to certain limitations, to receive copies of the most recent
Commission filings by Vornado, the Operating Partnership's Federal, state and
local income tax returns, a list of limited partners, the Partnership Agreement
and the partnership certificate and all amendments thereto.
Vornado may keep confidential from the limited partners any
information that Vornado believes to be in the nature of trade secrets or other
information the disclosure of which Vornado in good faith believes is not in the
best interests of the Operating Partnership or which the Operating Partnership
is required by law or by agreements with unaffiliated third parties to keep
confidential.
Vornado will furnish to each limited partner, no later than the date
on which Vornado mails its annual report to its shareholders, an annual report
containing financial statements of the Operating Partnership (or Vornado, if it
prepares consolidated financial statements including the Operating Partnership)
for each fiscal year, including a balance sheet and statements of operations,
cash flow, partners' equity and changes in financial position. The financial
statements will be audited by a nationally recognized firm of independent public
accountants selected by Vornado. In addition, if and to the extent that Vornado
mails quarterly reports to its shareholders, Vornado will furnish to each
limited partner, no later than the date on which Vornado mails such reports to
its shareholders, a report containing unaudited financial statements of the
Operating Partnership (or Vornado) as of the last day of the calendar quarter
and such other information as may be required by applicable law or regulation or
as Vornado deems appropriate.
Vornado will use reasonable efforts to furnish to each limited
partner, within 90 days after the close of each taxable year, the tax
information reasonably required by the limited partners for Federal and state
income tax reporting purposes.
POWER OF ATTORNEY
Pursuant to the terms of the Partnership Agreement, each limited
partner and each assignee appoints Vornado, any liquidator, and the authorized
officers and attorneys-in-fact of each, as such limited partner's or assignee's
attorney-in-fact to do the following: execute, swear to, acknowledge, deliver,
file and record in the appropriate public offices various certificates,
documents and other instruments (including, among other things, the Partnership
Agreement and the certificate of limited partnership and all amendments or
restatements thereof) that Vornado deems appropriate or necessary to effectuate
the terms or intent of the Partnership Agreement. The Partnership Agreement
provides that such power of attorney is irrevocable, will survive the subsequent
incapacity of any limited partner and the transfer of all or any portion of such
limited partner's or assignee's Units and will extend to such limited partner's
or assignee's heirs, successors, assigns and personal representatives.
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DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2095 (as
such date may be extended by the general partner in its sole discretion), unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of (i) the withdrawal of Vornado as general partner
without the permitted transfer of Vornado's interest to a successor general
partner (except in certain limited circumstances); (ii) the sale of all or
substantially all of the Operating Partnership's assets and properties (subject
to certain exceptions set forth in the Partnership Agreement); (iii) the entry
of a decree of judicial dissolution of the Operating Partnership pursuant to the
provisions of the Partnership Act; (iv) the entry of a final non-appealable
order for relief in a bankruptcy proceeding of the general partner, or the entry
of a final non-appealable judgment ruling that the general partner is bankrupt
or insolvent (except that, in either such case, in certain circumstances the
limited partners (other than Vornado) may vote to continue the Operating
Partnership and substitute a new general partner in place of Vornado); or (v) on
or after January 1, 2046, on election by Vornado, in its sole and absolute
discretion. Upon dissolution, Vornado, as general partner, or any liquidator
will proceed to liquidate the assets of the Operating Partnership and apply the
proceeds therefrom in the order of priority set forth in the Partnership
Agreement.
TERMS OF SERIES A PREFERRED UNITS
The Operating Partnership currently has 5,750,000 Series A Preferred
Units outstanding with terms that substantially mirror the economic terms of the
Series A Preferred Shares of Vornado. All of the Series A Preferred Units are
owned and held by Vornado.
Ranking
The Series A Preferred Units will rank senior to the Junior Units
(as defined below) with respect to payment of distributions and amounts upon
liquidation, dissolution or winding up of the general partner or the Operating
Partnership. While any Series A Preferred Units are outstanding, the general
partner may not authorize the creation of units of any class or series or any
interest in the Operating Partnership convertible into units of any class or
series ranking prior to the Series A Preferred Units in the distribution of
assets on any liquidation, dissolution or winding up of the general partner or
the Operating Partnership or in the payment of distributions unless (i) such
units are issued to the general partner, (ii) the distribution and redemption
(but not voting) rights of such units are substantially similar to the terms of
securities issued by the general partner and (iii) the proceeds or other
consideration from the issuance of such securities have been or are concurrently
with such issuance contributed to the Operating Partnership. However, the
General Partner may create additional classes of units or issue series of
preferred units ranking on a parity with the Series A Preferred Units with
respect, in each case, to the payment of distributions and amounts upon
liquidation, dissolution and winding up (a "Parity Unit") without the consent of
any holder of Series A Preferred Units. As used herein, the term "Junior Unit"
means the Class A, Class C, Class D and Class E Units, and any other class of
units of the Operating Partnership now or hereafter issued and outstanding that
ranks junior to the Series A Preferred Units as to the payment of distributions
or amounts upon liquidation, dissolution and winding up of the general partner
or the Operating Partnership.
Distributions
Vornado, in its capacity as the holder of the Series A Preferred
Units, shall be entitled to receive, when, as and if declared by the general
partner, distributions payable in cash at the rate per annum of $3.25 per Series
A Preferred Unit (the "Annual Distribution Rate"). Such distributions are
cumulative and payable quarterly, when, as and if authorized and declared by the
general partner, in arrears on the first calendar day of January, April, July
and October of each year, commencing July 1, 1997. Distributions are cumulative
from the most recent distribution payment date to which distributions have been
paid. Accrued and unpaid distributions for any past distribution periods may be
declared and paid at any time, without reference to any regular Distribution
Payment Date.
No distribution will be declared or paid on any Parity Unit unless
full cumulative distributions have been declared and paid or are
contemporaneously declared and funds sufficient for payment set aside on the
Series A Preferred Units for all prior dividend periods; provided, however, that
if accrued distributions on the Series A Preferred Units for all prior
distribution periods have not been paid in full then any distribution declared
on the Series A Preferred
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Units for any distribution period and on any Parity Unit will be declared
ratably in proportion to accrued and unpaid distributions on the Series A
Preferred Units and such Parity Units.
The Operating Partnership will not (i) declare, pay or set apart
funds for the payment of any distribution with respect to any Junior Units
(other than in Junior Units or options, warrants or rights to subscribe for or
purchase Junior Units) or (ii) redeem, purchase or otherwise acquire for
consideration any Junior Units (other than a redemption, purchase or other
acquisition of Junior Units made in respect of a redemption, purchase or other
acquisition of Common Shares made for purposes of and in compliance with
requirements of an employee incentive or benefit plan of the general partner or
any subsidiary, or redemptions for the purpose of preserving Vornado's
qualification as a REIT), unless (A) all cumulative distributions with respect
to the Series A Preferred Units and any Parity Units at the time such
distributions are payable have been paid or funds have been set apart for
payment of such distributions and (B) sufficient funds have been paid or set
apart for the payment of the distribution for the current distribution period
with respect to the Series A Preferred Units and any Parity Units.
Redemption
Except in connection with the redemption of the Series A Preferred
Shares by the General Partner as permitted by the Amended and Restated
Declaration of Trust (the "Declaration of Trust") of Vornado in order to
preserve Vornado's status as a REIT, the Series A Preferred Units are not
redeemable prior to April 1, 2001. On and after April 1, 2001, the general
partner may, at its option, cause the Operating Partnership to redeem the Series
A Preferred Units for Class A Units, in whole or in part, at any time, provided
that the general partner shall redeem an equivalent number of Series A Preferred
Shares. Such redemption of Series A Preferred Units will occur substantially
concurrently with the redemption by the general partner of such Series A
Preferred Shares (the "Redemption Date"). Upon redemption of Series A Preferred
Units by the general partner on the Redemption Date, each Series A Preferred
Unit so redeemed will be converted into a number of Class A Units equal to the
aggregate Liquidation Preference (as defined below) of the Series A Preferred
Units being redeemed divided by the Conversion Price (as defined below) as of
the opening of business on the Redemption Date.
Upon any redemption of Series A Preferred Units, the Operating
Partnership will pay any accrued and unpaid distributions in arrears for any
distribution period ending on or prior to the Redemption Date. If the Redemption
Date falls after a dividend payment record date and prior to the corresponding
dividend payment date, then the general partner, in its capacity as the holder
of Series A Preferred Units, will be entitled to distributions payable on the
equivalent number of Series A Preferred Units as the number of the Series A
Preferred Shares with respect to which the general partner is required, pursuant
to the terms of the Declaration of Trust, to pay to the holders of Series A
Preferred Shares at the close of business on such dividend payment record date
for the Series A Preferred Shares who, pursuant to such Declaration of Trust,
are entitled to the dividend payable on such Series A Preferred Shares on the
corresponding dividend payment date notwithstanding the redemption of such
Series A Preferred Shares before such dividend payment date. Except as provided
above, the Operating Partnership shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series A Preferred Units called for
redemption or on the Class A Units issued upon such redemption.
If full cumulative distributions on the Series A Preferred Units and
any other series or class or classes of Parity Units of the Operating
Partnership have not been paid or declared and set apart for payment, except in
connection with a purchase, redemption or other acquisition of Series A
Preferred Shares or shares of beneficial interest ranking on a parity with such
Series A Preferred Shares as permitted under the Declaration of Trust in order
to maintain Vornado's status as a REIT, the Series A Preferred Units may not be
redeemed in part and the Operating Partnership may not purchase, redeem or
otherwise acquire Series A Preferred Units or any Parity Units other than in
exchange for Junior Units.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the
Operating Partnership or the general partner, whether voluntary or involuntary,
before any payment or distribution of the assets of the Operating Partnership
are made to or set apart for the holders of Junior Units, the general partner,
in its capacity as the holder of the Series A Preferred Units is entitled to
receive $50.00 per Series A Preferred Unit (the "Liquidation Preference") plus
an amount equal to all distributions (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to the general partner, in
its capacity as such holder, and no more.
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If, upon any such liquidation, dissolution or winding up of the
Operating Partnership or the general partner, the assets of the Operating
Partnership, or proceeds thereof, distributable to the general partner, in its
capacity as the holder of Series A Preferred Units, is insufficient to pay in
full the Liquidation Preference and liquidating payments on any other Parity
Units, then such assets, or the proceeds thereof, will be distributed among the
general partner, in its capacity as the holder of such Series A Preferred Units,
and the holders of any such other Parity Units ratably in accordance with the
respective amounts that would be payable on such Series A Preferred Units and
any such other Parity Units if all amounts payable thereon were paid in full.
None of: (i) a consolidation or merger of the Operating Partnership or the
general partner with one or more entities, (ii) a statutory share exchange by
the Operating Partnership or the general partner and (iii) a sale or transfer of
all or substantially all of the Operating Partnership's or the general partner's
assets, will be considered a liquidation, dissolution or winding up, voluntary
or involuntary, of the Operating Partnership or General Partner.
Conversion Rights
The general partner, in its capacity as the holder of Series A
Preferred Units, has the right to convert all or a portion of such Series A
Preferred Units into a number of Class A Units (provided that an equivalent
number of Series A Preferred Shares are substantially concurrently therewith
being converted into Common Shares) obtained by dividing the aggregate
Liquidation Preference of such Series A Preferred Units by the Conversion Price
(as defined below); provided, however, that the right to convert Series A
Preferred Units called for redemption will terminate at the close of business on
the Redemption Date fixed for such redemption, unless the Operating Partnership
defaults in making payment of the Class A Units and any cash payable upon such
redemption.
"Conversion Price" means the conversion price per Common Share for
which the Series A Preferred Shares are convertible, as such Conversion Price
may be adjusted pursuant to the terms of the Series A Preferred Shares and the
Declaration of Trust. The initial conversion price is $72.75 (equivalent to a
conversion rate of 0.68728 Common Shares for each Series A Preferred Share). The
Conversion Price will be adjusted from time to time at the same time and in a
like manner as set forth in the Declaration of Trust.
Voting Rights
Except as may be required by law, the general partner, in its
capacity as the holder of the Series A Preferred Units, is not be entitled to
vote at any meeting of the partners or for any other purpose or otherwise to
participate in any action taken by the Operating Partnership or the partners, or
to receive notice of any meeting of the partners.
ITEM 12. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Operating Partnership is managed by Vornado, which owns an
approximate 90.4% interest in, and serves as general partner of the Operating
Partnership.
The Partnership Agreement provides, generally, for the
indemnification of an "Indemnitee" against losses, claims, damages, liabilities,
expenses (including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements and other amounts that relate to the
operations of the Operating Partnership unless it is established that (i) the
act of omission of the Indemnitee was material and either was committed in bad
faith or pursuant to active and deliberate dishonesty, (ii) the Indemnitee
actually received an improper personal benefit in money, property or services or
(iii) in the case of any criminal proceeding, the Indemnitee had reasonable
cause to believe that the act or omission was unlawful. For this purpose, the
term "Indemnitee" includes (i) any person made a party to a proceeding by reason
of its status as (A) the general partner of the Operating Partnership, (B) a
limited partner of the Operating Partnership or (C) an officer of the Operating
Partnership or a trustee, officer or shareholder of Vornado and (ii) such other
persons (including affiliates of Vornado or the Operating Partnership) as
Vornado may designate from time to time in its discretion. Any such
indemnification will be made only out of assets of the Operating Partnership,
and in no event may an Indemnitee subject the limited partners of the Operating
Partnership to personal liability by reason of the indemnification provisions in
the Partnership Agreement. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted pursuant to the foregoing provisions
or otherwise, the Operating Partnership has been advised that, in the opinion of
the Securities and Exchange Commission, such
-32-
<PAGE> 33
indemnification is against public policy and, therefore, unenforceable. The
Operating Partnership has purchased liability insurance for the purpose of
providing a source of funds to pay the indemnification described above.
Vornado's Bylaws require it to indemnify (a) any present or former
trustee or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of such status,
against reasonable expenses incurred by him in connection with the proceeding,
(b) any trustee or officer who, at the request of Vornado, serves or has served
another trust, corporation or other entity as a director, officer, partner, or
trustee and (c) any present or former trustee or officer against any claim or
liability to which he may become subject by reason of such status unless it is
established that (i) his act or omission 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, (ii) he actually received an improper personal benefit in
money, property or services or (iii) in the case of a criminal proceeding, he
had reasonable cause to believe that his act or omission was unlawful. In
addition, Vornado's Bylaws require it to pay or reimburse, in advance of final
disposition of a proceeding, reasonable expenses incurred by a present or former
trustee or officer made a party to a proceeding by reason of such status
provided that Vornado shall have received (i) a written affirmation by the
trustee or officer of his good faith belief that he has met the applicable
standard of conduct necessary for indemnification by Vornado as authorized by
the Bylaws and (ii) a written undertaking by or on his behalf to repay the
amount paid or reimbursed by Vornado if it shall ultimately be determined that
the applicable standard of conduct was not met. Vornado's Bylaws also (i) permit
Vornado to provide indemnification and payment or reimbursement of expenses to a
present or former trustee or officer who served a predecessor of Vornado in such
capacity and to any employee or agent of Vornado or a predecessor of Vornado,
(ii) provide that any indemnification or payment or reimbursement of the
expenses permitted by the Bylaws shall be furnished in accordance with the
procedures provided for indemnification or payment or reimbursement of expenses,
as the case may be, under Section 2-418 of the Maryland General Corporation Law
(the "MGCL") for directors of Maryland corporations and (iii) permit Vornado to
provide such other and further indemnification or payment or reimbursement of
expenses as may be permitted by the MGCL, as in effect from time to time, for
directors of Maryland Corporations. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to trustees and officers of
Vornado pursuant to the foregoing provisions or otherwise, Vornado has been
advised that, although the validity and scope of the governing statute has not
been tested in court, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, the indemnification may be limited by state
securities laws.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page F-1 of the Registration
Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements" on page F-1 of this Form 10.
In addition, the following financial statements are filed as
exhibits hereto and are incorporated by reference herein:
(i) Consolidated Financial Statements for the years ended December
31, 1996, 1995 and 1994 for Vornado Realty Trust (including independent
auditors' report);
(ii) Consolidated Financial Statements and Financial Statement
Schedules for the quarterly period ended March 31, 1997 for Vornado
Realty Trust;
-33-
<PAGE> 34
(iii) Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Penn Plaza Associates L.P. (a Limited Partnership)
(including independent auditors' report);
(iv) Combined financial statements for the years ended December
31, 1996, 1995 and 1994 for M Eleven Associates, M 393 Associates and
Eleven Penn Plaza Company (General Partnerships) (including independent
auditors' report);
(v) Financial statements for the years ended December 31, 1996,
1995 and 1994 for 1740 Broadway Associates, L.P. (a Limited Liability
Company) (including independent auditors' report);
(vi) Financial statements for the years ended December 31, 1996,
1995 and 1994 for 866 U.N. Plaza Associates LLC (a Limited Liability
Company) (including independent auditors' report);
(vii) Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Park Company (a New York general partnership)
(including independent auditors' report);
(viii) Financial statements for the years ended December 31, 1996,
1995 and 1994 for B&B Park Avenue L.P. (a Limited Partnership) (including
independent auditors' report);
(ix) Consolidated Financial Statements for the years ended December
31, 1996, 1995 and 1994 for Alexander's, Inc. (including independent
auditors' report)
(b) Exhibits
3.1 -- First Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated as of April 15, 1997
4.1 -- Form of Specimen Certificate Evidencing Partnership Interests in
Vornado Realty L.P.
10.1 -- Master Consolidation Agreement, dated March 12, 1997, among
Vornado Realty Trust, Vornado/Saddle Brook L.L.C., The Mendik
Company, L.P. and various parties defined therein (incorporated by
reference to Exhibit 2.1 of Vornado Realty Trust's Current Report
on Form 8-K, dated March 12, 1997 (File No. 001-11954), filed on
March 26, 1997)
10.2 -- Credit Agreement, dated as of April 15, 1997, between Vornado
Realty L.P., as Borrower, Vornado Realty Trust, as General
Partner, and Union Bank of Switzerland (New York Branch), as Bank
and Union Bank of Switzerland (New York Branch), as Administrative
Agent (incorporated by reference to Exhibit 10.1 of Vornado Realty
Trust's Current Report on Form 8-K, dated April 15, 1997 (File No.
001-11954), filed on April 30, 1997)
10.3 -- Indenture, dated as of November 24, 1993, between Vornado Finance
Corp. and Bankers Trust Company, as Trustee (incorporated by
reference to Vornado Realty Trust's Current Report on Form 8-K,
dated November 24, 1993, filed on December 1, 1993)
10.4 -- Master Agreement and Guaranty, dated as of May 1, 1992, between
Vornado, Inc. and Bradlees New Jersey, Inc. (incorporated by
reference to Vornado Realty Trust's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992, filed on May 8, 1992)
10.5 -- Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing, dated as of November 24, 1993, made by each of the
entities listed therein, as mortgagors to Vornado Finance Corp.,
as mortgagee (incorporated by reference to Vornado Realty Trust's
Current Report on Form 8-K, dated November 24, 1993, filed on
December 1, 1993)
10.6 -- Management Agreement, dated July 13, 1992, between Interstate
Properties and Vornado, Inc. (incorporated by reference to Vornado
Realty Trust's Annual Report on Form 10-K for the year ended
December 31, 1992, filed on February 16, 1993)
10.7 -- Management and Development Agreement, dated as of February 6, 1995
(incorporated by reference to Vornado Realty Trust's Current
Report on Form 8-K, dated February 6, 1995, filed on February 21,
1995)
10.8 -- Standstill and Corporate Governance Agreement, dated as of
February 6, 1995 (incorporated by reference to Vornado Realty
Trust's Current Report on Form 8-K, dated February 6, 1995, filed
on February 21, 1995)
10.9 -- Credit Agreement, dated as of March 15, 1995, between Alexander's,
Inc., as borrower, and Vornado Lending Corp., as lender
(incorporated by reference to Vornado Realty Trust's Annual Report
on Form 10-K for the year ended December 31, 1994, filed on March
23, 1995)
10.10 -- Subordination and Intercreditor Agreement, dated as of March 15,
1995, among Vornado Lending Corp., Vornado Realty Trust and First
Fidelity Bank, National Association (incorporated by reference to
Vornado Realty Trust's Annual Report on Form 10-K for the year
ended December 31, 1994, filed on March 23, 1995)
11 -- Statement Re Computation of Per Share Earnings
12 -- Consolidated Ratio of Earnings to Fixed Charges and Combined
Fixed Charges and Preferred Share Dividend Requirements
21 -- Subsidiaries of the Registrant
27 -- Financial Data Schedule
99.1 -- Item 8. Financial Statements and Supplementary Data, pages 24
through 42 of Vornado Realty Trust's Annual Report on Form 10-K
for the year ended December 31, 1996
99.2 -- Item 1. Financial Statements, pages 3 through 9 of Vornado Realty
Trust's Quarterly Report on Form 10-Q for the period ended March
31, 1997
99.3 -- Annexes A through E, Financial Statements, pages 17 through 90 of
Vornado Realty Trust's
-34-
<PAGE> 35
Current Report on Form 8-K, dated March 12, 1997, as filed
with the Securities and Exchange Commission on March 26, 1997
99.4 -- Annex F, Financial Statements, pages 5 through 15 of Vornado
Realty Trust's Amendment No. 1 to Current Report on Form
8-K/A, dated March 12, 1997, as filed with the Securities and
Exchange Commission on April 1, 1997.
99.5 -- Pages 3 through 4 and 10 through 22 of Vornado Realty Trust's
Proxy Statement and Notice of Annual Meeting of Shareholders
held on May 28, 1997
99.6 -- Item 8. Financial Statements and Supplementary Data, pages 21
through 38 of Alexander's, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996
-35-
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Vornado Realty, L.P.
Condensed Consolidated Pro forma Financial Data
(unaudited): F-2
Condensed Consolidated Pro forma Balance Sheet
as at March 31, 1997 F-3
Condensed Consolidated Pro forma Statement of
Income for the Three Months Ended March 31, 1997 F-4
Notes to Condensed Consolidated Pro forma
Financial Statements as at and for the Three
Months Ended March 31, 1997 F-5
Condensed Consolidated Pro forma Balance Sheet
as of December 31, 1996 F-6
Condensed Consolidated Pro forma Statement of
Income for the Year Ended December 31, 1996 F-7
Notes to Condensed Consolidated Pro forma
Financial Statements as at and for the Year
Ended December 31, 1996 F-8
Schedules:
I - Financial Statements of the Mendik Predecessors:
Combined Balance Sheets as at March 31, 1997 and
December 31, 1996 F-9
Combined Statements of Income for the Three Months
Ended March 31, 1997 and 1996 F-10
Combined Statement of Owners' Equity
for the Three Months Ended March 31, 1997 F-11
Combined Statement of Cash Flows for the Three
Months Ended March 31, 1997 F-12
Notes to Consolidated Financial Statements F-14
III - Real Estate and Accumulated Depreciation F-32
Schedules other than those listed above are omitted because they are
not applicable.
F-1
<PAGE> 37
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The unaudited condensed consolidated pro forma financial information
set forth below presents (i) the condensed consolidated pro forma statement of
income for the Operating Partnership for the year ended December 31, 1996 and
the three months ended March 31, 1997 as if the Mendik Transaction and certain
related transactions were consummated and the offering by Vornado of Series A
Preferred Shares of Beneficial Interest, liquidation preference $50.00 per share
(the "Offering") and the use of proceeds therefrom had occurred on January 1,
1997 and 1996, respectively, and (ii) the condensed consolidated pro forma
balance sheet of the Operating Partnership as of March 31, 1997 and December 31,
1996 as if the Mendik Transaction and certain related transactions were
consummated and the Offering and the use of proceeds therefrom had occurred on
March 31, 1997 and December 31, 1996.
The unaudited condensed consolidated pro forma financial information is
not necessarily indicative of what the Operating Partnership's actual results of
operations or financial position would have been had the Mendik Transaction and
related transactions been consummated and had the Offering and the use of
proceeds therefrom occurred on the dates indicated, nor does it purport to
represent the Operating Partnership's results of operations or financial
position for any future period. The results of operations for the period ended
March 31, 1997 are not necessarily indicative of the operating results for the
full year.
The unaudited condensed consolidated pro forma financial information
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included in Vornado's consolidated financial statements and notes
thereto included in Vornado's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Quarterly Report on Form 10-Q for the period ended
March 31, 1997 and the financial statements of the significant entities involved
in the Mendik Transaction previously included in the Company's Current Report on
Form 8-K, dated March 12, 1997, as amended by the Current Report on Form 8-K/A,
dated March 12, 1997; copies of such financial statements and notes thereto are
filed as exhibits hereto and incorporated by reference herein. In management's
opinion, all adjustments necessary to reflect the Mendik Transaction and the
related transactions and the Offering and the use of proceeds therefrom have
been made.
F-2
<PAGE> 38
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
MARCH 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Operating
Historical Historical Pro Forma Partnership
Vornado Mendik Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Real estate, net $ 243,647 $ 186,687 $ 385,722 (A) $ 816,056
Cash and cash equivalents 120,816 45,680 (263,721) (A) 133,095
(45,680) (A)
276,000 (B)
Investment in and advances
to Alexander's, Inc. 109,884 109,884
Investment in partnerships 20,103 20,103
Investment in Management
Company 7,425 (A) 7,425
Officer's deferred compensation
expenses 16,668 16,668
Mortgage note receivable 16,918 16,918
Receivable arising from straight-
lining of rents 17,721 38,787 (38,787) (A) 17,721
Other assets 35,831 48,123 (6,750) (A) 56,710
(16,870) (A)
(3,624) (C)
--------- --------- ---------- -----------
$ 561,485 $ 339,380 $ 293,715 $ 1,194,580
========= ========= ========== ===========
LIABILITIES:
Notes and mortgages payable $ 232,197 $ 283,466 $ (5,000) (A) $ 398,651
(112,021) (A)
Due for US Treasury Obligations 9,778 9,778
Deferred leasing fee income 11,575 11,575
Officer's deferred compensation
payable 25,000 25,000
Negative investment in partnership 5,216 (5,216) (A) --
Other liabilities 13,673 14,026 (314) (C) 27,385
--------- --------- ---------- -----------
292,223 302,708 (122,542) 472,389
--------- --------- ---------- -----------
PARTNERSHIP EQUITY 269,262 36,672 176,929 (A) 722,191
276,000 (B)
(36,672) (A)
--------- --------- ---------- -----------
$ 561,485 $ 339,380 $ 293,715 $ 1,194,580
========= ========= ========== ===========
</TABLE>
F-3
<PAGE> 39
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Property rentals $ 22,467 $ 32,587 $ 1,768 (E) $ 42,391
(74)(C)
(14,357)(K)
Expense reimbursements 6,210 2,751 (13)(C) 8,948
Other income 620 1,285 (1,285)(C) 620
--------- --------- --------- ---------
29,297 36,623 (13,961) 51,959
--------- --------- --------- ---------
EXPENSES:
Operating 8,507 11,432 29 (H) 19,789
(179)(C)
Depreciation and amortization 2,967 5,678 2,462 (F) 8,977
(29)(C)
(2,101)(K)
General and administrative 1,845 2,611 (1,668)(C) 2,113
(675)(K)
Amortization of officers deferred
compensation expense 6,249 6,249
--------- --------- --------- ---------
19,568 19,721 (2,161) 37,128
--------- --------- --------- ---------
Operating income 9,729 16,902 (11,800) 14,831
Income applicable to Alexander's 1,405 1,405
Equity in net income of management companies 217 512 (C) 729
Equity in net income of investees 228 439 (I) 667
Interest income on mortgage note receivable 612 612
Interest & dividend income 1,518 1,051 (8)(C) 2,561
Interest & debt expense (4,078) (5,589) 2,254 (D) (7,413)
Net gain on marketable securities 287 287
--------- --------- ---------
Net income 9,690 12,592 (8,603) 13,679
Preferred unit distributions -- -- (4,950)(G) (4,950)
Preferential allocations -- -- (2,593)(J) (2,593)
========= ========= ========= =========
Net income applicable to Class A units $ 9,690 $ 12,592(1) $ (16,146) $ 6,136
========= ========= ========= =========
Net income per Class A unit, based on
26,549,698 units $ 0.36 $ 0.23
========= =========
OTHER DATA:
Funds from Operations(1):
Net income applicable to Class A units $ 9,690 $ 12,592 ($16,146) $ 6,136
Depreciation & amortization of real property 2,831 5,678 361 8,870
Straight-lining of property rent escalations (669) (259) (1,768) (2,696)
Leasing fees received in excess of income recognized 454 454
Proportionate share of adjustments to income
from equity investments to arrive at FFO (76) 687 (243) 368
========= ========= ========= =========
$ 12,230 $ 18,698 ($17,796) $ 13,132
========= ========= ========= =========
CASH FLOW PROVIDED BY(USED IN):
Operating activities 19,753 (671) 4,071 23,153
Investing activities (283) (5,652) (328,638) (334,573)
Financing activities (16,739) (3,858) 290,287 269,690
</TABLE>
(1) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs. Funds from
operations should not be considered as an alternative to net income as an
indicator of the Operating Partnership's operating performance or as an
alternatve to cash flows as a measure of liquidity. The Operating Partnership's
definition of funds from operations does not conform to the NAREIT definition
because the Operating Partnership deducts the effect of the straight-lining of
property rentals for rent escalations
F-4
<PAGE> 40
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
AS AT AND FOR THE THREE MONTHS ENDED MARCH 31,1997
(A) The Mendik acquisition will be recorded under "purchase accounting"
applying the provisions of Accounting Principles Board Opinion No. 16.
The respective purchase costs will be allocated to acquired assets and
assumed liabilities using their relative fair values as of the closing
dates, based on valuations and other studies which are not yet complete.
Accordingly, the excess of the purchase cost over the net assets
acquired has not yet been allocated to individual assets and
liabilities. However, the Operating Partnership believes that the excess
purchase price will be allocated principally to real estate.
The purchase costs and preliminary allocation of the excess of cost
over net assets acquired is as follows: (in thousands)
<TABLE>
<S> <C> <C>
Issuance of units of operating partnership $ 176,929
Cash paid directly associated with the Mendik acquisition:
Acquisition of partnership interest $ 109,508
Cash used to reduce existing debt 112,012
Acquisition of Mendik management operations 7,425
Fees and expenses 26,607
Other 8,169 263,721
--------- ---------
Purchase Price 440,650
---------
Pro forma net book value of assets acquired:
Net book value of assets acquired per historical
financial statements 36,672
Write-off of deferred assets:
Receivable arising from the straight-lining of rents (38,787)
Tenant acquisition costs (6,750)
Deferred lease fees and loan costs (16,870)
Cash not acquired (45,680)
Cash used to reduce existing debt 112,012
Debt forgiven 5,000
Negative investment in partnerships 5,216
---------
Pro forma net book value of assets acquired 50,813
---------
Pro forma excess of purchase cost over net assets
acquired $ 389,837
=========
Preliminary allocation of excess:
Allocated to Mendik management operations $ 4,115
Allocated to real estate 385,722
---------
$ 389,837
=========
The total purchase price of $440,650 above excludes the following:
Debt - wholly owned properties $ 166,262
- partially owned properties 49,279 215,541
---------
Purchase price, as above 440,650
---------
Total purchase price, including debt $ 656,191
=========
</TABLE>
(B) Reflects proceeds from issuance of $3.25 Series A Convertible Preferred
Offering of $287,500, net of underwriting discount of $11,500.
(C) To reflect adjustments required to record the Operating Partnership's
investment in the Mendik management operations under the equity method
of accounting.
(D) Reflects decrease in interest expense and loan cost amortization
resulting from the reduction and refinancing of debt.
(E) To adjust rentals arising from the straight-lining of property rentals
for rent escalations.
(F) Increase in depreciation due to preliminary allocation of purchase
price.
(G) To reflect unit distributions at a rate of 6.50% plus amortization of
the underwriting discount on the proportionate number of Series A
Preferred Shares used to fund the acquisition.
(H) Increase in operating expenses due to contract changes.
(I) Increase in equity in investees, due to net decrease in interest
expense on refinanced debt.
(J) To reflect preferential allocations.
(K) To eliminate non-recurring items: lease cancellation income of $14,357,
the write-off of related costs of $2,101, and general & administrative
costs of $675
F-5
<PAGE> 41
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION> OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Real estate, net $246,249 $187,433 $ 390,950 (A) $ 824,632
Cash and cash equivalents 117,245 50,654 (263,721)(A) 129,270
(50,908)(A)
276,000 (B)
Investment in and advances to
Alexander's, Inc. 107,628 107,628
Investment in partnerships 19,863 19,863
Investment in Management
Company 7,425 (A) 7,425
Officer's deferred compensation
expense 22,917 22,917
Mortgage note receivable 17,000 17,000
Receivable arising from straight-
lining of rents 17,052 42,219 (42,219)(A) 17,052
Other assets 37,113 42,855 (6,908)(A) 52,673
(17,718)(A)
(2,669)(C)
-------- -------- --------- ----------
$565,204 $343,024 $ 290,232 $1,198,460
======== ======== ========= ==========
LIABILITIES:
Notes and mortgages payable $232,387 $283,847 $ (5,000)(A) $ 399,222
(112,012)(A)
Due for US Treasury Obligations 9,636 9,636
Deferred leasing fee income 8,373 8,373
Officer's deferred compensation
payable 25,000 25,000
Negative investment in partnership 5,399 (5,399)(A) -
Other liabilities 13,551 13,806 (314)(C) 27,043
-------- -------- --------- ----------
288,947 303,052 (122,725) 469,274
-------- -------- --------- ----------
PARTNERSHIP EQUITY 276,257 39,972 176,929 (A) 729,186
276,000 (B)
(39,972)(A)
-------- -------- --------- ----------
$565,204 $343,024 $ 290,232 $1,198,460
======== ======== ========= ==========
</TABLE>
F-6
<PAGE> 42
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OPERATING
HISTORICAL HISTORICAL PRO FORMA PARTNERSHIP
VORNADO MENDIK ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Property rentals $ 87,424 $ 87,261 $ 7,071 (E) $ 181,712
(44)(C)
Expense reimbursements 26,644 13,551 40,195
Other income 2,819 5,378 (5,378)(C) 2,819
--------- --------- --------- ---------
116,887 106,190 1,649 224,726
--------- --------- --------- ---------
EXPENSES:
Operating 36,412 46,691 (39)(C) 83,180
116 (H)
Depreciation and amortization 11,589 14,133 (144)(C) 35,559
9,981 (F)
General and administrative 5,167 6,783 (3,788)(C) 8,162
Amortization of officer's deferred compensation
expense 2,083 2,083
--------- --------- --------- ---------
55,251 67,607 6,126 128,984
--------- --------- --------- ---------
Operating income 61,636 38,583 (4,477) 95,742
Income applicable to Alexander's 7,956 7,956
Equity in net income of management companies 1,855 1,471 (C) 3,326
Equity in net income of investees 1,663 1,755 (I) 3,418
Interest income on mortgage note receivable 2,579 2,579
Interest and dividend income 3,151 2,536 (20)(C) 5,667
Interest and debt expense (16,726) (23,998) 9,016 (D) (31,708)
Net gain on marketable securities 913 913
--------- --------- --------- ---------
Net income 61,364 18,784 7,745 87,893
Preferred unit distributions -- -- (19,800)(G) (19,800)
Preferential allocations -- -- (10,372)(J) (10,372)
========= ========= ========= =========
Net income applicable to Class A units $ 61,364 $ 18,784 $ (22,427) $ 57,721
========= ========= ========= =========
Net income per Class A unit, based on
24,603,442 units $ 2.49 $ 2.35
========= =========
OTHER DATA:
Funds from Operations (1):
Net income applicable to Class A units $ 61,364 $ 18,784 $ (22,427) $ 57,721
Depreciation and amortization of real property 10,583 14,133 9,837 34,553
Straight-lining of property rent escalations (2,676) (1,783) (7,071) (11,530)
Leasing fees received in excess of income
recognized 1,805 1,805
Proportionate share of adjustments to income
from equity investments to arrive at FFO (1,760) 2,747 (970) 17
========= ========= ========= =========
$ 69,316 $ 33,881 $ (20,631) $ 82,566
========= ========= ========= =========
CASH FLOW PROVIDED BY (USED) IN:
Operating activities 70,703 29,267 9,407 109,377
Investing activities 14,912 (8,262) (328,638) (321,988)
Financing activities (15,046) (11,706) 270,209 243,457
</TABLE>
- ---------
(1) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs. Funds
from operations should not be considered as an alternative to net income
as an indicator of the Operating Partnership's operating performance or as
an alternative to cash flows as a measure of liquidity. The Operating
Partnership's definition of funds from operations does not conform to the
NAREIT definition because the Operating Partnership deducts the effect of
the straight-lining of property rentals for rent escalations.
F-7
<PAGE> 43
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
AS AT AND FOR THE YEAR ENDED DECEMBER 31,1996
(A) The Mendik acquisition will be recorded under "purchase accounting"
applying the provisions of Accounting Principles Board Opinion No. 16.
The respective purchase costs will be allocated to acquired assets and
assumed liabilities using their relative fair values as of the closing
dates, based on valuations and other studies which are not yet
complete. Accordingly, the excess of the purchase cost over the net
assets acquired has not yet been allocated to individual assets and
liabilities. However, the Operating Partnership believes that the
excess purchase price will be allocated principally to real estate.
The purchase costs and preliminary allocation of the excess of cost
over net assets acquired is as follows: (in thousands)
<TABLE>
<S> <C> <C>
Issuance of units of operating partnership $ 176,929
Cash paid directly associated with the Mendik acquisition:
Acquisition of partnership interest $ 109,508
Cash used to reduce existing debt 112,012
Acquisition of Mendik management operations 7,425
Fees and expenses 26,607
Other 8,169 263,721
--------- ---------
Purchase Price 440,650
---------
Pro forma net book value of assets acquired:
Net book value of assets acquired per historical
financial statements 39,972
Write-off of deferred assets:
Receivable arising from the straight-lining of rents (42,219)
Tenant acquisition costs (6,908)
Deferred lease fees and loan costs (17,718)
Cash not acquired (50,908)
Cash used to reduce existing debt 112,012
Debt forgiven 5,000
Negative investment in partnerships 5,399
---------
Pro forma net book value of assets acquired 44,630
---------
Pro forma excess of purchase cost over net assets
acquired $ 396,020
=========
Preliminary allocation of excess:
Allocated to Mendik management operations $ 5,070
Allocated to real estate 390,950
=========
$ 396,020
=========
The total purchase price of $440,650 above excludes the following:
Debt - wholly owned properties $ 166,262
- partially owned properties 49,279 215,541
---------
Purchase price, as above 440,650
=========
Total purchase price, including debt $ 656,191
=========
</TABLE>
(B) Reflects proceeds from issuance of $3.25 Series A Convertible Preferred
Offering of $287,500, net of underwriting discount of $11,500.
(C) To reflect adjustments required to record the Operating Partnership's
investment in the Mendik management operations under the equity method
of accounting.
(D) Reflects decrease in interest expense and loan cost amortization
resulting from the reduction and refinancing of debt.
(E) To adjust rentals arising from the straight-lining of property rentals
for rent escalations.
(F) Increase in depreciation due to preliminary allocation of purchase
price.
(G) To reflect unit distributions at a rate of 6.50% plus amortization of
the underwriting discount on the proportionate number of Series A
Preferred Shares used to fund the acquisition.
(H) Increase in operating expenses due to contract changes.
(I) Increase in equity in investees, due to net decrease in interest
expense on refinanced debt.
(J) To reflect preferential allocations.
F-8
<PAGE> 44
The Mendik Predecessors
Combined Balance Sheet
March 31, 1997 and 1996
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
1997 1996
-------- --------
(In Thousands)
<S> <C> <C>
Assets
Commercial real estate properties, at cost (Note 5)
Land $ 37,028 $ 37,028
Buildings and improvements 313,177 305,018
Equipment, autos, furniture and fixtures 7,093 7,066
-------- --------
357,298 349,112
Less accumulated depreciation 172,712 159,516
-------- --------
184,586 189,596
Cash and cash equivalents 11,969 14,089
Restricted cash 2,382 7,025
Available-for-sale securities (Note 1) 31,329 18,399
Receivables 26,086 10,233
Related party receivables 1,747 2,855
Deferred rents receivable (Note 7) 38,787 40,191
Prepaid expenses 8,649 8,434
Investment in partnerships (Note 3) 20,103 22,682
Tenant acquisition costs (Note 4) 6,750 7,510
Deferred lease fees and loan costs, less accumulated
amortization of $26,048 (1997) and $22,471 (1996) 16,870 15,480
Security deposits 2,378 2,245
-------- --------
Total assets $351,636 $338,739
======== ========
Liabilities and Owners' Equity
Mortgage notes payable (Note 5) $283,466 $285,668
Tenant acquisition costs payable (Note 4) 4,308 6,176
Accounts payable and accrued expenses 5,272 10,363
Accounts payable to related parties 468 46
Excess of distributions and share of losses over
investment in partnership (Note 3) 5,216 --
Deferred rents 1,600 3,203
Security deposits 2,378 2,322
-------- --------
Total liabilities 302,708 307,778
Owners' equity 48,928 30,961
Commitments and other comments (Notes 6, 7 and 9) -- --
-------- --------
Total liabilities and owners' equity $351,636 $338,739
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE> 45
The Mendik Predecessors
Combined Statement of Income
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
REVENUES
Rental revenue (Note 7) $32,587 $21,013
Escalation and reimbursement revenues (Note 7) 2,737 3,598
Construction revenues 14 --
Management revenues, including $850 (1997) and $743 (1996)
from affiliates 983 845
Leasing commissions, including $87 (1997) and $142 (1996)
from affiliates 302 183
Investment income 1,051 554
Equity in net income of investees (Note 3) 228 40
- ------- -------
Total revenues 37,902 26,233
- ------- -------
Expenses
Operating expenses, including $3,385 (1997) and $3,365 (1996)
to affiliates 6,506 6,488
Real estate taxes 4,758 4,773
Rent expense to affiliates 168 166
Interest (Note 5) 5,589 5,697
Depreciation and amortization 5,678 3,612
Marketing, general and administrative 2,611 1,932
- ------- -------
Total expenses 25,310 22,668
- ------- -------
Net income $12,592 $ 3,565
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-10
<PAGE> 46
The Mendik Predecessors
Combined Statement of Owners' Equity
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1997
BALANCE AT JANUARY 1, 1997 $ 39,972
Owners' (distributions) (3,481)
Owners' contributions 4
Adjustment to unrealized gain on available-for-sale securities ( 159)
Net income for the three months ended March 31, 1997 12,592
---------
BALANCE AT MARCH 31, 1997 $ 48,928
=========
1996
BALANCE AT JANUARY 1, 1996 $ 30,468
Owners' (distributions) (2,937)
Owners' contributions 21
Adjustment to unrealized gain on available-for-sale securities ( 156)
Net income for the three months ended March 31, 1996 3,565
---------
BALANCE AT MARCH 31, 1996 $ 30,961
=========
</TABLE>
See accompanying notes to combined financial statements.
F-11
<PAGE> 47
The Mendik Predecessors
Combined Statement of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
1997 1996
----------- --------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 12,592 $ 3,565
Adjustments:
Depreciation and amortization 5,678 3,612
Equity in net income of investees ( 228) ( 40)
Deferred rents receivable 3,432 294
Changes in operating assets and liabilities:
Restricted cash ( 1,319) ( 3,468)
Receivables ( 16,280) 1,850
Related party receivables 1,333 1,053
Prepaid expenses ( 5,729) ( 5,594)
Deferred lease fees ( 1,477) ( 396)
Accrued interest receivable ( 123) ( 161)
Tenant acquisition costs payable ( 217) ( 114)
Accounts payable and accrued expenses 306 3,538
Accounts payable to related parties 104 ( 520)
Deferred rents 1,334 2,848
Security deposits 45 84
Security deposits payable ( 122) ( 100)
----------- -----------
Net cash provided by (used in) operating activities ( 671) 6,451
----------- -----------
INVESTING ACTIVITIES
Additions to land, buildings and improvements ( 1,455) ( 2,807)
Purchases of equipment, autos, furniture and fixtures ( 75) ( 72)
Contributions to partnership investments ( 196) ( 242)
Proceeds from sales of securities 4,503 4,929
Purchases of securities ( 8,429) ( 3,468)
----------- -----------
Net cash used in investing activities ( 5,652) ( 1,660)
----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 48
The Mendik Predecessors
Combined Statement of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
1997 1996
----------- -------
(In Thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from mortgage note payable $ -- $ 50
Payments of mortgage notes payable ( 381) ( 174)
Cash distributions to owners ( 3,481) ( 2,937)
Cash contributions from owners 4 21
Deferred loan costs -- ( 513)
------------ ----------
Net cash used in financing activities ( 3,858) ( 3,553)
----------- -----------
Net increase (decrease) in cash and cash equivalents ( 10,181) 1,238
Cash and cash equivalents at beginning of period 22,150 12,851
----------- -----------
Cash and cash equivalents at end of period $ 11,969 $ 14,089
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 5,177 $ 2,256
Income taxes paid 138 43
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE> 49
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Mendik Predecessors are engaged in the ownership, management, operation,
leasing and development of real estate office properties (collectively, the
"Properties") located in the borough of Manhattan in New York City.
PRINCIPLES OF COMBINATION
The Mendik Predecessors is not a legal entity, but rather a combination of real
estate properties and interests in entities (see Note 2) that are organized as
partnerships and a limited liability company and affiliated real estate
management and leasing entities. All significant intercompany transactions and
balances have been eliminated in combination.
The accompanying combined financial statements include partnerships, a limited
liability company and S corporations which are under common control as follows:
<TABLE>
<CAPTION>
ENTITY PROPERTY/SERVICE
------------------------------- -------------------------
<S> <C>
Office Property Entities
Two Penn Plaza Associates L.P. Two Penn Plaza
1740 Broadway Associates, L.P. 1740 Broadway
Eleven Penn Plaza Company 11 Penn Plaza
866 U.N. Plaza Associates LLC 866 United Nations Plaza
Management Entities
Mendik Realty Company, Inc. Management and leasing
Mendik Management Company, Inc. Management and leasing
</TABLE>
Additionally, three property-owning partnerships in which The Mendik
Predecessors own less than a majority interest are accounted for under the
equity method. Under the equity method, The Mendik Predecessors record such
investments at cost and adjust the investment account for their share of the
entities' income or loss and for cash distributions and contributions.
(Continued)
F-14
<PAGE> 50
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REAL ESTATE PROPERTIES
Depreciation is computed by the straight-line method over the estimated useful
lives which range from ten to thirty-nine years for buildings and improvements
and four to seven years for equipment, autos, furniture and fixtures. Tenant
improvements, which are included in buildings and improvements on the
accompanying combined balance sheet, are amortized over the life of the
respective leases, using the straight-line method.
Included in building improvements are approximately $526,000 and $559,000 of
additions for the three months ended March 31, 1997 and 1996, respectively. In
addition, building improvements of the equity investees includes approximately
$166,000 and $880,000 of additions for the three months ended March 31, 1997 and
1996, respectively.
CASH AND CASH EQUIVALENTS
The Mendik Predecessors consider highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents
consist primarily of U.S. Treasury Bills and certificates of deposit.
Most of the cash balances are in excess of federally insured limits.
(Continued)
F-15
<PAGE> 51
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRICTED CASH
Restricted cash consists of escrows for real estate taxes and capital
expenditures, and collateral deposits for payment of mortgage interest. An
agreement for the collection of rents was entered into during 1994 between one
of the office property entities and its two mortgagees, pursuant to which all
rents are deposited into an account directly controlled by one of the
mortgagees. Any cash required by the office property entity to fund operations
must be requisitioned from the mortgagee.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents so recognized over amounts contractually due pursuant
to the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheet. Contractually due but unpaid rents are
included in receivables on the accompanying combined balance sheet. Certain
lease agreements provide for reimbursement of real estate taxes, insurance and
certain common area maintenance costs and rental increases tied to increases.
DEFERRED COSTS
Lease costs and loan costs are capitalized and amortized over the life of the
related lease or loan. Affiliates of The Mendik Predecessors have incurred costs
related to the subsequent event described in Note 2. Such deferred costs were
reimbursed to such affiliates upon successful completion of the transaction.
AVAILABLE-FOR-SALE SECURITIES
Debt securities that The Mendik Predecessors have both the positive intent and
ability to hold to maturity are carried at amortized cost. Debt securities that
The Mendik Predecessors do not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried as a separate
component of owners' equity. The cost of marketable securities sold is
determined using the specific identification method.
(Continued)
F-16
<PAGE> 52
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES (CONTINUED)
At March 31, 1997 and 1996, available-for-sale securities, consisting
principally of U.S. Treasury obligations, had an aggregate cost of $31,357,321
and $18,341,186, respectively, and an aggregate market value of $31,329,482 and
$18,399,286, respectively. Net unrealized gains (losses) at March 31, 1997 and
1996 were $(27,839) and $58,100, respectively, consisting of unrealized gains of
$68,269 and $58,100, respectively, and unrealized losses of $96,108 and $-0-,
respectively. At March 31, 1997 and 1996, the investment in marketable debt
securities includes accrued interest of $473,184 and $408,303, respectively.
Contractual maturities (including accrued interest) of the securities at March
31, 1997 are as follows:
<TABLE>
<S> <C>
Within 1 year $ 18,412,306
1-4 years 12,553,201
--------------
$ 30,965,507
==============
</TABLE>
Available-for-sale securities at March 31, 1997 include a mutual fund carried at
its fair value of $363,975. At March 31, 1996, the mutual fund was carried at
its cost of $324,302 and had a fair value of $328,664.
INCOME TAXES
The entities in The Mendik Predecessors are not taxpaying entities for Federal
income tax purposes and, accordingly, no provision or credit has been made in
the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns. Where applicable, state and local income taxes were provided.
CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFITS AND LOSSES
Capital contributions, distributions and profits and losses are allocated in
accordance with the terms of the applicable agreements.
(Continued)
F-17
<PAGE> 53
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE EXCHANGE AGREEMENTS
Two of the office property entities have entered into interest rate exchange
agreements to reduce the impact of certain changes in interest rates on their
variable rate debt. Payments under these agreements are recognized as
adjustments to interest expense when incurred. Unamortized amounts paid under
interest rate exchange agreements are written off when the related debt is paid
prior to maturity. When the underlying debt is not repaid, any gain or loss
realized upon early termination of interest rate exchange agreements is
recognized as an adjustment of interest expense over the remaining term of the
hedged debt. There is exposure to credit loss in the event of nonperformance by
the other party to the agreement. However, nonperformance by the counterparty is
not anticipated.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Mendik Predecessors adopted SFAS No. 121 in the first
quarter of 1996. The adoption had no effect on the financial statements.
2. SUBSEQUENT EVENT
On April 15, 1997, Vornado Realty Trust ("Vornado") consummated the acquisition,
through an operating partnership, of interests in all or a portion of seven
Manhattan office buildings and certain management and leasing assets held by The
Mendik Predecessors. Simultaneously with the closing of this transaction, and in
connection therewith, Vornado converted to an Umbrella Partnership REIT (UPREIT)
by transferring (by contribution, merger or otherwise) all or substantially all
of the interests in its properties and other assets to The Mendik Company, L.P.,
a Delaware limited partnership which has been renamed Vornado Realty L.P. (the
"Operating Partnership"), of which Vornado is the sole general partner. As a
result of such conversion, future activities will be conducted through the
Operating Partnership.
(Continued)
F-18
<PAGE> 54
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
2. SUBSEQUENT EVENT (CONTINUED)
The consideration for the transaction was approximately $656,000,000, including
$264,000,000 in cash, $177,000,000 in the limited partnership units of the
Operating Partnership and $215,000,000 in indebtedness.
3. INVESTMENT IN PARTNERSHIPS
The Mendik Predecessors' investments in the three partnerships which have been
accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
Percentage
Partnership Property Ownership
-------------------------- -------------------- ----------
<S> <C> <C>
330 Madison Company 330 Madison Avenue 24.75%
Two Park Company 2 Park Avenue 40%
570 Lexington Company, L.P. 570 Lexington Avenue 5.576205%
</TABLE>
These investments are recorded initially at cost and subsequently adjusted for
equity in the net income or loss of investees and cash contributions and
distributions.
(Continued)
F-19
<PAGE> 55
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
3. INVESTMENT IN PARTNERSHIPS (CONTINUED)
Condensed financial statements of the partnerships are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED BALANCE SHEET
Commercial real estate property, net $ 186,255 $ 234,710
Receivables 32,349 40,252
Cash and short-term investments 11,197 38,817
Prepaid expenses and other assets 18,425 17,904
----------- -----------
Total assets $ 248,226 $ 331,683
=========== ===========
Mortgages, including $65,000 (1997 and 1996) due
to an affiliate $ 159,058 $ 151,409
Loans payable 40,000 40,000
Accounts payable and other liabilities 22,756 19,605
Partners' capital 26,412 120,669
----------- -----------
Total liabilities and partners' capital $ 248,226 $ 331,683
=========== ===========
CONDENSED STATEMENT OF OPERATIONS
Rental revenue and escalations, including $161 (1997)
and $157 (1996) from affiliates $ 13,956 $ 13,293
Other revenue 84 521
----------- -----------
Total revenues 14,040 13,814
----------- -----------
Interest 4,385 4,351
Depreciation and amortization 2,846 3,913
Operating and other expenses, including $2,090 (1997)
and $1,970 (1996) to affiliates 7,469 7,326
----------- -----------
Total expenses 14,700 15,590
----------- -----------
Net loss $ (660) $ (1,776)
=========== ===========
</TABLE>
(Continued)
F-20
<PAGE> 56
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
3. INVESTMENT IN PARTNERSHIPS (CONTINUED)
Operating and other expenses paid to affiliates consist of management fees and
maintenance and security expenses. In addition, payments of $69,168 and $107,937
for lease commissions were made to affiliates for the three months ended March
31, 1997 and 1996, respectively.
Included in mortgages at March 31, 1997 and 1996 was approximately $94,100,000
and $86,400,000, respectively, relating to 330 Madison Company. Such amount is
collateralized by the respective property and also a pledge of the partnership
interest of all the partners of 330 Madison Company. The mortgage is payable to
an entity which since 1991 has been under the control of provisional
liquidators. Since 1991, there has been uncertainty as to the applicable
interest rate. Included in the mortgage balance at March 31, 1997 and 1996 is
approximately $36,100,000 and $28,400,000, respectively, of accrued interest.
Other liabilities at March 31, 1997 and 1996 include accrued interest of
approximately $3,500,000 and $3,300,000, respectively. Such amounts exceed the
interest which the partnership believes should be accrued by approximately
$15,200,000 and $12,700,000 at March 31, 1997 and 1996, respectively. The equity
in earnings of the investee for the three months ended March 31, 1997 and 1996,
had 330 Madison Company's position been applied, would have been greater by
approximately $125,000 and $114,000, respectively.
The partners of 330 Madison Company are currently negotiating a resolution of
the dispute with the mortgagee relating to the mortgage loans. If successful,
330 Madison Company expects to recognize a gain on the amount of debt, if any,
to be extinguished and, in addition, have the loan extended on a short-term
basis.
Additionally, pursuant to the partnership agreements of 330 Madison Company and
Two Park Company, each partner has the right to implement "buy-sell" provisions.
The partners could be compelled either to sell their partnership interests to
other partners, for the purchase price set forth in such other partners' notices
exercising their "buy-sell" rights, or to purchase the interests of the other
partners in the respective partnerships.
As of December 31, 1996, the partners of Two Park Company concluded that the
total estimated undiscounted future cash flow to be generated by its property,
from operations and its eventual disposition, over an estimated holding period
is less than its carrying value. As a result, Two Park Company recorded a
write-down of $50,148,556 at December 31, 1996 to reduce the property's carrying
value to its estimated fair value. The Mendik Predecessors had previously
determined that, prior to 1996, their investment in Two Park Company had
declined in value and
(Continued)
F-21
<PAGE> 57
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
3. INVESTMENT IN PARTNERSHIPS (CONTINUED)
that such decline was deemed to be other than temporary. Accordingly, the
investment was written down by $25,000,000 prior to 1996, and the 1996 financial
statements do not reflect its distributive share of the 1996 write-down by Two
Park Company. The difference between The Mendik Predecessors' carrying amount of
the investment and the underlying equity in such investee is being amortized
over the life of the property.
4. TENANT ACQUISITION COSTS
Under the provisions of a leasing arrangement which commenced in December 1992,
one of the property partnerships has assumed a tenant's obligation under a
pre-existing lease expiring in November 2000 in a building previously occupied
by the tenant. The space was subleased on April 28, 1993 for the full lease
term. The estimated obligation (including costs incurred in connection with the
sublease), net of sublease income, was $9,456,000 and is being amortized on a
straight-line basis over the term of the tenant's lease with the partnership,
which expires December 2007.
5. MORTGAGE NOTES PAYABLE
The mortgage notes payable at March 31, 1997 and 1996, collateralized by the
respective properties and assignment of leases, are as follows:
<TABLE>
<CAPTION>
PROPERTY MORTGAGE NOTES WITH FIXED INTEREST 1997 1996
- -------------------- --------------------------------------------- -------- ---------
(IN THOUSANDS)
<S> <C> <C>
(A) Two Penn Plaza Mortgage notes, interest rates ranging from
6.6725% to 9.2525%, due May 10, 2000 $155,000 $155,000
(B) Eleven Penn Plaza First mortgage note, interest at 9.25%, due
January 31, 1999 53,454 55,656
(B) Eleven Penn Plaza Second mortgage note, interest at 9.25%, due
January 31, 1999 21,133 21,133
(C) 866 United Nations Plaza Mortgage notes, interest rates ranging from
6.10% to 9.87%, due December 14, 1998 49,779 49,779
-------- --------
279,366 281,568
MORTGAGE NOTE WITH VARIABLE INTEREST
-----------------------------------------------
(A) Two Penn Plaza Mortgage notes, interest rates based on
LIBOR plus 0.5625%, due May 10, 2000 4,100 4,100
-------- --------
Total Mortgage Notes Payable $283,466 $285,668
======== ========
</TABLE>
F-22
<PAGE> 58
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
5. MORTGAGE NOTES PAYABLE (CONTINUED)
(A) TWO PENN PLAZA
The loan agreement is for $225,000,000 and requires payment of interest at a
floating rate. No additional borrowing in excess of the outstanding principal
balance may be made under the agreement. Two interest rate exchange agreements,
which mature within seven months of the loan maturity, have fixed the rate on
$155,000,000 of the loan at an average of approximately 7.4%. The effective rate
paid on the remaining outstanding balance of $4,100,000 was approximately 6.1%
and 6.75% for the three months ended March 31, 1997 and 1996, respectively.
(B) ELEVEN PENN PLAZA
The first mortgage required fixed monthly payments of $614,723, including
interest at 9.25% a year through January 1, 1996. Effective January 30, 1996,
monthly payments of $604,829 including interest at 9.25% a year are required
through January 31, 1999, the extended maturity date, at which time the
principal balance of approximately $48,850,000 will be payable. The entire
outstanding principal balance may be prepaid by giving 30 days' written notice
as follows: at any time during the last three months before maturity without
penalty, and at any other time with a 2% prepayment penalty.
The second mortgage loan required interest only at a variable base rate, as
defined, through January 29, 1996. The effective rate for the period January 1,
1996 through January 29, 1996 was 8.75%. Effective January 30, 1996, the
maturity date was extended to January 31, 1999, and payments of interest only at
9.25% a year are required. The principal balance may be prepaid, in full or in
part, at any time without penalty.
(C) 866 UNITED NATIONS PLAZA
The first mortgage, with a balance of $9,729,004, matured on January 1, 1996.
The mortgage was acquired by the second mortgage lender on January 2, 1996, at
which time an additional $50,000 was advanced by the lender.
(Continued)
F-23
<PAGE> 59
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
5. MORTGAGE NOTES PAYABLE (CONTINUED)
(C) 866 UNITED NATIONS PLAZA (CONTINUED)
The mortgage, which matures on December 14, 1998, may be extended by the
borrower to December 14, 2000. Interest is payable monthly at either the LIBOR
rate or a fixed rate option. The fixed rate option has been chosen for the
entire debt, through maturity, in six separate agreements with rates ranging
from 6.10% to 9.87%. The effective rate was approximately 7.60% and 7.50% for
the three months ended March 31, 1997 and 1996, respectively.
(D) PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgage notes payable as of March
31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31, (IN THOUSANDS)
----------- --------------
<S> <C>
1998 $ 2,414
1999 121,952
2000 --
2001 159,100
--------
$283,466
========
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by management,
using available market information and appropriate valuation methodologies.
Considerable judgment is necesssary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts The Mendik Predecessors could realize on
disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
(Continued)
F-24
<PAGE> 60
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
At March 31, 1997, total mortgage notes payable with an aggregate carrying value
of $283,466,000 have an estimated aggregate fair value of approximately
$284,400,000. Estimated fair value is based on interest rates currently
available to The Mendik Predecessors for issuance of debt with similar terms and
remaining maturities. The estimated fair value of the interest rate exchange
agreements is $1,073,000 based on the estimated amount that The Mendik
Predecessors would have to pay to terminate the agreements at March 31, 1997.
Disclosures about fair value of financial instruments is based on pertinent
information available to management as of March 31, 1997. Although management is
not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
7. RENTAL INCOME
The Mendik Predecessors' Properties are leased to tenants under operating
leases. The minimum rental amounts due under the leases are generally subject to
either scheduled fixed increases or adjustments. The leases generally also
require that the tenants reimburse The Mendik Predecessors for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31, (IN THOUSANDS)
----------- --------------
<S> <C>
1998 $ 69,003
1999 59,325
2000 57,208
2001 52,116
2002 48,644
Thereafter 288,164
--------
$574,460
========
</TABLE>
(Continued)
F-25
<PAGE> 61
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
7. RENTAL INCOME (CONTINUED)
Approximately 13.9% of rental revenue for the three months ended March 31, 1996
is derived from one tenant whose leases expired October 31, 1996 and were not
renewed. The leases provided for annual base rents of approximately $11,840,000
and additional rents based on increases in certain expenses over base period
amounts.
On October 1, 1995, a tenant in 11 Penn Plaza subleased its space to a partner
in Eleven Penn Plaza Company. Under the sublease agreement (the "sublease"),
which covers the remainder of the lease term through June 2001, the tenant
vacated part of the space in November 1995, and the remainder of the space in
January 1997. Additionally, the sublease requires the tenant to expend
approximately $3,700,000 for alterations to the space.
For financial reporting purposes, the transaction is treated as a lease
termination. Net payments to be received from the tenant for the entire term of
the sublease were present-valued using an 8% interest rate. The present value of
amounts to be received, allocable to the space vacated in 1997, is approximately
$17,938,000. Income recognized in 1997, net of an adjustment of approximately
$3,691,000 for rent income previously recognized on the straight-line basis, is
approximately $14,247,000. In addition, related prepaid leasing costs and
unamortized tenant improvements of approximately $447,000 and $1,654,000,
respectively, have been written off in 1997 and charged to amortization expense.
8. RELATED PARTY TRANSACTIONS
Operating expenses paid to affiliates consist of maintenance and security
expense. In addition, payments were made to an affiliate for capital
expenditures for the three months ended March 31, 1997 of approximately
$604,000.
(Continued)
F-26
<PAGE> 62
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
9. COMMITMENTS AND CONTINGENCIES
DEFINED CONTRIBUTION PLAN
The Mendik Predecessors have a defined contribution plan (the "Plan") which
qualifies under Section 401(k) of the Internal Revenue Code and provides
coverage for all nonunion employees of The Mendik Predecessors. The maximum
percentage of annual compensation that participants may contribute to the Plan
is not to exceed the maximum allowed under the Internal Revenue Code. Matching
contributions are made by management for each participant with at least 1,000
hours of service, up to a maximum of the greater of $1,000 or 5% of
compensation. Additional amounts may be contributed as determined by management.
Pension plan expense for the three months ended March 31, 1997 and 1996 was
$105,901 and $92,374, respectively.
OTHER COMMITMENTS AND CONTINGENCIES
The Mendik Predecessors are subject to various legal proceedings and claims that
arise in the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of The Mendik Predecessors.
On January 14, 1997, two individual investors in Mendik Real Estate Limited
Partnership ("RELP"), the publicly held limited partnership that indirectly owns
an effective 60% interest in the Two Park Avenue property ("Two Park"), filed a
purported class action suit in the Supreme Court of the State of New York,
County of New York, against NY Real Estate Services I, Inc. ("NY Real Estate"),
Mendik RELP Corp., B&B Park Avenue, L.P. (the entity that owns a 40% interest in
Two Park and which was acquired by the Operating Partnership (see Note 2)) and
Mr. Mendik, on behalf of all persons holding limited partnership interests in
RELP. The complaint alleges that for reasons which include purported conflicts
of interest, the defendants breached their fiduciary duty to the limited
partners and that NY Real Estate and Mendik RELP Corp. also breached their
contractual duty to the limited partners. The plaintiffs further allege that a
transfer of the 40% interest in Two Park will result in a burden on the
operation and management of Two Park since the purchaser of the 40% interest
will have no fiduciary duty to RELP, yet all
(Continued)
F-27
<PAGE> 63
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)
decisions regarding any proposed sale or refinancing of the property will
require its consent, with the result that, among other things, the transfer will
prevent RELP from negotiating for the sale of Two Park at better terms than a
sale of only RELP's 60% interest. The complaint also alleges, among other
things, that the transfer of the 40% interest violates RELP's right of first
refusal to purchase the interest being transferred and fails to provide limited
partners in RELP with a comparable transfer opportunity.
Shortly after the filing of the complaint, another limited partner represented
by the same attorneys filed an essentially identical complaint in the same
court. Among other things, both complaints claim that the purported class has
and will continue to suffer unspecified damages, and seek a declaration that the
suits are properly class actions, an accounting and certain injunctive relief,
including an injunction enjoining the transfer of the 40% interest and a
judgment requiring either the liquidation of the partnership and the appointment
of a receiver or an auction of Two Park. The time for defendants to respond to
the complaints and to certain discovery requests has not yet expired. In the
interim, plaintiff's counsel have requested an agreement to consolidate the two
actions and have stated that they may seek to amend the complaints in
unspecified ways, as well as to file a motion seeking a preliminary injunction.
The Mendik Predecessors intend to vigorously defend against these actions.
As of March 31, 1997, in accordance with tenant leases, the office property
entities have agreed to reimburse tenants up to a maximum of approximately
$10,302,000 for initial tenant charges, as defined. Such charges incurred at
March 31, 1997 totaled approximately $2,034,000.
(Continued)
F-28
<PAGE> 64
The Mendik Predecessors
Notes To Combined Financial Statements
(Unaudited)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Mendik Predecessors are in the process of installing new state-of-the-art
air conditioning equipment for several properties. The total remaining cost of
the project will be approximately $6,100,000, of which approximately $975,000
will be funded by a Con Edison rebate program. In addition, adjacent property
owners will fund approximately $1,900,000, which has been billed to them. At
March 31, 1997, approximately $5,700,000 of the remaining cost of $6,100,000 has
been incurred. At December 31, 1996, one of the Properties had completed the
installation of state-of-the-art air conditioning equipment for a total cost of
$7,700,000 before rebates and funding by adjacent property owners.
The Mendik Predecessors are contractually committed to make an additional
investment in 570 Lexington Company, L.P., representing their pro rata portion
of the redevelopment costs of the building owned by that entity. At March 31,
1997, the additional investment is expected to be approximately $1,300,000.
(Continued)
F-29
<PAGE> 65
THE MENDIK PREDECESSORS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------- ------------- ---------------------- --------------------------- ---------------------------------
Cost Capitalized Subsequent Gross Amount at Which Carried
Initial Cost to Acquisition at Close of Period
---------------------- --------------------------- -------------------------------
Buildings and Buildings and Buildings and
Description Encumbrance Land Improvements Land Improvements Land Improvements Total
- -------------------- ------------- ------- ------------- ------ ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Two Penn Plaza, $159,100 $ -- $ 53,707 $6,015 $ 63,898 $ 6,015 $117,605 $123,620
New York, NY (3 mortgages)
1740 Broadway, -- 20,520 86,723 -- 7,675 20,520 94,398 114,918
New York, NY
11 Penn Plaza, 74,587 5,433 27,904 780 48,500 6,213 76,404 82,617
New York, NY (2 mortgages)
866 United Nations 49,779 4,280 12,210 -- 12,560 4,280 24,770 29,050
Plaza,
New York, NY (6 mortgages)
-------- ------- -------- ------ -------- ------- -------- --------
$283,466 $30,233 $180,544 $6,795 $132,633 $37,028 $313,177 $350,205
======== ======= ======== ====== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
------------ ------------ ------------- ------------------
Life on Which
Accumulated Date of Depreciation
Depreciation Construction Date Acquired is Computed
------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Two Penn Plaza, $83,913 1968 1978 31-1/2 - 39 years
New York, NY
1740 Broadway, 18,835 1950 1990 15 - 39 years
New York, NY
11 Penn Plaza, 48,011 1923 1980 15 - 39 years
New York, NY
866 United Nations 15,921 1996 1978 10 - 39 years
Plaza,
New York, NY
--------
$166,680
========
</TABLE>
(Continued)
F-30
<PAGE> 66
THE MENDIK PREDECESSORS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1997
(UNAUDITED)
The changes in real estate for the three months ended March 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $348,803 $338,229
Improvements 1,402 3,817
-------- --------
Balance at end of period $350,205 $342,046
======== ========
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income tax
purposes at December 31, 1996 was $313,000,000.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos and furniture and fixtures, for the three months ended March
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $162,412 $151,027
Depreciation for period 4,268 2,629
-------- --------
Balance at end of period $166,680 $153,656
======== ========
</TABLE>
F-31
<PAGE> 67
VORNADO REALTY L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
March 31, 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- -------- -------- -------- --------
Costs
Initial cost to company (1) capitalized
Buildings and subsequent
Description Encumbrances Land improvements to acquisition
- ----------- ------------ ---- ------------ --------------
<S> <C> <C> <C> <C>
Shopping Centers
New Jersey
Atlantic City $ 2,135* $ 358 $ 2,143 $ 594
Bordentown 3,276* 498 3,176 1,116
Bricktown 9,919* 929 2,175 9,179
Cherry Hill 9,706* 915 3,926 3,319
Delran 2,848* 756 3,184 2,037
Dover 3,635* 224 2,330 2,398
East Brunswick 8,205* 319 3,236 3,897
East Hanover 11,066* 376 3,063 3,443
Hackensack 0 536 3,293 7,232
Jersey City 10,381* 652 2,962 1,806
Kearny (4) 0 279 4,429 (1,293)
Lawnside 5,708* 851 2,222 1,313
Lodi 2,420* 245 2,315 957
Manalapan 6,397* 725 2,447 4,958
Marlton 5,398* 1,514 4,671 674
Middletown 7,761* 283 1,508 3,947
Morris Plains 6,600* 1,254 3,140 3,277
North Bergen (4) 0 510 3,390 (955)
North Plainfield 3,634 500 13,340 327
Totowa 15,646* 1,097 5,359 11,806
Turnersville 2,116* 900 2,132 75
Union 15,975* 1,014 4,527 1,886
Vineland 2,358* 290 1,594 1,258
Watchung (4) 0 451 2,347 6,749
Woodbridge 8,792* 190 3,047 715
--------- --------- --------- ---------
Total New Jersey 143,976 15,666 85,956 70,715
--------- --------- --------- ---------
New York
14th Street and Union
Square, Manhattan 0 12,566 4,044 3,457
Albany (Menands) 0 460 1,677 2,906
Buffalo (Amherst) 4,863* 402 2,019 2,193
Freeport 8,021* 1,231 3,273 2,852
New Hyde Park 2,043* 0 0 122
North Syracuse 0 0 0 23
Rochester (Henrietta) 2,203* 0 2,124 1,173
Rochester 2,832* 443 2,870 630
--------- --------- --------- ---------
Total New York 19,962 15,102 16,007 13,356
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
- -------- -------- -------- -------- --------
Gross amount at which carried at close of period Accumulated
Buildings and depreciation Date of Date
Description Land improvements Total (2) and amortization construction (3) acquired
- ----------- ---- ------------ --------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers
New Jersey
Atlantic City $ 358 $ 2,737 $ 3,095 $ 1,840 1965 1965
Bordentown 713 4,077 4,790 3,549 1958 1958
Bricktown 929 11,354 12,283 4,035 1968 1968
Cherry Hill 915 7,245 8,160 4,619 1964 1964
Delran 756 5,221 5,977 2,615 1972 1972
Dover 205 4,747 4,952 2,573 1964 1964
East Brunswick 319 7,133 7,452 4,666 1957 1957
East Hanover 477 6,405 6,882 3,939 1962 1962
Hackensack 536 10,525 11,061 3,922 1963 1963
Jersey City 652 4,768 5,420 3,324 1965 1965
Kearny (4) 290 3,125 3,415 931 1938 1959
Lawnside 851 3,535 4,386 1,921 1969 1969
Lodi 245 3,272 3,517 2,191 1955 1975
Manalapan 725 7,405 8,130 3,254 1971 1971
Marlton 1,611 5,248 6,859 3,557 1973 1973
Middletown 283 5,455 5,738 2,419 1963 1963
Morris Plains 1,104 6,567 7,671 3,830 1961 1985
North Bergen (4) 2,309 636 2,945 63 1993 1959
North Plainfield 500 13,667 14,167 3,579 1955 1989
Totowa 1,097 17,165 18,262 5,189 1957 1957
Turnersville 900 2,207 3,107 1,608 1974 1974
Union 1,014 6,413 7,427 4,622 1962 1962
Vineland 290 2,852 3,142 1,625 1966 1966
Watchung (4) 4,200 5,347 9,547 422 1994 1959
Woodbridge 220 3,732 3,952 2,715 1959 1959
--------- --------- --------- ---------
Total New Jersey 21,499 150,838 172,337 73,008
--------- --------- --------- ---------
New York
14th Street and Union
Square, Manhattan 12,581 7,486 20,067 461 1965 1993
Albany (Menands) 460 4,583 5,043 1,769 1965 1965
Buffalo (Amherst) 636 3,978 4,614 2,301 1968 1968
Freeport 1,231 6,125 7,356 2,457 1981 1981
New Hyde Park 0 122 122 122 1970 1976
North Syracuse 0 23 23 23 1967 1976
Rochester (Henrietta) 0 3,297 3,297 1,910 1971 1971
Rochester 443 3,500 3,943 2,259 1966 1966
--------- --------- --------- ---------
Total New York 15,351 29,114 44,465 11,302
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN I
- -------- --------
Life on which
depreciation in latest
income statement
Description is computed
- ----------- -----------
<S> <C>
Shopping Centers
New Jersey
Atlantic City 14-40 Years
Bordentown 10-40 Years
Bricktown 27-40 Years
Cherry Hill 15-40 Years
Delran 20-40 Years
Dover 16-40 Years
East Brunswick 13-33 Years
East Hanover 16-40 Years
Hackensack 17-40 Years
Jersey City 19-40 Years
Kearny (4) 28-40 Years
Lawnside 19-40 Years
Lodi 11-27 Years
Manalapan 18-40 Years
Marlton 21-40 Years
Middletown 27-40 Years
Morris Plains 14-19 Years
North Bergen (4) 30 Years
North Plainfield 26-30 Years
Totowa 22-40 Years
Turnersville 23-40 Years
Union 10-40 Years
Vineland 22-40 Years
Watchung (4) 30 Years
Woodbridge 11-40 Years
Total New Jersey
New York
14th Street and Union
Square, Manhattan 40 Years
Albany (Menands) 27-40 Years
Buffalo (Amherst) 14-40 Years
Freeport 19-40 Years
New Hyde Park 6-7 Years
North Syracuse 11-12 Years
Rochester (Henrietta) 22-40 Years
Rochester 15-40 Years
Total New York
</TABLE>
---CONTINUED---
F-32
<PAGE> 68
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- -------- -------- -------- --------
Costs
Initial cost to company (1) capitalized
Buildings and subsequent
Description Encumbrances Land improvements to acquisition
- ----------- ------------ ---- ------------ --------------
<S> <C> <C> <C> <C>
Pennyslvania
Allentown 7,696* 70 3,446 9,555
Bensalem 3,967* 1,198 3,717 1,582
Bethlehem 0 278 1,806 3,684
Broomall 3,260* 734 1,675 1,606
Glenolden 4,245* 850 1,295 730
Lancaster 2,312* 606 2,312 2,484
Levittown 2,283* 193 1,231 94
10th and Market
Streets, Philadelphia 0 933 3,230 4,147
Upper Moreland 3,517* 683 2,497 112
York 1,463* 421 1,700 1,223
--------- --------- --------- ---------
Total Pennsylvania 28,743 5,966 22,909 25,217
--------- --------- --------- ---------
Maryland
Baltimore (Belair Rd.) 0 785 1,333 2,978
Baltimore (Towson) 5,779* 581 2,756 485
Baltimore (Dundalk) 4,084* 667 1,710 2,952
Glen Burnie 2,299* 462 1,741 522
Hagerstown 0 168 1,453 887
--------- --------- --------- ---------
Total Maryland 12,162 2,663 8,993 7,824
--------- --------- --------- ---------
Connecticut
Newington 3,042* 502 1,581 522
Waterbury 3,889* 0 2,103 1,341
--------- --------- --------- ---------
Total Connecticut 6,931 502 3,684 1,863
--------- --------- --------- ---------
Massachusetts
Chicopee 1,999* 510 2,031 358
Springfield (4) 0 505 1,657 857
--------- --------- --------- ---------
Total Massachusetts 1,999 1,015 3,688 1,215
--------- --------- --------- ---------
Texas
Dallas
Lewisville 764* 2,433 2,271 676
Mesquite 3,445* 3,414 4,704 1,134
Skillman 1,987* 3,714 6,891 1,030
--------- --------- --------- ---------
Total Texas 6,196 9,561 13,866 2,840
--------- --------- --------- ---------
Total Shopping Centers 219,969 50,475 155,103 123,030
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
- -------- -------- -------- -------- --------
Gross amount at which carried at close of period Accumulated
Buildings and depreciation Date of Date
Description Land improvements Total (2) and amortization construction (3) acquired
- ----------- ---- ------------ --------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pennyslvania
Allentown 334 12,737 13,071 4,169 1957 1957
Bensalem 1,198 5,299 6,497 3,293 1972 1972
Bethlehem 278 5,490 5,768 2,784 1966 1966
Broomall 850 3,165 4,015 1,813 1966 1966
Glenolden 850 2,025 2,875 958 1975 1975
Lancaster 606 4,796 5,402 2,677 1966 1966
Levittown 193 1,325 1,518 1,065 1964 1964
10th and Market
Streets, Philadelphia 933 7,377 8,310 358 1977 1994
Upper Moreland 683 2,609 3,292 1,845 1974 1974
York 421 2,923 3,344 1,574 1970 1970
--------- --------- --------- ---------
Total Pennsylvania 6,346 47,746 54,092 20,536
--------- --------- --------- ---------
Maryland
Baltimore (Belair Rd.) 785 4,311 5,096 2,774 1962 1962
Baltimore (Towson) 581 3,241 3,822 1,952 1968 1968
Baltimore (Dundalk) 667 4,662 5,329 2,350 1966 1966
Glen Burnie 462 2,263 2,725 1,723 1958 1958
Hagerstown 168 2,340 2,508 1,256 1966 1966
--------- --------- --------- ---------
Total Maryland 2,663 16,817 19,480 10,055
--------- --------- --------- ---------
Connecticut
Newington 502 2,103 2,605 1,441 1965 1965
Waterbury 667 2,777 3,444 1,686 1969 1969
--------- --------- --------- ---------
Total Connecticut 1,169 4,880 6,049 3,127
--------- --------- --------- ---------
Massachusetts
Chicopee 510 2,389 2,899 1,706 1969 1969
Springfield (4) 2,586 433 3,019 51 1993 1966
--------- --------- --------- ---------
Total Massachusetts 3,096 2,822 5,918 1,757
--------- --------- --------- ---------
Texas
Dallas
Lewisville 2,469 2,911 5,380 650 1989 1990
Mesquite 3,414 5,838 9,252 1,299 1988 1990
Skillman 3,714 7,921 11,635 1,701 1988 1990
--------- --------- --------- ---------
Total Texas 9,597 16,670 26,267 3,650
--------- --------- --------- ---------
Total Shopping Centers 59,721 268,887 328,608 123,435
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN I
- -------- --------
Life on which
depreciation in latest
income statement
Description is computed
- ----------- -----------
<S> <C>
Pennyslvania
Allentown 24-42 Years
Bensalem 20-40 Years
Bethlehem 13-40 Years
Broomall 13-40 Years
Glenolden 23-40 Years
Lancaster 14-40 Years
Levittown 14-40 Years
10th and Market
Streets, Philadelphia
Upper Moreland 22-40 Years
York 19-40 Years
Total Pennsylvania
Maryland
Baltimore (Belair Rd.) 26-33 Years
Baltimore (Towson) 19-40 Years
Baltimore (Dundalk) 16-40 Years
Glen Burnie 22-33 Years
Hagerstown 13-40 Years
Total Maryland
Connecticut
Newington 15-40 Years
Waterbury 23-40 Years
Total Connecticut
Massachusetts
Chicopee 20-40 Years
Springfield (4) 30 Years
Total Massachusetts
Texas
Dallas
Lewisville 28-30 Years
Mesquite 28-30 Years
Skillman 27-30 Years
Total Texas
Total Shopping Centers
</TABLE>
---CONTINUED---
F-33
<PAGE> 69
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- -------- -------- -------- --------
Costs
Initial cost to company (1) capitalized
Buildings and subsequent
Description Encumbrances Land improvements to acquisition
- ----------- ------------ ---- ------------ --------------
<S> <C> <C> <C> <C>
Warehouse/Industrial
New Jersey
East Brunswick 0 0 4,772 2,853
East Hanover 8,210* 576 7,752 6,952
Edison 2,455* 705 2,839 1,235
Garfield 715 96 8,068 3,808
--------- --------- --------- ---------
Total Warehouse/
Industrial 11,380 1,377 23,431 14,848
--------- --------- --------- ---------
Other Properties
New Jersey
Paramus 848 0 8,345 2,227
Montclair 0 66 470 330
Rahway 0 0 0 25
New York
825 7th Ave, Manhattan 0 0 8,870 0
--------- --------- --------- ---------
Total Other
Properties 848 66 17,685 2,582
--------- --------- --------- ---------
Leasehold Improvements
and Equipment
TOTAL - DECEMBER 31, 1996 $ 232,197 $ 51,918 $ 196,219 $ 140,460
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
- -------- -------- -------- -------- --------
Gross amount at which carried at close of period Accumulated
Buildings and depreciation Date of Date
Description Land improvements Total (2) and amortization construction (3) acquired
- ----------- ---- ------------ --------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warehouse/Industrial
New Jersey
East Brunswick -- 7,625 7,625 3,705 1972 1972
East Hanover 691 14,589 15,280 8,336 1963-1967 1963
Edison 704 4,075 4,779 1,862 1954 1982
Garfield 96 11,876 11,972 8,207 1942 1959
--------- --------- --------- ---------
Total Warehouse/
Industrial 1,491 38,165 39,656 22,110
--------- --------- --------- ---------
Other Properties
New Jersey
Paramus 0 10,572 10,572 2,428 1967 1987
Montclair 66 800 866 493 1972 1972
Rahway 0 25 25 23 1972 1972
New York
825 7th Ave, Manhattan 0 8,665 8,665 164 1963 1996
--------- --------- --------- ---------
Total Other
Properties 66 20,062 20,128 3,108
--------- --------- --------- ---------
Leasehold Improvements
and Equipment 9,271 9,271 5,363
--------- --------- ---------
TOTAL - DECEMBER 31, 1996 $ 61,278 $ 336,385 $ 397,663 $ 154,016
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN I
- -------- --------
Life on which
depreciation in latest
income statement
Description is computed
- ----------- -----------
<S> <C>
Warehouse/Industrial
New Jersey
East Brunswick 19-40 Years
East Hanover 5-40 Years
Edison 17-25 Years
Garfield 17-33 Years
Total Warehouse/
Industrial
Other Properties
New Jersey
Paramus 33-40 Years
Montclair 15 Years
Rahway 14 Years
New York
825 7th Ave, Manhattan 39 Years
Total Other
Properties
Leasehold Improvements
and Equipment 3-20 Years
TOTAL - DECEMBER 31, 1996
</TABLE>
* These encumbrances are cross collateralized under a blanket mortgage
in the amount of $227,000,000 at March 31, 1997.
Notes:
1)Initial cost is cost as of January 30, 1982 (the date on which
Vornado commenced real estate operations) unless acquired subsequent
to that date - see Column H.
2)Aggregate cost is approximately the same for federal income tax
purposes.
3)Date of original construction - many properties have had substantial
renovation or additional construction - see Column D.
4)Buildings on these properties were demolished in 1993. As a result,
the cost of the buildings and improvements, net of accumulated
depreciation, were transferred to land. In addition, the cost of the
land in Kearny is net of a $1,615,000 insurance recovery.
F-34
<PAGE> 70
VORNADO REALTY, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VORNADO REALTY, L.P.
--------------------
(Registrant)
Date: June 11, 1997 /s/ Joseph Macnow
--------------------
JOSEPH MACNOW
Vice President,
Chief Financial Officer
<PAGE> 71
EXHIBIT INDEX
Item No. Description
-------- -----------
3.1 -- First Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated as of April 15, 1997
4.1 -- Form of Specimen Certificate Evidencing Partnership Interests in
Vornado Realty L.P.
10.1 -- Master Consolidation Agreement, dated March 12, 1997, among
Vornado Realty Trust, Vornado/Saddle Brook L.L.C., The Mendik
Company, L.P. and various parties defined therein (incorporated by
reference to Exhibit 2.1 of Vornado Realty Trust's Current Report
on Form 8-K, dated March 12, 1997 (File No. 001-11954), filed on
March 26, 1997)
10.2 -- Credit Agreement, dated as of April 15, 1997, between Vornado
Realty L.P., as Borrower, Vornado Realty Trust, as General
Partner, and Union Bank of Switzerland (New York Branch), as Bank
and Union Bank of Switzerland (New York Branch), as Administrative
Agent (incorporated by reference to Exhibit 10.1 of Vornado Realty
Trust's Current Report on Form 8-K, dated April 15, 1997 (File No.
001-11954), filed on April 30, 1997)
10.3 -- Indenture, dated as of November 24, 1993, between Vornado Finance
Corp. and Bankers Trust Company, as Trustee (incorporated by
reference to Vornado Realty Trust's Current Report on Form 8-K,
dated November 24, 1993, filed on December 1, 1993)
10.4 -- Master Agreement and Guaranty, dated as of May 1, 1992, between
Vornado, Inc. and Bradlees New Jersey, Inc. (incorporated by
reference to Vornado Realty Trust's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992, filed on May 8, 1992)
10.5 -- Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing, dated as of November 24, 1993, made by each of the
entities listed therein, as mortgagors to Vornado Finance Corp.,
as mortgagee (incorporated by reference to Vornado Realty Trust's
Current Report on Form 8-K, dated November 24, 1993, filed on
December 1, 1993)
10.6 -- Management Agreement, dated July 13, 1992, between Interstate
Properties and Vornado, Inc. (incorporated by reference to Vornado
Realty Trust's Annual Report on Form 10-K for the year ended
December 31, 1992, filed on February 16, 1993)
10.7 -- Management and Development Agreement, dated as of February 6, 1995
(incorporated by reference to Vornado Realty Trust's Current
Report on Form 8-K, dated February 6, 1995, filed on February 21,
1995)
10.8 -- Standstill and Corporate Governance Agreement, dated as of
February 6, 1995 (incorporated by reference to Vornado Realty
Trust's Current Report on Form 8-K, dated February 6, 1995, filed
on February 21, 1995)
10.9 -- Credit Agreement, dated as of March 15, 1995, between Alexander's,
Inc., as borrower, and Vornado Lending Corp., as lender
(incorporated by reference to Vornado Realty Trust's Annual Report
on Form 10-K for the year ended December 31, 1994, filed on March
23, 1995)
10.10 -- Subordination and Intercreditor Agreement, dated as of March 15,
1995, among Vornado Lending Corp., Vornado Realty Trust and First
Fidelity Bank, National Association (incorporated by reference to
Vornado Realty Trust's Annual Report on Form 10-K for the year
ended December 31, 1994, filed on March 23, 1995)
11 -- Statement Re Computation of Per Share Earnings
12 -- Consolidated Ratio of Earnings to Fixed Charges and Combined
Fixed Charges and Preferred Share Dividend Requirements
21 -- Subsidiaries of the Registrant
27 -- Financial Data Schedule
99.1 -- Item 8. Financial Statements and Supplementary Data, pages 24
through 42 of Vornado Realty Trust's Annual Report on Form 10-K
for the year ended December 31, 1996
99.2 -- Item 1. Financial Statements, pages 3 through 9 of Vornado Realty
Trust's Quarterly Report on Form 10-Q for the period ended March
31, 1997
99.3 -- Annexes A through E, Financial Statements and Pro Forma
Financial Statements, pages 17 through 90 of Vornado Realty
Trust's
<PAGE> 72
EXHIBIT INDEX
Item No. Description
-------- -----------
Current Report on Form 8-K, dated March 12, 1997, as filed
with the Securities and Exchange Commission on March 26, 1997
99.4 -- Annex F, Financial Statements, pages 5 through 15 of Vornado
Realty Trust's Amendment No. 1 to Current Report on Form
8-K/A, dated March 12, 1997, as filed with the Securities and
Exchange Commission on April 1, 1997.
99.5 -- Pages 3 through 4 and 10 through 22 of Vornado Realty Trust's
Proxy Statement and Notice of Annual Meeting of Shareholders
held on May 28, 1997
99.6 -- Item 8. Financial Statements and Supplementary Data, pages 21
through 38 of Alexander's, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996
<PAGE> 1
Exhibit 3.1
-----------------------------------------
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VORNADO REALTY L.P.
-----------------------------------------
Dated as of: April 15, 1997
-----------------------------------------
IN RELIANCE UPON CERTAIN EXEMPTIONS FROM REGISTRATION, THE PARTNERSHIP INTERESTS
BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. ACCORDINGLY, NO
PARTNERSHIP INTEREST MAY BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE, AND
UNLESS THE OTHER TRANSFER RESTRICTIONS CONTAINED HEREIN HAVE BEEN SATISFIED.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS
Act ......................................................................... 1
Additional Limited Partner .................................................. 1
Adjusted Capital Account .................................................... 1
Adjusted Capital Account Deficit ............................................ 2
Adjusted Property ........................................................... 2
Adjustment Date ............................................................. 2
Affiliate ................................................................... 2
Affiliated Transferee ....................................................... 2
Agreed Value ................................................................ 2
Agreement ................................................................... 2
Assignee .................................................................... 2
Bankruptcy .................................................................. 2
Book-Tax Disparities ........................................................ 3
Business Day ................................................................ 3
Capital Account ............................................................. 3
Capital Contribution ........................................................ 3
Carrying Value .............................................................. 3
Cash Amount ................................................................. 3
Certificate ................................................................. 3
Charter Documents ........................................................... 3
Class A Unit ................................................................ 3
Class B Unit ................................................................ 3
Class C Accumulated Amount .................................................. 4
Class C Preferential Distribution ........................................... 4
Class C Unit ................................................................ 4
Class D/E Accumulated Amount ................................................ 4
Class D/E Preferential Distribution ......................................... 4
Class D Unit ................................................................ 4
Class E Unit ................................................................ 4
Code ........................................................................ 4
Common Partnership Unit ..................................................... 4
Consent ..................................................................... 4
Consent of Certain Limited Partners ......................................... 4
Consent of the Outside Limited Partners ..................................... 5
Consolidation ............................................................... 5
Consolidation Transaction ................................................... 5
Contributed Property ........................................................ 5
Conversion Factor ........................................................... 5
Convertible Funding Debt .................................................... 6
Debt ........................................................................ 6
Declaration of Trust ........................................................ 6
Deemed Partnership Interest Value ........................................... 6
Deemed Value of the Partnership Interest .................................... 6
Depreciation ................................................................ 6
866 U.N. Plaza Associates ................................................... 6
-i-
<PAGE> 3
866 U.N. Plaza Property .................................................... 6
866 U.N. Plaza Units ....................................................... 6
Effective Date ............................................................. 6
Eleven Penn Partnerships ................................................... 7
Eleven Penn Plaza Property ................................................. 7
Eleven Penn Plaza Units .................................................... 7
Equity Merger .............................................................. 7
ERISA ...................................................................... 7
Exchange Act ............................................................... 7
Exchanged Property ......................................................... 7
Funding Debt ............................................................... 7
Funds From Operations ...................................................... 7
FW/Mendik LLC .............................................................. 7
General Partner ............................................................ 7
General Partner Entity ..................................................... 7
General Partner Payment .................................................... 7
General Partnership Interest ............................................... 7
Immediate Family ........................................................... 7
Incapacity or Incapacitated ................................................ 7
Indemnitee ................................................................. 8
IRS ........................................................................ 8
Limited Partner ............................................................ 8
Limited Partnership Interest ............................................... 8
Liquidating Event .......................................................... 8
Liquidating Transaction .................................................... 8
Liquidator ................................................................. 8
Majority in Interest ....................................................... 8
Mendik Owner ............................................................... 8
Net Income ................................................................. 8
Net Loss ................................................................... 8
New Securities ............................................................. 9
Non-Class D/E Units ........................................................ 9
Nonrecourse Built-in Gain .................................................. 9
Nonrecourse Deductions ..................................................... 9
Nonrecourse Liability ...................................................... 9
Notice of Redemption ....................................................... 9
Partner .................................................................... 9
Partner Minimum Gain ....................................................... 9
Partner Nonrecourse Debt ................................................... 9
Partner Nonrecourse Deductions ............................................. 9
Partnership ................................................................ 9
Partnership Interest ....................................................... 9
Partnership Minimum Gain ................................................... 9
Partnership Record Date .................................................... 10
Partnership Unit ........................................................... 10
Partnership Year ........................................................... 10
Percentage Interest ........................................................ 10
Person ..................................................................... 10
Predecessor Entity ......................................................... 10
Preference Units ........................................................... 10
Publicly Traded ............................................................ 10
-ii-
<PAGE> 4
Qualified REIT Subsidiary .................................................. 10
Recapture Income ........................................................... 10
Redeeming Partner .......................................................... 10
Redemption Amount .......................................................... 10
Redemption Right ........................................................... 11
Regulations ................................................................ 11
REIT ....................................................................... 11
REIT Expenses .............................................................. 11
REIT Requirements .......................................................... 11
Replacement Property ....................................................... 11
Residual Gain or Residual Loss ............................................. 11
Restricted Partner ......................................................... 11
Safe Harbors ............................................................... 11
Securities Act ............................................................. 11
704(c) Value ............................................................... 11
Share ...................................................................... 12
Shares Amount .............................................................. 12
Specified Redemption Date .................................................. 12
Stock Option Plan .......................................................... 12
Subsidiary ................................................................. 12
Substituted Limited Partner ................................................ 12
Successor Entity ........................................................... 12
Successor Partnership ...................................................... 12
Tenant ..................................................................... 12
Terminating Capital Transaction ............................................ 12
Termination Transaction .................................................... 12
Title 8 .................................................................... 13
Transferred Property ....................................................... 13
Two Penn Plaza Associates .................................................. 13
Two Penn Plaza Property .................................................... 13
Two Penn Plaza Units ....................................................... 13
Unrealized Gain ............................................................ 13
Unrealized Loss ............................................................ 13
Valuation Date ............................................................. 13
Value ...................................................................... 13
Vornado Sub ................................................................ 14
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization ................................................... 14
Section 2.2 Name ........................................................... 14
Section 2.3 Registered Office and Agent; Principal Office .................. 14
Section 2.4 Term ........................................................... 14
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business ........................................... 14
Section 3.2 Powers ......................................................... 15
Section 3.3 Partnership Only for Purposes Specified ........................ 15
-iii-
<PAGE> 5
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.1 Capital Contributions of the Partners ............................................... 15
Section 4.2 Issuances of Partnership Interests .................................................. 16
Section 4.3 No Preemptive Rights ................................................................ 19
Section 4.4 Other Contribution Provisions ....................................................... 19
Section 4.5 No Interest on Capital .............................................................. 19
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions ................................... 19
Section 5.2 Amounts Withheld .................................................................... 22
Section 5.3 Distributions Upon Liquidation ...................................................... 22
Section 5.4 Revisions to Reflect Issuance of Additional Partnership Interests ................... 22
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes ............................................ 22
Section 6.2 Revisions to Allocations to Reflect Issuance of Additional Partnership Interests .... 24
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management .......................................................................... 24
Section 7.2 Certificate of Limited Partnership .................................................. 27
Section 7.3 Title to Partnership Assets ......................................................... 28
Section 7.4 Reimbursement of the General Partner ................................................ 28
Section 7.5 Outside Activities of the General Partner ........................................... 29
Section 7.6 Transactions with Affiliates ........................................................ 31
Section 7.7 Indemnification ..................................................................... 31
Section 7.8 Liability of the General Partner .................................................... 33
Section 7.9 Other Matters Concerning the General Partner ........................................ 33
Section 7.10 Reliance by Third Parties ........................................................... 34
Section 7.11 Restrictions on General Partner's Authority ......................................... 34
Section 7.12 Loans by Third Parties .............................................................. 41
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability ............................................................. 41
Section 8.2 Management of Business .............................................................. 42
Section 8.3 Outside Activities of Limited Partners .............................................. 42
Section 8.4 Return of Capital ................................................................... 42
Section 8.5 Rights of Limited Partners Relating to the Partnership .............................. 42
Section 8.6 Redemption Right .................................................................... 43
Section 8.7 Right of Offset ..................................................................... 46
</TABLE>
-iv-
<PAGE> 6
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.1 Records and Accounting .......................................... 47
Section 9.2 Fiscal Year ..................................................... 47
Section 9.3 Reports ......................................................... 47
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns ...................................... 48
Section 10.2 Tax Elections ................................................... 48
Section 10.3 Tax Matters Partner ............................................. 48
Section 10.4 Organizational Expenses ......................................... 49
Section 10.5 Withholding ..................................................... 49
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer ........................................................ 50
Section 11.2 Transfers of Partnership Interests of General Partner ........... 50
Section 11.3 Limited Partners' Rights to Transfer ............................ 51
Section 11.4 Substituted Limited Partners .................................... 52
Section 11.5 Assignees ....................................................... 53
Section 11.6 General Provisions .............................................. 53
Section 11.7 Payment of Incremental Tax ...................................... 54
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner .......................... 55
Section 12.2 Admission of Additional Limited Partners ........................ 55
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership ... 55
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution ..................................................... 56
Section 13.2 Winding Up ...................................................... 56
Section 13.3 Compliance with Timing Requirements of Regulations .............. 57
Section 13.4 Deemed Distribution and Recontribution .......................... 57
Section 13.5 Rights of Limited Partners ...................................... 58
Section 13.6 Notice of Dissolution ........................................... 58
Section 13.7 Cancellation of Certificate of Limited Partnership .............. 58
Section 13.8 Reasonable Time for Winding Up .................................. 58
Section 13.9 Waiver of Partition ............................................. 58
Section 13.10 Liability of Liquidator ......................................... 58
</TABLE>
-v-
<PAGE> 7
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments ............................................... 59
Section 14.2 Meetings of the Partners ................................. 60
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice ..................................... 61
Section 15.2 Titles and Captions ...................................... 61
Section 15.3 Pronouns and Plurals ..................................... 61
Section 15.4 Further Action ........................................... 61
Section 15.5 Binding Effect ........................................... 61
Section 15.6 Creditors; Other Third Parties ........................... 61
Section 15.7 Waiver ................................................... 61
Section 15.8 Counterparts ............................................. 62
Section 15.9 Applicable Law ........................................... 62
Section 15.10 Invalidity of Provisions ................................. 62
Section 15.11 Power of Attorney ........................................ 62
Section 15.12 Entire Agreement ......................................... 63
Section 15.13 No Rights as Shareholders ................................ 63
Section 15.14 Limitation to Preserve REIT Status ....................... 63
-vi-
<PAGE> 8
EXHIBIT A
PARTNERS AND
PARTNERSHIP INTERESTS
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
SPECIAL ALLOCATION RULES
EXHIBIT D
NOTICE OF REDEMPTION
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
EXHIBIT F
RESTRICTED PARTNERS
EXHIBIT G
DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION
OF THE
SERIES A PREFERRED UNITS
EXHIBIT H
EXCLUDED UNITS
-vii-
<PAGE> 9
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VORNADO REALTY L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
Vornado Realty L.P., dated as of April 15, 1997, is entered into by and among
Vornado Realty Trust, a Maryland real estate investment trust as the General
Partner of and a Limited Partner in the Partnership, FW/Mendik REIT, L.L.C., a
Delaware limited liability company, as a Limited Partner in the Partnership, and
The Mendik Company, Inc., a Maryland corporation, as a Limited Partner in the
Partnership, together with any other Persons who become Partners in the
Partnership as provided herein.
WHEREAS, the Partnership was formed under the name "Mendik Real Estate
Group, L.P." on October 2, 1996, and, on October 2, 1996, the Partnership
adopted an Agreement of Limited Partnership (the "Prior Agreement");
WHEREAS, on November 7, 1996, the general partner of the Partnership
changed the Partnership's name to "The Mendik Company, L.P." and, in connection
therewith, caused a certificate of Amendment to the Certificate of Limited
Partnership of the Partnership to be filed in the office of the Delaware
Secretary of State on November 8, 1996;
WHEREAS, FW/Mendik REIT, L.L.C. and The Mendik Company, Inc., the partners
of the Partnership under the Prior Agreement, have immediately prior to the
Effective Date recapitalized the Partnership;
WHEREAS, the Partnership proposes to acquire certain property and, in
connection therewith, to admit Vornado Realty Trust as an Additional Limited
Partner in the Partnership and immediately thereafter to convert the General
Partnership Interest held by The Mendik Company, Inc. to a Limited Partnership
Interest in the Partnership; and
WHEREAS, in connection with the foregoing transactions the parties hereto
have agreed to amend and restate the Prior Agreement on the terms set forth
below;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby amend and restate the
Prior Agreement in its entirety and agree to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act " means the Delaware Revised Uniform Limited Partnership Act,
as it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner " means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"Adjusted Capital Account " means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision
<PAGE> 10
of this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit " means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year.
"Adjusted Property " means any property the Carrying Value of which
has been adjusted pursuant to Exhibit B hereto.
"Adjustment Date " has the meaning set forth in Section 4.2.B
hereof.
"Affiliate " means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliated Transferee " means, with respect to any Limited Partner,
a member of such Limited Partner's Immediate Family, a trust formed solely for
the benefit of such Limited Partner and/or members of such Limited Partner's
Immediate Family, or any partnership, limited liability company, joint venture,
corporation or other business entity all of the interests in which are, and
remain, directly or indirectly owned and controlled solely by such Limited
Partner and/or members of such Limited Partner's Immediate Family, and if the
Limited Partner is an entity and owned Partnership Units on the Effective Date,
Persons who, as of the Effective Date, directly or indirectly owned interests in
or were beneficiaries of such Limited Partner and continue to own such interests
(or be beneficiaries) at the time of the proposed transfers or any Affiliated
Transferee of such Persons.
"Agreed Value " means (i) in the case of any Contributed Property
contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on Exhibit E attached hereto as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
704(c) Value of such property as of the time of its contribution to the
Partnership, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the regulations
thereunder.
"Agreement " means this First Amended and Restated Agreement of
Limited Partnership, as it may be amended, supplemented or restated from time to
time.
"Assignee " means a Person to whom one or more Partnership Units
have been transferred in a manner permitted under this Agreement, but who has
not become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Bankruptcy " with respect to any Person shall be deemed to have
occurred when (a) the Person commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Person is adjudged as
bankrupt or insolvent, or a final and
-2-
<PAGE> 11
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Person, (c) the Person
executes and delivers a general assignment for the benefit of the Person's
creditors, (d) the Person files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against the Person in
any proceeding of the nature described in clause (b) above, (e) the Person
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator for the Person or for all or any substantial part of the Person's
properties, (f) any proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect has not been dismissed within one hundred twenty (120) days after the
commencement thereof, (g) the appointment without the Person's consent or
acquiescence of a trustee, receiver of liquidator has not been vacated or stayed
within ninety (90) days of such appointment or (h) an appointment referred to in
clause (g) is not vacated within ninety (90) days after the expiration of any
such stay.
"Book-Tax Disparities " means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B hereto and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained, with respect to each such
Contributed Property or Adjusted Property, strictly in accordance with federal
income tax accounting principles.
"Business Day " means any day except a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"Capital Account " means the Capital Account maintained for a
Partner pursuant to Exhibit B hereto.
"Capital Contribution " means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant to
Section 4.1 or 4.2 hereof.
"Carrying Value " means (i) with respect to a Contributed Property
or Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereto, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Cash Amount " means an amount of cash equal to the Value on the
Valuation Date of the Shares Amount, subject to Section 8.6.A(iv).
"Certificate " means the Certificate of Limited Partnership of the
Partnership filed in the office of the Delaware Secretary of State on October 2,
1996, as amended by a Certificate of Amendment filed in Delaware on November 8,
1996, and as further amended from time to time in accordance with the terms
hereof and the Act.
"Charter Documents " has the meaning set forth in Section 7.11.D
hereof.
"Class A Unit " means any Partnership Unit that is not specifically
designated by the General Partner as being of another specified class of
Partnership Units.
"Class B Unit " means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.
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"Class C Accumulated Amount " has the meaning set forth in Section
4.2.D(i).
"Class C Preferential Distribution " has the meaning set forth in
Section 5.1.B.
"Class C Unit " means any Partnership Unit that is specifically
designated by the General Partner as being a Class C Unit.
"Class D/E Accumulated Amount " has the meaning set forth in Section
4.2.D(ii).
"Class D/E Preferential Distribution " has the meaning set forth in
Section 5.1.B.
"Class D Unit " means a Partnership Unit that is specifically
designated by the General Partner as being a Class D Unit.
"Class E Unit " means any Partnership Unit that is specifically
designated by the General Partner as being a Class E Unit.
"Code " means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Common Partnership Unit " means any Class A, Class B, Class C,
Class D and Class E Unit and any other Partnership Unit that is not a Preference
Unit.
"Consent " means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
"Consent of Certain Limited Partners " means Consent of the holders
of 75% in the aggregate of the Two Penn Plaza Units, the Eleven Penn Plaza
Units, and the 866 U.N. Plaza Units, collectively considered as one group,
provided that:
(A) if:
(i) there has been a prior transaction involving the Two
Penn Plaza Property, the Eleven Penn Plaza Property, or the
866 U.N. Plaza Property, as the case may be, that has been
approved by the holders of the Two Penn Plaza Units, the
Eleven Penn Plaza Units, or the 866 U.N. Plaza Units, as the
case may be, pursuant to Section 7.11.C(1), 7.11.C(2) or
7.11.C(3), as applicable, and
(ii) no holder of Two Penn Plaza Units, Eleven Penn
Plaza Units, or 866 U.N. Plaza Units, as applicable with
respect to a transaction involving Two Penn Plaza, Eleven Penn
Plaza or 866 U.N. Plaza, respectively, would recognize gain
for federal income tax purposes with respect to (but only with
respect to) such Partnership Units in excess of $1.00 as a
result of the sale or other disposition of all such
Partnership Units for $1.00 (that is, no Limited Partner has a
"negative capital account" with respect to such Partnership
Units),
then the "Certain Limited Partners" shall not be considered to
include the holders of such Partnership Units; and
(B) if any holder of Two Penn Plaza Units, Eleven Penn Plaza Units
or 866 U.N. Plaza Units, as applicable, has received from the
Partnership the payment described in Section 7.11.C(7) in respect
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of such Partnership Units, and the amount of such payment is, at the
time that it is made, equal to the full amount that would be payable
under Section 7.11.C(7) with respect to such Partnership Units if
the Two Penn Plaza Property, the Eleven Penn Plaza Property, or the
866 U.N. Plaza Property, as applicable, were to have been sold on
such date for its market value, then the "Certain Limited Partners"
shall not include such holder.
"Consent of the Outside Limited Partners " means the Consent of
Limited Partners (excluding for this purpose any Limited Partnership Interests
held by the General Partner, any Person of which the General Partner owns or
controls more than fifty percent (50%) of the voting interests and any Person
owning or controlling, directly or indirectly, more than fifty percent (50%) of
the outstanding voting interests of the General Partner) holding Percentage
Interests regardless of class that are greater than fifty percent (50%) of the
aggregate Percentage Interest of all Limited Partners of all classes taken
together who are not excluded for the purposes hereof.
"Consolidation " means the transactions whereby the Partnership will
acquire all or substantially all of the interests in the assets currently owned
by the General Partner, interests in certain office properties located in
midtown Manhattan, and certain property management businesses that provide
services to those office properties and to other properties in the New York
metropolitan area, in exchange for Partnership Units, all as described in a
Master Consolidation Agreement dated as of March 12, 1997 among the General
Partner, Vornado Sub, the Partnership and the other entities named therein.
"Consolidation Transaction " has the meaning set forth in Section
7.11.C(6) hereof.
"Contributed Property " means each property or other asset
contributed to the Partnership, in such form as may be permitted by the Act, but
excluding cash contributed or deemed contributed to the Partnership. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B
hereto, such property shall no longer constitute a Contributed Property for
purposes of Exhibit B hereto, but shall be deemed an Adjusted Property for such
purposes.
"Conversion Factor " means 1.0; provided that in the event that the
General Partner Entity (i) declares (and the applicable record date has passed
or will have passed before a redeeming Partner would receive cash or Common
Shares in respect of the Partnership Units being redeemed) or pays a dividend on
its outstanding Shares in Shares or makes a distribution to all holders of its
outstanding Shares in Shares, (ii) subdivides its outstanding Shares or (iii)
combines its outstanding Shares into a smaller number of Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of Shares issued and outstanding on the
record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time) and the denominator of which shall be
the actual number of Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination; and provided further that in the event that an entity shall cease
to be the General Partner Entity (the "Predecessor Entity") and another entity
shall become the General Partner Entity (the "Successor Entity"), the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which is the Value of one Share of the Predecessor Entity,
determined as of the time immediately prior to when the Successor Entity becomes
the General Partner Entity, and the denominator of which is the Value of one
Share of the Successor Entity, determined as of that same date. (For purposes of
the second proviso in the preceding sentence, in the event that any shareholders
of the Predecessor Entity will receive consideration in connection with the
transaction in which the Successor Entity becomes the General Partner Entity,
the numerator in the fraction described above for determining the adjustment to
the Conversion Factor (that is, the Value of one Share of the Predecessor
Entity) shall be the sum of the greatest amount of cash and the fair market
value of any securities and other consideration that the holder of one Share in
the Predecessor Entity could have received in such transaction (determined
without regard to any provisions governing fractional shares).) Any adjustment
to the Conversion Factor shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for the event giving
rise thereto; it being intended that (x) adjustments to the Conversion Factor
are to be made in order to avoid
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<PAGE> 14
unintended dilution or anti-dilution as a result of transactions in which Shares
are issued, redeemed or exchanged without a corresponding issuance, redemption
or exchange of Partnership Units and (y) if a Specified Redemption Date shall
fall between the record date and the effective date of any event of the type
described above, that the Conversion Factor applicable to such redemption shall
be adjusted to take into account such event.
"Convertible Funding Debt " has the meaning set forth in Section
7.5.F hereof.
"Debt " means, as to any Person, as of any date of determination,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) all amounts owed by such Person to
banks or other Persons in respect of reimbursement obligations under letters of
credit, surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (iv) obligations of such Person
incurred in connection with entering into a lease which, in accordance with
generally accepted accounting principles, should be capitalized.
"Declaration of Trust " means the Declaration of Trust or other
similar organizational document governing the General Partner, as amended,
supplemented or restated from time to time.
"Deemed Partnership Interest Value " means, as of any date with
respect to any class of Partnership Interests, the Deemed Value of the
Partnership Interest of such class multiplied by the applicable Partner's
Percentage Interest of such class.
"Deemed Value of the Partnership Interest " means, as of any date
with respect to any class of Partnership Interests, (a) if the common shares of
beneficial interest (or other comparable equity interests) of the General
Partner are Publicly Traded (i) the total number of shares of beneficial
interest (or other comparable equity interest) of the General Partner
corresponding to such class of Partnership Interest (as provided for in Section
4.2.B hereof) issued and outstanding as of the close of business on such date
(excluding any treasury shares) multiplied by the Value of a share of such
beneficial interest (or other comparable equity interest) on such date divided
by (ii) the Percentage Interest of the General Partner in such class of
Partnership Interests on such date, and (b) otherwise, the aggregate Value of
such class of Partnership Interests determined as set forth in the fourth and
fifth sentences of the definition of Value.
"Depreciation " means, for each fiscal year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"866 U.N. Plaza Associates " means 866 United Nations Plaza
Associates LLC, a New York limited liability company.
"866 U.N. Plaza Property " has the meaning set forth in Section
7.11.C hereof.
"866 U.N. Plaza Units " has the meaning set forth in Section 7.11.C
hereof.
"Effective Date " means the date of the closing of the
Consolidation.
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"Eleven Penn Partnerships " means M/F Associates, a New York limited
partnership, M/F Eleven Associates, a New York limited partnership, M/S
Associates, a New York limited partnership, and M/S Eleven Associates, a New
York limited partnership.
"Eleven Penn Plaza Property " has the meaning set forth in Section
7.11.C hereof.
"Eleven Penn Plaza Units " has the meaning set forth in Section
7.11.C hereof.
"Equity Merger " has the meaning set forth in Section 7.11.D hereof.
"ERISA " means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act " means the Securities Exchange Act of 1934, as
amended.
"Exchanged Property " has the meaning set forth in Section 7.11.C
hereof.
"Funding Debt " means the incurrence of any Debt by or on behalf of
the General Partner for the purpose of providing funds to the Partnership.
"Funds From Operations " shall mean, with respect to any period, the
General Partner's "funds from operations," calculated in a manner consistent
with the calculation of such measure as it is used in the General Partner's
consolidated financial statements appearing in its most recent public filing on
Form 10-K or Form 10-Q (whichever is more recent).
"FW/Mendik LLC " means FW/Mendik REIT, L.L.C., a Delaware limited
liability company.
"General Partner " means Vornado Realty Trust, a Maryland real
estate investment trust, or its successors as general partner of the
Partnership.
"General Partner Entity " means the General Partner; provided,
however, that if (i) the common shares of beneficial interest (or other
comparable equity interests) of the General Partner are at any time not Publicly
Traded and (ii) the shares of common stock (or other comparable equity
interests) of an entity that owns, directly or indirectly, fifty percent (50%)
or more of the common shares of beneficial interest (or other comparable equity
interests) of the General Partner are Publicly Traded, the term "General Partner
Entity" shall refer to such entity whose shares of common stock (or other
comparable equity securities) are Publicly Traded. If both requirements set
forth in clauses (i) and (ii) above are not satisfied, then the term "General
Partner Entity" shall mean the General Partner.
"General Partner Payment " has the meaning set forth in Section
15.14 hereof.
"General Partnership Interest " means a Partnership Interest held by
the General Partner that is a general partnership interest. A General
Partnership Interest may be expressed as a number of Partnership Units.
"Immediate Family " means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers and
sisters.
"Incapacity" or "Incapacitated " means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her Person
or estate, (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership, (iv) as to any
estate which is a Partner, the distribution by the fiduciary
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<PAGE> 16
of the estate's entire interest in the Partnership, (v) as to any trustee of a
trust which is a Partner, the termination of the trust (but not the substitution
of a new trustee) or (vi) as to any Partner, the Bankruptcy of such Partner.
"Indemnitee " means (i) any Person made a party to a proceeding or
threatened with being made a party to a proceeding by reason of its status as
(A) the General Partner, (B) a Limited Partner or (C) an officer of the
Partnership (or any Subsidiary or other entity in which the Partnership owns an
equity interest) or a trustee/director, officer or shareholder of the General
Partner or the General Partner Entity (or any Subsidiary or other entity in
which the General Partner owns an equity interest (so long as the General
Partner's ownership of an interest in such entity is not prohibited by Section
7.5.A) or for which the General Partner, acting on behalf of the Partnership,
requests the trustee/director, officer or shareholder to serve as a director,
officer, trustee or agent, including serving as a trustee of an employee benefit
plan) and (ii) such other Persons (including Affiliates of the General Partner,
a Limited Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"IRS " means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Limited Partner " means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended and restated from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest " means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"Liquidating Event " has the meaning set forth in Section 13.1
hereof.
"Liquidating Transaction " has the meaning set forth in Section
7.11.C hereof.
"Liquidator " has the meaning set forth in Section 13.2.A hereof.
"Majority in Interest " means Partners (excluding the General
Partner) who hold more than fifty percent (50%) of the outstanding Percentage
Interests not held by the General Partner.
"Mendik Owner " means, with respect to Bernard H. Mendik or David R.
Greenbaum, as applicable, any member of his Immediate Family and any trust
formed solely for the benefit of him and/or members of his Immediate Family, or
any partnership, limited liability company, joint venture, corporation or other
business entity all of the interests in which are, and remain, owned and
controlled solely by him and/or members of his Immediate Family.
"Net Income " means, for any taxable period, the excess, if any, of
the Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B hereto. If an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Exhibit C hereto, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss " means, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain,
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<PAGE> 17
loss or deduction that has been included in the initial computation of Net Loss
is subjected to the special allocation rules in Exhibit C hereto, Net Loss or
the resulting Net Income, whichever the case may be, shall be recomputed without
regard to such item.
"New Securities " means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase shares of beneficial interest (or other comparable equity interest) of
the General Partner, excluding grants under any Stock Option Plan, or (ii) any
Debt issued by the General Partner that provides any of the rights described in
clause (i).
"Non-Class D/E Units " has the meaning set forth in Section
5.1(B)(vii).
"Nonrecourse Built-in Gain " means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C hereto
if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions " has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability " has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Redemption " means a Notice of Redemption substantially
in the form of Exhibit D attached hereto.
"Partner " means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain " means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt " has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions " has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership " means the limited partnership formed under the Act
and continued upon the terms and conditions set forth in this Agreement, and any
successor thereto.
"Partnership Interest " means a Limited Partnership Interest or the
General Partnership Interest, as the context requires, and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Units.
"Partnership Minimum Gain " has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
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<PAGE> 18
"Partnership Record Date " means the record date established by the
General Partner either (i) for the making of any distribution pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its shareholders
of some or all of its portion of such distribution received by the General
Partner if the shares of common stock (or comparable equity interests) of the
General Partner Entity are Publicly Traded, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.
"Partnership Unit " means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2
hereof, and includes Class A Units, Class B Units, Class C Units, Class D Units,
Class E Units and any other classes or series of Partnership Units established
after the date hereof. The number of Partnership Units outstanding and the
Percentage Interests in the Partnership represented by such Partnership Units
are set forth in Exhibit A hereto, as such Exhibit may be amended and restated
from time to time. The ownership of Partnership Units may be evidenced by a
certificate in a form approved by the General Partner.
"Partnership Year " means the fiscal year of the Partnership.
"Percentage Interest " means, as to a Partner holding a Partnership
Interest of any class issued hereunder, its interest in such class, determined
by dividing the Partnership Units of such class owned by such Partner by the
total number of Partnership Units of such class then outstanding as specified in
Exhibit A attached hereto, as such exhibit may be amended and restated from time
to time, multiplied by the aggregate Percentage Interest allocable to such class
of Partnership Interests. For such time or times as the Partnership shall at any
time have outstanding more than one class of Partnership Interests, the
Percentage Interest attributable to each class of Partnership Interests shall be
determined as set forth in Section 4.2.B hereof.
"Person " means a natural person, partnership (whether general or
limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"Predecessor Entity " has the meaning set forth in the definition of
"Conversion Factor" herein.
"Preference Units " has the meaning set forth in Section 4.2.E.
"Publicly Traded " means listed or admitted to trading on the New
York Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.
"Qualified REIT Subsidiary " means any Subsidiary of the General
Partner that is a "qualified REIT subsidiary" within the meaning Section 856(i)
of the Code. Except as otherwise specifically provided herein, a Qualified REIT
Subsidiary of the General Partner that holds as its only assets direct and/or
indirect interests in the Partnership will not be treated as an entity separate
from the General Partner.
"Recapture Income " means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 743 of the Code)
upon the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Redeeming Partner " has the meaning set forth in Section 8.6.A
hereof.
"Redemption Amount " means either the Cash Amount or the Shares
Amount, as determined by the General Partner in its sole and absolute
discretion; provided that in the event that the Shares are not Publicly Traded
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<PAGE> 19
at the time a Redeeming Partner exercises its Redemption Right, the Redemption
Amount shall be paid only in the form of the Cash Amount unless the Redeeming
Partner, in its sole and absolute discretion, consents to payment of the
Redemption Amount in the form of the Shares Amount; provided further, the
foregoing is subject to Section 8.6.A(iv). A Redeeming Partner shall have no
right, without the General Partner's consent, in its sole and absolute
discretion, to receive the Redemption Amount in the form of the Shares Amount.
"Redemption Right " has the meaning set forth in Section 8.6.A
hereof.
"Regulations " means the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT " means a real estate investment trust under Section 856 of
the Code.
"REIT Expenses " shall mean (i) costs and expenses relating to the
continuity of existence of the General Partner and any Person in which the
General Partner owns an equity interest, to the extent not prohibited by Section
7.5.A (and excluding expenses relating to any Person in which the General
Partner acquired an interest with the Consent of the Outside Limited Partners,
unless the Consent of the Outside Limited Partners has been obtained to include
such expenses within the definition of "REIT Expenses"), other than the
Partnership (which Persons shall, for purposes of this definition, be included
within the definition of "General Partner"), including taxes, fees and
assessments associated therewith (other than federal, state or local income
taxes imposed upon the General Partner as a result of the General Partner's
failure to distribute to its shareholders an amount equal to its taxable
income), any and all costs, expenses or fees payable to any trustee or director
of the General Partner or such Persons, (ii) costs and expenses relating to any
offer or registration of securities by the General Partner (the proceeds of
which will be contributed or advanced to the Partnership) and all statements,
reports, fees and expenses incidental thereto, including underwriting discounts
and selling commissions applicable to any such offer of securities, (iii) costs
and expenses associated with the preparation and filing of any periodic reports
by the General Partner under federal, state or local laws or regulations,
including filings with the SEC, (iv) costs and expenses associated with
compliance by the General Partner with laws, rules and regulations promulgated
by any regulatory body, including the Securities and Exchange Commission, and
(v) all other operating or administrative costs of the General Partner incurred
in the ordinary course of its business; provided, however, that any of the
foregoing expenses that are determined by the General Partner to be expenses
relating to the ownership and operation of, or for the benefit of, the
Partnership shall be treated, subject to Section 7.4.E hereof, as reimbursable
expenses under Section 7.4.B hereof rather than as "REIT Expenses".
"REIT Requirements " has the meaning set forth in Section 5.1.A
hereof.
"Replacement Property " has the meaning set forth in Section 7.11.C
hereof.
"Residual Gain" or "Residual Loss " means any item of gain or loss,
as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C hereto to
eliminate Book-Tax Disparities.
"Restricted Partner " means any of FW/Mendik LLC, Bernard H. Mendik,
David R. Greenbaum, any Mendik Owner and any other Person identified on Exhibit
F hereto.
"Safe Harbors " has the meaning set forth in Section 11.6.F hereof.
"Securities Act " means the Securities Act of 1933, as amended.
"704(c) Value " of any Contributed Property means the fair market
value of such property at the time of contribution as determined by the General
Partner using such reasonable method of valuation as it may adopt. Subject
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to Exhibit B hereto, the General Partner shall, in its sole and absolute
discretion, use such method as it deems reasonable and appropriate to allocate
the aggregate of the 704(c) Values of Contributed Properties in a single or
integrated transaction among each separate property on a basis proportional to
their fair market values. The 704(c) Values of the Contributed Properties
contributed to the Partnership as part of or in connection with the
Consolidation are set forth on Exhibit E attached hereto.
"Share " means a share of beneficial interest (or other comparable
equity interest) of the General Partner Entity. Shares may be issued in one or
more classes or series in accordance with the terms of the Declaration of Trust
(or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). In the event that there
is more than one class or series of Shares, the term "Shares" shall, as the
context requires, be deemed to refer to the class or series of Shares that
correspond to the class or series of Partnership Interests for which the
reference to Shares is made. When used with reference to Class A Units, Class C
Units, Class D Units or Class E Units, the term "Shares" refers to common shares
of beneficial interest (or other comparable equity interest) of the General
Partner Entity.
"Shares Amount " means a number of Shares equal to the product of
the number of Partnership Units offered for redemption by a Redeeming Partner
times the Conversion Factor; provided, that in the event the General Partner
Entity issues to all holders of Shares rights, options, warrants or convertible
or exchangeable securities entitling such holders to subscribe for or purchase
Shares or any other securities or property (collectively, the "rights"), then
the Shares Amount shall also include such rights that a holder of that number of
Shares would be entitled to receive; and provided, further, that the Shares
Amount shall be adjusted pursuant to Section 7.5 hereof in the event that the
General Partner acquires material assets other than on behalf of the
Partnership.
"Specified Redemption Date " means the tenth Business Day after
receipt by the General Partner of a Notice of Redemption; provided, that if the
Shares are not Publicly Traded, the Specified Redemption Date means the
thirtieth Business Day after receipt by the General Partner of a Notice of
Redemption.
"Stock Option Plan " means any share or stock incentive plan or
similar compensation arrangement (including, without limitation, any arrangement
whereby the Partnership or the General Partner delivers Units or shares of
capital stock of the General Partner into a "rabbi trust") of the General
Partner, the Partnership or any Affiliate of the Partnership or the General
Partner, as the context may require.
"Subsidiary " means, with respect to any Person, any corporation,
limited liability company, partnership or joint venture, or other entity of
which a majority of (i) the voting power of the voting equity securities or (ii)
the outstanding equity interests is owned, directly or indirectly, by such
Person.
"Substituted Limited Partner " means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof.
"Successor Entity " has the meaning set forth in the definition of
"Conversion Factor" herein.
"Successor Partnership " has the meaning set forth in Section 7.11.C
hereof.
"Tenant " means any tenant from which the General Partner derives
rent, either directly or indirectly through limited liability companies or
partnerships, including the Partnership, or through any Qualified REIT
Subsidiary.
"Terminating Capital Transaction " means any sale or other
disposition of all or substantially all of the assets of the Partnership for
cash or a related series of transactions that, taken together, result in the
sale or other disposition of all or substantially all of the assets of the
Partnership for cash.
"Termination Transaction " has the meaning set forth in Section
11.2.B hereof.
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"Title 8 " means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland.
"Transferred Property " has the meaning set forth in Section 7.11.C.
hereof.
"Two Penn Plaza Associates " means Two Penn Plaza Associates, L.P.,
a New York limited partnership.
"Two Penn Plaza Property " has the meaning set forth in Section
7.11.C hereof.
"Two Penn Plaza Units " has the meaning set forth in Section 7.11.C
hereof.
"Unrealized Gain " attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B hereto) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to Exhibit B hereto) as of such date.
"Unrealized Loss " attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Exhibit B
hereto) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B hereto) as of such date.
"Valuation Date " means the date of receipt by the General Partner
of a Notice of Redemption or, if such date is not a Business Day, the first
Business Day thereafter.
"Value " means, with respect to any outstanding Shares of the
General Partner Entity that are Publicly Traded, the average of the daily market
price for the ten (10) consecutive trading days immediately preceding the date
with respect to which value must be determined or, if such day is not a Business
Day, the immediately preceding Business Day. The market price for each such
trading day shall be the closing price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices on
such day. In the event that the outstanding Shares of the General Partner Entity
are Publicly Traded and the Shares Amount includes rights that a holder of
Shares would be entitled to receive, then the Value of such rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. In the event that the Shares of the General Partner Entity are not
Publicly Traded, the Value of the Shares Amount per Partnership Unit offered for
redemption (which will be the Cash Amount per Partnership Unit offered for
redemption payable pursuant to Section 8.6.A hereof) means the amount that a
holder of one Partnership Unit would receive if each of the assets of the
Partnership were to be sold for its fair market value on the Specified
Redemption Date, the Partnership were to pay all of its outstanding liabilities,
and the remaining proceeds were to be distributed to the Partners in accordance
with the terms of this Agreement. Such Value shall be determined by the General
Partner, acting in good faith and based upon a commercially reasonable estimate
of the amount that would be realized by the Partnership if each asset of the
Partnership (and each asset of each partnership, limited liability company,
joint venture or other entity in which the Partnership owns a direct or indirect
interest) were sold to an unrelated purchaser in an arms' length transaction
where neither the purchaser nor the seller were under economic compulsion to
enter into the transaction (without regard to any discount in value as a result
of the Partnership's minority interest in any property or any illiquidity of the
Partnership's interest in any property). In connection with determining the
Deemed Value of the Partnership Interest for purposes of determining the number
of additional Partnership Units issuable upon a Capital Contribution funded by
an underwritten public offering of shares of beneficial interest (or other
comparable equity interest) of the General Partner, the Value of such shares
shall be the public offering price per share of such class of beneficial
interest (or other comparable equity interest) sold.
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"Vornado Sub " means Vornado/Saddle Brook L.L.C., a Delaware limited
liability company and a wholly-owned subsidiary of the General Partner.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in the Prior
Agreement. The Partners hereby continue the Partnership and amend and restate
the Prior Agreement in its entirety. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership is Vornado Realty L.P. The Partnership's
business may be conducted under any other name or names deemed advisable by the
General Partner, including the name of the General Partner or any Affiliate
thereof. The words "Limited Partnership," "L.P.," "Ltd." or similar words or
letters shall be included in the Partnership's name where necessary for the
purposes of complying with the laws of any jurisdiction that so requires. The
General Partner in its sole and absolute discretion may change the name of the
Partnership at any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the Limited
Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State
of Delaware shall be located at Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be Vornado Realty L.P., Park 80 West, Plaza II, Saddle
Brook, New Jersey 07663, or such other place as the General Partner may from
time to time designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the State of
Delaware as the General Partner deems advisable.
Section 2.4 Term
The term of the Partnership commenced on October 2, 1996, the date
on which the Certificate was filed in the office of the Secretary of State of
the State of Delaware in accordance with the Act, and shall continue until
December 31, 2095 (as such date may be extended by the General Partner in its
sole discretion), unless it is dissolved sooner pursuant to the provisions of
Article XIII hereof or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner Entity (or the General
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Partner, as applicable) at all times to be classified as a REIT and avoid the
imposition of federal income and excise taxes on the General Partner Entity (or
the General Partner, as applicable), unless the General Partner Entity (or the
General Partner, as applicable) ceases to qualify, or is not qualified, as a
REIT for any reason or reasons; (ii) to enter into any partnership, joint
venture, limited liability company or other similar arrangement to engage in any
of the foregoing or the ownership of interests in any entity engaged, directly
or indirectly, in any of the foregoing; and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, the Limited
Partners acknowledge that the status of the General Partner Entity (or the
General Partner, as applicable) as a REIT and the avoidance of federal income
and excise taxes on the General Partner Entity (or the General Partner, as
applicable) inures to the benefit of all the Partners and not solely the General
Partner or its Affiliates. Notwithstanding the foregoing, the Limited Partners
acknowledge and agree that the General Partner Entity (or the General Partner,
as applicable) may terminate its status as a REIT under the Code at any time to
the full extent permitted under the Declaration of Trust.
Section 3.2 Powers
The Partnership shall have full power and authority to do any and
all acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership,
including, without limitation, directly or through its ownership interest in
other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner Entity (or the General Partner, as applicable) to continue to qualify as
a REIT, (ii) could subject the General Partner Entity (or the General Partner,
as applicable) to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner Entity (or the General
Partner, if different) or its securities, unless such action (or inaction) shall
have been specifically consented to by the General Partner in writing.
Section 3.3 Partnership Only for Purposes Specified
The Partnership shall be a partnership only for the purposes
specified in Section 3.1 above, and this Agreement shall not be deemed to create
a partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 above.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
Section 4.1 Capital Contributions of the Partners
A. Capital Contributions to the Partnership on the Effective Date.
The Mendik Company, Inc. and FW/Mendik LLC previously made Capital Contributions
to the Partnership. Immediately prior to the Effective Date, the Partnership was
recapitalized and FW/Mendik LLC was issued Class D Units as the sole Limited
Partner of the Partnership and The Mendik Company, Inc. was issued Class D Units
as the then general partner of the Partnership, which Units will be subject to
Section 4.2.D(iii). On the Effective Date and concurrently with the execution of
this Agreement: (i) the General Partner and certain other Persons are making
additional Capital Contributions to the Partnership in connection with the
Consolidation; (ii) the General Partner is being admitted to the Partnership as
a general partner; and immediately thereafter the General Partnership Interest
held by The Mendik Company, Inc. is being converted to a Limited Partnership
Interest. Thereafter, the General Partner will complete Exhibit A hereto to
reflect the Capital Contributions made by each Partner, the number of
Partnership Units (by class) held by each Partner and
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the Percentage Interest in the Partnership represented by such Partnership
Units. The Capital Accounts of the Partners and the Carrying Values of the
Partnership's Assets shall be determined as of the Effective Date pursuant to
Section I.D of Exhibit B hereto to reflect the Capital Contributions made prior
to and on the Effective Date.
B. General Partnership Interest. A number of Partnership Units held
by the General Partner equal to one percent (1%) of all outstanding Partnership
Units shall be deemed to be the General Partner Partnership Units and shall be
the General Partnership Interest. All other Partnership Units held by the
General Partner shall be Limited Partnership Interests and shall be held by the
General Partner in its capacity as a Limited Partner in the Partnership.
C. Capital Contributions By Merger. To the extent the Partnership
acquires any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in Exhibit A hereto.
D. No Obligation to Make Additional Capital Contributions. Except as
provided in Sections 7.5 and 10.5 hereof, the Partners shall have no obligation
to make any additional Capital Contributions or provide any additional funding
to the Partnership (whether in the form of loans, repayments of loans or
otherwise). No Partner shall have any obligation to restore any deficit that may
exist in its Capital Account, either upon a liquidation of the Partnership or
otherwise.
Section 4.2 Issuances of Partnership Interests
A. General. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that, no such
Partnership Units or other Partnership Interests shall be issued (x) to the
General Partner unless either (a) the Partnership Interests are issued in
connection with the grant, award or issuance of Shares or other equity interests
in the General Partner having designations, preferences and other rights such
that the economic interests attributable to such Shares or other equity
interests are substantially similar to the designations, preferences and other
rights (except voting rights) of the additional Partnership Interests issued to
the General Partner in accordance with this Section 4.2.A, or (b) the
Partnership Interests are issued to all Partners holding Partnership Interests
in the same class in proportion to their respective Percentage Interests in such
class or (c) the Partnership Interests are issued in connection with a
Termination Transaction or a transaction in which another person is merged,
combined or consolidated with or into the General Partner and in exchange for
the transfer or contribution of all or substantially all of the assets of such
other person by the General Partner to the Partnership, or (y) to any Person in
violation of Section 4.2.E. In the event that the Partnership issues Partnership
Interests pursuant to this Section 4.2.A, the General Partner shall make such
revisions to this Agreement (including but not limited to the revisions
described in Section 5.4, Section 6.2 and Section 8.6 hereof) as it deems
necessary to reflect the issuance of such additional Partnership Interests.
B. Percentage Interest Adjustments in the Case of Capital
Contributions for Partnership Units. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units, the Percentage Interest related
thereto shall be equal to a fraction, the numerator of which is equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
contributed with respect to such additional Partnership Units and the
denominator
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of which is equal to the sum of (i) the Deemed Value of the Partnership
Interests for all outstanding classes (computed as of the Business Day
immediately preceding the date on which the additional Capital Contributions are
made (such contribution date being referred to as an "Adjustment Date")) plus
(ii) the aggregate amount of additional Capital Contributions contributed to the
Partnership on such Adjustment Date in respect of such additional Partnership
Units. The Percentage Interest of each other Partner holding Partnership
Interests not making a full pro rata Capital Contribution shall be adjusted to a
fraction the numerator of which is equal to the sum of (i) the Deemed
Partnership Interest Value of such Limited Partner (computed as of the Business
Day immediately preceding the Adjustment Date) plus (ii) the amount of
additional Capital Contributions (such amount being equal to the amount of cash,
if any, plus the Agreed Value of Contributed Property, if any, so contributed),
if any, made by such Partner to the Partnership in respect of such Partnership
Interest as of such Adjustment Date and the denominator of which is equal to the
sum of (i) the Deemed Value of the Partnership Interests of all outstanding
classes (computed as of the Business Day immediately preceding such Adjustment
Date) plus (ii) the aggregate amount of the additional Capital Contributions
contributed to the Partnership on such Adjustment Date in respect of such
additional Partnership Interests. For purposes of calculating a Partner's
Percentage Interest pursuant to this Section 4.2.B, cash Capital Contributions
by the General Partner will be deemed to equal the cash contributed by the
General Partner plus (a) in the case of cash contributions funded by an offering
of any equity interests in or other securities of the General Partner, the
offering costs attributable to the cash contributed to the Partnership, and (b)
in the case of Partnership Units issued pursuant to Section 7.5.E hereof, an
amount equal to the difference between the Value of the Shares sold pursuant to
any Stock Option Plan and the net proceeds of such sale.
C. Classes of Partnership Units. From and after the Effective
Date, subject to Section 4.2.A above, the Partnership shall have five classes of
Common Partnership Units entitled "Class A Units", "Class B Units", "Class C
Units", "Class D Units" and "Class E Units" and one class of Preference Units
entitled "Series A Preferred Units" which shall be issued to the Partners in
connection with the Consolidation as set forth below:
(i) the General Partner will receive Class A Units in
respect of its General Partnership Interest and will receive Class A Units and
Series A Preferred Units in respect of its Limited Partnership Interest;
(ii) initially, no Class B Units will be issued to any
Partner;
(iii) as specified on Exhibit A, certain Persons will receive
Class C Units, certain Persons will receive Class D Units and certain Persons
will receive Class E Units in respect of their Limited Partnership Interests.
The General Partner may, in its sole and absolute discretion but subject to
Section 4.2.E, issue to newly admitted Partners Class A Units, Class B Units,
Class C Units, Class D Units, Class E Units or Partnership Units of any other
class established by the Partnership in accordance with Section 4.2.A (subject
to Section 4.2.E below) in exchange for the contribution by such Partners of
cash, real estate partnership interests, stock, notes or any other assets or
consideration; provided that any Partnership Unit that is not specifically
designated by the General Partner as being of a particular class shall be deemed
to be a Class A Unit unless the context clearly requires otherwise.
D. Conversion of Class C Units, Class D Units and Class E Units.
(i) At such time as all holders of Class A Units have received
quarterly distributions in accordance with Article V equal to $.845 per
Partnership Unit for each of four consecutive quarters (without including for
these purposes distributions, if any, made to holders of Class A Units pursuant
to Subsections 4.2.D(i) and 4.2.D(ii)), the Class C Units will be converted
automatically into Class A Units and thereafter will have the same distribution
rights as all other Class A Units. The foregoing conversion will be deemed to
have occurred as of the first day of the quarter immediately succeeding the
fourth consecutive quarter with respect to which the distributions described in
the preceding sentence are made.
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<PAGE> 26
At any time prior to the first distribution made in respect of
Partnership Units that were converted from Class C Units to Class A Units
pursuant to this Subsection 4.2.D(i), the General Partner may, in its sole
discretion but subject to Section 5.2.B, elect to make a one-time distribution
of the Class C Accumulated Amount, calculated as of the date of such
distribution, pro rata among those Persons who hold Class A Units; provided,
however, that the foregoing distribution right shall only be available if during
each of the preceding four (4) consecutive fiscal quarters the Partnership has
earned Funds From Operations sufficient to enable the Partnership to distribute
to holders of Class A Units on a per Partnership Unit basis (assuming a 100%
payout of Funds From Operations) at least $0.845 per Partnership Unit (which
payment must be made in a quarter prior to the quarter in which Class C Units
are converted to Class A Units pursuant to the preceding paragraph). For
purposes hereof, the "Class C Accumulated Amount" means, as of any date the
lesser of (A) $1,500,000.00 and (B)(x)the sum of all amounts previously
distributed to holders of Class C Units pursuant to Subsections 5.1.B(iv) and
5.1.B(v) during the most recently completed twelve (12) consecutive fiscal
quarters less (y) the sum of all amounts previously distributed to holders of
Class A Units (excluding Class A Units that were converted from Class C Units
prior to such distribution) during such period pursuant to Subsection 5.1.B(vi)
but not Subsection 5.1.B(vii); provided that the Class C Accumulated Amount
shall not exceed the Partnership's aggregate Funds From Operations for such
twelve quarter period less (without duplication) the distributions pursuant to
Subsections 5.1(B)(i) through (vi).
(ii) At such time as all holders of Class A Units have received
quarterly distributions in accordance with Article V in an amount at least equal
to $1.0075 per Partnership Unit for each of four consecutive quarters (without
including for these purposes distributions, if any, made to holders of Class A
Units pursuant to Subsections 4.2.D(i) and 4.2.D(ii)), the Class D Units and the
Class E Units, if any, will be converted automatically into Class A Units and
thereafter will have the same distribution rights as all other Class A Units.
The foregoing conversion will be deemed to have occurred as of the first day of
the quarter immediately succeeding the fourth consecutive quarter with respect
to which the distributions described in the preceding sentence are made.
At any time prior to the first distribution made in respect of
Partnership Units that were converted from Class D Units or Class E Units to
Class A Units pursuant to this Subsection 5.1.D(ii), the General Partner may, in
its sole discretion but subject to Section 5.2.B, elect to make a one time
distribution of the Class D/E Accumulated Amount, calculated as of the date of
such distribution, pro rata among those Persons who hold Class A Units;
provided, however, that the foregoing distribution right shall only be available
if during each of the preceding four (4) consecutive fiscal quarters the
Partnership has earned Funds From Operations sufficient to enable the
Partnership to distribute to holders of Class A Units on a per Partnership Unit
basis (assuming a 100% payout of Funds From Operations) at least $1.0075 per
Partnership Unit. For purposes hereof, the "Class D/E Accumulated Amount" means,
as of any date the lesser of (A) $1,500,000 less any amount distributed pursuant
to Subsection 4.2.D(i) above and (B) (x) the sum of all amounts previously
distributed to holders of Class D Units and Class E Units pursuant to
Subsections 5.1.B(ii) and (iii) during the most recently completed twelve (12)
consecutive fiscal quarters less (y) the sum of all amounts previously
distributed to holders of Class A Units (excluding Class A Units that were
converted from Class D Units or Class E Units prior to or during such period, if
any) during such period pursuant to Subsections 5.1.B(vi) and (vii) during such
period and less the Class C Accumulated Amount distributed previously or
contemporaneously therewith, provided that the maximum amount of the Class D/E
Accumulated Amount shall not exceed the Partnership's Funds From Operations less
(without duplication) distributions pursuant to Subsections 5.1.B(i) through
(vii).
(iii) Immediately after the time on the Effective Date at which
this Agreement becomes effective, every Class D Unit held by any of Mendik/FW,
Christopher G. Bonk, Michael M. Downey, James D. Kuhn, John J. Silberstein,
David L. Sims, Kevin R. Wang, Mr. Mendik, Mr. Greenbaum or any Mendik Owner with
respect to either of Mr. Mendik or Mr. Greenbaum shall automatically, and
without any further payment or action of any kind by any Person, be converted
into Class C Units and thereafter shall have all of the same distribution rights
as any other Class C Unit, and the General Partner shall reflect said conversion
on Exhibit A.
E. Limitation on the Issuance of Partnership Units. The General
Partner may not, without the Consent of the Outside Limited Partners (taking
into account, for these purposes, only those Limited Partnership
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Interests being issued concurrently herewith as part of the Consolidation),
cause the Partnership to issue any Limited Partnership Interests of any class
ranking senior (as to preferential distributions or redemption or voting rights)
to the Class C Units, the Class D Units or the Class E Units (any such senior
Partnership Units, "Preference Units") unless the distribution and redemption
(but not voting) rights of such Partnership Units are substantially similar to
the terms of securities issued by the General Partner and the proceeds or other
consideration from the issuance of such securities have been contributed to the
Partnership. The foregoing limitation will expire with respect to the
Partnership Units of any such class at such time as the Partnership Units of
that class issued in connection with the Consolidation are no longer
outstanding, whether as a result of redemption, conversion to another class or
otherwise.
F. Issuance of Series A Preferred Units. In consideration of the
contribution to the Partnership on the Effective Date of the entire net proceeds
received by the General Partner from the issuance of the Series A Preferred
Shares, the General Partner shall be deemed to have made a Capital Contribution
to the Partnership in the amount of the gross proceeds of such issuance, which
is $287,500,000, and the Partnership shall be deemed simultaneously to have
distributed to the General Partner, as REIT Expenses, the amount of the
underwriters' discount and other costs incurred by the General Partner in
connection with such issuance. On the Effective Date, in consideration of the
contribution to the Partnership made by the General Partner pursuant to this
Section 4.2.F, the Partnership will issue to the General Partner, in respect of
its Limited Partnership Interest and in addition to the Class A Units issued to
the General Partner pursuant to this Section 4.2, 5,750,000 of a series of
Preference Units designated as the "Series A Preferred Units" (as defined in
Exhibit G hereto). The terms of the Series A Preferred Units are set forth in
Exhibit G attached hereto.
Section 4.3 No Preemptive Rights
Except to the extent expressly granted by the General Partner (on
behalf of the Partnership) pursuant to another agreement, no Person shall have
any preemptive, preferential or other similar right with respect to (i)
additional Capital Contributions or loans to the Partnership or (ii) issuance or
sale of any Partnership Units or other Partnership Interests.
Section 4.4 Other Contribution Provisions
In the event that any Partner is admitted to the Partnership and is
given a Capital Account in exchange for services rendered to the Partnership,
such transaction shall be treated by the Partnership and the affected Partner as
if the Partnership had compensated such Partner in cash for the fair market
value of such services, and the Partner had contributed such cash to the capital
of the Partnership.
Section 4.5 No Interest on Capital
No Partner shall be entitled to interest on its Capital
Contributions or its Capital Account.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
A. General. Subject to Section 5.1.C, the General Partner shall have
the exclusive right and authority to declare and cause the Partnership to make
distributions as and when the General Partner deems appropriate or desirable in
its sole discretion. Notwithstanding anything to the contrary contained herein,
in no event may a Partner receive a distribution with respect to a Partnership
Unit for a quarter or shorter period if such Partner is entitled to receive a
distribution for such quarter or shorter period with respect to a Share for
which such Partnership Unit has been redeemed or exchanged. Unless otherwise
expressly provided for herein or in an agreement at the time a new class of
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Partnership Interests is created in accordance with Article IV hereof, no
Partnership Interest shall be entitled to a distribution in preference to any
other Partnership Interest. For so long as the General Partner elects to qualify
as a REIT, the General Partner shall make such reasonable efforts, as determined
by it in its sole and absolute discretion and consistent with the qualification
of the General Partner Entity or the General Partner (as applicable) as a REIT,
to make distributions to the Partners in amounts such that the General Partner
will receive amounts sufficient to enable the General Partner Entity or the
General Partner (as applicable) to pay shareholder dividends that will (1)
satisfy the requirements for qualification as a REIT under the Code and the
Regulations (the "REIT Requirements") and (2) avoid any federal income or excise
tax liability for the General Partner Entity or the General Partner (as
applicable).
B. Method. When, as and if declared by the General Partner,
the Partnership will make distributions to the General Partner in any amount
necessary to enable the General Partner to pay REIT Expenses, and thereafter:
(i) first, to holders of Series A Preferred Units and any
other Preference Units in an amount equal to preferential
distributions accumulated and unpaid on such Preference Units in
accordance with their respective terms;
(ii) second, to holders of Class D Units and Class E Units
(pro rata based on the ratio of the total number of Class D Units or
Class E Units, as applicable, to the aggregate number of Class D
Units and Class E Units taken together on the Partnership Record
Date) in an amount equal to any accumulated and unpaid Class D/E
Preferential Distributions;
(iii) third, to holders of Class D Units and Class E Units
(pro rata based on the ratio of the total number of Class D Units or
Class E Units, as applicable, to the aggregate number of Class D
Units and Class E Units taken together on the Partnership Record
Date) until such holders have received with respect to the period
for which such distribution is made an amount per Class D Unit and
Class E Unit, respectively, to be determined based on a distribution
rate of $1.0075 per quarter (the "Class D/E Preferential
Distribution") pro rated to take into account the actual number of
days in such period and the number of days in the period that such
Class D Units or Class E Units, as applicable, were outstanding;
provided, however, that if the General Partner does not distribute
sufficient cash to pay the Class D/E Preferential Distribution, then
the Class D/E Preferential Distribution will cumulate, without
interest, and be payable by the Partnership in the future pursuant
to clause (ii) above;
(iv) fourth, to holders of Class C Units in an amount equal
to any accumulated and unpaid Class C Preferential Distributions;
(v) fifth, to holders of Class C Units until such holders
have received with respect to the period for which such distribution
is made an amount per Class C Unit to be determined based on a
distribution rate of $.845 per quarter (the "Class C Preferential
Distribution") pro rated to take into account the actual number of
days in such period and the number of days in the period that such
Class C Units were outstanding; provided, however, that if the
General Partner does not distribute sufficient cash to pay the Class
C Preferential Distribution, then the Class C Preferential
Distribution will cumulate, without interest, and be payable by the
Partnership in the future pursuant to clause (iv) above;
(vi) sixth, to the holders of Partnership Units other than
Class C Units, Class D Units and Class E Units (the "Other Units")
until the holders of such Other Units have received with respect to
the period for which such distribution is made an amount per
Partnership Unit equal to the amount that would have been payable to
such holders under clause (v) above if the Partnership Units held by
them had been Class C Units (assuming, with respect to Class A Units
held directly or indirectly by
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the General Partner, that such Partnership Units were held for the
entire period); in furtherance of the foregoing, it is expressly
understood and agreed that the General Partner may make a special
distribution of $0.64 per Partnership Unit in respect of Class A
Units held directly or indirectly by the General Partner for the
calendar quarter ending immediately prior to the Effective Date and
may treat Class A Units held directly or indirectly by the General
Partner on the record date for distributions made in respect of any
period ending after the Effective Date as if such Partnership Units
were outstanding for the entire period, in each case notwithstanding
that the General Partner did not hold such Class A Units during all
or a portion of such period;
(vii) seventh, to the holders of Partnership Units other than
Class D Units and Class E Units (the "Non-Class D/E Units") until
the holders of such Non-Class D/E Units have received with respect
to the quarter for which such distribution is made a total amount
per Partnership Unit (taking into account distributions made to such
holders of Non-Class D/E Units with respect to such quarter under
clause (v) or clause (vi) above as applicable) equal to the amount
that would have been payable to such holders under clause (iii)
above if the Partnership Units held by them had been Class D Units
(assuming, with respect to Class A Units held directly or indirectly
by the General Partner, that such Partnership Units were held for
the entire period);
(viii) eighth, to holders of Class A Units as described in
Subsection 4.2.D(i);
(ix) ninth, to holders of Class A Units as described in
Subsection 4.2.D(ii);
(x) tenth, to all holders of Partnership Units (of all
classes), pro rata in proportion to their respective Percentage
Interest, in an amount sufficient to permit to the General Partner
to satisfy the REIT Requirements and to avoid any federal income or
excise tax liability for the General Partner Entity (or the General
Partner, as applicable);
(xi) eleventh, to the extent of remaining distribution
amount, to holders of Partnership Units in proportion to their
respective Percentage Interests.
Each holder of Partnership Interests that are entitled to any preference in
distribution shall be entitled to a distribution in accordance with the rights
of any such class of Partnership Interests (and, within such class, pro rata in
proportion to the respective Percentage Interests on such Partnership Record
Date). Notwithstanding anything to the contrary contained herein, in no event
shall any partner receive a distribution with respect to any Common Partnership
Unit with respect to any quarter until such time as the Partnership has
distributed to the holders of the Preference Units all distributions payable
with respect to such Preference Units through the last day of such quarter, in
accordance with the instruments designating such Preference Units.
C. Minimum Distributions if General Partner Not a REIT or Not
Publicly Traded. In addition, if the General Partner Entity is not a REIT or the
common shares of beneficial interest (or other comparable equity interests) of
the General Partner Entity are not Publicly Traded, the General Partner shall
use commercially reasonable efforts (including, if appropriate, incurring
indebtedness), as determined by the General Partner in its sole discretion
exercised in good faith, to make cash distributions pursuant to Section 5.1.B
above at least annually for each taxable year of the Partnership beginning prior
to the twentieth (20th) anniversary of the Effective Date in an aggregate amount
with respect to each such taxable year at least equal to 95% of the
Partnership's taxable income for such year other than gain subject to Section
704(c) of the Code allocable to the Class A Units, with such distributions to be
made not later than 60 days after the end of such year; provided, the foregoing
shall not create any obligation on the part of the General Partner to contribute
or loan funds to the Partnership or dispose of assets. Notwithstanding Section
14.1.D.(iv), this Section 5.1.C may be amended with the Consent of Certain
Limited Partners.
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Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees pursuant to Section 5.1 above for all purposes
under this Agreement.
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction shall be distributed
to the Partners in accordance with Section 13.2 hereof.
Section 5.4 Revisions to Reflect Issuance of Additional Partnership Interests
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
V as it deems necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereto) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations set
forth in Section 1 of Exhibit C hereto and Section 6.1.E below, Net Income shall
be allocated (i) first, to the General Partner to the extent that Net Losses
previously allocated to the General Partner pursuant to the last sentence of
Section 6.1.B below exceed Net Income previously allocated to the General
Partner pursuant to this clause (i) of Section 6.1.A,; (ii) second, to holders
of Preference Units until their aggregate allocations of Net Income under this
clause (ii) equal the sum of (x) the aggregate Net Losses allocated to them
under clause (x) of Section 6.1.B and (y) all distributions made pursuant to
clause (i) of Section 5.1.B (provided that the allocation provided for in this
clause (ii) shall not apply to the extent that distributions made pursuant to
clause (i) of Section 5.1.B are treated as or determined to be guaranteed
payments under Section 707(c) of the Code); (iii) third, to holders of Class D
Units and Class E Units until their aggregate allocations of Net Income under
this clause (iii) equal the sum of (x) the aggregate Net Losses allocated to
them under clause (ix) of Section 6.1.B and (y) all distributions made pursuant
to clause (ii) of Section 5.1.B; (iv) fourth, to holders of Class D Units and
Class E Units until their aggregate allocations of Net Income under this clause
(iv) equal the sum of (x) the aggregate Net Losses allocated to them under
clause (viii) of Section 6.1.B and (y) all distributions made pursuant to clause
(iii) of Section 5.1.B with respect to which there was not a corresponding
distribution to holders of Units other than Class D Units and Class E Units
pursuant to clauses (vi) or (vii) of Section 5.1.B; (v) fifth, to holders of
Class C Units until their aggregate allocations of Net Income under this clause
(v) equal the sum of (x) the aggregate Net Losses allocated to them under clause
(vii) of Section 6.1.B and (y) all distributions made pursuant to clause (iv) of
Section 5.1.B; (vi) sixth, to holders of Class C Units until their aggregate
allocations of Net Income under this clause (vi) equal the sum of (x) the
aggregate Net Losses allocated to them under clause (vi) of Section 6.1.B and
(y) all distributions made pursuant to clause (v) of Section 5.1.B with respect
to which there was not a corresponding distribution to holders of Units other
than Class C, D or E Units pursuant to clause (vi) of Section 5.1.B; (vii)
seventh, to all holders of Units (other than Preference Units)until the
aggregate allocations of Net Income under this clause (vii) equal the sum of (x)
aggregate Net Losses allocated under clause (v) of Section 6.1.B, (y) all
distributions made pursuant to clauses (vi) or
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(vii) of Section 5.1.B, and (z) all distributions made pursuant
to clauses (iii) or (v) of Section 5.1.B that were not taken into account in
clauses (iv) or (vi) of this Section 6.1.A as a result of distributions pursuant
to clauses (vi) and (vii) of Section 5.1.B; (viii) eighth, to holders of Class A
Units until their aggregate allocations of Net Income under this clause (viii)
equal the sum of (x) the aggregate Net Losses allocated to them under clause
(iv) of Section 6.1.B and (y) all distributions made pursuant to clause (viii)
of Section 5.1.B, with such Net Income to be allocated only to those holders of
Class A Units who received distributions under said clause (viii); (ix) ninth,
to holders of Class A Units until their aggregate allocations of Net Income
under this clause (ix) equal the sum of (x) the aggregate Net Losses allocated
to them under clause (iii) of Section 6.1.B and (y) all distributions made
pursuant to clause (ix) of Section 5.1.B, with such Net Income to be allocated
only to those holders of Class A Units who received distributions under said
clause (ix) of Section 5.1.B; (x) tenth, to all holders of Units (other than
Preference Units)pro rata in accordance with their Percentage Interests until
the aggregate allocations of Net Income under this clause (x) equal the sum of
(x) aggregate Net Losses allocated under clause (ii) of Section 6.1.B and (y)
all distributions made pursuant to clause (xi) of Section 5.1.B.; and (xi)
eleventh, to all holders of Units (other than Preference Units) in proportion to
their respective Percentage Interests.
B. Net Losses. After giving effect to the special allocations set
forth in Section 1 of Exhibit C hereto and Section 6.1.E below, Net Losses shall
be allocated (i) first, to all holders of Units (other than Preference Units) in
proportion to their respective Percentage Interests until the aggregate
allocations of Net Losses pursuant to this clause (i) equal the aggregate amount
of allocations of Net Income pursuant to clause (xi) of Section 6.1.A; (ii)
second, to all holders of Units (other than Preference Units)pro rata in
accordance with their Percentage Interests until the aggregate allocations of
Net Losses under this clause (ii) equal the aggregate amount of Net Income
allocated pursuant to clause (x) of Section 6.1.A; (iii) third, to holders of
Class A Units until the aggregate allocations of Net Losses pursuant to this
clause (iii) equal the aggregate amount of allocations of Net Income pursuant to
clause (ix) of Section 6.1.A.; (iv) fourth to holders of Class A Units until the
aggregate allocations of Net Losses pursuant to this clause (iii) equal the
aggregate amount of allocations of Net Income pursuant to clause (viii) of
Section 6.1.A.; (v) fifth, to all holders of Units (other than Preference Units)
until the aggregate allocation of Net Losses pursuant to this clause (v) equal
the aggregate amount of Net Income allocated pursuant to clause (vii) of Section
6.1.A; (vi) sixth, to holders of Class C Units until the aggregate allocations
of Net Losses under this clause (vi) equal the aggregate amount of Net Income
allocated pursuant to clause (vi) of Section 6.1.A; (vii) seventh, to holders of
Class C Units until the aggregate allocations of Net Losses under this clause
(vii) equal the aggregate amount of Net Income allocated pursuant to clause (v)
of Section 6.1.A; (viii) eighth, to holders of Class D Units and Class E Units
until the aggregate allocations of Net Losses under this clause (viii) equal the
aggregate amount of Net Income allocated pursuant to clause (iv) of Section
6.1.A; (ix) ninth, to holders of Class D Units and Class E Units until the
aggregate allocations of Net Losses under this clause (ix) equal the aggregate
amount of Net Income allocated pursuant to clause (iii) of Section 6.1.A; (x)
tenth, to holders of the Preference Units until their aggregate allocations of
Net Losses pursuant to this clause (x) equal the aggregate amount of allocations
of Net Income pursuant to clause (ii) of Section 6.1.A (provided that the
allocation provided for in this clause (x) shall not apply to the extent that
distributions made pursuant to clause (i) of Section 5.1.B are treated as or
determined to be guaranteed payments for purposes of Section 707(c) of the
Code); and (xi) thereafter, to holders of all Units (other than Preference
Units) in proportion to their Percentage Interests; provided that, Net Losses
shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to
the extent that such allocation would cause such Limited Partner to have an
Adjusted Capital Account Deficit (or increase any existing Adjusted Capital
Account Deficit) at the end of such taxable year (or portion thereof). All Net
Losses in excess of the limitations set forth in this Section 6.1.B shall be
allocated to the General Partner.
C. Allocation of Nonrecourse Debt. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. Recapture Income. Any gain allocated to the Partners upon the
sale or other taxable disposition of any Partnership asset shall, to the extent
possible after taking into account other required allocations of gain pursuant
to Exhibit C hereto, be characterized as Recapture Income in the same
proportions and to the same extent
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as such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
E. Cancellation of Indebtedness Income. Any cancellation of
indebtedness income required to be recognized by the Partnership with respect to
the Two Penn Plaza Property in connection with the acquisition of the Two Penn
Plaza Property by the Partnership and the restructuring of the outstanding
indebtedness with respect thereto shall be allocated solely to holders of Two
Penn Plaza Units. In the event that cancellation of indebtedness income is
recognized with respect to the property at 330 Madison Avenue as a result of
resolving the dispute with the lender under the loan outstanding upon
consummation of the Consolidation that is secured by a mortgage on such
property, holders of the Partnership Units issued with respect to M 330
Associates, a New York limited partnership, shall be specially allocated
cancellation of indebtedness income in an amount equal to their proportionate
share of the dollar amount of the discount as a result of the settlement
resulting in the recognition of such cancellation of indebtedness income.
Section 6.2 Revisions to Allocations to Reflect Issuance of Additional
Partnership Interests
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
VI as it deems necessary to reflect the terms of the issuance of such additional
Partnership Interests, including making preferential allocations to classes of
Partnership Interests that are entitled thereto.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Sections 7.6.A, 7.6.D and 7.11 below, shall have full power and
authority to do all things deemed necessary or desirable by it, on such terms
and conditions as the General Partner in its sole discretion deems appropriate,
to conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending, subject to
Section 7.6.D, or borrowing of money (including, without
limitation, making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its Partners
in such amounts as are required under Section 5.1.C hereof or
will permit the General Partner Entity or the General Partner
(as applicable) (as long as the General Partner Entity or the
General Partner qualifies as a REIT) to avoid the payment of
any federal income tax (including, for this purpose, any
excise tax pursuant to Section 4981 of the Code) and to make
distributions to its shareholders sufficient to permit the
General Partner Entity or the General Partner (as applicable)
to satisfy the REIT Requirements), the assumption or guarantee
of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness
(including the securing of same by mortgage, deed of trust or
other lien or encumbrance on the Partnership's assets) and the
incurring of any obligations the General Partner deems
necessary or desirable for the conduct of the activities of
the Partnership; (2) the making of tax, regulatory and other
filings, or rendering of periodic or other reports to
governmental or other agencies having jurisdiction over the
business or assets of the Partnership;
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(3) the acquisition, disposition, sale, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership (including the exercise or grant of
any conversion, option, privilege or subscription right or
other right available in connection with any assets at any
time held by the Partnership) or the merger or other
combination of the Partnership with or into another entity, on
such terms as the General Partner deems proper in its sole and
absolute discretion;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the
terms of this Agreement, including, without limitation, the
financing of the conduct of the operations of the Partnership
or any of the Partnership's Subsidiaries, the lending of funds
to other Persons, subject to Section 7.6.D, and the repayment
of obligations of the Partnership and its Subsidiaries and any
other Person in which the Partnership has an equity investment
and the making of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the
Partnership or any other Person in which the Partnership has
made a direct or indirect equity investment;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General
Partner's powers under this Agreement, including contracting
with contractors, developers, consultants, accountants, legal
counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the
Partnership's assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) the holding, managing, investing and reinvesting of cash and
other assets of the Partnership and, in connection therewith,
the opening, maintaining and closing of bank and brokerage
accounts and the drawing of checks or other orders for the
payment of moneys;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles such
as "president," "vice president," "secretary" and "treasurer")
and agents, outside attorneys, accountants, consultants and
contractors of the Partnership, and the determination of their
compensation and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures, limited liability companies or
other relationships that it deems desirable (including,
without limitation, the acquisition of
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interests in, and the contributions of property to its
Subsidiaries and any other Person in which it has an equity
investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from the
Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute
resolution, the incurring of legal expense and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(14) the determination of the fair market value of any Partnership
property distributed in kind, using such reasonable method of
valuation as the General Partner may adopt;
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote,
appurtenant to any assets or investment held by the
Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person in
which the Partnership has a direct or indirect interest,
individually or jointly with any such Subsidiary or other
Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which
the Partnership does not have any interest pursuant to
contractual or other arrangements with such Person;
(18) the making, executing and delivering of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
other legal instruments or agreements in writing necessary or
appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner
under this Agreement;
(19) the distribution of cash to acquire Partnership Units held by
a Limited Partner in connection with a Limited Partner's
exercise of its Redemption Right under Section 8.6 hereof;
(20) the amendment and restatement of Exhibit A hereto to reflect
accurately at all times the Capital Contributions and
Percentage Interests of the Partners as the same are adjusted
from time to time to the extent necessary to reflect
redemptions, Capital Contributions, the issuance of
Partnership Units, the admission of any Additional Limited
Partner or any Substituted Limited Partner or otherwise, which
amendment and restatement, notwithstanding anything in this
Agreement to the contrary, shall not be deemed an amendment of
this Agreement, as long as the matter or event being reflected
in Exhibit A hereto otherwise is authorized by this Agreement;
(21) the approval and/or implementation of any merger (including a
triangular merger), consolidation or other combination between
the Partnership and another person that is not prohibited
under this Agreement, whether with or without Consent, the
terms of Section 17-211(g) of the Act shall be applicable such
that the General Partner shall have the right to
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effect any amendment to this Agreement or effect the adoption
of a new partnership agreement for a limited partnership if it
is the surviving or resulting limited partnership on the
merger or consolidation (except as may be expressly prohibited
under Section 7.11.D., Section 14.1.C, Section 14.1.D or
Section 14.1.F); and
(22) the taking of any and all actions necessary or desirable in
furtherance of, in connection with or incidental to the
foregoing.
B. No Approval by Limited Partners. Except as provided in Section
7.11 below, each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the full extent permitted
under the Act or other applicable law. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership, (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.
D. Working Capital and Other Reserves. At all times from and
after the date hereof, the General Partner may cause the Partnership to
establish and maintain working capital reserves in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
(both in purpose and amount) from time to time, including upon liquidation of
the Partnership pursuant to Section 13.2 hereof.
E. No Obligations to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken (or not
taken) by it. The General Partner and the Partnership shall not have liability
to a Limited Partner for monetary damages or otherwise for losses sustained,
liabilities incurred or benefits not derived by such Limited Partner in
connection with such decisions, provided that the General Partner has acted in
good faith and not beyond its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The Partnership has caused the Certificate to be filed with the
Secretary of State of Delaware. To the extent that such action is determined by
the General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, the District of Columbia or other jurisdiction
in which the Partnership may elect to do business or own property.
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Section 7.3 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
Section 7.4 Reimbursement of the General Partner
A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership shall be
responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the management and administration of any Subsidiaries of the General Partner or
the Partnership or Affiliates of the Partnership such as auditing expenses and
filing fees); provided that (x), the amount of any such reimbursement shall be
reduced by (i) any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it as permitted in Section
7.5.A below and (ii) any amount derived by the General Partner from any
investments permitted in Section 7.5.A below and (y) REIT Expenses shall not be
treated as Partnership expenses for purposes of this Section 7.4.B. The General
Partner shall determine in good faith the amount of expenses incurred by it
related to the ownership and operation of, or for the benefit of, the
Partnership. In the event that certain expenses are incurred for the benefit of
the Partnership and other entities (including the General Partner), such
expenses will be allocated to the Partnership and such other entities in such a
manner as the General Partner in its sole and absolute discretion deems fair and
reasonable. Such reimbursements shall be in addition to any reimbursement to the
General Partner pursuant to Section 10.3.C hereof and as a result of
indemnification pursuant to Section 7.7 below. All payments and reimbursements
hereunder shall be characterized for federal income tax purposes as expenses of
the Partnership incurred on its behalf, and not as expenses of the General
Partner.
C. Partnership Interest Issuance Expenses. The General Partner shall
also be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests, Debt of the Partnership or rights, options,
warrants or convertible or exchangeable securities pursuant to Article IV hereof
(including, without limitation, all costs, expenses, damages and other payments
resulting from or arising in connection with litigation related to any of the
foregoing), all of which expenses are considered by the Partners to constitute
expenses of, and for the benefit of, the Partnership.
D. Purchases of Shares by the General Partner. In the event that the
General Partner exercises its rights under the Declaration of Trust to purchase
shares or otherwise elects to purchase from its shareholders Shares in
connection with a share repurchase or similar program or for the purpose of
delivering such Shares to satisfy an obligation under any dividend reinvestment
or share purchase program adopted by the General Partner, any employee share
purchase plan adopted by the General Partner or any similar obligation or
arrangement undertaken by the General Partner in the future, the purchase price
paid by the General Partner for such Shares and any other expenses incurred by
the General Partner in connection with such purchase shall be considered REIT
Expenses, and the Partnership shall
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distribute cash to the General Partner to offset such expenses pursuant to
Section 5.1, subject to the conditions that: (i) if such Shares subsequently are
to be sold by the General Partner, the General Partner pays to the Partnership
any proceeds received by the General Partner for such Shares (provided that a
transfer of Shares for Partnership Units pursuant to Section 8.6 hereof would
not be considered a sale for such purposes); and (ii) if such Shares are not
retransferred by the General Partner within thirty (30) days after the purchase
thereof, the General Partner shall cause the Partnership to cancel a number of
Partnership Units of the appropriate class (rounded to the nearest whole
Partnership Unit) held by the General Partner equal to the product attained by
multiplying the number of such Shares by a fraction, the numerator of which is
one and the denominator of which is the Conversion Factor.
E. Tax Treatment of Certain Reimbursements. If and to the extent
that any reimbursement made pursuant to this Section 7.4 is determined for
federal income tax purposes not to constitute a payment of expenses of the
Partnership, then such reimbursement shall be treated as a distribution pursuant
to clause (i) of Section 5.1.B. hereof.
Section 7.5 Outside Activities of the General Partner
A. General. Without the Consent of the Outside Limited Partners,
except as set forth in this Section 7.5.A, the General Partner shall not,
directly or indirectly, enter into or conduct any business other than in
connection with the ownership, acquisition and disposition of Partnership
Interests as a General Partner or Limited Partner and the management of the
business of the Partnership and such activities as are incidental to any of the
foregoing. Without the Consent of the Outside Limited Partners, the assets of
the General Partner shall be limited to Partnership Interests and permitted debt
obligations of the Partnership (as contemplated by Section 7.5.F below), so that
Shares and Partnership Units are completely fungible except as otherwise
specifically provided herein; provided, that the General Partner shall be
permitted to hold (i) interests in entities, including Qualified REIT
Subsidiaries, that hold no material assets; (ii) interests in Qualified REIT
Subsidiaries (or other entities that are not taxed as corporations for federal
income tax purposes) that own only interests in the Partnership and/or interests
in other Qualified REIT Subsidiaries (or other entities that are not taxed as
corporations for federal income tax purposes) that either hold no assets or hold
only interests in the Partnership; (iii) assets and/or interests in entities,
including Qualified REIT Subsidiaries, that hold assets, having an aggregate
value not greater than five percent (5%) of the total market value of the
General Partner Entity (determined by reference to the value of all outstanding
equity securities of the General Partner Entity), provided that (X) the General
Partner Entity will apply the net income from such assets (other than net income
derived as a result of a Qualified REIT Subsidiary's ownership of an interest in
the Partnership) to offset REIT Expenses before utilizing the distribution
provisions of Section 5.1.B, (Y) the General Partner will contribute all net
income generated by such assets and/or interests (other than net income derived
as a result of a Qualified REIT Subsidiary's ownership of an interest in the
Partnership) to the Operating Partnership (after taking into account REIT
Expenses as described in clause (X) above), and (Z) the General Partner will use
commercially reasonable efforts to transfer such assets and interests (other
than interests in Qualified REIT Subsidiaries and the Partnership) to the
Operating Partnership or an entity controlled by the Operating Partnership as
soon as such a transfer can be made without causing the General Partner or the
Operating Partnership to incur any material expenses in connection therewith;
and (iv) such bank accounts or similar instruments or account in its own name as
it deems necessary to carry out its responsibilities and purposes as
contemplated under this Agreement and its organizational documents; and,
provided, further, that the General Partner shall be permitted to acquire,
directly or through a Qualified REIT Subsidiary (or other entities that are not
taxed as corporations for federal income tax purposes), up to a one percent (1%)
interest in any partnership or limited liability company at least ninety-nine
percent (99%) of the equity of which is owned directly or indirectly by the
Partnership. The General Partner and any of its Affiliates may acquire Limited
Partnership Interests and shall be entitled to exercise all rights of a Limited
Partner relating to such Limited Partnership Interests.
B. Repurchase of Shares. In the event the General Partner exercises
its rights under the Declaration of Trust to purchase Shares or otherwise elects
to purchase from its shareholders Shares in connection with a share repurchase
or similar program or for the purpose of delivering such Shares to satisfy an
obligation under any dividend reinvestment or share purchase program adopted by
the General Partner, any employee share purchase plan adopted by the General
Partner or any similar obligation or arrangement undertaken by the General
Partner in the future,
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and the General Partner does not resell said Shares within thirty (30) days
after the purchase thereof as contemplated in Section 7.4.D(i), then the General
Partner shall cause the Partnership to purchase from the General Partner (and
eliminate) that number of Partnership Units of the appropriate class equal to
the product obtained by multiplying the number of Shares purchased by the
General Partner times a fraction, the numerator of which is one and the
denominator of which is the Conversion Factor, on the same terms and for the
same aggregate price that the General Partner purchased such Shares.
C. Forfeiture of Shares. In the event the Partnership or the General
Partner acquires Shares as a result of the forfeiture of such Shares under a
restricted or similar share plan, then the General Partner shall cause the
Partnership to cancel that number of Partnership Units of the appropriate class
equal to the number of Shares so acquired, and, if the Partnership acquired such
Shares, it shall transfer such Shares to the General Partner for cancellation.
D. Issuances of Shares. After the Effective Date, the General
Partner shall not grant, award, or issue any additional Shares (other than
Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend or
distribution (including any share split) of Shares to all of its shareholders),
other equity securities of the General Partner, New Securities or Convertible
Funding Debt unless (i) the General Partner shall cause, pursuant to Section
4.2.A hereof, the Partnership to issue to the General Partner Partnership
Interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership having designations, preferences and other rights, all such
that the economic interests are substantially the same as those of such
additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be, and (ii) the General Partner transfers to the
Partnership, as an additional Capital Contribution, the proceeds from the grant,
award, or issuance of such additional Shares, other equity securities, New
Securities or Convertible Funding Debt, as the case may be, or from the exercise
of rights contained in such additional Shares, other equity securities, New
Securities or Convertible Funding Debt, as the case may be. Without limiting the
foregoing, the General Partner is expressly authorized to issue additional
Shares, other equity securities, New Securities or Convertible Funding Debt, as
the case may be, for less than fair market value, and the General Partner is
expressly authorized, pursuant to Section 4.2.A hereof, to cause the Partnership
to issue to the General Partner corresponding Partnership Interests, as long as
(a) the General Partner concludes in good faith that such issuance is in the
interests of the General Partner and the Partnership (for example, and not by
way of limitation, the issuance of Shares and corresponding Partnership Units
pursuant to a share purchase plan providing for purchases of Shares, either by
employees or shareholders, at a discount from fair market value or pursuant to
employee share options that have an exercise price that is less than the fair
market value of the Shares, either at the time of issuance or at the time of
exercise) and (b) the General Partner transfers all proceeds from any such
issuance or exercise to the Partnership as an additional Capital Contribution.
E. Stock Option Plan. If at any time or from time to time, the
General Partner sells Shares pursuant to any Stock Option Plan, the General
Partner shall transfer the net proceeds of the sale of such Shares to the
Partnership as an additional Capital Contribution in exchange for an amount of
additional Partnership Units equal to the number of Shares so sold divided by
the Conversion Factor.
F. Funding Debt. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities ("Convertible Funding Debt"),
subject to the condition that the General Partner lends to the Partnership the
net proceeds of such Funding Debt; provided, that Convertible Funding Debt shall
be issued pursuant to Section 7.5.D above; and, provided, further, that the
General Partner shall not be obligated to lend the net proceeds of any Funding
Debt to the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into any Funding Debt, the loan to the Partnership shall be on comparable terms
and conditions, including interest rate, repayment schedule and costs and
expenses, as are applicable with respect to or incurred in connection with such
Funding Debt.
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Section 7.6 Transactions with Affiliates
A. Transactions with Certain Affiliates. Except as expressly
permitted by this Agreement (other than Section 7.1.A hereof, which shall not be
considered authority for a transaction that otherwise would be prohibited by
this Section 7.6.A), the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership or
the General Partner or the General Partner Entity that is not also a Subsidiary
of the Partnership, except pursuant to a transaction that has been approved by a
majority of the disinterested trustees (or directors) of the General Partner or
General Partner Entity (as applicable), taking into account the fiduciary duties
of the General Partner or General Partner Entity (as applicable) to the Limited
Partners.
B. Benefit Plans. The General Partner, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit plans funded by the
Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
C. Conflict Avoidance. The General Partner is expressly authorized
to enter into, in the name and on behalf of the Partnership, a right of first
opportunity arrangement and other conflict avoidance agreements with various
Affiliates of the Partnership and General Partner on such terms as the General
Partner, in its sole and absolute discretion, believes are advisable.
D. Limitation on Loans to the General Partner. Except with the
Consent of the Outside Limited Partners, the General Partner may not cause the
Partnership to loan money to the General Partner or to any Subsidiary or
Affiliate of the General Partner which is not also a Subsidiary or an entity in
which the Partnership owns an equity interest.
Section 7.7 Indemnification
A. General. To the maximum extent permitted by applicable law at the
time, the Partnership, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify each Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements and other amounts arising from or in
connection with any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative incurred by the Indemnitee and
relating to the Partnership or the General Partner or the formation or the
current (and, in the case of the General Partner's right to indemnification from
the Partnership, prior) operations of, or the current (and, in the case of the
General Partner's right to indemnification from the Partnership, prior)
ownership of property by, either of them as set forth in this Agreement in which
any such Indemnitee may be involved, or is threatened to be involved, as a party
or otherwise, unless it is established by a final determination of a court of
competent jurisdiction that: (i) the act or omission of the Indemnitee was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
Indemnitee actually received an improper personal benefit in money, property or
services or (iii) in the case of any criminal proceeding, the Indemnitee had
reasonable cause to believe that the act or omission was unlawful. The
obligations of the Partnership under this Section 7.7 shall include
reimbursement of the General Partner for any indemnification or advance of
expenses by the General Partner pursuant to Title 8, the Declaration of Trust or
its Bylaws. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guarantee, contractual
obligations for any indebtedness or other obligations or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to). The General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements not inconsistent with the provisions of this Section
7.7 in favor of any Indemnitee having or potentially having liability for any
such indebtedness.
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The termination of any proceeding by judgment, order or settlement does not
create a presumption that the Indemnitee did not meet the requisite standard of
conduct set forth in this Section 7.7.A. Any indemnification pursuant to this
Section 7.7 shall be made only out of the assets of the Partnership and any
insurance proceeds from the liability policy covering the General Partner and
any Indemnitees, and neither the General Partner nor any Limited Partner shall
have any obligation to contribute to the capital of the Partnership or otherwise
provide funds to enable the Partnership to fund its obligations under this
Section 7.7.
B. Advancement of Expenses. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee, in the case of any trustee/director or officer
who is an Indemnitee upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee or
any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain insurance on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7, (i) the
Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.7 and (iii) actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be related to the Partnership.
F. No Personal Liability for Limited Partners. In no event may an
Indemnitee subject any of the Partners to liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the benefit
of the Indemnitees, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights for the benefit of any other Persons.
Any amendment, modification or repeal of this Section 7.7, or any provision
hereof, shall be prospective only and shall not in any way affect the obligation
of the Partnership to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or related to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
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I. Indemnification Payments Not Distributions. If and to the extent
any payments to the General Partner pursuant to this Section 7.7 constitute
gross income to the General Partner (as opposed to the repayment of advances
made on behalf of the Partnership), such amounts shall constitute guaranteed
payments within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners, and shall not be
treated as distributions for purposes of computing the Partners' Capital
Accounts.
Section 7.8 Liability of the General Partner
A. General. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner and its directors and officers shall not be
liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or of any act or omission if
the General Partner acted in good faith.
B. No Obligation to Consider Separate Interests of Limited Partners
or Shareholders. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or Assignees or to such
shareholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions and that the General Partner shall not be liable for
monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith.
C. Actions of Agents. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A above, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents. The General Partner shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by the General Partner in
good faith.
D. Effect of Amendment. Any amendment, modification or repeal of
this Section 7.8 or any provision hereof shall be prospective only and shall not
in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties.
B. Reliance on Advisors. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisors selected by it, and any act taken or omitted to
be taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
C. Action Through Agents. The General Partner shall have the right,
in respect of any of its powers or obligations hereunder, to act through any of
its duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
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D. Actions to Maintain REIT Status or Avoid Taxation of the General
Partner Entity or the General Partner (as applicable). Notwithstanding any other
provisions of this Agreement (other than the limitations on the General
Partner's authority set forth in Sections 7.5, 7.6.A, 7.6.D, and 7.11) or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity or the General Partner (as applicable) to continue to satisfy the
REIT Requirements or (ii) to allow the General Partner Entity or the General
Partner (as applicable) to avoid incurring any liability for taxes under Section
857 or 4981 of the Code, is expressly authorized under this Agreement and is
deemed approved by all of the Limited Partners.
Section 7.10 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement (other
than the limitations on the General Partner's authority set forth in Sections
7.5, 7.6.A, 7.6.D, and 7.11), any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without consent or approval of any other Partner or Person, to encumber, sell or
otherwise use in any manner any and all assets of the Partnership, to enter into
any contracts on behalf of the Partnership and to take any and all actions on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if the General Partner were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
Section 7.11 Restrictions on General Partner's Authority
A. Consent Required. The General Partner may not take any action in
contravention of an express prohibition or limitation of this Agreement without
the written Consent of (i) all Partners adversely affected or (ii) such lower
percentage of the Limited Partnership Interests as may be specifically provided
for under a provision of this Agreement or the Act.
B. Intentionally Omitted.
C. Required Consent of Certain Partners. (i) The General Partner
may not, directly or indirectly, cause the Partnership to take any action
prohibited by this Section 7.11.C without the requisite approval as provided in
this Section 7.11.C.
(1) For a period of twenty (20) years following the Effective
Date, the General Partner may not, directly or indirectly,
cause the Partnership to sell, exchange or otherwise dispose
of the property located at Two Penn Plaza, New York, New York
or any indirect interest (including, without limitation, any
interest of the Partnership in Two Penn Plaza REIT, Inc., and
any interest of Two Penn Plaza REIT, Inc., in Vornado Two Penn
Plaza L.L.C., whether, in either case, by liquidation, merger
or otherwise) therein (collectively, the "Two Penn Plaza
Property") (other than an involuntary sale pursuant to
foreclosure of the mortgage secured by the Two Penn Plaza
Property or otherwise, including pursuant to (x)
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an event described in Section 1033 of the Code (as determined
without reference to the property, if any, into which the Two
Penn Plaza Property is converted), other than a disposition
resulting from the mere threat or imminence of a requisition
or condemnation and (y) a deed in lieu of foreclosure
(provided that the General Partner may not execute any deed in
lieu of foreclosure unless the maturity of the indebtedness
secured by the Two Penn Plaza Property has occurred, whether
by reason of acceleration or otherwise, or a proceeding in
connection with a Bankruptcy of the Partnership, the fee
owning entity or any intermediate Person between them) to any
Person without the Consent of the Partners at the time of the
proposed sale, exchange or other disposition (other than the
General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General
Partner Entity) who hold seventy-five percent (75%) of the
Partnership Units which were issued with respect to Two Penn
Plaza Associates in the Consolidation and which remain
outstanding (whether held by the original recipient of such
Partnership Units or by a successor or transferee of the
original recipient, but not including Partnership Units, if
any, held by (I) the General Partner or the General Partner
Entity or any Subsidiary of either the General Partner or the
General Partner Entity and (II) the estate of Bernard H.
Mendik following his death) (referred to as "Two Penn Plaza
Units"). In addition, during such twenty-year period, the
General Partner may not, directly or indirectly, cause the
Partnership to repay, earlier than one year prior to its
stated maturity, any indebtedness secured by the Two Penn
Plaza Property without the Consent of Partners holding
seventy-five percent (75%) of the Two Penn Plaza Units, unless
such repayment (a) is made in connection with the refinancing
(on a basis such that the new debt would be considered a
Nonrecourse Liability, or, as contemplated and only to the
extent required by clause (2) below, a Partner Nonrecourse
Debt) of such indebtedness for an amount not less than the
principal amount of such indebtedness on the date of such
refinancing, with such refinancing indebtedness (1) providing
for the least amount of principal amortization as is available
on commercially reasonable terms and (2) permitting (but not
requiring) a guarantee of such indebtedness by the holders of
the Two Penn Plaza Units who elect to join in such guarantee
in a form and on terms consistent with the guarantees by the
holders of the Two Penn Plaza Units in effect immediately
prior to such refinancing, provided that the opportunity to
provide such guarantee is obtainable on commercially
reasonable terms, or (b) is made in connection with an
involuntary sale pursuant to foreclosure of the mortgage
secured by the Two Penn Plaza Property or otherwise, including
pursuant to a deed in lieu of foreclosure (provided that the
General Partner may not execute any deed in lieu of
foreclosure unless the maturity of the indebtedness secured by
the Two Penn Plaza Property has been accelerated) or a
proceeding in connection with a Bankruptcy of the Partnership,
the fee-owning entity or any intermediate Person between them.
During such twenty-year period, the General Partner shall use
commercially reasonable efforts during the one-year period
prior to the stated maturity of such indebtedness to cause the
Partnership to refinance (on a basis such that the new debt
would be considered a Nonrecourse Liability, or, as
contemplated and only to the extent required by clause (2)
below, a Partner Nonrecourse Debt) the indebtedness for an
amount not less than the principal amount of such indebtedness
on the date of such refinancing, provided such refinancing can
be obtained on commercially reasonable terms, with such
refinancing indebtedness (1) providing for the least amount of
principal amortization as is available on commercially
reasonable terms and (2) permitting (but not requiring) a
guarantee of such indebtedness by the holders of the Two Penn
Plaza Units who elect to join in such guarantee in a form and
on terms consistent with the guarantees by the holders of the
Two Penn Plaza Units in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee is obtainable on commercially reasonable terms.
Finally, during such twenty-year period, the General Partner
shall not, without the Consent of Partners holding
seventy-five percent (75%) of the Two Penn Plaza
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Units, incur indebtedness secured by the Two Penn Plaza
Property if, at the time such indebtedness is incurred, the
aggregate amount of the indebtedness secured by the Two Penn
Plaza Property would exceed the greater of (i) seventy percent
(70%) of the fair market value of the Two Penn Plaza Property
(or the interest therein) securing such indebtedness or (ii)
the then outstanding indebtedness being refinanced plus all
costs (including prepayment fees, "breakage" payments and
similar costs) incurred in connection with such refinancing.
All references in this Section 7.11.C to "commercially
reasonable terms" shall be as determined by the General
Partner in its sole discretion, exercised in good faith.
(2) For a period of twenty (20) years following the Effective
Date, the General Partner may not, directly or indirectly,
cause the Partnership to sell, exchange or otherwise dispose
of the property located at Eleven Penn Plaza, New York, New
York or any indirect interest therein (collectively, the
"Eleven Penn Plaza Property") (other than an involuntary sale
pursuant to foreclosure of the mortgage secured by the Eleven
Penn Plaza Property or otherwise, including pursuant to (x) an
event described in Section 1033 of the Code (as determined
without reference to the property, if any, into which the
Eleven Penn Plaza Property is converted), other than a
disposition resulting from the mere threat or imminence of a
requisition or condemnation and (y) a deed in lieu of
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity of the
indebtedness secured by the Eleven Penn Plaza Property has
occurred, whether by reason of acceleration or otherwise, or a
proceeding in connection with a Bankruptcy of the Partnership,
the fee-owning entity or any intermediate Person between them)
to any Person without the Consent of the Partners at the time
of the proposed sale, exchange or other disposition who hold
seventy-five percent (75%) of the Partnership Units which were
issued with respect to the Eleven Penn Partnerships in the
Consolidation and which remain outstanding (whether held by
the original recipient of such Partnership Units or by a
successor or transferee of the original recipient, but not
including the Partnership Units, if any, held by (I) General
Partner or the General Partner Entity or any Subsidiary of
either the General Partner or the General Partner Entity and
(II) the estate of Bernard H. Mendik following his death)
(referred to as "Eleven Penn Plaza Units"). In addition,
during such twenty-year period, the General Partner may not,
directly or indirectly, cause the Partnership to repay,
earlier than one year prior to its stated maturity, any
indebtedness secured by the Eleven Penn Plaza Property without
the Consent of Partners who hold seventy-five percent (75%) of
the Eleven Penn Plaza Units, unless such repayment (a) is made
in connection with the refinancing (on a basis such that the
new debt would be considered a Nonrecourse Liability, or, as
contemplated and only to the extent required by clause (2)
below, a Partner Nonrecourse Debt) of such indebtedness for an
amount not less than the principal amount of such indebtedness
on the date of such refinancing, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms
and (2) permitting (but not requiring) a guarantee of such
indebtedness by the holders of the Eleven Penn Plaza Units who
elect to join in such guarantee in a form and on terms
consistent with the guarantees by the holders of the Eleven
Penn Plaza Units in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee is obtainable on commercially reasonable terms, or
(b) is made in connection with an involuntary sale pursuant to
foreclosure of the mortgage secured by the Eleven Penn Plaza
Property or otherwise, including pursuant to a deed in lieu of
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity of the
indebtedness secured by the Eleven Penn Plaza Property has
been accelerated) or a proceeding in connection with a
Bankruptcy of the Partnership, the fee-owning entity or any
intermediate Person between them. During such twenty-year
period, the General Partner shall use commercially reasonable
efforts during the one-year period prior to the stated
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maturity of such indebtedness to cause the Partnership to
refinance (on a basis such that the new debt would be
considered a Nonrecourse Liability, or, as contemplated and
only to the extent required by clause (2) below, a Partner
Nonrecourse Debt) the indebtedness for an amount not less than
the principal amount of such indebtedness on the date of such
refinancing, provided such refinancing can be obtained on
commercially reasonable terms, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms
and (2) permitting (but not requiring) a guarantee of such
indebtedness by the holders of the Eleven Penn Plaza Units who
elect to join in such guarantee in a form and on terms
consistent with the guarantees by the holders of the Eleven
Penn Plaza Units in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee is obtainable on commercially reasonable terms.
Finally, during such twenty-year period, the General Partner
shall not, without the Consent of Partners holding
seventy-five percent (75%) of the Eleven Penn Plaza Units,
incur indebtedness secured by the Eleven Penn Plaza Property
if, at the time such indebtedness is incurred, the aggregate
amount of the indebtedness secured by the Eleven Penn Plaza
Property would exceed the greater of (i) seventy percent (70%)
of the fair market value of the Eleven Penn Plaza Property (or
the interest therein) securing such indebtedness or (ii) the
then outstanding indebtedness being refinanced plus all costs
(including prepayment fees, "breakage" payments and similar
costs) incurred in connection with such refinancing.
(3) For a period of twenty (20) years following the Effective
Date, the General Partner may not, directly or indirectly,
cause the Partnership to sell, exchange, or otherwise dispose
of the property located at 866 U.N. Plaza, New York, New York
or any indirect interest therein (collectively, the "866 U.N.
Plaza Property") (other than an involuntary sale pursuant to
foreclosure of the mortgage secured by the 866 U.N. Plaza
Property or otherwise, including pursuant to (x) an event
described in Section 1033 of the Code (as determined without
reference to the property, if any, into which the 866 U.N.
Plaza Property is converted), other than a disposition
resulting from the mere threat or imminence of a requisition
or condemnation and (y) a deed in lieu of foreclosure
(provided that the General Partner may not execute any deed in
lieu of foreclosure unless the maturity of the indebtedness
secured by the 866 U.N. Plaza Property has occurred, whether
by reason of acceleration or otherwise, or a proceeding in
connection with a Bankruptcy of the Partnership, the
fee-owning entity or any intermediate Person between them) to
any Person without the Consent of the Partners at the time of
the proposed sale, exchange or other disposition (other than
the General Partner or the General Partner Entity or any
Subsidiary of either of the General Partner of the General
Partner or the General Partner Entity) who hold seventy-five
percent (75%) of the Partnership Units which were issued with
respect to 866 U.N. Plaza Associates in the Consolidation and
which remain outstanding (whether held by the original
recipient of such Partnership Units or by a successor or
transferee of the original recipient, but not including
Partnership Units, if any, held by (I) the General Partner or
the General Partner Entity or any Subsidiary of either the
General Partner or the General Partner Entity and (II) the
estate of Bernard H. Mendik following his death) (referred to
as "866 U.N. Plaza Units"). In addition, during such
twenty-year period, the General Partner may not, directly or
indirectly, cause the Partnership to repay, earlier than one
year prior to its stated maturity, any indebtedness secured by
the 866 U.N. Plaza Property without the Consent of Partners
holding seventy-five percent (75%) of the 866 U.N. Plaza
Units, unless such repayment (a) is made in connection with
the refinancing (on a basis such that the new debt would be
considered a Nonrecourse Liability or, as contemplated and
only to the extent required by clause (2) below, a Partner
Nonrecourse Debt) of such indebtedness for an amount not less
than the principal amount of such indebtedness on the date of
such refinancing, with such
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refinancing indebtedness (1) providing for the least amount of
principal amortization as is available on commercially
reasonable terms and (2) permitting (but not requiring) a
guarantee of such indebtedness by the holders of the 866 U.N.
Plaza Units who elect to join in such guarantee in a form and
on terms consistent with the guarantees by the holders of the
866 U.N. Plaza Units in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee is obtainable on commercially reasonable terms, or
(b) is made in connection with an involuntary sale pursuant to
foreclosure of the mortgage secured by the 866 U.N. Plaza
Property or otherwise, including pursuant to a deed in lieu of
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity of the
indebtedness secured by the 866 U.N. Plaza Property has been
accelerated) or a proceeding in connection with a Bankruptcy
of the Partnership, of the fee-owning entity or any
intermediate Person between them. During such twenty-year
period, the General Partner shall use commercially reasonable
efforts during the one-year period prior to the stated
maturity of such indebtedness to cause the Partnership to
refinance (on a basis such that the new debt would be
considered a Nonrecourse Liability, or, as contemplated and
only to the extent required by clause (2) below, a Partner
Nonrecourse Debt) the indebtedness for an amount not less than
the principal amount of such indebtedness on the date of such
refinancing, provided such refinancing can be obtained on
commercially reasonable terms, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms
and (2) permitting (but not requiring) a guarantee of such
indebtedness by the holders of the 866 U.N. Plaza Units who
elect to join in such guarantee in a form and on terms
consistent with the guarantees by the holders of the 866 U.N.
Plaza Units in effect immediately prior to such refinancing,
provided that the opportunity to provide such guarantee is
obtainable on commercially reasonable terms. Finally, during
such twenty-year period, the General Partner shall not,
without the Consent of Partners holding seventy-five percent
(75%) of the 866 U.N. Plaza Units, incur indebtedness secured
by the 866 U.N. Plaza Property if, at the time such
indebtedness is incurred, the aggregate amount of the
indebtedness secured by the 866 U.N. Plaza Property would
exceed the greater of (i) seventy percent (70%) of the fair
market value of the 866 U.N. Plaza Property (or the interest
therein) securing such indebtedness or (ii) the then
outstanding indebtedness being refinanced plus all costs
(including prepayment fees, "breakage" payments and similar
costs) incurred in connection with such refinancing.
(4) Subparagraphs (1), (2), and (3) shall not apply to any
transaction that involves the Two Penn Plaza Property, the
Eleven Penn Plaza Property or the 866 U.N. Plaza Property, as
the case may be (which Property is referred to as the
"Exchanged Property"), if such transaction qualifies as a
like-kind exchange under Section 1031 of the Code or an
involuntary conversion under Section 1033 of the Code (other
than an involuntary conversion under Section 1033 of the Code
that is described in the second parenthetical to subparagraphs
(1), (2) or (3), as the case may be) in which no gain is
recognized by the Partnership as long as the following
conditions are satisfied: (x) in the case of a Section 1031
like-kind exchange, such exchange is not with a "related
party" within the meaning of Section 1031(f)(3) of the Code;
(y) the property received in exchange for the Exchanged
Property (referred to as the "Replacement Property") is
acquired in the same taxable year of the Partnership in which
the disposition of the Exchanged Property occurs and is
secured by nonrecourse indebtedness in an amount not less than
the outstanding principal amount of the nonrecourse
indebtedness secured by the Exchanged Property at the time of
the exchange, nor greater than the amount that would be
permitted under Sections 7.11.C(1), (2), or (3), as the case
may be (except that 70% of fair market value shall be
determined by reference to the Replacement Property and not
the Exchanged Property, with a maturity not earlier than, and
a principal amortization rate not more rapid than, the
maturity and principal amortization rate
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of such indebtedness secured by the Exchanged Property, which
indebtedness permits (but does not require) a guarantee of
such indebtedness by the holders of the Two Penn Plaza Units,
the Eleven Penn Plaza Units or the 866 U.N. Plaza Units, as
the case may be, who elect to join in such guarantee in a form
and on terms consistent with the guarantees by the holders of
the Two Penn Plaza Units, the Eleven Penn Plaza Units or the
866 U.N. Plaza Units, as the case may be, in effect
immediately prior to the time of the exchange, and (z) the
Replacement Property is thereafter treated for all purposes of
the restrictions in this Section 7.11.C as the Exchanged
Property and the indebtedness secured by such Replacement
Property is subject to the same restrictions and agreements as
apply with respect to the indebtedness secured by the
Exchanged Property.
(5) Subparagraphs (1), (2), and (3) shall not apply to any
transaction that involves the Two Penn Plaza Property, the
Eleven Penn Plaza Property or the 866 U.N. Plaza Property, as
the case may be (which Property is referred to as the
"Transferred Property"), if (x) such transaction is one in
which no gain is recognized with respect to the Two Penn Plaza
Property, the Eleven Penn Plaza Property or the 866 U.N. Plaza
Property by the Partnership or the holders of the Two Penn
Plaza Units, the Eleven Penn Plaza Units, or the 866 U.N.
Plaza Units, as the case may be (other than gain, if any,
resulting solely because the share, if any, of indebtedness
allocable to a Partnership Unit is reduced or eliminated),
provided that (i) the amount of indebtedness secured by the
Two Penn Plaza Property, the Eleven Penn Plaza Property or the
866 U.N. Plaza Property, as applicable, is not decreased as a
result of the transaction and the amount of indebtedness
secured by the Two Penn Plaza Property, the Eleven Penn Plaza
Property or the 866 U.N. Plaza Property, as applicable, that
is a Nonrecourse Liability or Partner Nonrecourse Debt is not
reduced, except as permitted by the relevant provisions of
Subparagraph (1), (2) or (3) of this Section 7.11.C, and (ii)
the indebtedness secured by the Two Penn Plaza Property, the
Eleven Penn Plaza Property or the 866 U.N. Plaza Property, as
applicable, continues to be taken into account in determining
the Partners' basis in their Partnership Interests under rules
similar to those provided in Section 752 of the Code and (y)
the entity to which such Transferred Property is transferred
agrees, for the benefit of the holders of the Two Penn Plaza
Units, the Eleven Penn Plaza Units or the 866 U.N. Plaza
Units, as the case may be, that all of the restrictions of
this Section 7.11.C shall apply to the Transferred Property
and the indebtedness outstanding with respect thereto in the
same manner and to the extent set forth in this Section 7.11.C
and such agreement is reflected in the partnership agreement
(or other comparable governing instrument) of the entity to
which the Transferred Property is transferred.
(6) Subparagraphs (1), (2), and (3) shall not apply to any
transaction that involves either a merger or consolidation of
the Partnership with or into another entity that qualifies as
a "partnership" for federal income tax purposes (the
"Successor Partnership") or a transfer of all or substantially
all of the assets of the Partnership to a Successor
Partnership and dissolution of the Partnership in connection
therewith (in either case, a "Consolidation Transaction") so
long as (x) no gain is recognized with respect to the Two Penn
Plaza Property, the Eleven Penn Plaza Property or the 866 U.N.
Plaza Property by the Partnership or the holders of the Two
Penn Plaza Units, the Eleven Penn Plaza Units or the 866 U.N.
Plaza Units, as the case may be, in connection with such
Consolidation Transaction (other than gain, if any, resulting
solely because the share, if any, of indebtedness allocable to
a Partnership Unit is reduced or eliminated, provided that the
amount of indebtedness secured by the Two Penn Plaza Property,
the Eleven Penn Plaza Property or the 866 U.N. Plaza Property,
as applicable, is not decreased as a result of the transaction
and the amount of indebtedness secured by the Two Penn Plaza
Property, the Eleven Penn Plaza Property or the 866 U.N. Plaza
Property, as applicable, that is a Nonrecourse Liability or
Partner
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Nonrecourse Debt is not reduced, except as permitted by the
relevant provisions of Subparagraph (1), (2) or (3) of this
Section 7.11.C, and (y) the Successor Partnership agrees in
writing, for the benefit of the holders of the Two Penn Plaza
Units, the Eleven Penn Plaza Units or the 866 U.N. Plaza
Units, as the case may be, that all of the restrictions of
this Section 7.11.C shall apply to the Two Penn Plaza
Property, the Eleven Penn Plaza Property and the 866 U.N.
Plaza Property and the indebtedness outstanding with respect
thereto in the same manner and to the extent set forth in this
Section 7.11.C.
(7) Subparagraphs (1), (2) and (3) shall not apply to any
transaction not otherwise described in Subparagraph (4), (5)
or (6) involving the Two Penn Plaza Property, the Eleven Penn
Plaza Property and/or the 866 U.N. Plaza Property if,
concurrently with the consummation of such transaction, the
Partnership pays to the holders of the Two Penn Plaza Units,
the Eleven Penn Plaza Units and/or the 866 U.N. Plaza Units,
as applicable, in addition to any amounts otherwise
distributable under Article V hereof, an amount equal to the
lesser of (x) the aggregate federal, state and local income
taxes payable by each holder of Two Penn Plaza Units, as
applicable, as a result of or in connection with such
transactions, or (y) the aggregate federal, state and local
income taxes that would have been payable by such holder (or
its predecessor in interest) if the relevant property had been
sold on the Effective Date for its 704(c) Value; provided that
the amount referred to in clause (y) shall be reduced to
reflect (I) reductions in the Book/Tax Disparity with respect
to the Two Penn Plaza Property, the Eleven Penn Plaza Property
and/or the 866 U.N. Plaza Property, as applicable, and (II)
with respect to a holder who acquired Two Penn Plaza Units,
Eleven Penn Plaza Units and/or 866 U.N. Plaza Units, as
applicable, subsequent to the Effective Date, the reduction in
gain that results from such holder's having a special inside
basis under Section 743 of the Code in the Two Penn Plaza
Property, the Eleven Penn Plaza Property or the 866 U.N. Plaza
Property, as applicable (by treating the special inside basis
as the basis for determining gain on the deemed sale described
in clause (y)), but, in either (I) or (II), the gain with
respect to which the tax is computed may not be so reduced
beneath the "negative basis" associated, as of the Effective
Time, with the Two Penn Plaza Units, the Eleven Penn Plaza
Units or the 866 U.N. Plaza Units, as appropriate, plus in the
case of either (x) or (y), an amount equal to the aggregate
federal, state and local income taxes payable by the recipient
thereof as the result of the receipt of the payments provided
for in this subparagraph (7) (including for this purpose all
taxes on payments hereunder intended to compensate the
recipient thereof for taxes owed by the recipient). For
purposes of the preceding sentence, (x) all income arising
from the transaction that is treated as ordinary income under
the applicable provisions of the Code and is allocated to the
holders of the Two Penn Plaza Units, the Eleven Penn Plaza
Units and/or the 866 U.N. Plaza Units, as applicable, shall be
treated as subject to federal, state and local income tax at
the effective tax rate imposed on ordinary income of New York
City residents, determined using the maximum federal, New York
State and New York City rates on ordinary income then in
effect and (y) all other income arising from the transaction
and all payments provided for in this subparagraph (7) shall
be treated as subject to federal, state and local income tax
at the effective tax rate imposed on long-term capital gains
of New York City residents, determined using the maximum
federal, New York State and New York City rates on long-term
capital gains then in effect.
If at any time prior to the twentieth (20th) anniversary of the
Effective Date, the Partnership pays the amounts described in subparagraph (7)
above in respect of any Partnership Units entitled to the benefits of Section
7.11.C(1), (2) or (3), and the amount of such payment is, at the time that it is
made, equal to the full amount that would be payable under such Sections with
respect to such Partnership Units if the Two Penn Plaza Property, the Eleven
Penn Plaza Property, or the 866 U.N. Plaza Property, as applicable, were to have
been sold on such date for its market value, then the provisions of Section
7.11.C shall thereafter cease to apply to those Partnership Units.
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(ii) Nothing herein shall be deemed to require that the Partnership
or the General Partner take any action to avoid or prevent an involuntary
disposition of any property, whether pursuant to foreclosure of a mortgage
secured by such property or otherwise, including pursuant to a deed in lieu of
foreclosure or a proceeding in connection with a Bankruptcy.
(iii) Nothing herein shall prevent the sale, exchange, transfer or
other disposition of any property pursuant to the dissolution and liquidation of
the Partnership in accordance with Article XIII hereof (other than Section
13.1(v), which shall be subject to this Section 7.11.C).
D. Merger or Consolidation in Which the Partnership is Not the
Surviving Entity. In the event that the Partnership is to merge or consolidate
with or into any other entity in a transaction in which holders of Partnership
Units will receive consideration other than cash or equity securities that are
Publicly Traded (an "Equity Merger") and such Equity Merger would be prohibited
by Section 7.11.C but for the application of Section 7.11.C(6) (and not Section
7.1.C(4), (5) or (7)), then, unless the Consent of Certain Limited Partners is
obtained:
(i) the partnership agreement, limited liability agreement or
other operative governing documents (the "Charter Documents") of the
entity that is the surviving entity in such Equity Merger must
contain provisions that are comparable in all material respects to,
or the entity that is the surviving entity in such Equity Merger
must otherwise agree in writing, for the benefit of the holders of
the Two Penn Plaza Units, the Eleven Penn Plaza Units, and the 866
U.N. Plaza Units, to restrictions that are comparable in all
material respects to the provisions of Section 4.2.A, Article V and
Article VI (except for differences that would be permitted pursuant
to Sections 4.2, 5.1.C, 5.4, 6.2 and 14.1.B(3) if such changes were
to be made to this Agreement), Section 7.6.A, Section 7.11.A, this
Section 7.11.D, Section 8.6 (and all defined terms set forth in
Article I that relate to the Redemption Right), Section 11.2,
Section 13.1, Section 13.2.A(3) (except as permitted pursuant to
Sections 4.2, 5.4, 6.2 and 14.1.B(3)), Section 14.1.C, Section
14.1.D, and Section 14.2, all as in effect immediately prior to the
Equity Merger; and
(ii) the Equity Merger shall not cause a holder of a Partnership
Unit to be a general partner or to have liability equivalent to that
of a general partner in a partnership or otherwise modify the
limited liability of a Limited Partner under this Agreement.
Section 7.12 Loans by Third Parties
The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person upon such terms as the General Partner determines appropriate; provided,
that the Partnership shall not incur any Debt that is recourse to the General
Partner unless, and then only to the extent that, the General Partner has
expressly agreed.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.
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Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner, the Partnership or any of their
Affiliates, in their capacity as such) shall take part in the operation,
management or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. The transaction of any
such business by the General Partner, any of its Affiliates or any officer,
director, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to Section 7.5 hereof, and subject to any agreements
entered into pursuant to Section 7.6.C hereof and to any other agreements
entered into by a Limited Partner or its Affiliates with the Partnership or a
Subsidiary, any Limited Partner (other than the General Partner) and any
officer, director, employee, agent, trustee, Affiliate or shareholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities in direct or indirect competition
with the Partnership. Neither the Partnership nor any Partners shall have any
rights by virtue of this Agreement in any business ventures of any Limited
Partner or Assignee. None of the Limited Partners (other than the General
Partner) nor any other Person shall have any rights by virtue of this Agreement
or the partnership relationship established hereby in any business ventures of
any other Person (other than the General Partner to the extent expressly
provided herein), and such Person shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in
Section 8.6 below, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. No Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee either as to the return of Capital Contributions
(except as permitted by Section 4.2.A hereof) or, except to the extent provided
by Exhibit C hereto or as permitted by Sections 4.2.A, 5.1.B(i) hereof or
otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. General. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.5.D below, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own expense:
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by
the General Partner Entity pursuant to the Exchange Act;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner; and
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(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with copies of all powers of
attorney pursuant to which this Agreement, the Certificate and
all amendments thereto have been executed.
B. Notice of Conversion Factor. The Partnership shall notify each
Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.
C. Notice of Extraordinary Transaction of the General Partner
Entity. The General Partner Entity shall not make any extraordinary
distributions of cash or property to its shareholders or effect a merger
(including, without limitation, a triangular merger), a sale of all or
substantially all of its assets or any other similar extraordinary transaction
without notifying the Limited Partners of its intention to make such
distribution or effect such merger, sale or other extraordinary transaction at
least twenty (20) days prior to the record date to determine shareholders
eligible to receive such distribution or to vote upon the approval of such
merger, sale or other extraordinary transaction (or, if no such record date is
applicable, at least twenty (20) days before consummation of such merger, sale
or other extraordinary transaction). This provision for such notice shall not be
deemed (i) to permit any transaction that otherwise is prohibited by this
Agreement or requires a Consent of the Partners or (ii) to require a Consent of
the Limited Partners to a transaction that does not otherwise require Consent
under this Agreement. Each Limited Partner agrees, as a condition to the receipt
of the notice pursuant hereto, to keep confidential the information set forth
therein until such time as the General Partner Entity has made public disclosure
thereof and to use such information during such period of confidentiality solely
for purposes of determining whether or not to exercise the Redemption Right;
provided, however, that a Limited Partner may disclose such information to its
attorney, accountant and/or financial advisor for purposes of obtaining advice
with respect to such exercise so long as such attorney, accountant and/or
financial advisor agrees to receive and hold such information subject to this
confidentiality requirement.
D. Confidentiality. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
Section 8.6 Redemption Right
A. General. (i) Subject to Section 8.6.C below, on or after the
date one (1) year (or, in the case of Partnership Units owned by a Restricted
Partner on or before the Effective Date, two (2) years (subject to the terms of
the parenthetical and the proviso in Section 11.3.A(y))) after the Effective
Date (or, if later, the date of the issuance of a Partnership Unit to a Limited
Partner pursuant to Article IV hereof) which one-year (or two-year, if
applicable) period shall commence upon the issuance of such Partnership Unit
regardless of whether such Partnership Unit is designated upon issuance as a
Class A Unit, a Class B Unit, a Class C Unit, a Class D Unit, a Class E Unit or
otherwise and shall include any class A Unit issued in exchange for such
Partnership Unit pursuant to Section 4.2.D), or on or after such date prior to
the expiration of such one-year period or two-year period, as applicable, as the
General Partner, in its sole and absolute discretion, designates with respect to
any or all Partnership Units then outstanding, the holder of a Partnership Unit
(if other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner Entity) shall
have the right (the "Redemption Right") to require the Partnership to redeem
such Partnership Unit on a Specified Redemption Date and at a redemption price
equal to and in the form of the Cash Amount to be paid by the Partnership. In
addition, at any time commencing on the ninety-first (91st) day after the
Effective Date and continuing until (but not after) the first anniversary of the
Effective Date, any holder of a Class E Unit shall have the right (which shall
also be deemed a Redemption Right hereunder) to require the Partnership to
redeem such Partnership Unit on a Specified Redemption Date and at a redemption
price equal to and in the form of ninety-four percent (94%) of the Cash Amount
to be paid by the Partnership. Any such Redemption Right shall be exercised
pursuant to a Notice of Redemption delivered to the Partnership (with a copy to
the General Partner) by the
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Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"). A Limited Partner may not exercise the Redemption Right for less than
one thousand (1,000) Partnership Units or, if such Redeeming Partner holds less
than one thousand (1,000) Partnership Units, for less than all of the
Partnership Units held by such Redeeming Partner.
(ii) The Redeeming Partner shall have no right with respect to any
Partnership Units so redeemed to receive any distributions paid after the
Specified Redemption Date, unless the record date for such distribution was a
date prior to the Specified Redemption Date.
(iii) The Assignee of any Limited Partner may exercise the rights of
such Limited Partner pursuant to this Section 8.6, and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and shall be bound
by the exercise of such rights by such Limited Partner's Assignee. In connection
with any exercise of the such rights by such Assignee on behalf of such Limited
Partner, the Cash Amount shall be paid by the Partnership directly to such
Assignee and not to such Limited Partner.
(iv) In the event that the General Partner provides notice to the
Limited Partners, pursuant to Section 8.5.C hereof, the Redemption Right shall
be exercisable, subject to the one-year limitation contained in Section
8.6(a)(i) (and, for purposes of this clause (iv), the two-year limitation
imposed on Restricted Partners under this Section 8.6 shall be shortened to one
year after the Effective Date beyond the first anniversary of the Effective
Date), during the period commencing on the date on which the General Partner
provides such notice and ending on the record date to determine shareholders
eligible to receive such distribution or to vote upon the approval of such
merger, sale or other extraordinary transaction (or, if no such record date is
applicable, the date that is twenty (20) days after the date the General Partner
provides such notice pursuant to Section 8.5.C hereof). In the event that this
subparagraph (iv) applies, the Specified Redemption Date shall be the sooner of
(1) the tenth (10th) Business Day after the Partnership receives the Redemption
Notice or (2) the Business Day immediately preceding the record date to
determine shareholders eligible to receive a distribution or vote on approval;
provided that if such time determined pursuant to clause (1) or (2) above occurs
in less than ten (10) Business Days and the Partnership elects to redeem the
subject Partnership Units for cash, the Partnership will have up to ten (10)
Business Days from receipt of the Redemption Notice to deliver payment in
respect of such Partnership Units.
(v) Notwithstanding the terms of Section 8.6.A(i) or anything else in
this Agreement to the contrary, if there shall have been a merger or
consolidation of the General Partner, or a sale or all or substantially all of
the assets of the General Partner as an entirety, and in either case, in
connection therewith, the shareholders of the General Partner are obligated to
accept cash and/or debt obligations in full or partial consideration for their
Shares, then the portion of the Redemption Amount per Partnership Unit that
corresponds to the portion of Value of the total consideration receivable for
one Share multiplied by the Conversion Factor (a "Unit Equivalent") that is
required to be accepted in cash and/or debt obligations shall thereafter be an
amount of cash equal to the sum of (i) the cash payable for a Unit Equivalent on
the date of the closing of such merger, consolidation or sale and (ii) the Value
on the date of the closing of such merger, consolidation, or sale of the debt
obligations to be received with respect to a Unit Equivalent, adjusted as set
forth below (this amount of cash is referred to as the "Required Cash Payment")
(the percentage that the Required Cash Payment represents of the total
Redemption Amount with respect to a Partnership Unit, determined as of such
closing date, is referred to as the "Pro Rata Portion"). The balance of the
Redemption Amount per Partnership Unit shall be determined as provided for in
the definitions of Conversion Factor, Redemption Amount, Shares Amount, Cash
Amount and Value. In the event that the merger, consolidation or sale giving
rise to the application of this clause (v) occurs at a time when there shall be
any Persons the consent of whom is required pursuant to the definition of
"Consent of Certain Limited Partners", then the Required Cash Payment shall be
increased by a cash payment to the extent required to provide such Limited
Partner, upon the exercise of its Redemption Right with respect to a Partnership
Unit, with an Internal Rate of Return on such Required Cash Payment for the
period from the date of such merger, consolidation or sale to the date of the
redemption of the Partnership Unit, when taken together with the Pro Rata
Portion of all distributions received by such Limited Partner with respect to
such Partnership Unit from and after the effective date of the merger,
consolidation or sale equal to the Treasury Constant Yield. As used herein, the
"Treasury
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Constant Yield" shall mean the arithmetic mean of the rates published as
"Treasury Constant Maturities" as of 5:00 p.m., New York time, for the five
business days preceding the effective date of the merger, consolidation or sale,
as shown on the USD screen of the Telerate service (or if such service is not
available, under Section 504 in the weekly statistical release designated
H.15(519) (or any successor publication) published by the Board of Governors of
the Federal Reserve System, for "On the Run" U.S. Treasury obligations
corresponding to the twentieth anniversary of the date hereof). If no such
maturity shall so exactly correspond, yields for the two most closely
corresponding published maturities shall be calculated pursuant to the foregoing
sentence and the Treasury Constant Yield shall be interpolated or extrapolated
(as applicable) from such yields on a straight-line basis (rounding, in the case
of relevant periods, to the nearest month). As used herein, "Internal Rate of
Return" shall mean, with respect to a rate of return of the Constant Treasury
Yield, commencing on the effective date of the merger, consolidation or sale,
compounded quarterly to the extent not paid on a current basis, taking into
account the timing and amounts of this Pro Rata Portion of all distributions by
the Partnership to such Partner with respect to such Partnership Unit; for
purposes of computing the Internal Rate of Return, distributions to a Partner at
any time during a month shall be deemed to be made and received on the day
actually made.
B. General Partner Assumption of Right. (i) If a Limited Partner
has delivered a Notice of Redemption (other than a Notice of Redemption relating
to a Class E Unit given prior to the first anniversary of the Effective Date),
the General Partner may, in its sole and absolute discretion (subject to any
limitations on ownership and transfer of Shares set forth in the Declaration of
Trust), elect to assume directly and satisfy a Redemption Right by paying to the
Redeeming Partner either the Cash Amount or the Shares Amount, as the General
Partner determines in its sole and absolute discretion (provided that payment of
the Redemption Amount in the form of Shares shall be in Shares registered under
Section 12 of the Exchange Act and listed for trading on the exchange or
national market on which the Shares are Publicly Traded, and provided, further,
that in the event that the Shares are not Publicly Traded at the time a
Redeeming Partner exercises its Redemption Right, the Redemption Amount shall be
paid only in the form of the Cash Amount unless the Redeeming Partner, in its
sole and absolute discretion, consents to payment of the Redemption Amount in
the form of the Shares Amount), on the Specified Redemption Date, whereupon the
General Partner shall acquire the Partnership Units offered for redemption by
the Redeeming Partner and shall be treated for all purposes of this Agreement as
the owner of such Partnership Units and such Partnership Units shall
automatically convert to Class A Units upon acquisition by the General Partner.
Unless the General Partner, in its sole and absolute discretion, shall exercise
its right to assume directly and satisfy the Redemption Right, the General
Partner shall not have any obligation to the Redeeming Partner or to the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. In the event the General Partner shall exercise its right to satisfy the
Redemption Right in the manner described in the first sentence of this Section
8.6.B and shall fully perform its obligations in connection therewith, the
Partnership shall have no right or obligation to pay any amount to the Redeeming
Partner with respect to such Redeeming Partner's exercise of the Redemption
Right, and each of the Redeeming Partner, the Partnership and the General
Partner shall, for federal income tax purposes, treat the transaction between
the General Partner and the Redeeming Partner as a sale of the Redeeming
Partner's Partnership Units to the General Partner. Nothing contained in this
Section 8.6.B shall imply any right of the General Partner to require any
Limited Partner to exercise the Redemption Right afforded to such Limited
Partner pursuant to Section 8.6.A above.
(ii) In the event that the General Partner determines to pay the
Redeeming Partner the Redemption Amount in the form of Shares, the total number
of Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's Partnership Units shall be the applicable Shares Amount. In the event
this amount is not a whole number of Shares, the Redeeming Partner shall be paid
(i) that number of Shares which equals the nearest whole number less than such
amount plus (ii) an amount of cash which the General Partner determines, in its
reasonable discretion, to represent the fair value of the remaining fractional
Share which would otherwise be payable to the Redeeming Partner.
(iii) Each Redeeming Partner agrees to execute such documents as the
General Partner may reasonably require in connection with the issuance of Shares
upon exercise of the Redemption Right.
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C. Exceptions to Exercise of Redemption Right.
Notwithstanding the provisions of Sections 8.6.A and 8.6.B above, a Partner
shall not be entitled to exercise the Redemption Right pursuant to Section 8.6.A
above if (but only as long as) the delivery of Shares to such Partner on the
Specified Redemption Date (i) would be prohibited under the Declaration of
Trust, or (ii) as long as the Shares are Publicly Traded, would be prohibited
under applicable federal or state securities laws or regulations (assuming the
General Partner would in fact assume and satisfy the Redemption Right).
D. No Liens on Partnership Units Delivered for Redemption.
Each Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for redemption shall be delivered to the Partnership
or the General Partner, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the General
Partner nor the Partnership shall be under any obligation to acquire Partnership
Units which are or may be subject to any liens. Each Limited Partner further
agrees that, in the event any state or local property transfer tax is payable as
a result of the transfer of its Partnership Units to the Partnership or the
General Partner, such Limited Partner shall assume and pay such transfer tax.
E. Additional Partnership Interests. In the event that the
Partnership issues Partnership Interests to any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such amendments to
this Section 8.6 as it determines are necessary to reflect the issuance of such
Partnership Interests (including setting forth any restrictions on the exercise
of the Redemption Right with respect to such Partnership Interests).
F. Transfer Tax Limitations. Notwithstanding anything
herein to the contrary, until the first business day following the second
anniversary of the Effective Date, the Partnership and the General Partner shall
have the right, in connection with a Limited Partner's exercise of its
Redemption Right:
(1) to condition the payment of the redemption price under
Section 8.6(A)(i) upon the General Partner's sole
satisfaction that any New York Real Estate Transfer Tax
and New York City Real Property Transfer Tax payable by
reason of such Limited Partner's redemption prior to the
expiration of two years following the Effective Date
shall have been paid in full or that adequate provision
has been made therefor (as determined by the General
Partner in its sole discretion); and
(2) if the General Partner elects under Section 8.6.B to pay
the Shares Amount, then such Limited Partner shall be
obligated, as a condition to the effective exercise of
the Redemption Right, to escrow with the General Partner
an amount equal to the New York Real Estate Transfer Tax
and New York City Real Property Transfer Tax that would
have been payable as of the exercise of the Redemption
Right, assuming such Limited Partner transferred the
Share Amount received on such date prior to the
expiration of two years following the Effective Date.
Such escrow may be used by the General Partner or the
Limited Partner who provided such escrow for the payment
of the taxes described in this subparagraph (2) above,
provided, in the latter event, the General Partner shall
have determined, in its good faith discretion, that such
tax will be paid. Such escrow shall be released to the
Limited Partner, to the extent not used, after the
expiration of the 2-year period if the General Partner
shall determine in its sole discretion exercised in good
faith that no such transfer tax shall have been due and
payable.
Section 8.7 Right of Offset
The General Partner shall have the right to offset any amounts
owed to the Partnership or the General Partner by any Limited Partner pursuant
to (i) any written agreement between such Limited Partner and the Partnership,
the General Partner or an Affiliate of either of them pursuant to which such
Limited Partner acquired Partnership Units or (ii) the provisions of Section
5.2, Section 8.6.F or Section 11.7 of this Agreement, against any amounts owed
to such
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Limited Partner by the Partnership or the General Partner hereunder, including
the right to cancel or acquire, as applicable, the Units held by such Limited
Partner, based on the Cash Amount that would be payable therefor, assuming a
redemption as of the date of cancellation or acquisition, as applicable. In
exercising the foregoing offset rights, the General partner shall be required to
give a Limited Partner, in the case of an offset against a distribution, five
(5) days prior written notice (provided, however, that if a distribution is to
be made at any time during such five day period the General Partner may retain
the distribution payable to any Limited Partner to whom such a written notice
has been given to the extent of the amount owed by such limited Partner pending
the passage of such period and upon the passage of such period without payment
of all amounts owed by the applicable Limited Partner, the General Partner shall
be entitled to the right of offset described above, it being understood that if
the Limited Partner pays in full the amount owed the General Partner shall
promptly release the retained distribution to such Limited Partner) and, in the
case of an offset against Partnership Units (through cancellation or
acquisition), ten (10) days' prior written notice, in each case of the amount
owed (determined as of a date reasonably close to the date of such notice) and
the proposed offset and the Limited Partner has not paid the amount owed within
such period.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including, without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 below. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
computer disk, photographs, micrographics or any other information storage
device, provided that the records so maintained are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. Annual Reports. As soon as practicable, but in no event
later than the date on which the General Partner Entity mails its annual report
to its shareholders, the General Partner shall cause to be mailed to each
Limited Partner an annual report, as of the close of the most recently ended
Partnership Year, containing financial statements of the Partnership, or of the
General Partner Entity if such statements are prepared solely on a consolidated
basis with the Partnership, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. Quarterly Reports. If and to the extent that the General
Partner Entity mails quarterly reports to its shareholders, as soon as
practicable, but in no event later than the date on which such reports are
mailed, the General Partner shall cause to be mailed to each Limited Partner a
report containing unaudited financial statements, as of the last day of such
quarter, of the Partnership, or of the General Partner Entity if such statements
are prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
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ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code; provided, that the General Partner
shall make the election under Section 754 of the Code in accordance with
applicable regulations thereunder. The General Partner shall have the right to
seek to revoke any such election (including, without limitation, the election
under Section 754 of the Code) upon the General Partner's determination in its
sole and absolute discretion that such revocation is in the best interests of
the Partners.
Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6223(c)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profit interest of each of the Limited Partners and any Assignees;
provided, that such information is provided to the Partnership by the Limited
Partners.
B. Powers. The tax matters partner is authorized, but not
required:
(1) to enter into any settlement with the IRS with respect
to any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken
into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to
as "judicial review"), and in the settlement agreement
the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such
settlement agreement shall not bind any Partner (i) who
(within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the
authority to enter into a settlement agreement on behalf
of such Partner or (ii) who is a "notice partner" (as
defined in Section 6231(a)(8) of the Code) or a member
of a "notice group" (as defined in Section 6223(b)(2) of
the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required
to be taken into account by a Partner for tax purposes
(a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final
adjustment, including the filing of a petition for
readjustment with the Tax Court or the filing of a
complaint for refund with the United States Claims Court
or the District Court of the United States for the
district in which the Partnership's principal place of
business is located;
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(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is
not allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with respect
to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken into account by a Partner
for tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the
tax matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 hereof shall be fully applicable to the tax
matters partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
or a law firm to assist the tax matters partner in discharging its duties
hereunder, as long as the compensation paid by the Partnership for such services
is reasonable.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred
by it in organizing the Partnership ratably over a sixty (60) month period as
provided in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
recourse loan by the Partnership to such Limited Partner, which loan shall be
repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right
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to receive distributions). Any amounts payable by a Limited Partner hereunder
shall bear interest at the base rate on corporate loans at large United States
money center commercial banks, as published from time to time in the Wall Street
Journal, plus four (4) percentage points (but not higher than the maximum lawful
rate) from the date such amount is due (i.e., fifteen (15) days after demand)
until such amount is paid in full. Each Limited Partner shall take such actions
as the Partnership or the General Partner shall request in order to perfect or
enforce the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. Definition. The term "transfer," when used in this
Article XI with respect to a Partnership Interest or a Partnership Unit, shall
be deemed to refer to a transaction by which the General Partner purports to
assign all or any part of its General Partnership Interest to another Person or
by which a Limited Partner purports to assign all or any part of its Limited
Partnership Interest to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition
by law or otherwise. The term "transfer" when used in this Article XI does not
include any redemption or repurchase of Partnership Units by the Partnership
from a Partner (including the General Partner) or acquisition of Partnership
Units from a Limited Partner by the General Partner pursuant to Section 8.6
hereof or otherwise. No part of the interest of a Limited Partner shall be
subject to the claims of any creditor, any spouse for alimony or support, or to
legal process, and no part of the interest of a Limited Partner may be
voluntarily or involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement.
B. General. No Partnership Interest shall be transferred,
in whole or in part, except in accordance with the terms and conditions set
forth in this Article XI. Any transfer or purported transfer of a Partnership
Interest not made in accordance with this Article XI shall be null and void.
Section 11.2 Transfers of Partnership Interests of General Partner
A. Except for transfers of Partnership Units to the
Partnership as provided in Section 7.5 or Section 8.6 hereof, the General
Partner may not transfer any of its Partnership Interest (including both its
General Partnership Interest and its Limited Partnership Interest) except in
connection with a transaction described in Section 11.2.B below or as otherwise
expressly permitted under this Agreement), nor shall the General Partner
withdraw as General Partner except in connection with a transaction described in
Section 11.2.B below.
B. The General Partner shall not engage in any merger
(including a triangular merger), consolidation or other combination with or into
another person, sale of all or substantially all of its assets or any
reclassification, recapitalization or change of the terms of any outstanding
Common Shares (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination as described in the
definition of "Conversion Factor") ("Termination Transaction"), unless , in
connection therewith, all Limited Partners (other than the General Partner, the
General Partner Entity and any entities controlled by either of them) will have
the right to elect to receive, or, subject to Section 7.11.C., will receive, for
each Partnership Unit an amount of cash, securities, or other property equal to
the product of the Conversion Factor and the greatest amount of cash,
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securities or other property paid to a holder of Shares, if any, corresponding
to such Partnership Unit in consideration of one such Share; provided, that if,
in connection with the Termination Transaction, a purchase, tender or exchange
offer shall have first been made to and accepted by the holders of more than
fifty percent (50%) of the outstanding Shares and a holder of Partnership Units
did not receive advance written notice (whether from the General Partner, the
offeror or otherwise) of the offer and an opportunity to redeem its Partnership
Units substantially in accordance with the provisions in Section 8.6, then such
holder of Partnership Units shall receive, or shall have the right to elect to
receive, the greatest amount of cash, securities, or other property which such
holder would have received had it exercised the Redemption Right and received
Shares in exchange for its Partnership Units immediately prior to such purchase,
tender or exchange offer and had thereupon accepted such purchase, tender or
exchange offer and to the extent required by the terms thereof applicable to all
other holders of Shares participating in the purchase, tender or exchange offer,
participated in all other phases of such Termination Transaction as well.
Section 11.3 Limited Partners' Rights to Transfer
A. General. Subject to the provisions of Sections 11.3.C,
11.3.D, 11.3.E, 11.4 and 11.6 below, prior to the first anniversary (or, in the
case of a Restricted Partner, the second anniversary or, in the case of Bernard
H. Mendik or David R. Greenbaum only, such earlier date, if any, on which such
individual's employment with the Partnership shall be terminated without Cause,
due to a Disability or for Good Reason (as such terms are defined in the case of
Mr. Mendik in Exhibit B to the Noncompetition Agreement dated as of April 15,
1997 by and among Vornado Realty Trust, The Mendik Company, L.P. and Bernard H.
Mendik, and in the case of Mr. Greenbaum in Section 4(b), Section 4(c), and
Section 4(d) of the Employment Agreement dated as of April 15, 1997 by and among
Vornado Realty Trust, The Mendik Company, L.P. and David R. Greenbaum)) of the
Effective Date, the Limited Partnership Interest of any Partner may not be
transferred in whole or in part, directly, indirectly or beneficially, without
the prior written consent of the General Partner, which consent the General
Partner may withhold in its sole discretion; provided, however, that it is
expressly understood that subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6 below each Limited Partner will be permitted to make one
or more transfers to any Affiliated Transferee of such Limited Partner.
Commencing on the first anniversary after the Effective Date (or (x) in the case
of a holder of Class E Units but only with respect to such Class E Units, the
ninety-first (91st) day after the Effective Date, and (y) in the case of a
Restricted Partner, the second anniversary after the Effective Date; provided,
however, that the Partnership Units identified on Exhibit H hereto (which
Partnership Units are beneficially owned, directly or indirectly, through a
Restricted Partner by the Persons named opposite such Partnership Units on
Exhibit H) shall not be deemed to be held by a Restricted Partner for purposes
of Section 8.6.A and this Section 11.3.A), and subject to the provisions of
Sections 11.3.C, 11.3.D, 11.3.E, 11.4 and 11.6 below, a Limited Partner (other
than the General Partner or the General Partner Entity or any Subsidiary of
either of them) may transfer all or any portion of its Limited Partnership
Interest to any person, provided such Limited Partner obtains the prior written
consent of the General Partner, which consent may be withheld only if the
General Partner determines in its sole discretion exercised in good faith that
such a transfer would cause the Partnership or any or all of the Partners other
than the Limited Partner seeking to transfer its rights as a Limited Partner to
be subject to tax liability as a result of such transfer. Any purported transfer
attempted in violation of the foregoing sentence shall be deemed void ab initio
and shall have no force or effect.
B. Incapacitated Limited Partners. If a Limited Partner is
subject to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Limited Partner's estate shall have
all the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate and
such power as the Incapacitated Limited Partner possessed to transfer all or any
part of its interest in the Partnership. The Incapacity of a Limited Partner, in
and of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General
Partner may prohibit any transfer of Partnership Units by a Limited Partner if,
in the opinion of legal counsel to the Partnership, such transfer would require
filing of a registration statement under the Securities Act or would otherwise
violate any federal, or state securities laws or regulations applicable to the
Partnership or the Partnership Unit.
D. No Transfers Affecting Tax Status of Partnership. No
transfer of Partnership Units by a Limited Partner (including a redemption or
exchange pursuant to Section 8.6 hereof) may be made to any Person if (i) in the
opinion of legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation for federal income tax
purposes or would result in a termination of the Partnership for federal income
tax purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited
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Partners other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner Entity or
pursuant to a transaction not prohibited under Section 11.2 hereof), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the General Partner Entity or the General Partner (as applicable) to
continue to qualify as a REIT or would subject the General Partner Entity or the
General Partner (as applicable) to any additional taxes under Section 857 or
Section 4981 of the Code or (iii) such transfer is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
E. No Transfers to Holders of Nonrecourse Liabilities. No
pledge or transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability without the consent of the General Partner,
in its sole and absolute discretion; provided, that as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Redemption
Amount any Partnership Units in which a security interest is held simultaneously
with the time at which such lender would be deemed to be a partner in the
Partnership for purposes of allocating liabilities to such lender under Section
752 of the Code.
F. Certain Pledged Interests. Concurrently with the
execution and delivery of this Agreement, (i) to secure its obligations under
the Indemnification Agreement, dated as of April 15, 1997, among the
Partnership, FW/Mendik LLC and others, FW/Mendik LLC, a Limited Partner, is
pledging a portion of its limited partnership interest pursuant to a Pledge and
Security Agreement, dated as of April 15, 1997, namely, 360,577 Class C Units
represented by "Certificate Evidencing Partnership Interests in Vornado Realty
L.P., Certificate No. R - C 2"; (ii) to secure its obligations under the letter
agreement relating to certain management agreements, dated as of April 15, 1997,
between FW/Mendik LLC and the Partnership, FW/Mendik LLC is pledging a portion
of its limited partnership interest pursuant to a Pledge and Security Agreement,
dated as of the date hereof, namely, 40,386 Class C Units represented by
"Certificate Evidencing Partnership Interests in Vornado Realty L.P.,
Certificate No. R - C 3"; and (iii) to secure their respective obligations under
the Agreement for Contribution of Interests in Eleven Penn Plaza Company, dated
as of March 11, 1997, by and among The Mendik Company, L.P., Nicardo
Corporation, N.V., Rcay, S.A. and Bernard H. Mendik, Rcay, S.A. and Nicardo
Corporation, N.V. are pledging a portion of their limited partnership interests,
namely 44,716 and 102,860 Class E Units, respectively, represented by
"Certificate Evidencing Partnership Interests in Vornado Realty L.P.,
Certificate No. R - E 1" and "Certificate Evidencing Partnership Interests in
Vornado Realty L.P., Certificate No. R - E 3", respectively.
Section 11.4 Substituted Limited Partners
A. Consent of General Partner. No Limited Partner shall
have the right to substitute a transferee as a Limited Partner in its place
without the consent of the General Partner to the admission of a transferee of
the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted
Limited Partner, which consent may be given or withheld by the General Partner
in its sole and absolute discretion. The General Partner's failure or refusal to
permit a transferee of any such interests to become a Substituted Limited
Partner shall not give rise to any cause of action against the Partnership or
any Partner.
B. Rights of Substituted Limited Partner. A transferee who
has been admitted as a Substituted Limited Partner in accordance with this
Article XI shall have all the rights and powers and be subject to all the
restrictions and liabilities of a Limited Partner under this Agreement. The
admission of any transferee as a Substituted Limited Partner shall be
conditioned upon the transferee executing and delivering to the Partnership an
acceptance of all the terms and conditions of this Agreement (including, without
limitation, the provisions of Section 15.11 hereof and such other documents or
instruments as may be required to effect the admission).
C. Amendment and Restatement of Exhibit A. Upon the
admission of a Substituted Limited Partner, the General Partner shall amend and
restate Exhibit A hereto to reflect the name, address, Capital Account,
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number of Partnership Units, and Percentage Interest of such Substituted Limited
Partner and to eliminate or adjust, if necessary, the name, address, Capital
Account and Percentage Interest of the predecessor of such Substituted Limited
Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
above as a Substituted Limited Partner, as described in Section 11.4 above, such
transferee shall be considered an Assignee for purposes of this Agreement,
subject, however, to Section 11.7 hereof. An Assignee shall be entitled to all
the rights of an assignee of a limited partnership interest under the Act,
including the right to receive distributions from the Partnership and the share
of Net Income, Net Losses, gain, loss and Recapture Income attributable to the
Partnership Units assigned to such transferee, and shall have the rights granted
to the Limited Partners under Section 8.6 hereof, but shall not be deemed to be
a holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to vote such Partnership Units in any matter presented to
the Limited Partners for a vote (such Partnership Units being deemed to have
been voted on such matter in the same proportion as all other Partnership Units
held by Limited Partners are voted). In the event any such transferee desires to
make a further assignment of any such Partnership Units, such transferee shall
be subject to all the provisions of this Article XI to the same extent and in
the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
Section 11.6 General Provisions
A. Withdrawal of Limited Partner. No Limited Partner may
withdraw from the Partnership other than as a result of a permitted transfer of
all of such Limited Partner's Partnership Units in accordance with this Article
XI or pursuant to redemption of all of its Partnership Units under Section 8.6
hereof.
B. Termination of Status as Limited Partner. Any Limited
Partner who shall transfer all of its Partnership Units in a transfer permitted
pursuant to this Article XI or pursuant to redemption of all of its Partnership
Units under Section 8.6 hereof shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this Article
XI may only be made on the first day of a fiscal quarter of the Partnership,
unless the General Partner otherwise agrees.
D. Allocations. If any Partnership Interest is transferred
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article XI or redeemed or transferred pursuant to Section
8.6 hereof, Net Income, Net Losses, each item thereof and all other items
attributable to such interest for such fiscal year shall be divided and
allocated between the transferor Partner and the transferee Partner by taking
into account their varying interests during the fiscal year in accordance with
Section 706(d) of the Code, using the interim closing of the books method
(unless the General Partner, in its sole and absolute discretion, elects to
adopt a daily, weekly, or a monthly proration period, in which event Net Income,
Net Losses, each item thereof and all other items attributable to such interest
for such fiscal year shall be prorated based upon the applicable method selected
by the General Partner). Solely for purposes of making such allocations, each of
such items for the calendar month in which the transfer or redemption occurs
shall be allocated to the Person who is a Partner as of midnight on the last day
of said month. All distributions attributable to any Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment or redemption shall be made to the transferor Partner or
the Redeeming Partner, as the case may be, and, in the case of a transfer or
assignment other than a redemption, all distributions thereafter attributable to
such Partnership Unit shall be made to the transferee Partner.
E. Additional Restrictions. In addition to any other
restrictions on transfer herein contained, including without limitation the
provisions of this Article XI, in no event may any transfer or assignment of a
Partnership Interest by any Partner (including pursuant to Section 8.6 hereof)
be made without the express consent of the General Partner, in its sole and
absolute discretion, (i) to any person or entity who lacks the legal right,
power or
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capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such transfer would cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the redemption or
exchange for Shares of all Partnership Units held by all Limited Partners or
pursuant to a transaction not prohibited under Section 11.2 hereof); (v) if in
the opinion of counsel to the Partnership, such transfer would cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners or pursuant to a transaction not
prohibited under Section 11.2 hereof); (vi) if such transfer would cause the
Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); (vii) if
such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.1-101;
(viii) if such transfer requires the registration of such Partnership Interest
pursuant to any applicable federal or state securities laws; (ix) if such
transfer is effectuated through an "established securities market" or a
"secondary market" (or the substantial equivalent thereof) within the meaning of
Section 7704 of the Code or such transfer causes the Partnership to become a
"publicly traded partnership," as such term is defined in Section 469(k)(2) or
Section 7704(b) of the Code; (x) if such transfer subjects the Partnership to
regulation under the Investment Company Act of 1940, the Investment Advisors Act
of 1940 or the Employee Retirement Income Security Act of 1974, each as amended;
(xi) if the transferee or assignee of such Partnership Interest is unable to
make the representations set forth in Section 15.15 hereof or such transfer
could otherwise adversely affect the ability of the General Partner Entity or
the General Partner (as applicable) to remain qualified as a REIT; or (xii) if
in the opinion of legal counsel for the Partnership, such transfer would
adversely affect the ability of the General Partner Entity or the General
Partner (as applicable) to continue to qualify as a REIT or subject the General
Partner Entity or the General Partner (as applicable) to any additional taxes
under Section 857 or Section 4981 of the Code.
F. Avoidance of "Publicly Traded Partnership" Status. The
General Partner shall (a) use commercially reasonable efforts (as determined by
it in its sole discretion exercised in good faith) to monitor the transfers of
interests in the Partnership to determine (i) if such interests are being traded
on an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code and (ii)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors") and (b)
take such steps as it believes are commercially reasonable and appropriate (as
determined by it in its sole discretion exercised in good faith) to prevent any
trading of interests or any recognition by the Partnership of transfers made on
such markets and, except as otherwise provided herein, to insure that at least
one of the Safe Harbors is met.
Section 11.7 Payment of Incremental Tax
Notwithstanding anything herein to the contrary, until the
business day immediately following the second anniversary of the Effective Date,
no Person shall be admitted as a Substitute Limited Partner and no person shall
be considered an Assignee for purposes of this Agreement, and any transaction or
other form of conveyance or disposition of any sort whatsoever purporting to
transfer an interest in this Agreement or in the Partnership or substitute a
limited partner shall be null and void and of no force and effect unless
concurrently with such purported transfer the transferor shall establish to the
sole satisfaction of the General Partner exercised in good faith that any New
York State Transfer Tax and/or New York City Real Estate Transfer Tax payable in
connection with the purported transfer by reason of the transferor's failure to
hold for a two-year period the Partnership Units issued as of the Effective Date
shall have been paid. A Limited Partner shall be obligated to pay the transfer
taxes described above in this Section 11.7.
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ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner's General
Partnership Interest pursuant to Section 11.2 hereof who is proposed to be
admitted as a successor General Partner shall be admitted to the Partnership as
the General Partner, effective upon such transfer. Any such transferee shall
carry on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the successor General Partner's executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement and such other documents or instruments as may be required to
effect the admission.
Section 12.2 Admission of Additional Limited Partners
A. General. No Person shall be admitted as an Additional
Limited Partner without the consent of the General Partner, which consent shall
be given or withheld in the General Partner's sole and absolute discretion. A
Person who makes a Capital Contribution to the Partnership in accordance with
this Agreement, including, without limitation, pursuant to Section 4.1.C hereof,
or who exercises an option to receive Partnership Units shall be admitted to the
Partnership as an Additional Limited Partner only with the consent of the
General Partner and only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 15.11 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner. The
admission of any Person as an Additional Limited Partner shall become effective
on the date upon which the name of such Person is recorded on the books and
records of the Partnership, following the consent of the General Partner to such
admission.
B. Allocations to Additional Limited Partners. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the Partnership Year in accordance with Section 706(d) of the Code, using
the interim closing of the books method (unless the General Partner, in its sole
and absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner, and
all distributions thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership (including an amendment and restatement of
Exhibit A hereto) and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate and may for this purpose exercise the power of
attorney granted pursuant to Section 15.11 hereof.
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ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
(each a "Liquidating Event") :
(i) the expiration of its term as provided in Section
2.4 hereof;
(ii) an event of withdrawal of the General Partner, as
defined in the Act (other than an event of Bankruptcy), unless, within ninety
(90) days after the withdrawal a Majority in Interest of the remaining Partners
Consent in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a substitute General
Partner;
(iii) an election to dissolve the Partnership made by
the General Partner, in its sole and absolute discretion, after December 31,
2046;
(iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the assets
and properties of the Partnership for cash or for marketable securities (subject
to Section 7.11.C); or
(vi) a final and nonappealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and nonappealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to or within ninety days after of the entry of such order
or judgment a Majority in Interest of the remaining Partners Consent in writing
to continue the business of the Partnership and to the appointment, effective as
of a date prior to the date of such order or judgment, of a substitute General
Partner.
Section 13.2 Winding Up
A. General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a Majority in Interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include equity or other securities of the General Partner or any other
entity) shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other
than the Partners;
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(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners; and
(3) The balance, if any, to the Partners in accordance with
their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all
periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A above which require liquidation of the assets of the Partnership,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations
Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article XIII may be:
(A) distributed to a trust established for the benefit of the General Partner
and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided, that such withheld amounts shall be distributed to the
General Partner and Limited Partners as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article XIII, in
the event the Partnership is deemed liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged and the Partnership's affairs shall not be wound
up. Instead, for federal income tax purposes and for purposes of maintaining
Capital Accounts pursuant to Exhibit B hereto, the Partnership shall be deemed
to have distributed its assets in kind to the General Partner and Limited
Partners, who shall be deemed to have assumed and taken such assets subject to
all
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Partnership liabilities, all in accordance with their respective Capital
Accounts. Immediately thereafter, the General Partner and Limited Partners shall
be deemed to have recontributed the Partnership assets in kind to the
Partnership, which shall be deemed to have assumed and taken such assets subject
to all such liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Partnership. Except as otherwise expressly
provided in this Agreement, no Limited Partner shall have priority over any
other Limited Partner as to the return of its Capital Contributions,
distributions, or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs
that would, but for provisions of an election or objection by one or more
Partners pursuant to Section 13.1 above, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and to all other parties
with whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
Section 13.7 Cancellation of Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 above, the Partnership shall be
terminated and the Certificate and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 Reasonable Time for Winding Up
A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 above, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect among the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
Section 13.10 Liability of Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.
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ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. General. Amendments to this Agreement may be proposed
only by the General Partner. Following such proposal (except an amendment
pursuant to Section 14.1.B below), the General Partner shall submit any proposed
amendment to the Limited Partners and shall seek the written vote of the
Partners on the proposed amendment or shall call a meeting to vote thereon and
to transact any other business that it may deem appropriate. For purposes of
obtaining a written vote, the General Partner may require a response within a
reasonable specified time, but not less than fifteen (15) days, and failure to
respond in such time period shall constitute a vote which is consistent with the
General Partner's recommendation with respect to the proposal; provided,
however, that in the case of any Consent required under Section 7.11.C or
7.11.D, the General Partner shall be required to give the Limited Partners
(other than Mr. Mendik, Mr. Greenbaum or any Mendik Owners with respect thereto)
entitled to vote thereon two (2) written requests for a response and in
determining the votes cast for or against such Consent the Partnership Units of
Limited Partners (other than Mr. Mendik, Mr. Greenbaum or any Mendik Owners with
respect thereto) entitled to vote thereon who do not respond in writing to
either such request within the time period established by the General Partner
shall be deemed to have been voted for or against the proposed Consent in the
same proportion as the votes actually received.
B. Amendments Not Requiring Limited Partner Approval.
Subject to Section 14.1.C and 14.1.D, the General Partner shall have the power,
without the Consent of the Limited Partners, to amend this Agreement as may be
required to reflect any changes to this Agreement that the General Partner deems
necessary or appropriate in its sole discretion, provided that such change does
not adversely affect or eliminate any right granted to a Limited Partner
pursuant to any of the provisions of this Agreement specified in Section 14.1.C
or Section 14.1.D as requiring a particular minimum vote. The General Partner
shall notify the Limited Partners when any action under this Section 14.1.B is
taken in the next regular communication to the Limited Partners.
C. Amendments Requiring Limited Partner Approval (Excluding
General Partner). Without the Consent of the Outside Limited Partners, the
General Partner shall not amend Section 4.2.A, Section 5.1.C, Section 7.5,
Section 7.6, Section 7.8, Section 11.2, Section 13.1, this Section 14.1.C or
Section 14.2.
D. Other Amendments Requiring Certain Limited Partner
Approval. Notwithstanding anything in this Section 14.1 to the contrary, this
Agreement shall not be amended with respect to any Partner adversely affected
without the Consent of such Partner adversely affected if such amendment would
(i) convert a Limited Partner's interest in the Partnership into a general
partner's interest, (ii) modify the limited liability of a Limited Partner,
(iii) amend Section 7.11.A, (iv) amend Article V, Article VI, or Section
13.2.A(3) (except as permitted pursuant to Sections 4.2, 5.1.C, 5.4 and 6.2, (v)
amend Section 8.6 or any defined terms set forth in Article I that relate to the
Redemption Right (except as permitted in Section 8.6.E), or (vi) amend this
Section 14.1.D. In addition, any amendment to Section 7.11.C of this Agreement
shall require the following consent:
(i) In the event that the amendment to Section 7.11.C
affects the Two Penn Plaza Property or the rights of holders
of Two Penn Plaza Units, such amendment shall require the
Consent of Partners (other than the General Partner or the
General Partner Entity or any Subsidiary of either the
General Partner or the General Partner Entity) who hold
seventy-five percent (75%) of the Two Penn Plaza Units;
(ii) In the event that the amendment to Section 7.11.C
affects the Eleven Penn Plaza Property or the rights of
holders of Eleven Penn Plaza Units, such amendment shall
require the Consent of Partners (other than the General
Partner or the General Partner Entity or any Subsidiary of
either the
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<PAGE> 68
General Partner or the General Partner Entity) who hold
seventy-five percent (75%) of the Eleven Penn Plaza Units;
and
(iii) In the event that the amendment to Section 7.11.C
affects the 866 U.N. Plaza Property or the rights of holders
of 866 U.N. Plaza Units, such amendment shall require the
Consent of Partners (other than the General Partner or the
General Partner Entity or any Subsidiary of either the
General Partner or the General Partner Entity) who hold
seventy-five percent (75%) of the 866 U.N. Plaza Units.
E. Amendment and Restatement of Exhibit A Not An Amendment.
Notwithstanding anything in this Article XIV or elsewhere in this Agreement to
the contrary, any amendment and restatement of Exhibit A hereto by the General
Partner to reflect events or changes otherwise authorized or permitted by this
Agreement, whether pursuant to Section 7.1.A(20) hereof or otherwise, shall not
be deemed an amendment of this Agreement and may be done at any time and from
time to time, as necessary by the General Partner without the Consent of the
Limited Partners.
F. Amendment by Merger. In the event that the Partnership
participates in any merger (including a triangular merger), consolidation or
combination with another entity in a transaction not otherwise prohibited by
this Agreement and as a result of such merger, consolidation or combination this
Agreement is to be amended (or a new agreement for a limited partnership or
limited liability company, as applicable, is to be adopted for the surviving
entity) and any of the Outside Limited Partners (as defined herein in "Consent
of Outside Limited Partners") will hold equity interests in the continuing or
surviving entity, then any such amendments to this Agreement (or changes from
this Agreement reflected in the new agreement for the surviving entity) shall
require the consents provided in Section 14.1.C and Section 14.1.D.
Section 14.2 Meetings of the Partners
A. General. Meetings of the Partners may be called only by
the General Partner. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting; provided that a Partner's attendance at any meeting of Partners shall
be deemed a waiver of the foregoing notice requirement with respect to such
Partner. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A above. Except as
otherwise expressly provided in this Agreement, the Consent of holders of a
majority of the Percentage Interests held by Limited Partners (including Limited
Partnership Interests held by the General Partner) shall control.
B. Actions Without a Meeting. Any action required or
permitted to be taken at a meeting of the Partners may be taken without a
meeting if a written consent setting forth the action so taken is signed by a
majority of the Percentage Interests of the Partners (or such other percentage
as is expressly required by this Agreement). Such consent may be in one
instrument or in several instruments, and shall have the same force and effect
as a vote of a majority of the Percentage Interests of the Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or
Persons to act for such Limited Partner by proxy on all matters in which a
Limited Partner is entitled to participate, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Limited Partner or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the Limited
Partner executing it, such revocation to be effective upon the Partnership's
receipt of notice thereof in writing.
-60-
<PAGE> 69
D. Conduct of Meeting. Each meeting of Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address set forth in Exhibit A hereto or such
other address as the Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
Section 15.6 Creditors; Other Third Parties
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor or other third party having
dealings with the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
-61-
<PAGE> 70
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11 Power of Attorney
A. General. Each Limited Partner and each Assignee who
accepts Partnership Units (or any rights, benefits or privileges associated
therewith) is deemed to irrevocably constitute and appoint the General Partner,
any Liquidator and authorized officers and attorneys-in-fact of each, and each
of those acting singly, in each case with full power of substitution, as its
true and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates,
documents and other instruments (including, without
limitation, this Agreement and the Certificate and all
amendments or restatements thereof) that the General
Partner or any Liquidator deems appropriate or necessary
to form, qualify or continue the existence or
qualification of the Partnership as a limited
partnership (or a partnership in which the limited
partners have limited liability) in the State of
Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property, (b)
all instruments that the General Partner or any
Liquidator deems appropriate or necessary to reflect any
amendment, change, modification or restatement of this
Agreement in accordance with its terms, (c) all
conveyances and other instruments or documents that the
General Partner or any Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of
the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of
cancellation, (d) all instruments relating to the
admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in,
Article XI, XII or XIII hereof or the Capital
Contribution of any Partner and (e) all certificates,
documents and other instruments relating to the
determination of the rights, preferences and privileges
of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or ratify
any vote, consent, approval, agreement or other action
which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or
appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the
terms or intent of this Agreement.
-62-
<PAGE> 71
Nothing contained in this Section 15.11 shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article XIV hereof or as may be otherwise expressly provided
for in this Agreement.
B. Irrevocable Nature. The foregoing power of attorney is
hereby declared to be irrevocable and a power coupled with an interest, in
recognition of the fact that each of the Partners will be relying upon the power
of the General Partner or any Liquidator to act as contemplated by this
Agreement in any filing or other action by it on behalf of the Partnership, and
it shall survive and not be affected by the subsequent Incapacity of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Units and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the General Partner or any Liquidator, acting in good
faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner or any Liquidator, taken
in good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.
Section 15.12 Entire Agreement
This Agreement and all Exhibits attached hereto (which
Exhibits are incorporated herein by reference as if fully set forth herein)
contains the entire understanding and agreement among the Partners with respect
to the subject matter hereof and supersedes any prior written oral
understandings or agreements among them with respect thereto.
Section 15.13 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as
conferring upon the holders of the Partnership Units any rights whatsoever as
shareholders of the General Partner Entity or the General Partner (if
different), including, without limitation, any right to receive dividends or
other distributions made to shareholders of the General Partner Entity or the
General Partner (if different) or to vote or to consent or receive notice as
shareholders in respect to any meeting of shareholders for the election of
directors of the General Partner Entity or the General Partner (if different) or
any other matter.
Section 15.14 Limitation to Preserve REIT Status
To the extent that any amount paid or credited to the General
Partner or its officers, directors, employees or agents pursuant to Section 7.4
or Section 7.7 hereof would constitute gross income to the General Partner
Entity or the General Partner (if it is to be qualified as a REIT) for purposes
of Section 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment")
then, notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 5% of the
General Partner Entity's or the General Partner's (if it is to be qualified as a
REIT) total gross income (but not including the amount of any General Partner
Payments) for the fiscal year over (b) the amount of gross income (within the
meaning of Section 856(c)(2) of the Code) derived by the General Partner Entity
or the General Partner (if it is to be qualified as a REIT) from sources other
than those described in subsections (A) through (H) of Section 856(c)(2) of the
Code (but not including the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the
General Partner Entity's or the General Partner's (if it is to be qualified as a
REIT) total gross income (but not including the amount of any General
-63-
<PAGE> 72
Partner Payments) for the fiscal year over (b) the amount of gross income
(within the meaning of Section 856(c)(3) of the Code) derived by the General
Partner Entity or the General Partner (if it is to be qualified as a REIT) from
sources other than those described in subsections (A) through (I) of Section
856(c)(3) of the Code (but not including the amount of any General Partner
Payments);
provided, however, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner
Entity or the General Partner (if it is to be qualified as a REIT), as a
condition precedent, obtains an opinion of tax counsel that the receipt of such
excess amounts would not adversely affect the General Partner Entity's or the
General Partner's (if it is to be qualified as a REIT) ability to qualify as a
REIT. To the extent General Partner Payments may not be made in a year due to
the foregoing limitations, such General Partner Payments shall carry over and be
treated as arising in the following year, provided, however, that such amounts
shall not carry over for more than five years, and if not paid within such five
year period, shall expire; provided, further, that (i) as General Partner
Payments are made, such payments shall be applied first to carry over amounts
outstanding, if any, and (ii) with respect to carry over amounts for more than
one Partnership Year, such payments shall be applied to the earliest Partnership
Year first.
-64-
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
VORNADO REALTY TRUST
By: _____________________________
Name: _____________________________
Title: _____________________________
LIMITED PARTNERS:
THE MENDIK COMPANY, INC.
By: _____________________________
Name: _____________________________
Title: _____________________________
FW/MENDIK REIT, L.L.C.
By: Mendik Holdings LLC, member
By: Mendik Holdings, Inc., managing member
By: _____________________________
Name: _____________________________
Title: _____________________________
EACH OF THE PERSONS LISTED ON EXHIBIT A HERETO
(not set forth above)
By: _____________________________
Name: _____________________________
Title: _____________________________
-65-
<PAGE> 74
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- ----------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
======================================================================================================================
<S> <C> <C> <C> <C> <C>
*R-A
Preferred 1 Vornado Realty Trust 5,750,000
R-A 1 Vornado Realty Trust 4,839,017
R-A 2 Vornado Finance Corp. 17,641,347
R-A 3 Vornado Investments Corporation 1,833,333
R-A 4 40 East 14 Realty Associates General 819,639
Partnership
R-A 5 825 Seventh Avenue Holding 117,758
Corporation
R-A 6 Menands Holding Corporation 268,262
R-A 7 Two Guys From Harrison, N.Y., Inc. 90,445
R-A 8 Vornado Lending Corp. 681,818
R-A 9 West Windsor Holding Corporation 256,061
R-C 1 The Mendik Partnership, L.P. VOID
R-C 12 The Mendik Partnership, L.P. 913,205
R-C 13 The Mendik Partnership, L.P. 337,433
R-C 14 The Mendik Partnership, L.P. 20,284
R-C 15 The Mendik Partnership, L.P. 3,969
R-C 2 F/W Mendik REIT, L.L.C.** 360,577
R-C 3 F/W Mendik REIT, L.L.C.** 40,386
R-C 4 Mendik RELP Corp. 423
R-D 2750 Associates 1,273
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
=================================================================================================
<S> <C> <C> <C>
*R-A
Preferred 1 Vornado Realty Trust 32,297,680 2,039,646,880 91.5821%
R-A 1 Vornado Realty Trust
R-A 2 Vornado Finance Corp.
R-A 3 Vornado Investments Corporation
R-A 4 40 East 14 Realty Associates General
Partnership
R-A 5 825 Seventh Avenue Holding
Corporation
R-A 6 Menands Holding Corporation
R-A 7 Two Guys From Harrison, N.Y., Inc.
R-A 8 Vornado Lending Corp.
R-A 9 West Windsor Holding Corporation
R-C 1 The Mendik Partnership, L.P.
R-C 12 The Mendik Partnership, L.P. 913,205 60,271,530 2.7062%
R-C 13 The Mendik Partnership, L.P. 337,433 22,270,578 1.000%
R-C 14 The Mendik Partnership, L.P. 20,284 1,338,744 0.0601%
R-C 15 The Mendik Partnership, L.P. 3,969 261,954 0.0118%
R-C 2 F/W Mendik REIT, L.L.C.** 360,577 23,798,082 1.0686%
R-C 3 F/W Mendik REIT, L.L.C.** 40,386 2,665,476 0.1197%
R-C 4 Mendik RELP Corp. 423 27,918 0.0013%
R-D 1 2750 Associates 1,273 84,018 0.0038%
- -------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
* Directly and through the following subsidiaries: Vornado
Finance Corp., Vornado Investments Corporation, 40 East 14 Realty
Associates General Partnership, 825 Seventh Avenue Holding
Corporation, Menands Holding Corporation, Two Guys from Harrison,
N.Y. Inc., Vornado Lending Corp. and West Windsor Holding
Corporation.
** Pledged. (See Section 11.3 F. of the Operating Partnership
Agreement.)
A-1
<PAGE> 75
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- -----------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
R-D 2 Abrams, Trust U/W/O Ralph 3,622
R-D 3 Adler, Robert 1,248
R-D 4 Alpert, Vicki 2,614
R-D 5 Ambassador Construction Company, 18,211
Inc.
R-D 6 Aschendorf-Shasha, Ellen 855
R-D 7 Ash, Herbert 77
R-D 8 Aubert, Trust FBO Lysa UWO 2,139
Barbara Schwartz
R-D 9 Aubert, Trust FBO Lysa UWO Ellis 128
Schwartz
R-D 10 Barr, Thomas 922
R-D 11 Barkin, Leonard 481
R-D 12 Batkin, Estate of Jean 4,474
R-D 13 Batkin, Jean Trust 931
R-D 14 Batkin, Nancy 466
R-D 15 Berenson, David 517
R-D 16 Berenson, Joan 691
R-D 17 Berenson, Richard 421
R-D 18 Berenson, Robert 881
R-D 19 Bianculli, Louis 5,604
R-D 20 Bierman, Jacquin 2,688
R-D 21 Blumenthal, Joel Marie 77
R-D 22 Braverman, Madlyn 17,516
R-D 23 Carb, Sally 1,052
R-D 24 Carney, Thomas 678
R-D 25 Chambers, Robert 3,709
R-D 26 CHO Enterprises 2,682
R-D 27 Dembner, Shirley 39
R-D 28 Dembner, Shirley UGMA for Lindsey 1,731
Dembner
R-D 29 Doner, Max 1,682
- ---------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
=================================================================================================
<S> <C> <C> <C>
R-D 2 Abrams, Trust U/W/O Ralph 3,622 239,052 0.0107%
R-D 3 Adler, Robert 1,248 82,368 0.0037%
R-D 4 Alpert, Vicki 2,614 172,524 0.0077%
R-D 5 Ambassador Construction Company, 18,211 1,201,926 0.0540%
Inc.
R-D 6 Aschendorf-Shasha, Ellen 855 56,430 0.0025%
R-D 7 Ash, Herbert 77 5,082 0.0002%
R-D 8 Aubert, Trust FBO Lysa UWO 2,139 141,174 0.0063%
Barbara Schwartz
R-D 9 Aubert, Trust FBO Lysa UWO Ellis 128 8,448 0.0004%
Schwartz
R-D 10 Barr, Thomas 922 60,852 0.0027%
R-D 11 Barkin, Leonard 481 31,746 0.0014%
R-D 12 Batkin, Estate of Jean 4,474 295,284 0.0133%
R-D 13 Batkin, Jean Trust 931 61,446 0.0028%
R-D 14 Batkin, Nancy 466 30,756 0.0014%
R-D 15 Berenson, David 517 34,122 0.0015%
R-D 16 Berenson, Joan 691 45,606 0.0020%
R-D 17 Berenson, Richard 421 27,786 0.0012%
R-D 18 Berenson, Robert 881 58,146 0.0026%
R-D 19 Bianculli, Louis 5,604 369,864 0.0166%
R-D 20 Bierman, Jacquin 2,688 177,408 0.0080%
R-D 21 Blumenthal, Joel Marie 77 5,082 0.0002%
R-D 22 Braverman, Madlyn 17,516 1,156,056 0.0519%
R-D 23 Carb, Sally 1,052 69,432 0.0031%
R-D 24 Carney, Thomas 678 44,748 0.0020%
R-D 25 Chambers, Robert 3,709 244,794 0.0110%
R-D 26 CHO Enterprises 2,682 177,012 0.0079%
R-D 27 Dembner, Shirley 39 2,574 0.0001%
R-D 28 Dembner, Shirley UGMA for Lindsey 1,731 114,246 0.0051%
Dembner
R-D 29 Doner, Max 1,682 111,012 0.0050%
- ---------------
</TABLE>
A-2
<PAGE> 76
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- -----------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
R-C 5 Downey, Michael 427
R-D 30 Dryfoos, Jacqueline 481
R-D 31 Dubrowski, Raymond 1,152
R-D 32 Evans, Ben 52
R-D 33 Field, Walter L. 840
R-D 34 Jesse Fierstein & Co. 1,786
R-D 35 Fischer, Alan A. 1,682
R-D 36 Freedman, Robert 2,885
R-D 37 Gershon, Estate of Murray 5,247
R-D 38 Getz, Howard 135
R-D 39 Getz, Sandra 3,522
R-D 40 Getz, Sandra & Howard 374
R-D 41 Gold, Frederica 207
R-D 42 Ginsberg, Benedict 466
R-D 43 Goldberg, Clarence 458
R-D 44 Goldring, Stanley 5,377
R-D 45 Goldschmidt, Beatrice 10,865
R-D 46 Goldschmidt, Charles 5,376
R-D 47 Goldschmidt, Edward 6,421
R-D 48 Goldschmidt, C. Trust U/A/D 7/11/90 4,037
R-D 49 Goldschmidt, Lawrence 60,361
R-D 50 Gorfinkle, Alaine 332
R-D 51 Gorfinkle, Lawrence 1,915
R-D 52 Green, Bernard VOID
R-D 148 Green, Bernard 4,274
R-D 149 Green, Barbara 4,273
R-D 53 Greif, Goldie 3,362
R-D 54 Gutenberg, Bernice 328
R-D 55 H L Silbert trustee U/W of H A 8,097
Goldman
R-D 56 Hagler, Philip 6,637
R-D 57 Harteveldt, Robert L. 2,564
- ---------------
<CAPTION>
- -------------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
=================================================================================================
<S> <C> <C> <C>
R-C 5 Downey, Michael 427 28,182 0.0013%
R-D 30 Dryfoos, Jacqueline 481 31,746 0.0014%
R-D 31 Dubrowski, Raymond 1,152 76,032 0.0034%
R-D 32 Evans, Ben 52 3,432 0.0002%
R-D 33 Field, Walter L. 840 55,440 0.0025%
R-D 34 Jesse Fierstein & Co. 1,786 117,876 0.0053%
R-D 35 Fischer, Alan A. 1,682 111,012 0.0050%
R-D 36 Freedman, Robert 2,885 190,410 0.0085%
R-D 37 Gershon, Estate of Murray 5,247 346,302 0.0155%
R-D 38 Getz, Howard 135 8,910 0.0004%
R-D 39 Getz, Sandra 3,522 232,452 0.0104%
R-D 40 Getz, Sandra & Howard 374 24,684 0.0011%
R-D 41 Gold, Frederica 207 13,662 0.0006%
R-D 42 Ginsberg, Benedict 466 30,756 0.0014%
R-D 43 Goldberg, Clarence 458 30,228 0.0014%
R-D 44 Goldring, Stanley 5,377 354,882 0.0159%
R-D 45 Goldschmidt, Beatrice 10,865 717,090 0.0322%
R-D 46 Goldschmidt, Charles 5,376 354,816 0.0159%
R-D 47 Goldschmidt, Edward 6,421 423,786 0.0190%
R-D 48 Goldschmidt, C. Trust U/A/D 7/11/90 4,037 266,442 0.0120%
R-D 49 Goldschmidt, Lawrence 60,361 3,983,826 0.1789%
R-D 50 Gorfinkle, Alaine 332 21,912 0.0010%
R-D 51 Gorfinkle, Lawrence 1,915 126,390 0.0057%
R-D 52 Green, Bernard
R-D 148 Green, Bernard 4,274 282,084 0.0127%
R-D 149 Green, Barbara 4,273 282,018 0.0127%
R-D 53 Greif, Goldie 3,362 221,892 0.0100%
R-D 54 Gutenberg, Bernice 328 21,648 0.0010%
R-D 55 H L Silbert trustee U/W of H A 8,097 534,402 0.0240%
Goldman
R-D 56 Hagler, Philip 6,637 438,042 0.0197%
R-D 57 Harteveldt, Robert L. 2,564 169,224 0.0076%
- ---------------
</TABLE>
A-3
<PAGE> 77
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- -----------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
R-D 58 Hirsch, Phillip J. 169
R-D 59 Hirsch, Judith 169
R-D 60 Hruska, Alan 922
R-D 61 Hutner, Anne Trust F/B/O 2,305
R-D 62 Hutner, Estate of Irwin 5,667
R-D 63 INS Realty Associates 134,758
R-D 64 Fierstein Co. 13,735
R-D 65 Jaffe, Elizabeth 38
R-D 66 Jones, Hazel 1,248
R-D 67 Kaufman, Robert M. 169
R-D 68 Klein, Robin 1,682
R-D 69 Knatten Inc. 59,024
R-C 6 Knight, Laureine 5,121
R-D 70 Komaroff, Stanley 288
R-D 71 Kosloff, Andrea 39
R-D 72 Kosloff, Andrea UGMA for Adam 1,058
Kosloff
R-D 73 Kosloff, Andrea UGMA for Justin 1,058
Kosloff
R-D 74 Koven, Irving 5,604
R-D 75 Kowal, Myron 374
R-D 76 Kramer, Saul 326
R-C 7 Kuhn, James D. 68,712
R-D 77 Kuhn, Leo 451
R-D 78 Kurshan, Herbert 1,248
R-D 79 Lauder, Leonard 2,330
R-D 80 Lauder, Ronald 2,330
R-D 81 Leff, Joseph 1,682
R-D 82 Leff, Valerie 1,682
R-D 83 Lefkowitz, Howard 207
R-D 84 LeRoy Partners 4,274
R-D 85 Liroff, Harriett 6,004
<CAPTION>
- -----------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
===============================================================================================
<S> <C> <C> <C>
R-D 58 Hirsch, Phillip J. 169 11,154 0.0005%
R-D 59 Hirsch, Judith 169 11,154 0.0005%
R-D 60 Hruska, Alan 922 60,852 0.0027%
R-D 61 Hutner, Anne Trust F/B/O 2,305 152,130 0.0068%
R-D 62 Hutner, Estate of Irwin 5,667 374,022 0.0168%
R-D 63 INS Realty Associates 134,758 8,894,028 0.3994%
R-D 64 Fierstein Co. 13,735 906,510 0.0407%
R-D 65 Jaffe, Elizabeth 38 2,508 0.0001%
R-D 66 Jones, Hazel 1,248 82,368 0.0037%
R-D 67 Kaufman, Robert M. 169 11,154 0.0005%
R-D 68 Klein, Robin 1,682 111,012 0.0050%
R-D 69 Knatten Inc. 59,024 3,895,584 0.1749%
R-C 6 Knight, Laureine 5,121 337,986 0.0152%
R-D 70 Komaroff, Stanley 288 19,008 0.0009%
R-D 71 Kosloff, Andrea 39 2,574 0.0001%
R-D 72 Kosloff, Andrea UGMA for Adam 1,058 69,828 0.0031%
Kosloff
R-D 73 Kosloff, Andrea UGMA for Justin 1,058 69,828 0.0031%
Kosloff
R-D 74 Koven, Irving 5,604 369,864 0.0166%
R-D 75 Kowal, Myron 374 24,684 0.0011%
R-D 76 Kramer, Saul 326 21,516 0.0010%
R-C 7 Kuhn, James D. 68,712 4,534,992 0.2036%
R-D 77 Kuhn, Leo 451 29,766 0.0013%
R-D 78 Kurshan, Herbert 1,248 82,368 0.0037%
R-D 79 Lauder, Leonard 2,330 153,780 0.0069%
R-D 80 Lauder, Ronald 2,330 153,780 0.0069%
R-D 81 Leff, Joseph 1,682 111,012 0.0050%
R-D 82 Leff, Valerie 1,682 111,012 0.0050%
R-D 83 Lefkowitz, Howard 207 13,662 0.0006%
R-D 84 LeRoy Partners 4,274 282,084 0.0127%
R-D 85 Liroff, Harriett 6,004 396,264 0.0178%
</TABLE>
A-4
<PAGE> 78
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- -------------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
R-D 86 Liroff, Richard 766
R-D 87 Loewengart, Irene 832
R-D 88 Lovitz, David 1,122
R-D 89 Maayan Partners 4,808
R-D 90 Marvin, Morton 457
R-D 91 Marvin, Suzanne 38
R-D 92 Maynard, Jean 1,152
R-D 93 Mazer, David 3,362
R-D 94 Mazer, Richard 3,362
R-C 8 Mendik, Susan 488
R-D 95 Migdal, L. & Kalmus, E. Trustees u/w/o
M Silberstein 5,128
R-D 96 Mil Equities 6,667
R-E 3 Nicardo Corporation* 102,860
R-E 4 Nicardo Corporation 194,769
R-D 97 Novick, Lawrence 77
R-D 98 Oestreich, David A. 19,404
R-D 99 Oestreich, Joan E. 19,401
R-D 100 Oestreich, Sophy 2,305
R-D 101 Oppenheimer, Martin J. 169
R-D 102 Oppenheimer, Suzanne 169
R-D 103 Phillips, Family Trust UWO Edith 1,682
R-D 104 Phillips, Estate of John D. 1,682
R-D 105 Plum Partners L.P. 4,808
R-D 106 Prentice Revocable Trust, 12/12/75 1,261
R-E 1 Rcay S.A.* 44,716
R-E 2 Rcay S.A. 84,669
R-D 107 Reichler, Richard 2,700
- ---------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
==================================================================================================
<S> <C> <C> <C>
R-D 86 Liroff, Richard 766 50,556 0.0023%
R-D 87 Loewengart, Irene 832 54,912 0.0025%
R-D 88 Lovitz, David 1,122 74,052 0.0033%
R-D 89 Maayan Partners 4,808 317,328 0.0142%
R-D 90 Marvin, Morton 457 30,162 0.0014%
R-D 91 Marvin, Suzanne 38 2,508 0.0001%
R-D 92 Maynard, Jean 1,152 76,032 0.0034%
R-D 93 Mazer, David 3,362 221,892 0.0100%
R-D 94 Mazer, Richard 3,362 221,892 0.0100%
R-C 8 Mendik, Susan 488 32,208 0.0014%
R-D 95 Migdal, L. & Kalmus, E. Trustees u/w/o
M Silberstein 5,128 338,448 0.0152%
R-D 96 Mil Equities 6,667 440,022 0.0198%
R-E 3 Nicardo Corporation* 102,860 6,788,760 0.3048%
R-E 4 Nicardo Corporation 194,769 12,854,754 0.5771%
R-D 97 Novick, Lawrence 77 5,082 0.0002%
R-D 98 Oestreich, David A. 19,404 1,280,664 0.0575%
R-D 99 Oestreich, Joan E. 19,401 1,280,466 0.0575%
R-D 100 Oestreich, Sophy 2,305 152,130 0.0068%
R-D 101 Oppenheimer, Martin J. 169 11,154 0.0005%
R-D 102 Oppenheimer, Suzanne 169 11,154 0.0005%
R-D 103 Phillips, Family Trust UWO Edith 1,682 111,012 0.0050%
R-D 104 Phillips, Estate of John D. 1,682 111,012 0.0050%
R-D 105 Plum Partners L.P. 4,808 317,328 0.0142%
R-D 106 Prentice Revocable Trust, 12/12/75 1,261 83,226 0.0037%
R-E 1 Rcay S.A.* 44,716 2,951,256 0.1325%
R-E 2 Rcay S.A. 84,669 5,588,154 0.2509%
R-D 107 Reichler, Richard 2,700 178,200 0.0080%
- ---------------
</TABLE>
A-5
<PAGE> 79
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- -----------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
R-D 108 Reingold, Suzy 2,444
R-D 109 Roberts, H. Richard 19,713
R-D 110 Roche, Sara 1,682
R-D 111 Rolfe, Ronald 922
R-D 112 Rosenberg, Ilse 288
R-D 113 Rosenheim Revocable Living Trust 562
of Edna
R-D 114 Rosenzveig, Abraham 1,872
R-D 115 Rubashkin, Martin 230
R-D 116 Rubin, Murray M. 1,682
R-D 117 Sahid, Joseph 922
R-D 118 Saunders, Paul 922
R-D 119 Saul, Andrew 10,098
R-D 120 Schacht Estate of Natalie 38
R-D 121 Schacht, Ronald 456
R-D 122 Schwartz, Trust FBO Samuel UWO 2,139
Barbara Schwartz
R-D 123 Schwartz, Trust FBO Samuel UWO Ellis 128
Schwartz
R-D 124 Schwartz, Trust FBO Carolynn UWO 2,139
Barbara Schwartz
R-D 125 Schwartz, Trust FBO Carolynn UWO 128
Ellis Schwartz
R-D 126 Shapiro, Howard 466
R-D 146 Shapiro, Howard A. 168
R-D 127 Shapiro, Robert I. 1,682
R-D 128 Shasha, Alfred 2,885
R-D 129 Shasha, Alfred A. & Hanina 3,742
R-D 130 Shasha, Alfred & Hanina Trustees 6,838
R-D 131 Shasha, Robert Y. 855
R-D 132 Shasha-Kupchick, Leslie 1,709
R-D 133 Sheridan Family Partners, L.P. 7,972
- ---------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
================================================================================================
<S> <C> <C> <C>
R-D 108 Reingold, Suzy 2,444 161,304 0.0072%
R-D 109 Roberts, H. Richard 19,713 1,301,058 0.0584%
R-D 110 Roche, Sara 1,682 111,012 0.0050%
R-D 111 Rolfe, Ronald 922 60,852 0.0027%
R-D 112 Rosenberg, Ilse 288 19,008 0.0009%
R-D 113 Rosenheim Revocable Living Trust 562 37,092 0.0017%
of Edna
R-D 114 Rosenzveig, Abraham 1,872 123,552 0.0055%
R-D 115 Rubashkin, Martin 230 15,180 0.0007%
R-D 116 Rubin, Murray M. 1,682 111,012 0.0050%
R-D 117 Sahid, Joseph 922 60,852 0.0027%
R-D 118 Saunders, Paul 922 60,852 0.0027%
R-D 119 Saul, Andrew 10,098 666,468 0.0299%
R-D 120 Schacht Estate of Natalie 38 2,508 0.0001%
R-D 121 Schacht, Ronald 456 30,096 0.0014%
R-D 122 Schwartz, Trust FBO Samuel UWO 2,139 141,174 0.0063%
Barbara Schwartz
R-D 123 Schwartz, Trust FBO Samuel UWO Ellis 128 8,448 0.0004%
Schwartz
R-D 124 Schwartz, Trust FBO Carolynn UWO 2,139 141,174 0.0063%
Barbara Schwartz
R-D 125 Schwartz, Trust FBO Carolynn UWO 128 8,448 0.0063%
Ellis Schwartz
R-D 126 Shapiro, Howard 466 30,756 0.0044%
R-D 146 Shapiro, Howard A. 168 11,086 0.0005%
R-D 127 Shapiro, Robert I. 1,682 111,012 0.0050%
R-D 128 Shasha, Alfred 2,885 190,410 0.0085%
R-D 129 Shasha, Alfred A. & Hanina 3,742 246,972 0.0111%
R-D 130 Shasha, Alfred & Hanina Trustees 6,838 451,308 0.0203%
R-D 131 Shasha, Robert Y. 855 56,430 0.0025%
R-D 132 Shasha-Kupchick, Leslie 1,709 112,794 0.0051%
R-D 133 Sheridan Family Partners, L.P. 7,972 526,152 0.0236%
- ---------------
</TABLE>
A-6
<PAGE> 80
EXHIBIT A
VORNADO REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of 4/15/97)
<TABLE>
<CAPTION>
Class of Units
- ---------------------------------------------------------------------------------------------------------------------------
Series A
Cert. No. Preferred Units A C D E
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
R-D 134 Shine, William 1,383
R-C 9 Silberstein, John J. 2,136
R-D 135 Sillbert, Harvey I. 8,097
R-D 136 Simons, Robert 1,682
R-C 10 Sims, David 427
R-D 137 Slaner, Estate of Alfred P. 17,479
R-D 138 Steiner, Phillip Harry 562
R-D 139 Steiner, Richard Harris 562
R-D 140 Tannenbaum, Bernard 456
R-D 147 Tannenbaum, Bernice 38
R-D 141 Tartikoff Living Trust 1,682
R-D 142 Winik, Trust U/W/O Carolyn 1,682
R-D 143 Watt, Emily 666
R-C 11 Wang, Kevin 427
R-D 144 Weissman, Sheila 332
R-D 145 Williams, John 1,122
===========================================================================================================================
TOTAL 5,750,000 26,547,680 1,754,015 659,533 427,014
===========================================================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------------
Agreed Initial Percentage
Cert. No. Total Capital Account Interest
=================================================================================================
<S> <C> <C> <C>
R-D 134 Shine, William 1,383 91,278 0.0041%
R-C 9 Silberstein, John J. 2,136 140,976 0.0063%
R-D 135 Sillbert, Harvey I. 8,097 534,402 0.0240%
R-D 136 Simons, Robert 1,682 111,012 0.0050%
R-C 10 Sims, David 427 28,182 0.0013%
R-D 137 Slaner, Estate of Alfred P. 17,479 1,153,614 0.0518%
R-D 138 Steiner, Phillip Harry 562 37,092 0.0017%
R-D 139 Steiner, Richard Harris 562 37,092 0.0017%
R-D 140 Tannenbaum, Bernard 456 30,096 0.0014%
R-D 147 Tannenbaum, Bernice 38 2,508 0.0001%
R-D 141 Tartikoff Living Trust 1,682 111,012 0.0050%
R-D 142 Winik, Trust U/W/O Carolyn 1,682 111,012 0.0050%
R-D 143 Watt, Emily 666 43,956 0.0020%
R-C 11 Wang, Kevin 427 28,182 0.0013%
R-D 144 Weissman, Sheila 332 21,912 0.0010%
R-D 145 Williams, John 1,122 74,052 0.0033%
=================================================================================================
TOTAL 35,138,242 2,227,123,972 100.0000%
=================================================================================================
</TABLE>
A-7
<PAGE> 81
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a
separate Capital Account in accordance with the rules of Regulations Section
l.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions and any other deemed contributions made by such
Partner to the Partnership pursuant to this Agreement and (ii) all items of
Partnership income and gain (including income and gain exempt from tax) computed
in accordance with Section 1.B hereof and allocated to such Partner pursuant to
Section 6.1 of the Agreement and Exhibit C hereof, and decreased by (x) the
amount of cash or Agreed Value of all actual and deemed distributions of cash or
property made to such Partner pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 1.B hereof
and allocated to such Partner pursuant to Section 6.1 of the Agreement and
Exhibit C hereof.
B. For purposes of computing the amount of any item of
income, gain, deduction or loss to be reflected in the Partners' Capital
Accounts, unless otherwise specified in this Agreement, the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax purposes
determined in accordance with Section 703(a) of the Code (for this purpose all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code shall be included in taxable income or
loss), with the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by
the Partnership, provided that the amounts of any adjustments
to the adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of the
distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been
reflected in the Partners' Capital Accounts) shall be
reflected in the Capital Accounts of the Partners in the
manner and subject to the limitations prescribed in
Regulations Section l.704-1(b)(2)(iv) (m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact that items
described in Sections 705(a)(l)(B) or 705(a)(2)(B) of the Code
are not includable in gross income or are neither currently
deductible nor capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnership's Carrying
Value with respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the amount
of any such adjustment shall be taken into account as gain or
loss from the disposition of such asset.
<PAGE> 82
(6) Any items specially allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a
Partnership Unit shall succeed to a pro rata portion of the Capital Account of
the transferor. The Capital Accounts of such reconstituted Partnership shall be
maintained in accordance with the principles of this Exhibit B.
D. (1) Consistent with the provisions of Regulations
Section 1.704-1(b)(2)(iv)(f), and as provided in
Section 1.D(2), the Carrying Values of all
Partnership assets shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of
the times of the adjustments provided in Section
1.D(2) hereof, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale
of each such property and allocated pursuant to
Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to the distribution by the Partnership to a Partner
of more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g), provided, however, that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-
l(b)(2)(iv)(e), the Carrying Value of Partnership
assets distributed in kind shall be adjusted upward
or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership
property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article XIII of the Agreement, shall be determined
and allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the
assets of the Partnership in such manner as it
determines in its sole and absolute discretion to
arrive at a fair market value for individual
properties.
E. The provisions of the Agreement (including this
Exhibit B and the other Exhibits to the Agreement) relating to the maintenance
of Capital Accounts are intended to comply with Regulations Section 1.704-1(b),
and shall be interpreted and applied in a manner consistent with such
Regulations. In the event the General Partner shall determine that it is prudent
to modify the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Partnership, the General Partner, or the Limited Partners)
are computed in order to comply with such Regulations, the General Partner may
make such modification without regard to Article XIV of the Agreement, provided
that it is not likely to have a material effect on the amounts distributable to
any Person pursuant to Article XIII of the Agreement upon the dissolution of the
Partnership. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section l.704-l(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section l.704-1(b).
B-2
<PAGE> 83
2. No Interest
No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of its
Capital Contribution or Capital Account or to receive any distribution from the
Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
B-3
<PAGE> 84
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
Notwithstanding any other provision of the Agreement or this
Exhibit C, the following special allocations shall be made in the following
order:
A. Minimum Gain Chargeback. Notwithstanding the provisions
of Section 6.1 of the Agreement or any other provisions of this Exhibit C, if
there is a net decrease in Partnership Minimum Gain during any Partnership Year,
each Partner shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any
other provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit C (except Section 1.A hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Year, each Partner who has a share of the Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (5), shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and Limited Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i) (4). This
Section 1.B is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of this Section 1.B, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such
Partnership Year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704-
l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under
Sections 1.A and 1.B hereof with respect to such Partnership Year, such Partner
has an Adjusted Capital Account Deficit, items of Partnership income and gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income and gain for the Partnership Year) shall be specially allocated to
such Partner in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit created by
such adjustments, allocations or distributions as quickly as possible. This
Section 1.C is intended to constitute a "qualified income offset" under
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
D. Gross Income Allocation. In the event that any Partner
has an Adjusted Capital Account Deficit at the end of any Partnership Year
(after taking into account allocations to be made under the preceding paragraphs
hereof with respect to such Partnership Year), each such Partner shall be
specially allocated items of Partnership income and gain (consisting of a pro
rata portion of each item of Partnership income, including gross income and gain
for the Partnership Year) in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, its Adjusted Capital Account Deficit.
C-1
<PAGE> 85
E. Nonrecourse Deductions. Nonrecourse Deductions for any
Partnership Year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Partnership Year shall be specially allocated to
the Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant to Regulations
Section 1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for
federal income tax purposes, each item of income, gain, loss and deduction shall
be allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of income,
gain, loss, and deduction shall be allocated for federal income tax purposes
among the Partners as follows:
(1) (a) In the case of a Contributed Property,
such items attributable thereto shall be
allocated among the Partners consistent with
the principles of Section 704(c) of the Code
to take into account the variation between
the 704(c) Value of such property and its
adjusted basis at the time of contribution
(taking into account Section 2.C of this
Exhibit C); and
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall
be allocated among the Partners in the same
manner as its correlative item of "book"
gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such
items shall
(i) first, be allocated among the Partners in a
manner consistent with the principles of Section
704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to
Exhibit B;
(ii) second, in the event such property was
originally a Contributed Property, be allocated among
the Partners in a manner consistent with Section
2.B(1) of this Exhibit C; and
C-2
<PAGE> 86
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall
be allocated among the Partners in the same
manner its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this
Exhibit C.
C. To the extent Regulations promulgated pursuant to
Section 704(c) of the Code permit a Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall, subject to the following, have the
authority to elect the method to be used by the Partnership and such election
shall be binding on all Partners. With respect to the Contributed Properties
transferred to the Partnership in connection with the Consolidation, the
Partnership shall elect to use the "traditional method" set forth in Treasury
Regulation Section 1.704-3(b).
C-3
<PAGE> 87
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) elects to redeem
_________ Partnership Units in Vornado Realty L.P. in accordance with the terms
of the First Amended and Restated Agreement of Limited Partnership of Vornado
Realty L.P., as amended (the "Partnership Agreement"), and the Redemption Right
referred to therein, (ii) surrenders such Partnership Units and all right, title
and interest therein and (iii) directs that promptly after the Specified
Redemption Date the Cash Amount or Shares Amount (as determined by the General
Partner) deliverable upon exercise of the Redemption Right be delivered to the
address specified below, and if Shares are to be delivered, such Shares be
registered or placed in the name(s) and at the address(es) specified below. The
undersigned hereby represents, warrants, and certifies that the undersigned (a)
has marketable and unencumbered title to such Partnership Units, free and clear
of the rights of or interests of any other person or entity, (b) has the full
right, power and authority to redeem and surrender such Partnership Units as
provided herein and (c) has obtained the consent or approval of all persons or
entities, if any, having the right to consult or approve such redemption and
surrender. Capitalized terms used herein have the meanings assigned to them in
the Partnership Agreement.
Dated:_____________ Name of Limited Partner:_________________________________
______________________________
(Signature of Limited Partner)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
Signature Guaranteed by:_______________________
IF SHARES ARE TO BE ISSUED, ISSUE TO:
Name:
Please insert social security or identifying number:
D-1
<PAGE> 88
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
(MENDIK PROPERTIES)
<TABLE>
<CAPTION>
UNDERLYING PROPERTY 704(C) VALUE AGREED VALUE
------------------- ------------ ------------
<S> <C> <C>
</TABLE>
E-1
<PAGE> 89
EXHIBIT F
RESTRICTED PARTNERS
FW/Mendik REIT, L.L.C.
Bernard H. Mendik
David R. Greenbaum
Any Mendik Owner
Mendik Realty Co., Inc.
The Mendik Partnership, L.P.
Mendik 1740 Corp.
Mendik RELP Corp.
20 Broad Street Company
Mendik 570 Corp.
F-1
<PAGE> 90
EXHIBIT G
DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION
OF THE
SERIES A PREFERRED UNITS
1. Definitions.
In addition to those terms defined in the Agreement, the
following definitions shall be for all purposes, unless otherwise clearly
indicated to the contrary, applied to the terms used in the Agreement and this
Exhibit G:
"Board of Trustees" shall mean the Board of Trustees of the
General Partner or any committee authorized by such Board of Trustees to perform
any of its responsibilities with respect to the Series A Preferred Shares.
"Unit Business Day" shall mean any day other than a Saturday,
Sunday or a day on which state or federally chartered banking institutions in
New York, New York are not required to be open.
"Common Shares" shall mean the common shares of beneficial
interest of the General Partner, par value $.04 per share.
"Conversion Price" shall mean the conversion price per Common
Share for which the Series A Preferred Shares are convertible, as such
Conversion Price may be adjusted pursuant to the terms of the Series A Preferred
Shares and the Declaration of Trust. The initial conversion price shall be
$72.75 (equivalent to a conversion rate of 0.68728 Common Shares for each Series
A Preferred Share).
"Current Market Price" of publicly traded Common Shares or any
other class of shares of beneficial interest or other security of the General
Partner or any other issuer for any day shall mean the last reported sales
price, regular way, on such day, or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day, regular way,
in either case as reported on the New York Stock Exchange ("NYSE") or, if such
security is not listed or admitted for trading on the NYSE, on the principal
national securities exchange on which such security is listed or admitted for
trading or, if not listed or admitted for trading on any national securities
exchange, on the NASDAQ National Market or, if such security is not quoted on
such NASDAQ National Market, the average of the closing bid and asked prices on
such day in the over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such security on such day shall not have been reported through
NASDAQ, the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for such
purpose by the Chief Executive Officer of the General Partner or the Board of
Trustees.
"Distribution Payment Date" shall mean the first calendar day
of January, April, July and October, in each year, commencing on July 1, 1997;
provided, however, that if any Distribution Payment Date falls on any day other
than a Unit Business Day, the dividend payment due on such Distribution Payment
Date shall be paid on the first Unit Business Day immediately following such
Distribution Payment Date.
G-1
<PAGE> 91
"Distribution Periods" shall mean quarterly distribution
periods commencing on January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next succeeding
Distribution Period (other than the initial Distribution Period, which shall
commence on April 9, 1997 and end on and include June 30, 1997).
"Dividend Payment Date" shall mean a dividend payment date
with respect to the Series A Preferred Shares.
"Dividend Periods" shall mean the quarterly dividend periods
with respect to the Series A Preferred Shares.
"Fair Market Value" shall mean the average of the daily
Current Market Prices per Common Share during the five (5) consecutive Trading
Days selected by the General Partner commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex" date with respect to the issuance or distribution requiring
such computation. The term "'ex' date," when used with respect to any issuance
or distribution, means the first day on which the Common Shares trade regular
way, without the right to receive such issuance or distribution, on the exchange
or in the market, as the case may be, used to determine that day's Current
Market Price.
"Series A Preferred Shares" means the $3.25 Series A
Convertible Preferred Shares of Beneficial Interest (liquidation preference
$50.00 per share), no par value, issued by the General Partner.
"Series A Preferred Unit" means a Partnership Unit issued by
the Partnership to the General Partner in consideration of the contribution by
the General Partner to the Partnership of the entire net proceeds received by
the General Partner from the issuance of the Series A Preferred Shares. The
Series A Partnership Units shall constitute a series of Preference Units. The
Series A Preferred Units shall have the preferences, conversion and other
rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms and conditions of redemption as are set forth in this
Exhibit G. It is the intention of the General Partner, in establishing the
Series A Preferred Units, that each Series A Preferred Unit shall be
substantially the economic equivalent of a Series A Preferred Share.
"set apart for payment" shall be deemed to include, without
any action other than the following, the recording by the Partnership or the
General Partner on behalf of the Partnership in its accounting ledgers of any
accounting or bookkeeping entry which indicates, pursuant to a declaration of a
distribution by the General Partner, the allocation of funds to be so paid on
any series or class of Partnership Units; provided, however, that if any funds
for any class or series of Junior Units or any class or series of Partnership
Units ranking on a parity with the Series A Preferred Units as to the payment of
distributions are placed in a separate account of the Partnership or delivered
to a disbursing, paying or other similar agent, then "set apart for payment"
with respect to the Series A Preferred Units shall mean placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not listed or
admitted for trading on the NYSE, on the principal national securities exchange
on which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the NASDAQ National Market,
or if such securities are not quoted on such NASDAQ National Market, in the
applicable securities market in which the securities are traded.
2. Terms of the Series A Preferred Units.
A. Number. The maximum number of authorized Series A
Preferred Units shall be 5,750,000.
B. Distributions. (i) The General Partner, in its capacity
as the holder of the then outstanding Series A Preferred Units, shall be
entitled to receive, when, as and if declared by the General Partner,
distributions payable in cash at the rate per annum of $3.25 per Series A
Preferred Unit (the "Annual Distribution Rate"). Such
G-2
<PAGE> 92
distributions shall be cumulative from the Effective Date and shall be payable
quarterly, when, as and if authorized and declared by the General Partner, in
arrears on Distribution Payment Dates, commencing on the first Distribution
Payment Date after the Effective Date. Distributions are cumulative from the
most recent Distribution Payment Date to which distributions have been paid.
Accrued and unpaid distribution for any past Distribution Periods may be
declared and paid at any time, without reference to any regular Distribution
Payment Date.
(ii) The amount of dividends payable for each full
Distribution Period for the Series A Preferred Units shall be computed by
dividing the Annual Distribution Rate by four. The amount of distributions
payable for the initial Distribution Period, or any other period shorter or
longer than a full Distribution Period, on the Series A Preferred Units shall be
computed on the basis of twelve 30-day months and a 360-day year. The General
Partner, in its capacity as the holder of the then outstanding Series A
Preferred Units, shall not be entitled to any distributions, whether payable in
cash, property or securities, in excess of cumulative distributions, as herein
provided, on the Series A Preferred Units. No interest, or sum of money in lieu
of interest, shall be payable in respect of any distribution payment or payments
on the Series A Preferred Units that may be in arrears.
(iii) So long as any Series A Preferred Units are outstanding,
no distributions, except as described in the immediately following sentence,
shall be declared or paid or set apart for payment on any series or class or
classes of Parity Units for any period unless full cumulative distributions have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A Preferred
Units for all Distribution Periods terminating on or prior to the distribution
payment date on such class or series of Parity Units. When distributions are not
paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all distributions declared upon Series A Preferred Units and all
distributions declared upon any other series or class or classes of Parity Units
shall be declared ratably in proportion to the respective amounts of
distributions accumulated and unpaid on the Series A Preferred Units and such
Parity Units.
(iv) So long as any Series A Preferred Units are outstanding,
no distributions (other than distributions paid solely in Junior Units or
options, warrants or rights to subscribe for or purchase Junior Units) shall be
declared or paid or set apart for payment or other distribution declared or made
upon Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
Junior Units made in respect of a redemption, purchase or other acquisition of
Common Shares made for purposes of and in compliance with requirements of an
employee incentive or benefit plan of the General Partner or any subsidiary, or
as permitted under Article VI of the Declaration of Trust of the General
Partner), for any consideration (or any moneys to be paid to or made available
for a sinking fund for the redemption of any such Junior Units) by the General
Partner, directly or indirectly (except by conversion into or exchange for
Junior Units), unless in each case (a) the full cumulative distributions on all
outstanding Series A Preferred Units and any other Parity Units of the
Partnership shall have been paid or set apart for payment for all past
Distribution Periods with respect to the Series A Preferred Units and all past
distribution periods with respect to such Parity Units and (b) sufficient funds
shall have been paid or set apart for the payment of the distribution for the
current Distribution Period with respect to the Series A Preferred Units and any
Parity Units.
C. Liquidation Preference. (i) In the event of any
liquidation, dissolution or winding up of the Partnership or the General
Partner, whether voluntary or involuntary, before any payment or distribution of
the assets of the Partnership shall be made to or set apart for the holders of
Junior Units, the General Partner, in its capacity as the holder of the Series A
Preferred Units shall be entitled to receive Fifty Dollars ($50.00) per Series A
Preferred Unit (the "Liquidation Preference") plus an amount equal to all
distributions (whether or not earned or declared) accrued and unpaid thereon to
the date of final distribution to the General Partner, in its capacity as such
holder; but the General Partner, in its capacity as the holder of Series A
Preferred Units shall not be entitled to any further payment. If, upon any such
liquidation, dissolution or winding up of the Partnership or the General
Partner, the assets of the Partnership, or proceeds thereof, distributable to
the General Partner, in its capacity as the holder of Series A Preferred Units,
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other Parity Units, then such assets, or the
proceeds thereof, shall be distributed among the General Partner, in its
capacity as the holder of such Series A Preferred Units, and the holders of any
such other Parity Units ratably in accordance with the respective
G-3
<PAGE> 93
amounts that would be payable on such Series A Preferred Units and any such
other Parity Units if all amounts payable thereon were paid in full. For the
purposes of this Section C, (i) a consolidation or merger of the Partnership or
the General Partner with one or more entities, (ii) a statutory share exchange
by the Partnership or the General Partner and (iii) a sale or transfer of all or
substantially all of the Partnership's or the General Partner's assets, shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the General Partner.
(ii) Subject to the rights of the holders of Partnership
Units of any series or class or classes of shares ranking on a parity with or
prior to the Series A Preferred Units upon any liquidation, dissolution or
winding up of the General Partner or the Partnership, after payment shall have
been made in full to the General Partner, in its capacity as the holder of the
Series A Preferred Units, as provided in this Section, any series or class or
classes of Junior Units shall, subject to any respective terms and provisions
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the General Partner, in its capacity as the holder of the
Series A Preferred Units, shall not be entitled to share therein.
D. Redemption of the Series A Preferred Units. (i) Except
in connection with the redemption of the Series A Preferred Shares by the
General Partner as permitted by Article VI of the Declaration of Trust, the
Series A Preferred Units shall not be redeemable prior to April 1, 2001. On and
after April 1, 2001, the General Partner may, at its option, cause the
Partnership to redeem the Series A Preferred Units for Class A Units, in whole
or in part, as set forth herein, subject to the provisions described below.
(ii) The Series A Preferred Units may be redeemed, in whole
or in part, at the option of the General Partner, in its capacity as the holder
of the Series A Preferred Units, at any time, provided that the General Partner
shall redeem an equivalent number of Series A Preferred Shares. Such redemption
of Series A Preferred Units shall occur substantially concurrently with the
redemption by the General Partner of such Series A Preferred Shares (the
"Redemption Date").
(iii) Upon redemption of Series A Preferred Units by the
General Partner on the Redemption Date, each Series A Preferred Unit so redeemed
shall be converted into a number of Class A Units equal to the aggregate
Liquidation Preference of the Series A Preferred Units being redeemed divided by
the Conversion Price as of the opening of business on the Redemption Date.
Upon any redemption of Series A Preferred Units, the
Partnership shall pay any accrued and unpaid distributions in arrears for any
Distribution Period ending on or prior to the Redemption Date. If the Redemption
Date falls after a Dividend Payment Record Date and prior to the corresponding
Dividend Payment Date, then the General Partner, in its capacity as the holder
of Series A Preferred Units, shall be entitled to distributions payable on the
equivalent number of Series A Preferred Units as the number of the Series A
Preferred Shares with respect to which the General Partner shall be required,
pursuant to the terms of the Declaration of Trust, to pay to the holders of
Series A Preferred Shares at the close of business on such Dividend Payment
Record Date for the Series A Preferred Shares who, pursuant to such Declaration
of Trust, are entitled to the dividend payable on such Series A Preferred Shares
on the corresponding Dividend Payment Date notwithstanding the redemption of
such Series A Preferred Shares before such Dividend Payment Date. Except as
provided above, the Partnership shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series A Preferred Units called for
redemption or on the Class A Units issued upon such redemption.
(iv) If full cumulative distributions on the Series A
Preferred Units and any other series or class or classes of Parity Units of the
Partnership have not been paid or declared and set apart for payment, except in
connection with a purchase, redemption or other acquisition of Series A
Preferred Shares or shares of beneficial interest ranking on a parity with such
Series A Preferred Shares as permitted under Article VI of the Declaration of
Trust, the Series A Preferred Units may not be redeemed in part and the
Partnership may not purchase, redeem or otherwise acquire Series A Preferred
Units or any Parity Units other than in exchange for Junior Units.
G-4
<PAGE> 94
As promptly as practicable after the surrender of the
certificates for any such Series A Preferred Units so redeemed, such Series A
Preferred Units shall be exchanged for certificates of Class A Units and any
cash (without interest thereon) for which such Series A Preferred Units have
been redeemed. If fewer than all the Series A Preferred Units represented by any
certificate are redeemed, then new certificates representing the unredeemed
Series A Preferred Units shall be issued without cost to the holder thereof.
(vi) No fractional Partnership Unit shall be issued upon
redemption of a Series A Preferred Unit. Instead of any fractional interest in a
Class A Unit that would otherwise be deliverable upon the redemption of a Series
A Preferred Unit, the Partnership shall pay to the General Partner, in its
capacity as the holder of such Series A Preferred Units, an amount in cash
(computed to the nearest cent) based upon the Current Market Price of Common
Shares of the General Partner on the Trading Day immediately preceding the
Redemption Date.
(vii) The Partnership covenants that any Class A Unit issued
upon redemption of the Series A Preferred Units shall be validly issued, fully
paid and non-assessable.
E. Conversion.
The General Partner, in its capacity as the holder of Series A
Preferred Units, shall have the right to convert all or a portion of such Series
A Preferred Units into Class A Units, provided that an equivalent number of
Series A Preferred Shares are substantially concurrently therewith being
converted into Common Shares, as follows:
(i) Subject to and upon compliance with the provisions of
this Section E, the General Partner, in its capacity as the holder of Series A
Preferred Units shall have the right, at its option, at any time to convert such
shares into the number of fully paid and non-assessable Class A Units obtained
by dividing the aggregate Liquidation Preference of such Series A Preferred
Units by the Conversion Price (as in effect at the time and on the date provided
for in the last paragraph of paragraph (ii) of this Section E) by surrendering
such Series A Preferred Units to the Partnership to be converted, such surrender
to be made in the manner provided in paragraph (ii) of this Section E; provided,
however, that the right to convert Series A Preferred Units called for
redemption pursuant to Section D hereof shall terminate at the close of business
on the Redemption Date fixed for such redemption, unless the Partnership shall
default in making payment of the Class A Units and any cash payable upon such
redemption under Section D hereof.
(ii) In order to exercise the conversion right, the General
Partner, in its capacity as the holder of each Series A Preferred Unit to be
converted shall surrender the certificate representing such Series A Preferred
Unit to the Partnership.
The General Partner, in its capacity as the holder of Series A
Preferred Units, shall be entitled to receive the distribution payable on such
Series A Preferred Units on a Distribution Payment Date notwithstanding the
conversion thereof following such Dividend Payment Record Date and prior to such
Dividend Payment Date. However, Series A Preferred Units surrendered for
conversion during the period between the close of business on any Dividend
Payment Record Date and the opening of business on the corresponding Dividend
Payment Date (except Series A Preferred Units converted after the issuance of a
notice of redemption of the Common Shares with respect to a Redemption Date
during such period or coinciding with such Dividend Payment Date, such Series A
Preferred Units being entitled to a distribution on the corresponding
Distribution Payment Date) must be accompanied by payment of an amount equal to
the distribution payable on such Series A Preferred Units on such Distribution
Payment Date. No such amount need be included upon surrender of Seris A
Preferred Units in respect of the equivalent number of Series A Preferred Shares
as to which a holder of Series A Preferred Shares on a Dividend Payment Record
Date who (or whose transferees) tenders any such Series A Preferred Shares to
the General Partner for conversion into Common Shares on such Dividend Payment
Date, but the distribution payable on such date on Series A Preferred Units will
be made with respect to such Series A Preferred Units. Except as provided above,
the Partnership shall make no payment or allowance for unpaid distributions,
whether or not in arrears, on converted Series A Preferred Units or for
distributions on the Class A Units issued upon such conversion.
G-5
<PAGE> 95
As promptly as practicable after the surrender of certificates
for Series A Preferred Units as aforesaid, the General Partner shall receive a
certificate or certificates for the number of full Class A Units issuable upon
the conversion of such Series A Preferred Units in accordance with the
provisions of this Section E, and any fractional interest in respect of a Class
A Unit arising upon such conversion shall be settled as provided in paragraph
(iii) of this Section E.
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
for Series A Preferred Units shall have been surrendered (and if applicable,
payment of an amount equal to the distribution payable on such Series A
Preferred Units) and received by the Partnership as aforesaid, and the General
Partner shall be deemed to have become the holder or holders of record of the
Class A Units represented thereby at such time on such date, and such conversion
shall be at the Conversion Price in effect at such time and on such date unless
the stock transfer books of the Partnership shall be closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such partnership transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such Series A Preferred Units
shall have been surrendered and received by the General Partner.
(iii) No fractional Partnership Unit shall be issued upon
conversion of the Series A Preferred Units. Instead of any fractional interest
in a Class A Unit that would otherwise be deliverable upon the conversion of a
Series A Preferred Unit, the Partnerships shall pay to the holder of such Series
A Preferred Unit an amount in cash based upon the Current Market Price of Common
Shares of the General Partner on the Trading Day immediately preceding the date
of conversion.
(iv) The Conversion Price shall be adjusted from time to time
at the same time and in a like manner as set forth in the Declaration of Trust.
F. Ranking. Any class or series of Partnership Units shall
be deemed to rank:
(a) prior to the Series A Preferred Units, as to the payment
of distributions and as to distribution of assets upon liquidation, dissolution
or winding up of the General Partner or the Partnership, if the holders of such
class or series of Preferred Units shall be entitled to the receipt of
distributions or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
Series A Preferred Units;
(b) on a parity with the Series A Preferred Units, as to the
payment of distributions and as to the distribution of assets upon liquidation,
dissolution or winding up of the General Partner or the Partnership, whether or
not the distribution rates, distribution payment dates or redemption or
liquidation prices per Partnership Unit be different from those of the Series A
Preferred Units, if the holders of such Partnership Units of such class or
series and the Series A Preferred Units shall be entitled to the receipt of
distributions and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
distributions per Partnership Unit or liquidation preferences, without
preference or priority one over the other ("Parity Units"); and
(c) junior to the Series A Preferred Units, as to the payment
of distributions or as to the distribution of assets upon liquidation,
dissolution or winding up of the General Partner or the Partnership, if such
class or series of Partnership Units shall be Common Partnership Units or if the
General Partner, in its capacity as the holder of Series A Preferred Units,
shall be entitled to receipt of distribution or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Partnership Units of such class or series, and such
class or series of Partnership Units shall not in either case rank prior to the
Series A Preferred Units ("Junior Units").
G. Voting. Except as required by law, the General Partner,
in its capacity as the holder of the Series A Preferred Units, shall not be
entitled to vote at any meeting of the Partners or for any other purpose or
G-6
<PAGE> 96
otherwise to participate in any action taken by the Partnership or the Partners,
or to receive notice of any meeting of the Partners.
So long as any Series A Preferred Units are outstanding, the General
Partner shall not authorize the creation of Partnership Units of any class or
series or any interest in the Partnership convertible into Partnership Units of
any class or series ranking prior to the Series A Preferred Units in the
distribution of assets on any liquidation, dissolution or winding up of the
General Partner or the Partnership or in the payment of distributions unless
such Partnership Units are issued to the General Partner and the distribution
and redemption (but not voting) rights of such Partnership Units are
substantially similar to the terms of securities issued by the General Partner
and the proceeds or other consideration from the issuance of such securities
have been or are concurrently with such issuance contributed to the Partnership.
H. Restrictions on Ownership and Transfer. The Series A
Preferred Units shall be owned and held solely by the General Partner.
I. General. (I) The rights of the General Partner, in its
capacity as the holder of the Series A Preferred Units, are in addition to and
not in limitation on any other rights or authority of the General Partner, in
any other capacity, under the Agreement. In addition, nothing contained in this
Exhibit G shall be deemed to limit or otherwise restrict any rights or authority
of the General Partner under the Agreement, other than in its capacity as the
holder of the Series A Preferred Units.
(ii) Anything herein contained to the contrary
notwithstanding, the General Partner shall take all steps that it determines are
necessary or appropriate (including modifying the foregoing terms of the Series
A Preferred Units) to ensure that the Series A Preferred Units (including,
without limitation the redemption and conversion terms thereof) permit the
General Partner to satisfy its obligations (including, without limitation, its
obligations to make dividends payments on, and to issue Common Shares upon
redemption or conversion of, the Series A Preferred Shares) with respect to the
Series A Preferred Shares, it being the intention that the terms of the Series A
Preferred Units shall be substantially similar to the terms of the Series A
Preferred Shares.
G-7
<PAGE> 97
EXHIBIT H
EXCLUDED UNITS
CLASS "C" UNITS
<TABLE>
<S> <C>
Bonk, Christopher G 49,004
Downey, Michael 44,314
Kuhn, James D 13,034
Silberstein, John J 39,266
Sims, David 29,170
Wang, Kevin 41,430
-------
216,218
</TABLE>
- ----------
*Pledged. (See Section 11.3 F. of the Operating Partnership Agreement.)
<PAGE> 1
Exhibit 4.1
Certificate Evidencing Partnership Interests
in
Vornado Realty L.P.
R-[ ] #
IN RELIANCE UPON CERTAIN EXEMPTIONS FROM REGISTRATION, THE PARTNERSHIP INTERESTS
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. ACCORDINGLY, NO
PARTNERSHIP INTEREST MAY BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE, AND
UNLESS THE OTHER TRANSFER RESTRICTIONS CONTAINED HEREIN HAVE BEEN SATISFIED.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
IN ADDITION TO THE FOREGOING, THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ON
TRANSFER DESCRIBED IN THE PARTNERSHIP AGREEMENT.
Vornado Realty L.P., a limited partnership formed under the
laws of the State of Delaware (the "Partnership"), hereby certifies that:
[Name of Holder] (the "Holder")
is the registered owner of a limited partner interest in the Partnership
comprised of [Number of Units] [Class __] Units (the "Units").
The powers, preferences and other special rights and
limitations of the Units (including limitations on transferability) are set
forth in, and this Certificate and the Units represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the First
Amended and Restated Agreement of Limited Partnership of Vornado Realty L.P.,
dated as of April 15, 1997, as the same may be amended from time to time in
accordance with its terms (the "Partnership Agreement"), which agreement
authorizes the issuance of the Units and specifies the
<PAGE> 2
powers, preferences and other special rights and limitations regarding
dividends, voting, return of capital and other matters relating to the Units.
The Partnership will furnish a copy of the Partnership Agreement to the Holder
without charge upon written request to the Partnership at its principal place of
business or registered office.
Upon delivery of this Certificate, the Partnership confirms
that the Holder is entitled to the benefits of a holder of [Class __] Units
under the Partnership Agreement. By accepting this Certificate the Holder
evidences that such Holder has agreed to be bound by the provisions of the
Partnership Agreement.
IN WITNESS WHEREOF, the Partnership has executed this
Certificate as of the 15th day of April, 1997.
VORNADO REALTY L.P.
By: Vornado Realty Trust,
its general partner
By: __________________________
Name: Susan D. Schmider
Title: Secretary
2
<PAGE> 1
EXHIBIT 11
VORNADO REALTY L.P.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Proforma Vornado Realty Proforma Vornado Realty
3 Mos. Trust (Predecessor) Year Trust (Predecessor)
Ended 3 Months Ended March 31, Ended Year Ended December 31,
------------------------- ---------------------------------------
Mar.31, Dec.31,
1997 1997 1996 1996 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average number of
Class A units 26,087,910 26,087,910 24,274,053 24,427,416 24,427,416 23,382,809 21,619,312
Class A unit equivalents for
options after applying treasury
stock method 461,788 461,788 190,425 176,026 176,026 196,860 234,408
----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of
Class A units and Class A unit
equivalents 26,549,698 26,549,698 24,464,478 24,603,442 24,603,442 23,579,669 21,853,720
=========== =========== =========== =========== =========== =========== ===========
Net income applicable to
Class A units $ 6,136,000 $ 9,690,000 $15,922,000 $51,721,000 $61,364,000 $53,008,000 $41,240,000
=========== =========== =========== =========== =========== =========== ===========
Net income per Class A unit $ .23 $ .36 $ .65 $ 2.35 $ 2.49 $ 2.25 $ 1.89
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 12
VORNADO REALTY L.P.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS
(amounts in thousands except ratios)
<TABLE>
Proforma Vornado Realty Proforma Vornado Realty
3 Mos. Trust (Predecessor) Year Trust (Predecessor)
Ended 3 Months Ended March 31, Ended Year Ended December 31,
-------------------- ------------------------------------------------
Mar.31, Dec.31,
1997 1997 1996 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 6,136 $ 9,690 $ 15,922 $ 57,721 $ 61,364 $ 53,008 $ 41,240 $ 25,386 $ 2,263
Fixed charges 15,093 4,215 4,334 62,368 17,214 17,333 16,229 31,892 34,392
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes and
fixed charges $ 21,229 $ 13,905 $ 20,256 $120,089 $ 78,578 $ 70,341 $ 57,469 $ 57,278 $ 36,655
======== ======== ======== ======== ======== ======== ======== ======== ========
Fixed charges:
Interest and debt expense $ 7,413 $ 4,078 $ 4,223 $ 31,708 $ 16,726 $ 16,426 $ 14,209 $ 31,155 $ 33,910
Preferential allocations 2,593 -- -- 10,372 -- -- -- -- --
Preferred unit distributions 4,950 -- -- 19,800 -- -- -- -- --
1/3 of rent expense -
interest factor 137 137 111 488 488 465 438 455 482
-------- -------- -------- -------- -------- -------- -------- -------- --------
15,093 4,215 4,334 62,368 17,214 16,891 14,647 31,610 34,392
Capitalized interest -- -- -- -- -- 442 1,582 282 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
$ 15,093 $ 4,215 $ 4,334 $ 62,368 $ 17,214 $ 17,333 $ 16,229 $ 31,892 $ 34,392
======== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.41 3.29 4.67 1.93 4.56 4.06 3.54 1.80 1.07
Note: For purposes of this calculation, earnings before fixed charges consist
of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization
of deferred debt issuance costs), preferential allocations, preferred
unit distributions and the portion of operating lease rental expense
that is representative of the interest factor (deemed to be one third
of operating lease rentals).
Rent Expense $ 411 $ 411 $ 332 $ 1,465 $ 1,465 $ 1,395 $ 1,313 $ 1,366 $ 1,446
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OF PERCENTAGE
NAME OF SUBSIDIARY ORGANIZATION OF OWNERSHIP
- ------------------ ------------ ------------
<S> <C> <C>
40 East 14 Realty Associates L.L.C. New York 100%
330 Madison Company New York 24.8%
570 Lexington Associates L.P. New York 11.2%
570 Lexington Company, L.P. New York 5.6%
825 Seventh Avenue Holding L.L.C. New York 100%
866 U.N Plaza Associates L.L.C. New York 100%
1740 Broadway Associates L.P. New York 100%
Amherst Holding L.L.C. New York 100%
Amherst Industries L.L.C. New York 100%
Atlantic City Holding L.L.C. New Jersey 100%
B&B Park Avenue L.P. New York 100%
Bensalem Holding Company L.L.C. Pennsylvania 100%
Bensalem Holding Company L.P. Pennsylvania 100%
Bethlehem Holding Company L.L.C. Pennsylvania 100%
Bethlehem Holding Company L.P. Pennsylvania 100%
Bethlehem Properties Holding Company L.L.C. Pennsylvania 100%
Bethlehem Properties Holding Company L.P. Pennsylvania 100%
Bordentown Holding L.L.C. New Jersey 100%
Brentwood Development L.L.C. New York 100%
Bridgeland Warehouses L.L.C. New Jersey 100%
Camden Holding L.L.C. New Jersey 100%
Chicopee Holding L.L.C. Massachusetts 100%
Clementon Holding L.L.C. New Jersey 100%
Cumberland Holding L.L.C. New Jersey 100%
Delran Holding L.L.C. New Jersey 100%
Dover Holding L.L.C. New Jersey 100%
DSAC L.L.C. Texas 100%
DUN L.L.C. Maryland 100%
Durham Leasing L.L.C. New Jersey 100%
EH L.L.C. Maryland 100%
Eleven Penn Plaza L.L.C. New York 100%
Evesham Holding L.L.C. New Jersey 100%
Gallery Market Holding Company L.L.C. Pennsylvania 100%
Gallery Market Holding Company L.P. Pennsylvania 100%
Gallery Market Properties Holding Company L.L.C. Pennsylvania 100%
Gallery Market Properties Holding Company L.P. Pennsylvania 100%
GBSPI L.L.C. Maryland 100%
Hackbridge L.L.C. New Jersey 100%
HHC L.L.C. Maryland 100%
</TABLE>
-1-
<PAGE> 2
<TABLE>
<CAPTION>
STATE OF PERCENTAGE
NAME OF SUBSIDIARY ORGANIZATION OF OWNERSHIP
- ------------------ ------------ ------------
<S> <C> <C>
Hanover Holding L.L.C. New Jersey 100%
Hanover Industries L.L.C. New Jersey 100%
Hanover Leasing L.L.C. New Jersey 100%
Hanover Public Warehousing L.L.C. New Jersey 100%
Henrietta Holding L.L.C New York 100%
Jersey City Leasing L.L.C New Jersey 100%
Kearny Holding L.L.C New Jersey 100%
Kearny Leasing L.L.C New Jersey 100%
Lancaster Leasing Company L.L.C Pennsylvania 100%
Lancaster Leasing Company L.P. Pennsylvania 100%
Landthorp Enterprises L.L.C Delaware 100%
Lawnside Holding L.L.C New Jersey 100%
Lawnwhite Holding L.L.C New Jersey 100%
Lewisville Centre L.P. Texas 100%
Lewisville TC L.L.C Texas 100%
Littleton Holding L.L.C New Jersey 100%
Lodi Industries L.L.C New Jersey 100%
Lodi Leasing L.L.C New Jersey 100%
M 330 Associates L.P. New York 99%
M 393 Associates L.L.C New York 99.9%
Manalapan Industries L.L.C New Jersey 100%
Marple Holding Company L.L.C Pennsylvania 100%
Marple Holding Company L.P. Pennsylvania 100%
Menands Holding L.L.C New York 100%
Mesquite TC L.L.C Texas 100%
Mesquite-Texas Crossing L.P. Texas 100%
Middletown Holding L.L.C New Jersey 100%
Montclair Holding L.L.C New Jersey 100%
Morris Plains Leasing L.L.C New Jersey 100%
National Hydrant L.L.C New York 100%
New Hanover L.L.C New Jersey 100%
Newington Connecticut Holding L.L.C Connecticut 100%
New Woodbridge L.L.C New Jersey 100%
North Bergen Stores L.L.C New Jersey 100%
North Plainfield Holding L.L.C New Jersey 100%
Philadelphia Holding Company L.L.C Pennsylvania 100%
Philadelphia Holding Company L.P. Pennsylvania 100%
Phillipsburg Holding L.L.C New Jersey 100%
Pike Holding Company L.L.C Pennsylvania 100%
Pike Holding Company L.P. Pennsylvania 100%
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
STATE OF PERCENTAGE
NAME OF SUBSIDIARY ORGANIZATION OF OWNERSHIP
- ------------------ ------------ ------------
<S> <C> <C>
Rahway Leasing L.L.C. New Jersey 100%
Rochester Holding L.L.C. New York 100%
Skillman Abrams Crossing L.P. Texas 100%
Springfield Holding L.L.C. Massachusetts 100%
Star Universal L.L.C. New Jersey 100%
T.G. Hanover L.L.C. New Jersey 100%
TGSI L.L.C. Maryland 100%
The Second Lawnside L.L.C. New Jersey 100%
The Second Rochester Holding L.L.C. New York 100%
Turnersville Holding L.L.C. New Jersey 100%
Two Guys - Connecticut Holding L.L.C. Connecticut 100%
Two Guys - Mass L.L.C. Massachusetts 100%
Two Guys From Harrison L.L.C. New Jersey 100%
Two Guys From Harrison Holding Company L.L.C. Pennsylvania 100%
Two Guys From Harrison Holding Company L.P. Pennsylvania 100%
Two Guys From Harrison N.Y. L.L.C. New York 100%
Two Park Company New York 40%
Two Penn Plaza REIT, Inc. New York 99.8%
Unado L.L.C. New Jersey 100%
Upper Moreland Holding Company L.L.C. Pennsylvania 100%
Upper Moreland Holding Company L.P. Pennsylvania 100%
VFC Connecticut Holding L.L.C. Delaware 100%
VFC Massachusetts Holding L.L.C. Delaware 100%
VFC New Jersey Holding L.L.C. Delaware 100%
Vornado 570 Lexington L.L.C. New York 100%
Vornado 1740 Broadway L.L.C. New York 100%
Vornado B&B L.L.C. New York 100%
Vornado Finance GP L.L.C. Delaware 99.5%
Vornado Finance L.P. Delaware 100%
Vornado Investments L.L.C. Delaware 100%
Vornado Lending L.L.C. New Jersey 100%
Vornado M 330 L.L.C. New York 100%
Vornado M 393 L.L.C. New York 100%
Vornado Montchicdra Acquisition L.L.C. Delaware 99%
Vornado Montehiedra Holding L.L.C. Delaware 100%
Vornado Montehiedra Holding L.P. Delaware 99.9%
Vornado Montehiedra OP LLC Delaware 100%
Vornado Montehiedra OP L.P. Delaware 99.9%
Vornado New York RR One L.L.C. New York 100%
Vornado New York RR Two L.L.C. New York 100%
Vornado Realty L.L.C. Delaware 100%
Vornado Two Penn Plaza L.L.C. New York 99.9%
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
STATE OF PERCENTAGE
NAME OF SUBSIDIARY ORGANIZATION OF OWNERSHIP
- ------------------ ------------ ------------
<S> <C> <C>
VRT Massachusetts Holding L.L.C. Delaware 100%
VRT New Jersey Holding Corporation L.L.C. Delaware 100%
Watchung Holding L.L.C. New Jersey 100%
White Horse Lawnside L.L.C. New Jersey 100%
West Windsor Holding L.L.C. New Jersey 100%
York Holding Company L.L.C. Pennsylvania 100%
York Holding Company L.P. Pennsylvania 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Operating Partnership's audited financial statements for the year ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 89,696
<SECURITIES> 27,549
<RECEIVABLES> 9,786
<ALLOWANCES> 575
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 397,298
<DEPRECIATION> 151,049
<TOTAL-ASSETS> 565,204
<CURRENT-LIABILITIES> 0
<BONDS> 232,387
0
0
<COMMON> 1,044
<OTHER-SE> 275,213
<TOTAL-LIABILITY-AND-EQUITY> 565,204
<SALES> 0
<TOTAL-REVENUES> 116,887
<CGS> 0
<TOTAL-COSTS> 36,412
<OTHER-EXPENSES> 18,839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,726
<INCOME-PRETAX> 61,364
<INCOME-TAX> 0
<INCOME-CONTINUING> 61,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,364
<EPS-PRIMARY> 2.49
<EPS-DILUTED> 2.49
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Trustees
Vornado Realty Trust
Saddle Brook, New Jersey
We have audited the accompanying consolidated balance sheets of Vornado Realty
Trust and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedules listed in the Index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Vornado Realty Trust and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 12, 1997
-24-
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
===========================================================================================
(amounts in thousands except share amounts) DECEMBER 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 61,278 $ 61,278
Buildings and improvements 327,485 314,265
Leasehold improvements and equipment 8,535 6,933
- -------------------------------------------------------------------------------------------
Total 397,298 382,476
- -------------------------------------------------------------------------------------------
Less accumulated depreciation and
amortization 151,049 139,495
- -------------------------------------------------------------------------------------------
Real estate, net 246,249 242,981
- -------------------------------------------------------------------------------------------
Cash and cash equivalents, including U.S.
government obligations under
repurchase agreements of $17,036 and $12,575 89,696 19,127
Marketable securities 27,549 70,997
Investment in and advances to Alexander's, Inc. 107,628 109,686
Investment in and advances to Vornado
Management Corp. 5,193 5,074
Due from officer 8,418 8,418
Accounts receivable, net of allowance for
doubtful accounts of $575 and $578 9,786 7,086
Officer's deferred compensation expense 22,917 --
Mortgage note receivable 17,000 --
Receivable arising from the straight-lining of rents 17,052 14,376
Other assets 13,716 13,751
- -------------------------------------------------------------------------------------------
$565,204 $491,496
===========================================================================================
</TABLE>
-25-
<PAGE> 3
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
=============================================================================================
(amounts in thousands except share amounts) DECEMBER 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes and mortgages payable $ 232,387 $ 233,353
Due for U.S. Treasury Obligations 9,636 43,875
Accounts payable and accrued expenses 9,905 6,545
Deferred leasing fee income 8,373 8,888
Officer's deferred compensation payable 25,000 --
Other liabilities 3,646 4,561
- ---------------------------------------------------------------------------------------------
Total liabilities 288,947 297,222
- ---------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share; authorized,
1,000,000 shares; issued, none
Common shares of beneficial interest:
$.04 par value per share; authorized,
50,000,000 shares; issued, 26,547,680
and 24,246,913 shares 1,044 970
Additional capital 358,874 279,231
Deficit (77,574) (79,380)
- ---------------------------------------------------------------------------------------------
282,344 200,821
Unrealized (loss) on securities available
for sale (998) (1,362)
Due from officers for purchase of common
shares of beneficial interest (5,089) (5,185)
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 276,257 194,274
- ---------------------------------------------------------------------------------------------
$565,204 $491,496
=============================================================================================
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
===============================================================================================
YEAR ENDED Year Ended Year Ended
(amounts in thousands DECEMBER 31, December 31, December 31,
except share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Property rentals $ 87,424 $ 80,429 $ 70,755
Expense reimbursements 26,644 24,091 21,784
Other income (including fee income
from related parties of $2,569,
$4,123 and $1,144) 2,819 4,198 1,459
- -----------------------------------------------------------------------------------------------
Total revenues 116,887 108,718 93,998
- -----------------------------------------------------------------------------------------------
Expenses:
Operating 36,412 32,282 30,223
Depreciation and amortization 11,589 10,790 9,963
General and administrative 5,167 6,687 6,495
Amortization of officer's deferred
compensation expense 2,083 -- --
- -----------------------------------------------------------------------------------------------
Total expenses 55,251 49,759 46,681
- -----------------------------------------------------------------------------------------------
Operating income 61,636 58,959 47,317
- -----------------------------------------------------------------------------------------------
Income/(loss) applicable to Alexander's:
Equity in income (loss) 1,679 (1,972) --
Depreciation (571) (417) --
Interest income on loan 6,848 6,343 --
Income from investment in and advances to
Vornado Management Corp. 1,855 788 --
Interest income on mortgage note receivable 2,579 -- --
Interest and dividend income 3,151 5,439 7,489
Interest and debt expense (16,726) (16,426) (14,209)
Net gain on marketable securities 913 294 643
- -----------------------------------------------------------------------------------------------
NET INCOME $ 61,364 $ 53,008 $ 41,240
- -----------------------------------------------------------------------------------------------
NET INCOME PER SHARE based on 24,603,442,
23,579,669, and 21,853,720 shares outstanding $ 2.49 $ 2.25 $ 1.89
===============================================================================================
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
=========================================================================================================================
Unrealized
Gain (loss) Total
(amounts in thousands on Securities Due Share-
except share amounts) Common Additional Available from holders'
Shares Capital Deficit for Sale Officers Equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 864 $ 197,575 $ (77,517) $ -- $ (5,185) $ 115,737
Unrealized gains on securities
available for sale at
January 1, 1994 -- -- -- 8,565 -- 8,565
Net income -- -- 41,240 -- -- 41,240
Dividends paid ($2.00 per share) -- -- (43,236) -- -- (43,236)
Common shares issued under
employees' share plans 2 609 -- -- -- 611
Change in unrealized gains (losses)
on securities available for sale -- -- -- (6,229) -- (6,229)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 866 198,184 (79,513) 2,336 (5,185) 116,688
Net income -- -- 53,008 -- -- 53,008
Net proceeds from issuance of
common shares 100 79,731 -- -- -- 79,831
Dividends paid ($2.24 per share) -- -- (52,875) -- -- (52,875)
Common shares issued under
employees' share plans 4 1,316 -- -- -- 1,320
Change in unrealized gains (losses)
on securities available for sale -- -- -- (3,698)* -- (3,698)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 970 279,231 (79,380) (1,362) (5,185) 194,274
Net income -- -- 61,364 -- -- 61,364
Net proceeds from issuance of
common shares 60 73,000 -- -- -- 73,060
Dividends paid ($2.44 per share) -- -- (59,558) -- -- (59,558)
Common shares issued under
employee's share plans 14 6,643 -- -- -- 6,657
Change in unrealized gains (losses)
on securities available for sale -- -- -- 364 -- 364
Forgiveness of amount due from officers -- -- -- -- 96 96
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ 1,044 $ 358,874 $ (77,574) $ (998) $ (5,089) $ 276,257
=========================================================================================================================
</TABLE>
* Includes $3,435 in unrealized gains attributable to the Company's investment
in the common stock of Alexander's, Inc. (see Note 3).
See notes to consolidated financial statements.
-28-
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===========================================================================================================
YEAR ENDED Year Ended Year Ended
DECEMBER 31, December 31, December 31,
(amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61,364 $ 53,008 $ 41,240
Adjustments to reconcile income to net cash
provided by continuing operations:
Depreciation and amortization (including
debt issuance costs) 12,586 11,779 10,839
Amortization of officer's deferred
compensation expense 2,083 -- --
Straight-lining of rental income (2,676) (2,569) (2,181)
Equity in (income) loss of Alexander's
including depreciation of $571 and $417 (1,108) 2,389 --
Net gain on marketable securities (913) (294) (643)
Changes in assets and liabilities:
Trading securities (2,009) (2,069) 1,485
Accounts receivable (2,700) (2,188) (699)
Accounts payable and accrued expenses 3,360 2,270 (3,920)
Other 716 556 827
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 70,703 62,882 46,948
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage note receivable (17,000) -- --
Additions to real estate (14,822) (16,644) (25,417)
Investment in and advances to Alexander's -- (100,482) --
Investment in and advances to Vornado
Management Corp. -- (5,074) --
Purchases of securities available for sale -- (4,027) --
Proceeds from sale or maturity of securities
available for sale 46,734 22,336 9,983
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used by) investing activities 14,912 (103,891) (15,434)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common shares 73,060 79,831 --
Proceeds from borrowings on U.S. Treasury obligations 10,000 40,000 11,428
Repayment of borrowings on U.S. Treasury obligations (44,239) (30,400) --
Proceeds from borrowings on revolving credit facility 10,000 60,000 --
Repayments on mortgages and revolving credit facility (10,966) (60,807) (877)
Costs of refinancing debt -- (492) --
Dividends paid (59,558) (52,875) (43,236)
Exercise of share options 6,657 1,320 611
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (15,046) 36,577 (32,074)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 70,569 (4,432) (560)
Cash and cash equivalents at beginning of year 19,127 23,559 24,119
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 89,696 $ 19,127 $ 23,559
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 15,695 $ 15,881 $ 14,915
- -----------------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Deferred officer's compensation expense and related liability $ 25,000 -- --
Unrealized (loss)gain on securities
available for sale $ 364 $ (3,698)* $ 2,336
===========================================================================================================
</TABLE>
* Reflects a reduction of $3,435 to the Company's investment in Alexander's as
a result of the change from fair value to the equity method of accounting.
See notes to consolidated financial statements.
-29-
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION AND BUSINESS
On May 6, 1993, Vornado, Inc. merged into Vornado Realty Trust, a Maryland real
estate investment trust ("REIT"). Vornado Realty Trust was formed on March 29,
1993, as a wholly-owned subsidiary of Vornado, Inc., specifically for the
purpose of the merger.
The Company is a fully-integrated REIT which owns, leases, develops, redevelops
and manages retail and industrial properties primarily located in the
Midatlantic and Northeast regions of the United States. In addition, the Company
owns 29.3% of the common stock of Alexander's, Inc. which has nine properties in
the New York City region.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of Vornado Realty Trust and its subsidiaries, all of which
are wholly-owned. All significant intercompany balances and transactions have
been eliminated.
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles. Management has made estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
REAL ESTATE: Real estate is carried at cost, net of accumulated depreciation and
amortization. Betterments, major renewals and certain costs directly related to
the acquisition, improvement and leasing of real estate are capitalized.
Maintenance and repairs are charged to operations as incurred. Depreciation is
provided on a straight-line basis over the assets, estimated useful lives.
Additions to real estate include interest expense capitalized during
construction of $442,000 and $1,582,000 for the years ended December 31, 1995
and 1994.
The Company's policy is to assess any impairment in value by making a comparison
of the current and projected operating cash flows of each of its properties into
the foreseeable future on an undiscounted basis, to the carrying amount of such
property. Such carrying amount would be adjusted, if necessary, to reflect an
impairment in the value of the asset.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of highly liquid
investments purchased with original maturities of three months or less.
MARKETABLE SECURITIES: Marketable securities are carried at fair market value.
The Company has classified debt and equity securities which it intends to hold
for an indefinite period of time as securities available for sale and equity
securities it intends to buy and sell on a short term basis as trading
securities. Unrealized gains and losses are included in earnings for trading
securities and as a component of shareholder's equity for securities available
for sale. Realized gains or losses on the sale of securities are recorded based
on average cost.
REVENUE RECOGNITION: Base rents, additional rents based on tenants' sales volume
and reimbursement of the tenants' share of certain operating expenses are
generally recognized when due from tenants. The straight-line basis is used to
recognize base rents under leases entered into after November 14, 1985 which
provide for varying rents over the lease terms.
INCOME TAXES: The Company operates in a manner intended to enable it to continue
to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986
as amended. Under those sections, a REIT which distributes at least 95% of its
REIT taxable income as a dividend to its shareholders each year and which meets
certain other conditions will not be taxed on that portion of its taxable income
which is distributed to its shareholders. The Company has distributed to
shareholders an amount greater than its taxable income. Therefore, no provision
for Federal income taxes is required.
-30-
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
The net basis of the Company's assets and liabilities for both financial
reporting purposes and tax purposes is approximately the same.
AMOUNTS PER SHARE: Amounts per share are computed based upon the weighted
average number of shares outstanding during the year and the dilutive effect of
stock options.
3. INVESTMENT IN AND ADVANCES TO
ALEXANDER'S
In March 1995, the Company purchased all of the 1,353,468 shares of common stock
of Alexander's then owned by Citibank, N.A. ("Citibank"), representing 27.1% of
the outstanding shares of common stock of Alexander's for $40.50 per share in
cash or $56,615,000 (including $1,800,000 of costs incurred in the purchase). As
a result of the acquisition, the Company owns 29.3% of the common stock of
Alexander's and has changed its accounting for its investment in Alexander's to
the equity method. This required a reduction of its investment by the unrealized
gain recorded in shareholders' equity at December 31, 1994, of $3,435,000. Prior
years' financial statements were not restated as a result of the change in
accounting for the Company's investment in Alexander's due to it not being
material. In accordance with purchase accounting, Vornado's investment in
Alexander's in excess of carrying amounts has been allocated two-thirds to land
and one-third to building. The building allocation in excess of Alexander's
carrying amount is being depreciated over a 35 year period.
Also, in March 1995, the Company lent Alexander's $45 million, the subordinated
tranche of a $75 million secured financing, the balance of which was funded by a
bank. The Company's loan has a three-year term and bears interest at 16.43% per
annum for the first two years and at a fixed rate for the third year of 992
basis points over the one-year Treasury bill rate. In addition, the Company
received a loan origination fee of $1,500,000 from Alexander's to be amortized
over the term of the loan.
Investment in and advances to Alexander's consists of:
<TABLE>
<CAPTION>
========================================================================================================
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, net of $989,000 and $417,000 of
accumulated depreciation of buildings (at fair value) $ 56,952,000 $ 58,693,000
Loan receivable 45,000,000 45,000,000
Deferred loan origination income (583,000) (1,083,000)
Leasing fees and other receivables 5,901,000 8,182,000
Equity in loss since March 2, 1995 (293,000) (1,972,000)
Deferred expenses 651,000 866,000
- -------------------------------------------------------------------------------------------------------
$ 107,628,000 $ 109,686,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
3. INVESTMENT IN AND ADVANCES TO ALEXANDER'S - CONTINUED
Below are summarized Balance Sheets and Statements of Operations of Alexander's:
<TABLE>
<CAPTION>
==============================================================================================================
December 31, December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance Sheets:
Assets:
Real estate, net $ 181,005,000 $ 150,435,000
Cash 5,480,000 8,471,000
Other assets 25,100,000 39,635,000
------------- -------------
$ 211,585,000 $ 198,541,000
============= =============
Liabilities and Stockholders' Equity:
Debt $ 192,347,000 $ 182,883,000
Other liabilities 13,674,000 34,794,000
Stockholders' equity 5,564,000 (19,136,000)
------------- -------------
$ 211,585,000 $ 198,541,000
============= =============
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================
Year Ended Period from
December 31, March 2, 1995 to
1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Statements of Operations:
Revenues $ 21,833,000 $ 11,734,000
Expenses 12,092,000 9,255,000
------------ ------------
Operating income 9,741,000 2,479,000
Interest and debt expense (13,934,000) (11,330,000)
Interest and other income 2,918,000 1,651,000
Gain on reversal of liability for post-retirement
healthcare benefits 14,372,000 --
------------ ------------
Income (loss) from continuing operations before income tax benefit 13,097,000 (7,200,000)
Reversal of deferred taxes -- 469,000
------------ ------------
Income (loss) from continuing operations $ 13,097,000 $ (6,731,000)
============ ============
Vornado's 29.3% equity in income (loss) before adjustment $ 3,837,000 $ (1,972,000)
Adjustment for the portion of the reversal of a liability
previously considered in its purchase price allocation (2,158,000) --
------------ ------------
Vornado's 29.3% equity in income (loss) $ 1,679,000 $ (1,972,000)
============ ============
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-32-
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
3. INVESTMENT IN AND ADVANCES TO
ALEXANDER'S - CONTINUED
In March 1995, the Company and Alexander's entered into a three-year management
and development agreement (the "Management Agreement"). The annual management
fee payable to the Company by Alexander's is $3,000,000, plus 6% of development
costs with a minimum guaranteed fee for the development portion of $1,650,000 in
the first year and $750,000 in each of the second and third years. On July 6,
1995, the Company assigned this Management Agreement to Vornado Management Corp.
The fee pursuant to the Management Agreement is in addition to the leasing fee
the Company receives from Alexander's under the leasing agreement (the "Leasing
Agreement") which has been in effect since 1992 and was extended to be
coterminous with the term of the Management Agreement. The Company recognized
leasing fee income of $695,000 and $1,448,000 in 1996 and 1995. The Leasing
Agreement provides for the Company to generally receive a fee of (i) 3% of sales
proceeds and (ii) 3% of lease rent for the first ten years of a lease term, 2%
of lease rent for the eleventh through the twentieth years of a lease term and
1% of lease rent for the twenty-first through thirtieth year of a lease term.
Subject to the payment of rents by Alexander's tenants, the Company is due
$5,565,000 at December 31, 1996. Such amount is receivable annually in an amount
not to exceed $2,500,000 until the present value of such installments
(calculated at a discount rate of 9% per annum) equals the amount that would
have been paid had it been paid on September 21, 1993, or at the time the
transactions which gave rise to the commissions occurred, if later.
During 1996, leasing fees receivable and deferred leasing fee income were
adjusted to reflect (i) a decrease of $1,717,000 resulting from the rejection of
a lease by an Alexander's tenant in March 1996 and (ii) an increase of
$1,738,000 resulting from the releasing of a portion of this space.
As of December 31, 1996, Interstate Properties owned 24.4% of the common shares
of the Company and 27.1% of Alexander's common stock. Steven Roth is the
Chairman of the Board and Chief Executive Officer of the Company, the Managing
General Partner of Interstate Properties and the Chief Executive Officer and a
director of Alexander's. Effective March 2, 1995, for a three-year period, the
Company and Interstate agreed not to own in excess of two-thirds of Alexander's
common stock or to enter into certain other transactions with Alexander's, other
than the transactions described above, without the consent of Alexander's
independent directors.
-33-
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
4. MARKETABLE SECURITIES
The aggregate cost and market value of securities held at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
===============================================================================================
December 31, 1996 December 31, 1995
----------------- -----------------
Cost Market Cost Market
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S.treasury obligations $10,228,000 $10,247,000 $56,065,000 $56,621,000
Other equity and debt securities 10,811,000 9,794,000 10,802,000 8,884,000
- -----------------------------------------------------------------------------------------------
21,039,000 20,041,000 66,867,000 65,505,000
Trading securities - equity 7,260,000 7,508,000 5,384,000 5,492,000
- -----------------------------------------------------------------------------------------------
Total $28,299,000 $27,549,000 $72,251,000 $70,997,000
===============================================================================================
</TABLE>
Gross unrealized gains and losses at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
==================================================================================================
December 31, 1996 December 31, 1995
----------------- -----------------
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S.treasury obligations $ 19,000 -- $ 556,000 --
Other equity and debt securities 339,000 $(1,356,000) 90,000 $(2,008,000)
- --------------------------------------------------------------------------------------------------
358,000 (1,356,000) 646,000 (2,008,000)
Trading securities - equity 248,000 -- 108,000 --
- --------------------------------------------------------------------------------------------------
Total $ 606,000 $(1,356,000) $ 754,000 $(2,008,000)
==================================================================================================
</TABLE>
The U.S. treasury obligations at December 31, 1996, $10,228,000 (market value
$10,247,000) mature in the fourth quarter of 1997.
U.S. treasury obligations with a fair market value of $10,247,000 and
$56,621,000 were held as collateral for amounts due for U.S. treasury
obligations at December 31, 1996 and 1995. Amounts due for U.S. treasury
obligations bear variable interest rates which averaged 5.79% and 6.08% for the
years ended December 31, 1996 and 1995.
-34-
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
5. MORTGAGE NOTE RECEIVABLE
In January 1996, the Company provided $17 million of debtor-in-possession
financing to Rickel Home Centers, Inc. ("Rickel"), which is operating under
Chapter 11 of the Bankruptcy Code. The loan is secured by 27 of Rickel's
leasehold properties and has a remaining term through January 1998, plus a one
year extension, but is due not later than the date on which Rickel's plan of
reorganization is confirmed. The loan bears interest at 13.2% per annum and at a
fixed rate of LIBOR plus 7.50% for the extension period. In addition, the
Company receives a loan origination fee of 2% for each year the loan is
outstanding.
6. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company estimated the fair value of its financial instruments using the
following methods and assumptions: (1) quoted market prices are used to estimate
the fair value of marketable securities; (2) discounted cash flows at the
current rate at which similar loans would be made to borrowers with similar
credit ratings for the remaining term are used to estimate the fair value of the
loans receivable from Alexander's, the mortgage note receivable and mortgages
payable and (3) carrying amounts in the balance sheet approximate fair value for
cash and cash equivalents, marketable securities, due from officer and amounts
due for U.S. Treasury obligations.
<TABLE>
<CAPTION>
============================================================================================
December 31, 1996 December 31, 1995
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan receivable from Alexander's $45,000,000 $45,100,000 $45,000,000 $46,100,000
Mortgage note receivable 17,000,000 17,000,000 -- --
Notes and mortgages payable 232,387,000 227,100,000 233,353,000 233,900,000
============================================================================================
</TABLE>
7. NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable at December 31, 1996 are comprised of $227,000,000
of secured notes due December 1, 2000, with interest at a fixed rate of 6.36%
per annum and three other mortgages aggregating $5,387,000.
Notes and mortgages by range of interest rates are as follows:
<TABLE>
<CAPTION>
================================================================================
Interest rate Principal amount
- --------------------------------------------------------------------------------
<S> <C>
5.25% $ 3,635,000
6.36% 227,000,000
8.00% 826,000
8.25% 926,000
================================================================================
</TABLE>
-35-
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
The net carrying value of properties securing the notes and mortgages amounted
to $166,833,000 at December 31, 1996. As at December 31, 1996, the maturities
for the next five years are as follows:
<TABLE>
<CAPTION>
================================================================================
Year ending December 31: Amount
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 1,046,000
1998 870,000
1999 535,000
2000 227,295,000
2001 310,000
================================================================================
</TABLE>
On February 27, 1995, the Company entered into a three-year unsecured revolving
credit facility with a bank providing for borrowings of up to $75,000,000.
Borrowings bear annual interest, at the Company's election, at LIBOR plus 1.35%
or the higher of the federal funds rate plus .50% or the prime rate. At December
31, 1996 the Company had no borrowings outstanding under the facility.
8. EMPLOYEES' SHARE OPTION PLAN
Under the Omnibus Share Plan (the "Plan"), various officers and key employees
have been granted incentive share options and non-qualified options to purchase
common shares. Options granted are at prices equal to 100% of the market price
of the Company's shares at the date of grant, vest on a graduated basis,
becoming fully vested 27 months after grant (with the exception of 1,750,000
shares granted in connection with Mr. Fascitelli's employment agreement which
becomes fully vested after 60 months), and expire ten years after grant.
The Plan also provides for the award of Stock Appreciation Rights, Performance
Shares and Restricted Stock, as defined, none of which have been awarded as of
December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 requires
expanded disclosures of stock-based compensation arrangements with employees,
and encourages, but does not require compensation cost to be measured based on
the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply Accounting Principles Board Opinion No. 25 ("APB
25"), which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB 25 to its
stock-based compensation awards to employees.
If compensation cost for Plan awards had been determined based on fair value at
the grant dates, net income and income per share would have been reduced to the
pro-forma amounts below, for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
==============================================================================
DECEMBER 31, December 31,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Net income:
As reported $61,364,000 $53,008,000
Pro-forma 60,613,000 52,875,000
Net income per share:
As reported $ 2.49 $ 2.25
Pro-forma 2.46 2.24
==============================================================================
</TABLE>
The pro-forma effect of applying SFAS 123 is not necessarily indicative of the
effect on reported net income for future years.
-36-
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
The fair value of each option grant is estimated on the date of grant using the
Binomial option-pricing model with the following weighted-average assumptions
used for grants in the periods ending December 31, 1996 and 1995.
<TABLE>
<CAPTION>
==============================================================================
DECEMBER 31, December 31,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Expected volatility 26% 26%
Expected life 5 years 5 years
Risk-free interest rate 5.6% 7.1%
Expected dividend yield 5.1% 6.0%
==============================================================================
</TABLE>
A summary of the Plan's status, and changes during the years then ended, is
presented below:
<TABLE>
<CAPTION>
===================================================================================================================================
DECEMBER 31, 1996 December 31, 1995
--------------------- -------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1 539,940 $24.53 557,568 $21.35
Granted 1,870,750 46.27 75,000 35.50
Exercised (340,997) 19.51 (92,628) 14.30
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31 2,069,693 $45.01 539,940 $24.53
- -----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31 210,385 442,506
Weighted-average fair value of options granted during the
year ended December 31 (per option) $ 9.50 $ 7.24
===================================================================================================================================
</TABLE>
The following table summarizes information about options outstanding under the
Plan at December 31, 1996:
<TABLE>
<CAPTION>
============================================================================================================================
Options Outstanding Options Exercisable
------------------------------------------------------------- -----------------------------------
Number Weighted-Average Number
Range of Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Exercise Prices December 31, 1996 Contractual Life Exercise Price December 31, 1996 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12 to $23 26,434 6.0 Years $22 26,434 $22
34 to 38 293,259 8.1 Years 36 183,951 35
47 1,750,000 10.0 Years 47 - -
- ----------------------------------------------------------------------------------------------------------------------------
$12 to $47 2,069,693 8.0 Years $45 210,385 $34
============================================================================================================================
</TABLE>
Shares available for future grant at December 31, 1996 were 882,066.
-37-
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
9. RETIREMENT PLAN
The Company's qualified retirement plan covers all full-time employees. The Plan
provides annual pension benefits that are equal to 1% of the employee's annual
compensation for each year of participation.
The funding policy is in accordance with the minimum funding requirements of
ERISA.
Pension expense includes the following components:
<TABLE>
<CAPTION>
==================================================================================================================
YEAR Year Year
ENDED Ended Ended
DECEMBER 31, December 31, December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 108,000 $ 70,000 $ 81,000
Interest cost on projected benefit obligation 544,000 573,000 558,000
Actual return on assets (179,000) (307,000) 130,000
Net amortization and deferral (59,000) 66,000 (359,000)
- ------------------------------------------------------------------------------------------------------------------
Net pension expense $ 414,000 $ 402,000 $ 410,000
- ------------------------------------------------------------------------------------------------------------------
Assumptions used in determining the net pension expense were:
==================================================================================================================
Discount rate 7-1/2% 7-1/4% 8-1/2%
Rate of increase in compensation levels 5-1/2% 6-1/2% 6-1/2%
Expected rate of return on assets 8% 8% 8%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the Plan's funded status and the amount
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
====================================================================================
DECEMBER 31, December 31,
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 7,590,000 $ 7,652,000
- ------------------------------------------------------------------------------------
Accumulated benefit obligation $ 7,657,000 $ 7,717,000
- ------------------------------------------------------------------------------------
Projected benefit obligation $ 8,028,000 $ 8,066,000
Plan assets at fair value 3,915,000 3,494,000
- ------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 4,113,000 4,572,000
Unrecognized net obligations (2,135,000) (2,122,000)
Adjustment required to recognize minimum liability 1,764,000 1,773,000
- ------------------------------------------------------------------------------------
Accrued pension costs $ 3,742,000 $ 4,223,000
====================================================================================
</TABLE>
Plan assets are invested in U.S. government obligations and securities backed by
U.S. government guaranteed mortgages.
- --------------------------------------------------------------------------------
-38-
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
10. LEASES
As lessor:
The Company leases properties to tenants. The lease terms range from less than
five years for smaller tenant spaces to as much as thirty years for major
tenants. Most of the leases provide for the payment of fixed base rentals
payable monthly in advance, and for the payment by the lessee of additional
rents based on a percentage of the tenants' sales as well as reimbursements of
real estate taxes, insurance and maintenance. As of December 31, 1996, future
base rental revenue under noncancellable operating leases, excluding rents for
leases with an original term of less than one year and rents resulting from the
exercise of renewal options, is as follows:
<TABLE>
<CAPTION>
================================================================================
Year ending December 31: Amount
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 85,477,000
1998 84,678,000
1999 80,532,000
2000 75,029,000
2001 70,697,000
Thereafter 522,152,000
- --------------------------------------------------------------------------------
</TABLE>
These amounts do not include rentals based on tenants' sales. These percentage
rents approximated $936,000, $959,000 and $887,000 for the years ended December
31, 1996, 1995 and 1994. Bradlees accounted for 22% of property rentals for the
year ended December 31, 1996. In June 1995, Bradlees filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. The Company currently leases 17
locations to Bradlees. Of these locations, 14 are fully guaranteed by Stop &
Shop Companies, Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold
NV, a leading international food retailer, and one is guaranteed as to 70% of
the rent. During 1996, Bradlees rejected three leases and assigned one lease to
Kohl's Department Stores, Inc. These four leases are fully guaranteed by Stop &
Shop. In January 1997, Bradlees received Bankruptcy Court approval to close one
of the two stores whose leases are not guaranteed by Stop & Shop. Montgomery
Ward & Co., Inc. remains liable with respect to the rent it was obligated to pay
as a previous lessor on eight of the leases guaranteed by Stop & Shop -
approximately 70% of current rent.
As lessee:
The Company is a tenant under leases for certain properties. These leases will
expire principally during the next twenty years. Future minimum lease payments
under operating leases at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
================================================================================
Year ending December 31: Amount
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 1,808,000
1998 1,819,000
1999 1,743,000
2000 1,578,000
2001 1,567,000
Thereafter 28,261,000
================================================================================
</TABLE>
Rent expense was $1,465,000, $1,395,000 and $1,313,000 for the years ended
December 31, 1996, 1995 and 1994.
-39-
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
11. CONTINGENCIES
In order to comply with environmental laws and with relevant health-based
standards, the Company has an active monitoring and maintenance program for
asbestos-containing materials ("ACMs") on its properties. The Company's program
to remove friable ACMs has been completed, except for one location. Pursuant to
the lease for this location, it is the tenant's responsibility to remove such
ACMs. The Company has received an estimate of $500,000 to remove such ACMs; if
the Company has to make such expenditure, it will not have a material adverse
effect on the Company's financial condition or results of operations.
The Company also has certain other existing and potential environmental
liabilities with respect to compliance costs relating to underground storage
tanks and cleanup costs relating to tanks at three Company sites at which
preexisting contamination was found.
The Company believes that known and potential environmental liabilities will not
have a material adverse effect on the Company's business, assets or results of
operation. However, there can be no assurance that the identification of new
areas of contamination, change in the extent or known scope of contamination,
the discovery of additional sites, or changes in cleanup requirements would not
result in significant costs to the Company.
At December 31, 1996, the Company had outstanding $600,000 of real estate
related standby letters of credit which were drawn under a $5,000,000 unsecured
line of credit with a bank bearing interest at prime.
From time-to-time, the Company has disposed of substantial amounts of real
estate to third parties for which, as to certain properties, it remains
contingently liable for rent payments or mortgage indebtedness.
There are various legal actions against the Company in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the outcome of such matters will not have a material effect on the Company's
financial condition or results of operations.
12. REPURCHASE AGREEMENTS
The Company enters into agreements for the purchase and resale of U.S.
government obligations for periods of up to one week. The obligations purchased
under these agreements are held in safekeeping in the name of the Company by
various money center banks. The Company has the right to demand additional
collateral or return of these invested funds at any time the collateral value is
less than 102% of the invested funds plus any accrued earnings thereon.
-40-
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
13. VORNADO MANAGEMENT CORP.
In July 1995, the Company assigned its Management Agreement with Alexander's
(see Note 3) to Vornado Management Corp. ("VMC"). In exchange, the Company
received 100% of the non-voting preferred stock of VMC which entitles it to 95%
of the distributions by VMC to its shareholders. Steven Roth and Richard West,
Trustees of the Company, own the common stock of VMC. In addition, the Company
lent $5,000,000 to VMC for working capital purposes under a three-year term loan
bearing interest at the prime rate plus 2%. VMC is responsible for its pro-rata
share of compensation and fringe benefits of employees and 30% of other expenses
which are common to both Vornado and VMC. This entity is not consolidated and
accordingly, the Company accounts for its investment in VMC on the equity
method. Below is a summarized Statement of Operations of VMC:
<TABLE>
<CAPTION>
===================================================================================
Period from
Year Ended July 6, 1995 to
December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Management fees from Alexander's $ 5,343,000 $ 2,250,000
Expenses:
General and administrative (2,691,000) (1,130,000)
Interest, net (282,000) (115,000)
- -----------------------------------------------------------------------------------
Income before income taxes 2,370,000 1,005,000
Income taxes (968,000) (411,000)
- -----------------------------------------------------------------------------------
Net income 1,402,000 594,000
Preferred dividends (1,332,000) (565,000)
- -----------------------------------------------------------------------------------
Net income available to common shareholders $ 70,000 $ 29,000
===================================================================================
Vornado's 95% equity in income $ 1,332,000 $ 565,000
===================================================================================
</TABLE>
14. RELATED PARTY TRANSACTIONS
On December 2, 1996, Michael D. Fascitelli became the President of the Company
and was elected to the Company's Board. Mr. Fascitelli signed a five-year
employment contract under which, in addition to his annual salary, he received a
deferred payment consisting of $5,000,000 in cash and a $20,000,000 convertible
obligation payable at the Company's option in 459,770 of its Common Shares or
the cash equivalent of their appreciated value. Accordingly, cash of $5,000,000
and 459,770 Common Shares (which are not considered outstanding for accounting
purposes) are being held in an irrevocable trust. The deferred payment
obligation to Mr. Fascitelli vests as of December 2, 1997. Further,
Mr. Fascitelli was granted options for 1,750,000 Common Shares of the Company.
At December 31, 1996, the loans due from Mr. Roth ($13,122,500), Mr. Rowan
($299,000) and Mr. Macnow ($268,000) in connection with their stock option
exercises aggregated $13,599,000 ($5,089,000 of which is shown as a reduction in
shareholders' equity). The loans bear interest at a
-41-
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
rate equal to the broker call rate (7.0% at December 31, 1996) but not less than
the minimum applicable federal rate provided under the Internal Revenue Code.
Interest on the loan to Mr. Roth is payable quarterly. Mr. Roth's loan is due on
December 29, 1997. The Company has agreed that on each January 1st (commencing
January 1, 1997) to forgive one-fifth of the amounts due from Mr. Rowan and Mr.
Macnow, provided that they remain employees of the Company.
The Company currently manages and leases the real estate assets of Interstate
Properties pursuant to a Management Agreement for which the Company receives a
quarterly fee equal to 4% of base rent and percentage rent and certain other
commissions. The Management Agreement has a term of one year and is
automatically renewable unless terminated by either of the parties on sixty
days' notice at the end of the term. Although the Management Agreement was not
negotiated at arms length, the Company believes based upon comparable fees
charged by other real estate companies, that its terms are fair to the Company.
For the years ended December 31, 1996, 1995 and 1994, $2,074,000, $1,150,000 and
$894,000 of management fees were earned by the Company pursuant to the
Management Agreement.
See Notes 3 and 13 for details on the Company's investment in and advances to
Alexander's and VMC.
15. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following summary represents the results of operations for each quarter in
1996 and 1995:
<TABLE>
<CAPTION>
================================================================================
Net
Net Income
Revenue Income Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 *
March 31 $28,610,000 $15,922,000 $ .65
June 30 29,245,000 15,120,000 .62
September 30 29,063,000 14,939,000 .61
December 31 29,969,000 15,383,000** .62**
1995
March 31 $26,216,000 $11,837,000 $ .54
June 30 27,056,000 13,185,000 .56
September 30 26,630,000 13,567,000 .56
December 31 28,816,000 14,419,000 .59
</TABLE>
* The total for the year differs from the sum of the quarters as a result of
weighting.
** In December 1996, the Company recognized an expense of $2,083,000,
representing one month's amortization of the $25,000,000 deferred payment
due to the Company's President. Also, the Company recognized $2,053,000 of
non-recurring income as a result of the reversal of a liability which is no
longer required by Alexander's (which Vornado accounts for on the equity
method).
================================================================================
16. DIVIDEND DISTRIBUTIONS
Dividends are characterized for Federal income tax purposes as follows:
<TABLE>
<CAPTION>
================================================================================
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary income 100.0% 100.0% 96.0%
Return of capital (generally non-taxable) -- -- 4.0
- --------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
</TABLE>
17. SUBSEQUENT EVENT
On March 12, 1997, the Company entered into a definitive agreement
(the "Agreement") to acquire interests in all or a portion of seven Manhattan
office buildings and certain management and leasing assets held by the Mendik
Company and certain of its affiliates. In conjunction with this transaction,
the Company will convert to an Umbrella Partnership REIT (UPREIT).
The estimated consideration for the transaction is approximately $654,000,000,
including $269,000,000 in cash, $168,000,000 in UPREIT limited partnership
units and $217,000,000 in indebtedness. Pro forma revenue of the Mendik Company
and affiliates' interests being acquired was approximately $109,000,000 for the
year ended December 31, 1996.
The Agreement is subject to the consent of third parties and other customary
conditions. It is currently expected that the proposed transaction would be
consummated in the second quarter, but there can be no assurance that the
proposed transaction will be completed.
-42-
<PAGE> 1
EXHIBIT 99.2
PART I. FINANCIAL INFORMATION
VORNADO REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 61,278 $ 61,278
Buildings and improvements 327,677 327,485
Leasehold improvements and equipment 8,708 8,535
--------- ---------
Total 397,663 397,298
Less accumulated depreciation and
amortization (154,016) (151,049)
--------- ---------
Real estate, net 243,647 246,249
Cash and cash equivalents, including U.S.
government obligations under repurchase
agreements of $15,812 and $17,036 92,427 89,696
Marketable securities 28,389 27,549
Investment in and advances to Alexander's, Inc. 109,884 107,628
Investment in and advances to Vornado
Management Corp. 5,215 5,193
Due from officers 8,623 8,634
Accounts receivable, net of allowance for
doubtful accounts of $641 and $575 9,861 9,786
Officer's deferred compensation expense 16,668 22,917
Mortgage note receivable 16,918 17,000
Receivable arising from the
straight-lining of rents 17,721 17,052
Other assets 12,132 13,500
--------- ---------
TOTAL ASSETS $ 561,485 $ 565,204
========= =========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes and mortgages payable $ 232,197 $ 232,387
Due for U.S. treasury obligations 9,778 9,636
Accounts payable and accrued expenses 9,942 9,905
Deferred leasing fee income 11,575 8,373
Officer's deferred compensation payable 25,000 25,000
Other liabilities 3,731 3,646
--------- ---------
Total liabilities 292,223 288,947
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share;
authorized, 1,000,000 shares;
issued, none
Common shares of beneficial interest:
$.04 par value per share;
authorized, 50,000,000 shares;
issued, 26,547,680
shares in each period 1,044 1,044
Additional capital 358,874 358,874
Accumulated deficit (84,575) (77,574)
--------- ---------
275,343 282,344
Unrealized loss on securities
available for sale (1,023) (998)
Due from officers for purchase of common
shares of beneficial interest (5,058) (5,089)
--------- ---------
Total shareholders' equity 269,262 276,257
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 561,485 $ 565,204
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 2
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------
MARCH 31, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Property rentals $ 22,467 $ 21,337
Expense reimbursements 6,210 6,881
Other income (including fee income from
related parties of $314 and $392) 620 392
------------ ------------
Total revenues 29,297 28,610
------------ ------------
Expenses:
Operating 8,507 8,914
Depreciation and amortization 2,967 2,835
General and administrative 1,845 1,189
Amortization of officer's deferred
compensation expense 6,249 --
------------ ------------
Total expenses 19,568 12,938
------------ ------------
Operating income 9,729 15,672
Income/(loss) applicable to Alexander's:
Equity in loss (61) (136)
Depreciation (150) (157)
Interest income on loan 1,616 1,802
Income from investment in and advances
to Vornado Management Corp. 217 1,141
Interest income on mortgage
note receivable 612 594
Interest and dividend income 1,518 871
Interest and debt expense (4,078) (4,223)
Net gain on marketable securities 287 358
------------ ------------
NET INCOME $ 9,690 $ 15,922
============ ============
Net Income Per Share $ .36 $ .65
============ ============
Weighted average number of common
shares and common share equivalents
outstanding during period 26,549,698 24,464,478
Dividends per share $ .64 $ .61
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 3
VORNADO REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,690 $ 15,922
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization
(including debt issuance costs) 3,228 3,090
Amortization of officer's deferred
compensation expense 6,249 --
Straight-lining of rental income (669) (642)
Equity in loss of Alexander's,
including depreciation of $150 and $157 211 293
Net gain on marketable securities (287) (358)
Changes in assets and liabilities:
Trading securities (578) 831
Accounts receivable (75) (1,761)
Accounts payable and accrued expenses 37 381
Other 1,947 446
-------- --------
Net cash provided by operating activities 19,753 18,202
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage note receivable 82 (17,000)
Additions to real estate (365) (1,501)
Proceeds from sale or maturity of securities
available for sale -- 41,192
-------- --------
Net cash (used in) provided by investing activities (283) 22,691
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings on U.S. treasury obligations -- (40,036)
Proceeds from borrowings on U.S. treasury obligations 142 10,000
Proceeds from revolving credit facility -- 10,000
Repayments on mortgages (190) (175)
Dividends paid (16,691) (14,813)
Exercise of stock options -- 676
-------- --------
Net cash used in financing activities (16,739) (34,348)
-------- --------
Net increase in cash and cash equivalents 2,731 6,545
Cash and cash equivalents at beginning of period 89,696 19,127
-------- --------
Cash and cash equivalents at end of period $ 92,427 $ 25,672
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest $ 3,817 $ 3,968
======== ========
NON-CASH TRANSACTIONS:
Unrealized (loss) gain on securities available for sale $ (25) $ 24
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 4
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1997, the consolidated
statements of income for the three months ended March 31, 1997 and March 31,
1996 and the consolidated statements of changes in cash flows for the three
months ended March 31, 1997 and March 31, 1996 are unaudited. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1996 Annual Report to Shareholders.
The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year.
2. INVESTMENTS IN AND ADVANCES TO ALEXANDER'S (A RELATED PARTY):
Below are summarized Statements of Operations of Alexander's:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Statement of Operations:
Revenues $ 5,998,000 $ 4,684,000
Expenses (3,164,000) (2,451,000)
----------- -----------
Operating income 2,834,000 2,233,000
Interest and debt expense (3,294,000) (3,317,000)
Other income and interest income, net 252,000 622,000
----------- -----------
Net loss from continuing operations $ (208,000) $ (462,000)
=========== ===========
Vornado's 29.3% equity in loss $ (61,000) $ (136,000)
=========== ===========
</TABLE>
The Company recognized leasing fee income under a leasing agreement (the
"Leasing Agreement") with Alexander's of $171,000 and $110,000 for the three
months ended March 31, 1997 and 1996. Subject to the payment of rents by
Alexander's tenants, the Company is due $8,318,000 at March 31, 1997 under such
agreement. In addition to the leasing fees received by the Company, Vornado
Management Corp. receives management fees from Alexander's (see Note 3).
6
<PAGE> 5
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. VORNADO MANAGEMENT CORP.
The Company previously assigned its management and development agreement
(the "Management Agreement") with Alexander's to Vornado Management Corp.
("VMC"), an affiliate. Below are summarized Statements of Operations of VMC:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues:
Management fees from
Alexander's $ 937,000 $ 2,430,000
Expenses:
General and administrative 703,000 563,000
Interest, net 75,000 69,000
--------- -----------
Income before income taxes 159,000 1,798,000
Income taxes 65,000 735,000
--------- -----------
Net income 94,000 1,063,000
Preferred dividends to Vornado (89,000) (1,010,000)
--------- -----------
Net income available to
common shareholders $ 5,000 $ 53,000
========= ===========
</TABLE>
The fee income in the three months ended March 31, 1996, includes
$1,343,000 of fees related to the substantial completion of the redevelopment of
Alexander's Rego Park I property. In addition to the preferred dividends the
Company received, it also earned interest income on its loan to VMC of $128,000
and $131,000 for the three months ended March 31, 1997 and 1996.
4. OTHER RELATED PARTY TRANSACTIONS
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a management agreement. Management fees earned
by the Company pursuant to the management agreement were $193,000 and $331,000
for the three months ended March 31, 1997 and 1996.
7
<PAGE> 6
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SUBSEQUENT EVENTS
Mendik Transaction
On April 15, 1997, the Company consummated the acquisition, through an
operating partnership, of interests in all or a portion of seven Manhattan
office buildings and certain management and leasing assets held by the Mendik
Group (Bernard H. Mendik, David R. Greenbaum and certain entities controlled by
them) and certain of its affiliates. Simultaneously with the closing of this
transaction, and in connection therewith, the Company converted to an Umbrella
Partnership REIT (UPREIT) by transferring (by contribution, merger or
otherwise) all or substantially all of the interests in its properties and
other assets to The Mendik Company, L.P., a Delaware limited partnership which
has been renamed Vornado Realty L.P. (the "Operating Partnership"), of which
the Company is the sole general partner. As a result of such conversion, the
Company's activities will be conducted through the Operating Partnership.
The consideration for the transaction was approximately $656,000,000,
including $264,000,000 in cash, $177,000,000 in the limited partnership units of
the Operating Partnership and $215,000,000 in indebtedness.
The Company financed the cash portion of this transaction with the
proceeds of a public offering completed on April 9, 1997, of 5,750,000
Convertible Preferred Shares of Beneficial Interest, liquidation preference
$50.00 per share. The preferred shares bear a coupon of 6-1/2% and are
convertible into common shares at $72-3/4 per share. The offering, net of
expenses, generated approximately $276,000,000.
The unaudited proforma revenues for the Company were $53,200,000 for the
three months ended March 31, 1997, assuming the Mendik transaction had occurred
on January 1, 1997.
In connection with the transaction, Bernard Mendik, the Chairman of the
Board of Directors of Mendik Realty, has become Co-Chairman of the Board of
Trustees and Chief Executive Officer of the Mendik Division of the Company.
David Greenbaum has become President of the Mendik Division of the Company.
Steven Roth continues as the Company's Chairman and Chief Executive Officer.
Term Loan
On April 15, 1997, the Company entered into a Credit Agreement with Union
Bank of Switzerland pursuant to which the Company borrowed $400,000,000. The
loan bears interest at the rate of LIBOR plus .625% (6.31% at April 15, 1997)
and matures, assuming exercise of extension options, on April 14, 1998.
8
<PAGE> 7
VORNADO REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SUBSEQUENT EVENTS - CONTINUED
Puerto Rico Transactions
On April 18, 1997, the Company announced that it acquired The Montehiedra
Town Center located in San Juan, Puerto Rico, from Kmart Corporation ("Kmart")
for approximately $74,000,000, of which $63,000,000 is newly-issued ten year
indebtedness. The Montehiedra shopping center, which opened in 1994, contains
525,000 square feet, including a 135,000 square foot Kmart store. In addition,
the Company agreed to acquire Kmart's 50% interest in the Caguas Centrum
Shopping Center, which is currently under construction, located in Caguas,
Puerto Rico. This acquisition is expected to close in 1998.
Purchase of a Mortgage
On May 7, 1997, the Company acquired a mortgage loan from a bank secured
by a mortgage on the office building located at 90 Park Avenue, New York, New
York. The purchase price of the mortgage loan was approximately $185,000,000.
The mortgage loan, which is in default, has a face value of $193,000,000.
9
<PAGE> 1
EXHIBIT 99.3
INDEX TO ANNEXES
Annex Financial Statements Page
- ----- -------------------- ----
A Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Penn Plaza Associates L.P. (a Limited
Partnership) (including independent auditors' report)
B Combined financial statements for the years ended December 31,
1996, 1995 and 1994 for M Eleven Associates, M 393 Associates
and Eleven Penn Plaza Company (General Partnerships)
(including independent auditors' report)
C Financial statements for the years ended December 31, 1996,
1995 and 1994 for 1740 Broadway Associates, L.P. (a Limited
Partnership) (including independent auditors' report)
D Financial statements for the years ended December 31, 1996,
1995 and 1994 for 866 U.N. Plaza Associates LLC (a Limited
Liability Company) (including independent auditors' report)
E Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Park Company (a New York general
partnership) (including independent auditors' report)
F Financial statements for the years ended December 31, 1996,
1995 and 1994 for B&B Park Avenue L.P. (a Limited Partnership)
(including independent auditors' report)
G Condensed consolidated pro forma financial statements for the
Company for the year ended December 31, 1996
Page 17
<PAGE> 2
ANNEX A
TWO PENN PLAZA ASSOCIATES L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 3
TWO PENN PLAZA ASSOCIATES L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital Deficiency 5
Notes to Financial Statements 6-14
<PAGE> 4
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF TWO PENN PLAZA ASSOCIATES L.P.
We have audited the accompanying balance sheet of TWO PENN PLAZA ASSOCIATES
L.P. (a limited partnership) as of December 31, 1996 and 1995, and the related
statements of income, cash flows and changes in partners' capital deficiency for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the managing general partner. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
managing general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TWO PENN PLAZA ASSOCIATES
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 4(a) to the financial statements, the financial
statements as of December 31, 1995 and for the years ended December 31, 1995 and
1994 have been restated to reflect adjustments to water and sewer expense
previously recorded entirely in 1995.
/s/ FRIEDMAN ALPREN & GREEN LLP
January 15, 1997, except for
Note 2, as to which the date
is March 12, 1997
-1-
<PAGE> 5
TWO PENN PLAZA ASSOCIATES L.P.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Property and improvements - at cost, less accumulated
depreciation and amortization of $ $84,044,177 and
$80,050,988 - Note 5 $ 40,249,466 $ 40,362,894
Cash and short-term investments 7,822,176 5,435,297
Investment in U.S. Treasury obligations - Note 4(e) 8,118,765 5,628,317
Receivables - Note 6 14,954,965 16,610,622
Prepaid leasing costs 3,089,007 3,047,294
Other prepayments 58,131 55,879
Mortgage costs 3,061,956 3,892,110
Tenants' security deposits (cash in bank and
U.S. Treasury Bills) 773,859 807,929
------------- -------------
$ 78,128,325 $ 75,840,342
============= =============
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Liabilities
Mortgages payable - Note 7 $ 159,100,000 $ 159,100,000
Accrued interest payable 839,805 2,503,874
Accounts payable and accrued expenses 1,418,962 915,259
Improvements payable 181,542 121,008
Deferred income 179,885 150,190
Tenants' security deposits payable 866,659 900,729
------------- -------------
162,586,853 163,691,060
Commitments - Notes 7 and 10 -- --
Partners' capital deficiency (84,458,528) (87,850,718)
------------- -------------
$ 78,128,325 $ 75,840,342
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 6
TWO PENN PLAZA ASSOCIATES L.P.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Rental income $41,885,873 $43,350,856 $43,067,969
Interest 560,595 438,668 334,670
----------- ----------- -----------
42,446,468 43,789,524 43,402,639
----------- ----------- -----------
Expenses
Renting 79,104 123,260 174,830
Administrative 951,479 1,283,034 1,159,659
Operating 12,347,504 12,815,854 12,651,141
Real estate taxes 8,081,435 8,612,906 8,463,386
----------- ----------- -----------
21,459,522 22,835,054 22,449,016
----------- ----------- -----------
Income before interest expense and
depreciation and amortization 20,986,946 20,954,470 20,953,623
Interest expense 11,932,302 11,982,814 11,840,999
----------- ----------- -----------
Income before depreciation and
amortization 9,054,644 8,971,656 9,112,624
Depreciation and amortization 5,642,317 5,505,290 5,089,126
----------- ----------- -----------
Net income $ 3,412,327 $ 3,466,366 $ 4,023,498
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 7
TWO PENN PLAZA ASSOCIATES L.P.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,412,327 $ 3,466,366 $ 4,023,498
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of fixed assets 3,993,189 4,043,699 4,051,144
Amortization of leasing and mortgage costs 1,649,128 1,461,591 1,037,982
(Gain) loss on sale of marketable securities 29,155 ( 13,936) --
Changes in assets and liabilities
Interest receivable ( 19,869) ( 42,896) 21,389
Receivables 1,655,657 1,050,799 88,712
Prepaid leasing costs ( 780,677) ( 433,087) ( 466,182)
Other prepayments ( 2,252) 92,881 93,009
Accrued interest payable ( 1,664,069) 35,175 ( 7,927)
Accounts payable and accrued expenses 503,702 ( 25,106) 222,079
Leasing costs payable -- -- ( 76,136)
Deferred income 29,695 ( 485) ( 79,876)
Tenants' security deposits 34,070 ( 79,001) ( 303,956)
Tenants' security deposits payable ( 34,070) 79,001 303,956
------------ ------------ ------------
Net cash provided by operating activities 8,805,986 9,635,001 8,907,692
------------ ------------ ------------
Cash flows from investing activities
Acquisition of improvements and equipment ( 3,819,227) ( 5,887,833) ( 5,104,459)
Acquisition of U.S. Treasury obligations (11,370,611) (10,699,760) ( 7,619,101)
Redemption of U.S. Treasury obligations 8,850,741 7,345,019 9,084,207
Due from partner -- ( 69,371) ( 127,788)
------------ ------------ ------------
Net cash used in investing activities ( 6,339,097) ( 9,311,945) ( 3,767,141)
------------ ------------ ------------
Cash flows from financing activities
Mortgage costs ( 80,010) ( 3,941,591) ( 22,372)
Escrow for mortgage costs -- 3,600,000 ( 3,600,000)
Distributions to partners -- -- ( 2,324,062)
------------ ------------ ------------
Net cash used in financing activities ( 80,010) ( 341,591) ( 5,946,434)
------------ ------------ ------------
Net increase (decrease) in cash and short-term
investments 2,386,879 ( 18,535) ( 805,883)
Cash and short-term investments, beginning of year 5,435,297 5,453,832 6,259,715
------------ ------------ ------------
Cash and short-term investments, end of year $ 7,822,176 $ 5,435,297 $ 5,453,832
============ ============ ============
Supplemental cash flow disclosures
Interest paid $ 13,596,371 $ 11,947,639 $ 11,848,926
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 8
TWO PENN PLAZA ASSOCIATES L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Partners Limited Partners
-------------------------------------------- ----------------------------
Union Bank
of Switzerland,
New York Branch,
Mendik as Successor
Realty Trustee for
Bernard H. Company, Nancy Account No. Carborundum
Total Mendik Inc. Creek, Inc. P-34742 Joint Venture
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $(93,037,094) $(16,003,268) $ (161,648) $ (225,822) $(41,494,642) $(22,359,053)
Net income 4,023,498 951,622 9,612 8,997 1,652,346 890,545
Distributions ( 2,324,062) ( 626,485) ( 6,328) ( 4,968) ( 912,569) ( 491,837)
Unrealized loss on U.S.
Treasury obligations ( 21,199) ( 4,481) ( 45) ( 49) ( 8,997) ( 4,849)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 (91,358,857) (15,682,612) (158,409) (221,842) (40,763,862) (21,965,194)
Transfers of interest
January 1, 1995 -- -- -- -- 24,170,114 --
Net income 3,466,366 968,387 9,782 7,309 542,166 723,598
Reversal of prior year unrealized
loss on U.S. Treasury obligations 21,199 4,481 45 49 8,997 4,849
Unrealized gain on U.S. Treasury
obligations 20,574 5,748 58 43 3,218 4,294
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 (87,850,718) (14,703,996) (148,524) (214,441) (16,039,367) (21,232,453)
Transfers of interest
January 2, 1996 -- -- -- -- 16,039,367 --
Transfers of interest
December 13, 1996 -- -- -- 207,584 -- --
Transfers of interest
December 17, 1996 -- -- -- -- -- --
Net income 3,412,327 925,310 9,349 6,899 -- 720,537
Reversal of prior year
unrealized gain on U.S.
Treasury obligations ( 20,574) ( 5,748) ( 58) ( 43) -- ( 4,294)
Unrealized gain on U.S.
Treasury obligations 437 120 1 1 -- 92
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $(84,458,528) $(13,784,314) $ (139,232) $ -0- $ -0- $(20,516,118)
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Limited Partners
--------------------------------------------------------------------------------------------
Portfolio U
Penby Knatten Bernard H. Holdings UBSCO Nancy
Associates Inc. Mendik Corporation Corporation Creek, Inc.
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ (6,396,328) $ (5,117,056) $ (1,279,277) $ -- $ -- $ --
Net income 255,190 204,148 51,038 -- -- --
Distributions ( 140,937) ( 112,750) ( 28,188) -- -- --
Unrealized loss on U.S.
Treasury obligations ( 1,389) ( 1,111) ( 278) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 (6,283,464) (5,026,769) (1,256,705) -- --
Transfers of interest
January 1, 1995 -- -- -- (24,170,114) -- --
Net income 207,351 165,882 41,469 800,422 -- --
Reversal of prior year unrealized
loss on U.S. Treasury obligations 1,389 1,111 278 -- -- --
Unrealized gain on U.S. Treasury
obligations 1,231 985 246 4,751 -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 (6,073,493) (4,858,791) (1,214,712) (23,364,941) -- --
Transfers of interest
January 2, 1996 -- -- -- (16,039,367) -- --
Transfers of interest
December 13, 1996 -- -- -- -- -- (207,584)
Transfers of interest
December 17, 1996 -- -- -- 38,130,147 (38,130,147) --
Net income 206,473 165,180 41,293 1,281,966 54,941 379
Reversal of prior year
unrealized gain on U.S.
Treasury obligations ( 1,231) ( 985) ( 246) ( 7,969) -- --
Unrealized gain on U.S.
Treasury obligations 26 21 5 164 7 --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $ (5,868,225) $ (4,694,575) $ (1,173,660) $ -0- $(38,075,199) $ (207,205)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 9
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION AND GENERAL
The Partnership, originally named Two Penn Plaza Associates, was
organized in December 1978 to acquire, maintain and operate the property
located at Two Penn Plaza, New York, New York. On December 21, 1993, the
name of the Partnership was changed to Two Penn Plaza Associates L.P.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnership obtained the consent of its
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the managing general partner entered into an agreement with Vornado Realty
Trust, a publicly traded real estate investment trust ("REIT"). The
partners will be resolicited to obtain their consents to participate in
this transaction, under terms and conditions similar to those stated in the
private placement memorandum dated November 11, 1996. The REIT is a fully
integrated, self-administered and self-managed real estate company which
has qualified as a real estate investment trust for Federal income tax
purposes. Upon completion of the transaction, it is anticipated that the
Partnership will be owned by a company controlled by the REIT.
3 - THE PARTNERSHIP AGREEMENT
(a) Allocation of Distributions and Net Income and Loss
As defined in the agreement, distributions are generally as
follows: first, $210,000 to Bernard H. Mendik and Mendik Realty
Company, Inc. (the "Mendik Group") and then, 20% to the Mendik Group
and 80% to the other partners in proportion to their respective
partnership interests.
Net income and net loss are generally allocated as follows:
first, gross income is allocated in the same ratio as an equal amount
of cash would have been distributed and then, deductions are allocated
in the same ratio as the gross income.
As described in the agreement, certain adjustments in the
distributions and income and loss allocations are made among the
partners for financing costs incurred to return the partners' original
capital contributions.
(Continued)
-6-
<PAGE> 10
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
3 - THE PARTNERSHIP AGREEMENT (Continued)
(b) Transfers of Interests
On January 1, 1995, Union Bank of Switzerland, New York Branch,
as Successor Trustee for Account P-34742, assigned 25.735% of its
partnership interest to Portfolio U Holdings Corporation. On January
2, 1996, the balance of its interest (17.432%) was assigned to
Portfolio U Holdings Corporation.
On December 17, 1996, Portfolio U Holdings Corporation assigned
its partnership interest to UBSCO Corporation, a Delaware corporation.
Effective December 13, 1996, Nancy Creek, Inc. withdrew as a
general partner and its general partnership interest was transferred
to that of a limited partner.
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Restatement of Financial Statements
The accompanying financial statements as of December 31, 1995 and
for the years ended December 31, 1995 and 1994 have been restated to
reflect adjustments to prior years' water and sewer expense for
amounts previously recorded entirely in 1995. Restated amounts reflect
an increase in partners' capital deficiency of $321,709 at December
31, 1994. In addition, expenses for the years ended December 31, 1995
and 1994 have been increased (decreased) by $(321,709) and $78,940,
respectively.
(b) Use of Estimates
The managing general partner uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses.
(c) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement
No. 13. One of these provisions requires the recognition of scheduled
rent increases and rent concessions on a straight-line basis over the
lease term. Included in rental income for the years ended December 31,
1996, 1995 and 1994 is $(562,614), $(925,432) and $(87,863),
respectively, representing reductions in rental income required under
this provision.
(Continued)
-7-
<PAGE> 11
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization charges are computed over the following estimated useful
asset lives or periods, primarily on the straight-line basis:
<TABLE>
<CAPTION>
Asset Asset Lives
----------------------- ------------------------------
<S> <C>
Building Lives of the existing building
components, ranging from
15 to 30 years
Building improvements 10 to 39 years
Furniture and equipment 5 to 7 years
Tenant improvements Term of related lease
Leasing costs Term of related lease
Mortgage costs Term of mortgage
</TABLE>
(e) Investment in U.S. Treasury Obligations
The Partnership has adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". U.S. Treasury obligations
are classified as available-for-sale in accordance with the provisions
of SFAS No. 115, and carried at fair value. Net unrealized gains
(losses) at December 31, 1996, 1995 and 1994 (presented as a component
of partners' capital deficiency) are $437, $20,574 and $(21,199),
respectively.
Contractual maturities (including accrued interest) of the
securities at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Within 1 year $2,133,690
1-2 years 5,985,075
----------
$8,118,765
==========
</TABLE>
Included in the investment in U.S. Treasury obligations is
accrued interest of $94,581 and $74,712 at December 31, 1996 and 1995,
respectively.
(Continued)
-8-
<PAGE> 12
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended, requires certain entities to
disclose the fair value of specified financial instruments for which
it is practicable to estimate that value. The fair value of the
investment in U.S. Treasury obligations is presented in Note 4(e). It
was not practicable to estimate the fair value of the mortgages
payable and interest rate exchange agreements because quoted market
prices do not exist and estimates could not be made through other
means without incurring excessive costs.
(g) Income Taxes
The Partnership is not a taxpaying entity for income tax purposes
and, accordingly, no provision has been made for income taxes. The
partners' allocable shares of the Partnership's taxable income or loss
are reportable on their income tax returns.
(h) Cash and Short-Term Investments
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be short-term
investments.
Cash balances and certificates of deposit of approximately
$6,194,000 and $4,706,000 at December 31, 1996 and 1995, respectively,
are maintained in two banks and are insured by the Federal Deposit
Insurance Corporation up to a maximum of $100,000 for each bank.
(Continued)
-9-
<PAGE> 13
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
5 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 6,014,574 $ 6,014,574
Building 53,707,119 53,707,119
Building improvements 21,800,688 17,287,884
Tenant improvements 41,206,093 38,839,925
Furniture and equipment 1,268,843 1,240,753
Improvements in progress 296,326 3,323,627
------------ ------------
124,293,643 120,413,882
Less - Accumulated depreciation
and amortization 84,044,177 80,050,988
------------ ------------
$ 40,249,466 $ 40,362,894
============ ============
</TABLE>
6 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Receivable from tenants
Billed and not collected $ 447,346 $ 1,598,274
Escalation accruals 80,208 168,376
Accrual required by FASB
Statement No. 13 - Note 4(c) 14,017,851 14,580,465
------------ ------------
14,545,405 16,347,115
Due from maintenance services
company - Note 8(b) 185,000 25,407
Due from partner 197,159 197,159
Other 27,401 40,941
------------ ------------
$ 14,954,965 $ 16,610,622
============ ============
</TABLE>
(Continued)
-10-
<PAGE> 14
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE
On May 11, 1988, the Partnership entered into a loan agreement
pursuant to which National Bank of Kuwait S.A.K., Grand Cayman Island
branch ("NBK") agreed to lend the Partnership up to $225,000,000 to be used
for, but not limited to, the partial or full payment of prior mortgages,
distributions to partners, payment of loan costs, and establishing
revolving credit and working capital facilities. At this time, it is
believed that because of a decline in the property's market value,
additional borrowings may not be available.
The loans mature on May 10, 2000 and require payment of interest at a
floating rate, as defined in the agreement. In addition, the Partnership
has entered into interest rate exchange agreements as follows:
On November 8, 1989, the Partnership entered into interest rate
exchange agreements with various commercial banks (the "Banks") and
NBK, as agent for the Banks, for an aggregate principal amount of
$40,000,000, to expire on November 8, 1999.
On October 6, 1992, the Partnership entered into an interest rate
exchange agreement for $115,000,000 until October 6, 1999.
The fixed interest was paid semiannually at the rate of 9.3625% on the
$40,000,000 mortgage and 6.7475% on the $115,000,000 mortgage.
Beginning November 8, 1996 and October 6, 1996, respectively, the
interest is paid monthly at the rate of 9.2525% on the $40,000,000
mortgage and 6.6725% on the $115,000,000 mortgage.
Interest rates vary on the remaining $4,100,000 of the mortgages
payable balance. The effective rates were approximately 6.2%, 6.75% and
6.5% for the years ended December 31, 1996, 1995 and 1994, respectively.
The overall effective interest rate paid by the Partnership was
approximately 7.5% for each of the years ended December 31, 1996 and 1995
and 7.4% for the year ended December 31, 1994.
(Continued)
-11-
<PAGE> 15
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE (Continued)
The partners and NBK had agreed that NBK would not record the new
mortgages arising as borrowings were made, but that NBK would have the
option to do so upon giving notice to the Partnership, with the Partnership
being responsible for payment of the mortgage recording tax. If for any
reason NBK could not record the mortgage notes, then certain partners
agreed to guarantee the debt. The partners also could voluntarily record
the mortgage. In 1994, at the voluntary request of the Partnership, the
Partnership paid $3,600,000 into a mortgage escrow deposit account. In
1995, NBK recorded mortgages of $131,000,000, requiring a total payment of
$3,941,591 for mortgage recording taxes, title insurance, and other costs.
The Partnership paid the additional amount due in excess of the balance in
the escrow account. Total costs were charged to mortgage costs and are
being amortized over the remaining term of the loans.
8 - RELATED PARTY TRANSACTIONS
(a) Management Services
Management services are provided to the Partnership by Mendik
Realty Company, Inc., a general partner of the Partnership. The annual
management fee is 1-1/2% of rental receipts, as defined. Management
fees for the years ended December 31, 1996, 1995 and 1994 were
$645,539, $667,048 and $651,203, respectively.
(b) Maintenance Services
Maintenance services for the property are provided at cost plus
an allocable share of overhead expenses by a company that is
controlled by a general partner of the Partnership. Services of the
building engineers are provided at cost. Profits earned from direct
tenant services are shared with the Partnership.
For the years ended December 31, 1996, 1995 and 1994, cleaning
and related expenses were $4,209,139, $4,167,915 and $4,009,013,
engineering and preventive maintenance was $780,007, $902,157 and
$747,694, and the Partnership's share of profits from tenant services
was $326,549, $359,293 and $417,077, respectively. Amounts receivable
from the maintenance services company were $185,000 and $25,407 at
December 31, 1996 and 1995, respectively.
(Continued)
-12-
<PAGE> 16
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS (Continued)
(b) Maintenance Services (Continued)
The maintenance services company occupied space in the building
under leases which were terminated on February 1, 1995. The leases,
for approximately 9,000 square feet, required base rent (including
electric) of $191,819 and provided for additional rent based on
increases in real estate taxes and operating expenses. Rental income
from the company for the years ended December 31, 1995 and 1994 was
$18,659 and $206,153, respectively.
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose controlling
stockholder is a general partner of the Partnership. Profits earned
from direct tenant services are shared equally with the Partnership.
The cost of security services provided by this company for the years
ended December 31, 1996, 1995 and 1994 was $621,709, $708,366 and
$637,048, respectively.
(d) Construction Services
Ambassador Construction Co., Inc., a partner of a partner in the
Partnership, provides construction and related services for the
property. Costs for the years ended December 31, 1996, 1995 and 1994
were $110,399, $1,433,418 and $645,341, respectively.
9 - LEASE ARRANGEMENTS
Space in the building is rented to a large number of tenants under
various lease agreements. These leases, which are classified as operating
leases, include renewal options and provisions for additional rent based on
increases in property taxes, operating expenses or porter wage rates, and
utilities over base period amounts.
(Continued)
-13-
<PAGE> 17
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
9 - LEASE ARRANGEMENTS (Continued)
Approximate minimum future rentals required under operating leases,
excluding rentals that are cancelable at the tenant's option, are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 26,667,000
1998 19,979,000
1999 19,616,000
2000 16,574,000
2001 13,959,000
Thereafter 65,691,000
------------
$162,486,000
============
</TABLE>
Escalations (contingent rentals) included in rental income were
$2,752,775, $3,696,514 and $3,881,091 for the years ended December 31,
1996, 1995 and 1994, respectively.
Approximately 43% of total rental income was derived from two tenants
whose leases expire between October 31, 1996 and January 31, 1998. The
lease which expired October 31, 1996 represented approximately 30% of total
rental income and approximately $9,920,000 of annual base rents. The other
lease represented approximately $4,672,000 of annual base rents.
10 - COMMITMENTS
Pursuant to the terms of leases with various tenants, the Partnership
is obligated to pay approximately $2,050,000 of the cost of initial
alterations to be made to the leased premises. As of December 31, 1996,
approximately $121,000 of these costs have been incurred.
-14-
<PAGE> 18
ANNEX B
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
(GENERAL PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 19
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Combined Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital Deficiency 5
Notes to Combined Financial Statements 6-15
<PAGE> 20
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF M ELEVEN ASSOCIATES, M 393 ASSOCIATES
AND ELEVEN PENN PLAZA COMPANY
We have audited the accompanying combined balance sheet of M ELEVEN
ASSOCIATES, M 393 ASSOCIATES AND ELEVEN PENN PLAZA COMPANY (general
partnerships) as of December 31, 1996 and 1995, and the related combined
statements of income, cash flows and changes in partners' capital deficiency for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of M ELEVEN
ASSOCIATES, M 393 ASSOCIATES AND ELEVEN PENN PLAZA COMPANY as of December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ FRIEDMAN ALPREN & GREEN LLP
-------------------------------
January 14, 1997, except for
Note 2, as to which the date
is March 12, 1997
<PAGE> 21
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Property and improvements - at cost, less accumulated
depreciation and amortization of $46,520,422 and
$43,201,381 - Note 4 $ 36,266,165 $ 34,271,529
Cash 716,244 952,032
Restricted cash - Note 7 1,062,888 3,556,630
Receivables - Note 5 21,810,111 21,857,329
Escrow deposits, real estate taxes - Note 7 374,822 330,821
Escrow deposits, tenant costs - Note 6 147,341 140,119
Prepaid real estate taxes 2,037,886 1,984,926
Prepaid leasing costs 3,758,264 3,629,698
Other prepayments 86,491 87,201
Unamortized mortgage costs 293,594 31,844
Tenants' security deposits - Note 10 679,995 666,797
-------------- --------------
$ 67,233,801 $ 67,508,926
============== ==============
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Liabilities
Mortgages payable - Note 7 $ 74,968,471 $ 76,963,344
Accrued interest payable 199,778 193,468
Accounts payable and accrued expenses 407,327 417,942
Improvements payable 112,262 25,989
Leasing costs payable 604,163 -
Deferred income 86,389 176,882
Tenants' security deposits payable 663,764 651,074
-------------- --------------
77,042,154 78,428,699
Commitment - Note 11 -- --
Partners' capital deficiency (9,808,353) (10,919,773)
-------------- --------------
$ 67,233,801 $ 67,508,926
============== ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-2-
<PAGE> 22
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues
Rental income $ 24,374,745 $ 24,270,234 $ 24,478,684
Lease cancellation income -- 7,479,701 --
Interest 574,153 201,451 73,147
---------------- ---------------- ----------------
24,948,898 31,951,386 24,551,831
---------------- ---------------- ----------------
Expenses
Renting 28,782 29,778 41,930
Administrative 840,638 991,813 865,893
Operating 7,644,611 7,397,211 6,755,338
Real estate taxes 4,071,360 4,156,110 4,623,700
---------------- ---------------- ----------------
12,585,391 12,574,912 12,286,861
---------------- ---------------- ----------------
Income before interest expense and
depreciation and amortization 12,363,507 19,376,474 12,264,970
Interest expense 7,099,948 7,222,720 7,003,505
---------------- ---------------- ----------------
Income before depreciation and
amortization 5,263,559 12,153,754 5,261,465
Depreciation and amortization 4,152,139 4,654,746 3,737,260
---------------- ---------------- ----------------
Net income $ 1,111,420 $ 7,499,008 $ 1,524,205
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-3-
<PAGE> 23
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,111,420 $ 7,499,008 $ 1,524,205
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 3,319,040 3,558,110 2,721,099
Amortization of leasing and mortgage costs 833,099 1,096,636 1,016,161
Changes in assets and liabilities
Restricted cash 2,493,742 ( 3,004,182) ( 552,448)
Receivables 522,218 ( 5,435,467) ( 1,479,172)
Escrow deposits, real estate taxes ( 44,001) ( 330,821) --
Prepaid real estate taxes ( 52,960) 215,022 ( 2,199,948)
Prepaid leasing costs ( 800,639) ( 396,916) ( 381,705)
Other prepayments 710 483 330,359
Other assets -- -- 16,000
Accrued interest payable 6,310 ( 444,521) 29,185
Accounts payable and accrued expenses (10,615) 73,576 ( 63,874)
Leasing costs payable 604,163 ( 106,546) ( 354,901)
Lease cancellation obligation -- ( 13,523) ( 54,866)
Deferred income ( 90,493) 176,882 --
Tenants' security deposits ( 13,198) ( 89,980) 23,045
Tenants' security deposits payable 12,690 74,257 ( 23,045)
----------- ----------- -----------
Net cash provided by operating activities 7,891,486 2,872,018 550,095
----------- ----------- -----------
Cash flows from investing activities
Acquisition of improvements ( 5,227,403) ( 708,698) ( 2,389,987)
Con Edison rebate receivable ( 475,000) -- --
Escrow deposits, tenant costs ( 7,222) ( 7,666) 842,287
Due from partners -- -- 111,000
----------- ----------- -----------
Net cash used in investing activities ( 5,709,625) ( 716,364) ( 1,436,700)
----------- ----------- -----------
Cash flows from financing activities
Principal payments on mortgage ( 1,994,873) (2,199,041) ( 984,017)
Mortgage costs ( 422,776) (16,628) ( 659,994)
----------- ----------- -----------
Net cash used in financing activities ( 2,417,649) (2,215,669) ( 1,644,011)
----------- ----------- -----------
Net decrease in cash ( 235,788) ( 60,015) ( 2,530,616)
Cash, beginning of year 952,032 1,012,047 3,542,663
----------- ----------- -----------
Cash, end of year $ 716,244 $ 952,032 $ 1,012,047
=========== =========== ===========
Supplemental cash flow disclosures
Interest paid $ 7,093,638 $ 7,667,241 $ 6,969,600
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-4-
<PAGE> 24
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED STATEMENT OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Balance, January 1, 1994 $ (19,942,986)
Net income 1,524,205
-------------
Balance, December 31, 1994 (18,418,781)
Net income 7,499,008
-------------
Balance, December 31, 1995 (10,919,773)
Net income 1,111,420
-------------
Balance, December 31, 1996 $ ( 9,808,353)
=============
The accompanying notes are an integral part of these combined financial
statements.
-5-
<PAGE> 25
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1 - ORGANIZATION
Eleven Penn Plaza Company (the "Partnership") was organized in 1980
and acquired the property located at Eleven Penn Plaza (formerly 393
Seventh Avenue), New York, New York on July 1, 1980. M Eleven Associates
and M 393 Associates each own a 50% interest in Eleven Penn Plaza Company.
All three entities (the "Partnerships") are general partnerships.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnerships obtained the consent of their
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the Partnerships entered into an agreement with Vornado Realty Trust, a
publicly traded real estate investment trust ("REIT"). The partners will be
resolicited to obtain their consents to participate in this transaction,
under terms and conditions similar to those stated in the private placement
memorandum dated November 11, 1996. The REIT is a fully integrated,
self-administered and self-managed real estate company which has qualified
as a real estate investment trust for Federal income tax purposes. Upon
completion of the transaction, it is anticipated that the Partnerships will
be owned by a company controlled by the REIT.
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The accompanying combined financial statements include the
accounts of the Partnerships. All material intercompany transactions
have been eliminated.
(b) Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.
(Continued)
-6-
<PAGE> 26
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement
No. 13. One of these provisions requires the recognition of scheduled
rent increases and deferred rent concessions on a straight-line basis
over the lease term. Included in rental income for the years ended
December 31, 1996, 1995 and 1994 is $648,901, $399,100 and $1,366,630,
respectively, representing the amounts required to be accrued under
this provision.
(d) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization is computed over estimated useful asset lives or periods,
primarily on the straight-line basis.
Details are as follows:
Asset Asset Lives or Periods
----------------------- --------------------------------
Building Lives of the building's components,
ranging from 8-1/2 to 23-1/2 years
Building improvements 15 to 39 years
Furniture and equipment 4 to 7 years
Tenant improvements Term of related lease
Leasing costs Term of related lease
Mortgage costs Term of mortgage
(Continued)
-7-
<PAGE> 27
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended, requires certain entities to
disclose the fair value of specified financial instruments for which
it is practicable to estimate that value. It was not practicable to
estimate the fair value of the mortgages payable at December 31, 1996
because quoted market prices do not exist and an estimate could not be
made through other means without incurring excessive costs.
(f) Income Taxes
The Partnerships are not taxpaying entities for income tax
purposes and, accordingly, no provision has been made for income
taxes. The partners' allocable shares of the Partnerships' taxable
income or loss are reportable on their income tax returns.
(g) Concentrations of Credit Risk for Cash
At December 31, 1996 and 1995, cash balances, maintained in two
banks by the Partnership and one bank by each of the other entities,
are insured by the Federal Deposit Insurance Corporation up to a
maximum of $100,000 in each bank for each entity.
(Continued)
-8-
<PAGE> 28
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
4 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Land $ 6,213,802 $ 6,213,802
Building 32,123,817 32,123,817
Building improvements 17,047,344 16,555,076
Tenant improvements 24,611,011 21,113,133
Furniture and equipment 800,756 758,888
Building improvements in progress 1,786,072 446,250
Tenant improvements in progress 203,785 261,944
---------------- ----------------
82,786,587 77,472,910
Less - Accumulated depreciation
and amortization 46,520,422 43,201,381
---------------- ----------------
$ 36,266,165 $ 34,271,529
================ ================
</TABLE>
5 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Receivable from tenants
Billed and not collected $ 347,511 $ 75,783
Accruals 271,101 577,981
Lease cancellation (a) 5,259,514 6,315,744
Accruals required by FASB
Statement No. 13 - Note 3(c) 15,368,413 14,719,512
Con Edison rebate - chiller replacement 475,000 -
Due from maintenance services
and security services companies,
net - Notes 8(b) and 8(c) 23,547 163,673
Insurance claims 64,114 4,092
Other 911 544
---------------- ----------------
$ 21,810,111 $ 21,857,329
================ ================
</TABLE>
(Continued)
-9-
<PAGE> 29
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
5 - RECEIVABLES (Continued)
(a) In 1995, the Partnership entered into an agreement with a tenant to
terminate, effective October 1, 1995, the tenant's obligations under a
lease covering certain space in the property. The present value of
total principal payments to be received, allocable to this
transaction, was $6,528,000. Interest has been imputed at 8%. Monthly
payments will range from approximately $9,000 to $138,000 from October
1, 1995 through June 1, 2001. Additionally, payments of approximately
$253,000 and $1,188,000 were received in October 1995 and January
1996, respectively. Income recognized in 1995, net of an adjustment of
approximately $1,409,000 for rent income previously recognized on the
straight-line basis (see Note 3(c)), was approximately $5,119,000. In
addition, related prepaid leasing costs and unamortized tenant
improvements of approximately $181,000 and $669,000, respectively,
were written off at October 1, 1995.
An agreement with the same tenant provides for the surrender of
additional space in 1997. The present value of principal payments to
be received, allocable to this transaction, total $17,938,000, and
monthly payments will be required through June 1, 2001. Interest will
also be imputed at 8%. Income to be recognized in 1997, net of an
adjustment of approximately $3,691,000 for rent income previously
recognized on the straight-line basis (see Note 3(c)), will be
approximately $14,247,000. In addition, related prepaid leasing costs
and unamortized tenant improvements of approximately $578,000 and
$2,100,000, respectively, will be written off in 1997.
6 - ESCROW DEPOSITS, TENANT COSTS
Payments required to be made by the Partnership for tenant improvement
and leasing costs for a tenant are held in escrow. The funds are released
as invoices are approved.
(Continued)
-10-
<PAGE> 30
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
The Equitable Life Assurance
Society of the United States (a) $ 53,835,471 $ 55,830,344
Citicorp Real Estate, Inc. (b) 21,133,000 21,133,000
---------------- ----------------
$ 74,968,471 $ 76,963,344
================ ================
</TABLE>
(a) The Partnership borrowed $60,000,000 from The Equitable Life Assurance
Society of the United States, secured by a first mortgage on the
property. The mortgage agreement required monthly payments of $540,956
from January 2, 1994 through January 1, 1995 and $614,723 through
January 1, 1996, including interest at 9.25% a year. Effective January
30, 1996, monthly payments of $604,829 including interest at 9.25% a
year are required through January 31, 1999, the extended maturity
date, at which time the principal balance of approximately $48,850,000
will be payable. The Partnership can prepay the principal balance, in
full, but not in part, without penalty at any time during the last
three months prior to maturity, with 30 days' written notice. At any
other time, prepayment of principal can be made, in full, but not in
part, by giving 30 days' written notice and paying a 2% prepayment
penalty.
Annual maturities of principal at December 31, 1996 are approximately
as follows:
Year Ending
December 31,
------------
1997 $ 2,200,000
1998 2,500,000
1999 49,100,000
-------------
$ 53,800,000
=============
The Partnership is also required to make monthly payments into a real
estate tax escrow account.
(Continued)
-11-
<PAGE> 31
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE (Continued)
(b) A second mortgage loan with Citicorp Real Estate, Inc. matured on
March 30, 1994 and was extended to February 1, 1996. Interest only was
paid at a variable base rate, as defined. The effective rates for the
period January 1, 1996 through January 29, 1996 and for the years
ended December 31, 1995 and 1994 were 8.75%, 9.20% and 7.50%,
respectively. Effective January 30, 1996, the maturity date was
extended to January 31, 1999, and payments of interest only at 9.25% a
year are required. The mortgage principal balance can be prepaid, in
full or in part, at any time without penalty.
(c) An agreement for the collection of rents was entered into during 1994
between the mortgagees and the Partnership, pursuant to which all
rents are deposited into an account directly controlled by the
mortgagees. Any cash required by the Partnership to fund operations
must be requisitioned from the mortgagees.
8 - RELATED PARTY TRANSACTIONS
(a) Management Services
Management services are provided by Mendik Realty Company, Inc.,
a corporation which is a general partner of a partner in the
Partnership. The annual management fee is 2% of gross rental income.
Total management fees for the years ended December 31, 1996, 1995 and
1994 were $503,935, $533,029 and $462,395, respectively. The amounts
payable at December 31, 1996 and 1995 were $11,015 and $23,174,
respectively.
(b) Maintenance Services
Maintenance services for the property are provided at cost plus
an allocable share of overhead expenses by a company controlled by the
managing partner of the Partnership. Services of building engineers
are provided at cost. Profits earned from direct tenant services are
shared with the Partnership.
(Continued)
-12-
<PAGE> 32
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS (Continued)
(b) Maintenance Services (Continued)
Cleaning and related expenses for the years ended December 31,
1996, 1995 and 1994 were $2,685,969, $2,476,880 and $2,238,451,
respectively, engineering and preventive maintenance services were
$668,513, $764,855 and $675,818, respectively, and the Partnership's
share of the profits from tenant services was $178,788, $153,797 and
$171,871, respectively. The net amounts receivable from the
maintenance services company at December 31, 1996 and 1995 were
$36,009 and $162,697, respectively.
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose stockholder is
the managing partner of the Partnership. Profits earned from direct
tenant services are shared with the Partnership. Security services
provided by this company for the years ended December 31, 1996, 1995
and 1994 were $374,641, $343,271 and $358,783, respectively. The net
amount payable at December 31, 1996 was $12,462, and the amount
receivable at December 31, 1995 was $976.
9 - LEASE ARRANGEMENTS
Space in the building is rented by the Partnership to a large number
of tenants under various lease agreements. These leases, which are
classified as operating leases, include renewal options and provisions for
additional rent based on increases in real estate taxes, operating expenses
or porter wage rates, and utilities over base period amounts.
(Continued)
-13-
<PAGE> 33
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
9 - LEASE ARRANGEMENTS (Continued)
Approximate minimum future rentals required under operating leases at
December 31, 1996, excluding rentals that are cancelable at the tenant's
option, are as follows:
Year Ending
December 31,
------------
1997 $ 15,382,000
1998 16,379,000
1999 15,581,000
2000 14,446,000
2001 14,928,000
Thereafter 54,998,000
-------------
$ 131,714,000
==============
Escalations (contingent rentals) included in rental income were
$2,414,610, $2,468,169 and $2,461,280 for the years ended December 31,
1996, 1995 and 1994, respectively.
At December 31, 1996, a tenant with an annual base rent of
approximately $4,147,000 under a lease expiring December 31, 2002 provided
22% of base rental income. Another tenant, who is surrendering its lease as
of January 1, 1997, provided approximately $4,387,000, or 23%, of annual
base rental income. The surrender agreement is described in Note 5(a).
The maintenance services company occupies space in the building under
a 10-year lease which began on February 1, 1995. The lease, for
approximately 12,300 square feet, requires annual base rent (including
electric) of $98,400 and provides for additional rent based on increases in
real estate taxes. The lease provided for a 16-month rent abatement until
August 1996. Included in the amount required to be accrued by FASB
Statement No. 13 at December 31, 1996 is $131,097 for this lease.
(Continued)
-14-
<PAGE> 34
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
10 - TENANTS' SECURITY DEPOSITS
In addition to cash deposits, the Partnership is holding letters of
credit of $102,795 at December 31, 1996 and 1995 as tenants' security
deposits pursuant to lease agreements.
11 - COMMITMENT
The Partnership has entered into a contract for a chiller replacement
project. The total cost of the project will be approximately $2,500,000, of
which approximately $475,000 will be funded by a Con Edison rebate program.
At December 31, 1996, approximately $2,256,000 of these costs have been
incurred, of which approximately $2,247,000 has been paid. The rebate
receivable from Con Edison of $475,000 has been recorded at December 31,
1996.
-15-
<PAGE> 35
ANNEX C
1740 BROADWAY ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 36
1740 BROADWAY ASSOCIATES, L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital 5
Notes to Financial Statements 6-13
<PAGE> 37
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF 1740 BROADWAY ASSOCIATES, L.P.
We have audited the accompanying balance sheet of 1740 BROADWAY ASSOCIATES,
L.P. (a limited partnership) as of December 31, 1996 and 1995, and the related
statements of income, cash flows and changes in partners' capital for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the managing general partner. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
managing general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 1740 BROADWAY ASSOCIATES,
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ FRIEDMAN ALPREN & GREEN LLP
January 16, 1997, except for
Note 2, as to which the date
is March 12, 1997
-1-
<PAGE> 38
1740 BROADWAY ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Property and improvements - at cost, less
accumulated depreciation and amortization of
$18,085,937 and $14,957,089 - Note 5 $ 96,741,899 $ 99,017,284
Cash and short-term investments 4,557,595 2,320,557
Investment in U.S. Treasury obligations - Note 4(d) 2,119,196 4,890,481
Receivables - Note 6 12,110,468 9,680,435
Prepaid leasing costs, less accumulated amortization
of $623,857 and $478,844 5,128,964 1,668,658
Tenant acquisition costs, less accumulated amortization
of $2,547,797 and $2,062,988 6,907,943 7,669,918
Other prepayments 19,145 19,456
Tenants' security deposits - Note 10 525,158 527,123
------------ ------------
$128,110,368 $125,793,912
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Tenant acquisition costs payable - Note 7 $ 4,524,761 $ 6,290,088
Accounts payable and accrued expenses 267,325 224,930
Leasing costs payable 1,301,115 --
Improvements payable 130,279 --
Deferred income -- 28,118
Tenants' security deposits payable 525,158 527,123
------------ ------------
6,748,638 7,070,259
Commitments - Note 11 -- --
Partners' capital 121,361,730 118,723,653
------------ ------------
$128,110,368 $125,793,912
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 39
1740 BROADWAY ASSOCIATES, L.P.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Rental income $20,035,207 $20,477,492 $20,894,991
Lease cancellation income 2,150,943 -- --
Interest 520,228 936,262 498,069
----------- ----------- -----------
22,706,378 21,413,754 21,393,060
----------- ----------- -----------
Expenses
Renting 23,483 20,847 25,145
Administrative 502,324 567,837 325,085
Operating 4,665,046 4,529,149 4,266,154
Real estate taxes 3,866,918 3,771,745 3,753,418
----------- ----------- -----------
9,057,771 8,889,578 8,369,802
----------- ----------- -----------
Income before depreciation and
amortization 13,648,607 12,524,176 13,023,258
Depreciation and amortization 3,758,670 3,979,628 3,947,037
----------- ----------- -----------
Net income $ 9,889,937 $ 8,544,548 $ 9,076,221
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 40
1740 BROADWAY ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 9,889,937 $ 8,544,548 $ 9,076,221
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 3,128,848 3,114,097 3,084,137
Amortization of leasing, tenant acquisition and
organization costs 629,822 865,531 862,900
Changes in assets and liabilities
Accrued interest, U.S. Treasury obligations 33,851 46,696 ( 83,772)
Receivables ( 2,574,236) ( 388,441) ( 3,037,072)
Prepaid leasing costs ( 3,605,319) ( 7,473) ( 295,099)
Tenant acquisition costs 277,166 -- ( 1,707,906)
Other prepayments 311 ( 8,952) ( 10,504)
Tenant acquisition costs payable ( 1,765,327) ( 994,229) 485,545
Accounts payable and accrued expenses 42,395 58,463 ( 49,411)
Leasing costs payable 1,301,115 -- --
Deferred income ( 28,118) ( 53,498) 62,539
Tenants' security deposits 1,965 1,934 ( 7,848)
Tenants' security deposits payable ( 1,965) ( 1,934) 7,848
------------ ------------ ------------
Net cash provided by operating activities 7,330,445 11,176,742 8,387,578
------------ ------------ ------------
Cash flows from investing activities
Acquisition of property and improvements ( 723,184) ( 870,626) ( 807,256)
Acquisition of U.S. Treasury obligations ( 7,968,520) (18,564,266) (11,108,954)
Redemption of U.S. Treasury obligations 10,688,130 21,622,418 4,501,224
Loan receivable 144,203 119,985 91,253
------------ ------------ ------------
Net cash provided by (used in)
investing activities 2,140,629 2,307,511 ( 7,323,733)
------------ ------------ ------------
Cash flows from financing activities
Distributions to partners ( 7,234,036) (15,263,195) ( 5,817,593)
------------ ------------ ------------
Net increase (decrease) in cash and
short-term investments 2,237,038 ( 1,778,942) ( 4,753,748)
Cash and short-term investments, beginning of year 2,320,557 4,099,499 8,853,247
------------ ------------ ------------
Cash and short-term investments, end of year $ 4,557,595 $ 2,320,557 $ 4,099,499
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 41
1740 BROADWAY ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Partners Limited Partners
----------------------------------- ----------------
Union Bank
of Switzerland,
New York Branch,
as Successor
Mendik Nancy Trustee for
Total 1740 Corp. Creek, Inc. Account P-34742
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 122,168,116 $ 41,375 $ 590,929 $ 59,661,550
Net income 9,076,221 3,077 43,900 4,432,311
Distributions ( 5,817,593) ( 1,972) ( 28,139) ( 2,840,981)
Unrealized loss on U.S. Treasury
obligations ( 114,233) ( 39) ( 553) ( 55,784)
------------- ------------- ------------- -------------
Balance, December 31, 1994 125,312,511 42,441 606,137 61,197,096
Transfers of interest January 1, 1995 -- -- -- (61,197,096)
Net income 8,544,548 2,897 41,328 --
Distributions ( 15,263,195) ( 5,174) ( 73,827) --
Reversal of prior year unrealized loss
on U.S. Treasury obligations 114,233 39 553 --
Unrealized gain on U.S. Treasury
obligations 15,556 5 75 --
------------- ------------- ------------- -------------
Balance, December 31, 1995 118,723,653 40,208 574,266 --
Transfers of interest December 17, 1996 -- -- -- --
Net income 9,889,937 3,352 47,837 --
Distributions ( 7,234,036) ( 2,452) ( 34,990) --
Reversal of prior year unrealized gain
on U.S. Treasury obligations ( 15,556) ( 5) ( 75) --
Unrealized loss on U.S. Treasury
obligations ( 2,268) ( 1) ( 11) --
------------- ------------- ------------- -------------
Balance, December 31, 1996 $ 121,361,730 $ 41,102 $ 587,027 $ -0-
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------------------------------------
Carborundum 1740 Broadway Portfolio U
Center Investment Holdings UBSCO
Joint Venture Company Corporation Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 58,502,226 $ 3,372,036 $ -- $ --
Net income 4,346,183 250,750 -- --
Distributions ( 2,785,777) ( 160,724) -- --
Unrealized loss on U.S. Treasury
obligations ( 54,701) ( 3,156) -- --
------------- ------------- ------------- -------------
Balance, December 31, 1994 60,007,931 3,458,906 -- --
Transfers of interest January 1, 1995 -- -- 61,197,096 --
Net income 4,091,589 236,062 4,172,672 --
Distributions ( 7,308,840) ( 421,678) ( 7,453,676) --
Reversal of prior year unrealized loss
on U.S. Treasury obligations 54,701 3,156 55,784 --
Unrealized gain on U.S. Treasury
obligations 7,449 430 7,597 --
------------- ------------- ------------- -------------
Balance, December 31, 1995 56,852,830 3,276,876 57,979,473 --
Transfers of interest December 17, 1996 -- -- ( 59,069,325) 59,069,325
Net income 4,735,835 273,230 4,631,203 198,480
Distributions ( 3,464,046) ( 199,856) ( 3,532,692) --
Reversal of prior year unrealized gain
on U.S. Treasury obligations ( 7,449) ( 430) ( 7,597) --
Unrealized loss on U.S. Treasury
obligations ( 1,086) ( 63) ( 1,062) ( 45)
------------- ------------- ------------- -------------
Balance, December 31, 1996 $ 58,116,084 $ 3,349,757 $ -0- $ 59,267,760
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 42
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
1740 Broadway Associates, L.P. was organized on December 11, 1990 to
acquire, maintain and operate the property located at 1740 Broadway, New
York, New York. The property was acquired December 17, 1990.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnership obtained the consent of its
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the managing general partner entered into an agreement with Vornado Realty
Trust, a publicly traded real estate investment trust ("REIT"). The
partners will be resolicited to obtain their consents to participate in
this transaction, under terms and conditions similar to those stated in the
private placement memorandum dated November 11, 1996. The REIT is a fully
integrated, self-administered and self-managed real estate company which
has qualified as a real estate investment trust for Federal income tax
purposes. Upon completion of the transaction, it is anticipated that the
Partnership will be owned by a company controlled by the REIT.
3 - THE PARTNERSHIP AGREEMENT
(a) Capital Contributions
In addition to partners' initial capital contributions of
$60,000,000 and investment capital contributions of $50,000,000, each
partner has agreed to contribute additional capital aggregating
$8,000,000 to fund the Partnership's additional capital needs, as
defined. As of December 31, 1996 and 1995, the partners have
contributed $6,351,878 in additional capital.
(b) Allocation of Net Income, Net Loss and Distributions
As defined in the agreement, allocations to the partners are in
accordance with their respective partnership interests.
(c) Transfers of Interests
On January 1, 1995, Union Bank of Switzerland, New York Branch,
as Successor Trustee for Account P-34742, assigned its partnership
interest to Portfolio U Holdings Corporation, a Delaware corporation.
(Continued)
-6-
<PAGE> 43
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
3 - THE PARTNERSHIP AGREEMENT (Continued)
(c) Transfers of Interests (Continued)
On December 17, 1996, Portfolio U Holdings Corporation assigned
its partnership interest to UBSCO Corporation, a Delaware corporation.
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The managing general partner uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses.
(b) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement
No. 13. One of these provisions requires the recognition of scheduled
rent increases and deferred rent concessions on a straight-line basis
over the lease term. Rental income includes $2,040,294, $599,138 and
$1,161,628 for the years ended December 31, 1996, 1995 and 1994,
respectively, representing the amounts required to be accrued under
this provision (see Note 6).
(c) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization is computed using the straight-line method over the
following estimated useful asset lives:
<TABLE>
<CAPTION>
Asset Useful Asset Lives
------------------------ ----------------------
<S> <C>
Building 31-1/2 years
Building improvements 31-1/2 and 39 years
Tenant improvements Term of related lease
Equipment 5 and 7 years
Leasing costs Term of related lease
Tenant acquisition costs Term of related lease
Organization costs 5 years
</TABLE>
Organization costs have been fully amortized.
(Continued)
-7-
<PAGE> 44
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Investment in U.S. Treasury Obligations
The Partnership has adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". U.S. Treasury obligations
are classified as available-for-sale and carried at fair value. The
net unrealized gain (loss) at December 31, 1996 and 1995 (presented as
components of partners' capital) was $(2,268) and $15,556,
respectively. Contractual maturities (including accrued interest) of
the securities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Within 1 year $ 621,148 $1,489,068
1 to 2 years 1,498,048 3,401,413
---------- ----------
$2,119,196 $4,890,481
========== ==========
</TABLE>
Accrued interest included in the investment in U.S. Treasury
obligations totals $29,731 and $63,582 at December 31, 1996 and 1995,
respectively.
(e) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended, requires certain entities to
disclose the fair value of specified financial instruments for which
it is practicable to estimate that value. The fair value of the
investment in U.S. Treasury obligations is presented in Note 4(d). It
was not practicable to estimate the fair value of notes and loans
receivable because quoted market prices do not exist and estimates
could not be made through other means without incurring excessive
costs.
(Continued)
-8-
<PAGE> 45
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Income Taxes
The Partnership is not a taxpaying entity for income tax purposes
and, accordingly, no provision has been made for income taxes. The
partners' allocable shares of the Partnership's taxable income or loss
are reportable on their income tax returns.
(g) Cash and Short-Term Investments
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be short-term
investments.
Cash balances of approximately $4,180,000 and $1,956,000 at
December 31, 1996 and 1995, respectively, are maintained in one bank,
generally in interest-bearing accounts, and are insured by the Federal
Deposit Insurance Corporation up to a maximum of $100,000.
5 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 20,520,077 $ 20,520,077
Building 86,722,856 86,722,856
Building improvements 3,009,502 1,435,392
Tenant improvements 4,384,732 4,384,732
Furniture and equipment 40,692 40,692
Improvements in progress 149,977 870,624
------------ ------------
114,827,836 113,974,373
Less - Accumulated depreciation
and amortization 18,085,937 14,957,089
------------ ------------
$ 96,741,899 $ 99,017,284
============ ============
</TABLE>
(Continued)
-9-
<PAGE> 46
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
6 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Receivable from tenants - billed
and not collected $ 112,097 $ 53,176
Lease cancellation (a) 677,797 --
Escalation accruals 175,571 286,821
Accrual required by FASB
Statement No. 13 - Note 4(b) 9,504,880 7,464,586
Note receivable - tenant
improvements (b) 167,323 182,524
Loan receivable (c) 1,444,799 1,589,002
Due from maintenance services
company - Note 8(b) 19,032 96,091
Other 8,969 8,235
----------- -----------
$12,110,468 $ 9,680,435
=========== ===========
</TABLE>
(a) A lease cancellation agreement with a tenant, effective August 1,
1996, provides for payments by the tenant of $1,200,000 plus 17
monthly payments of $58,961. The total of the monthly payments,
$1,002,328, was recorded at its present value at August 1, 1996,
assuming an 8% interest rate.
(b) Matures on September 1, 2003 and requires monthly payments of $3,024
including interest at 12% a year.
(c) The loan, which is receivable from the subtenant described in Note 7,
matures on February 1, 2001 and requires monthly payments of $23,790
including interest at 10% a year. The balance due at maturity will be
approximately $737,000.
7 - TENANT ACQUISITION COSTS
Under the provisions of a leasing arrangement which commenced in
November 1992, the Partnership has assumed the tenant's obligation under a
pre-existing lease expiring in November 2000. The space was subleased as of
April 28, 1993 for the full lease term. The Partnership's total estimated
cost, net of sublease income, is $9,456,000, which is being amortized on a
straight-line basis over the term of the tenant's lease with the
Partnership, expiring December 2007.
(Continued)
-10-
<PAGE> 47
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS
(a) Management and Leasing Services
Management and leasing services are provided to the Partnership
by Mendik Realty Company, Inc. (MRC), whose controlling stockholder is
also the controlling stockholder of Mendik 1740 Corp., a general
partner of the Partnership. The annual management fee is 1% of rental
receipts, as defined, increasing to 1-1/2% when payments of interest
on the investment loans and distributions of net cash flow to the
partners equal or exceed 9% of the outstanding investment loans and
capital contributed, as defined. Leasing commissions are calculated in
accordance with the management agreement and are generally consistent
with industry guidelines.
Compensation for these services for the years ended December 31,
1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Management fees $293,539 $298,509 $198,759
Leasing costs 300,597 285 55,712
-------- -------- --------
$594,136 $298,794 $254,471
======== ======== ========
</TABLE>
The amount payable to MRC for leasing costs at December 31, 1996
was $30,506.
(b) Maintenance Services
Maintenance services for the property are provided at cost plus
an allocable share of overhead expenses by a company that is
controlled by the controlling stockholder of Mendik 1740 Corp.
Services of the building engineers are provided at cost. Profits
earned from direct tenant services are shared equally with the
Partnership.
For the years ended December 31, 1996, 1995 and 1994, cleaning
and related expenses were $1,712,745, $1,554,121 and $1,396,463,
engineering and preventive maintenance was $505,151, $526,814 and
$441,505, and the Partnership's share of the profits from tenant
services was $82,848, $95,874 and $93,719, respectively. Amounts
receivable from the maintenance services company were $19,032 and
$96,091 at December 31, 1996 and 1995, respectively.
(Continued)
-11-
<PAGE> 48
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS (Continued)
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose stockholder is
the controlling stockholder of Mendik 1740 Corp. Profits earned from
direct tenant services are shared equally with the Partnership.
Security services provided by this company for the years ended
December 31, 1996, 1995 and 1994 were $345,432, $409,988 and $343,986,
respectively.
9 - LEASE ARRANGEMENTS
Space in the building is rented to a large number of tenants under
various lease agreements. These leases, which are classified as operating
leases, include renewal options and provisions for additional rent based on
increases in property taxes, operating expenses and utilities over base
period amounts.
Approximate minimum future rentals required under operating leases at
December 31, 1996, excluding rentals that are cancelable at the tenant's
option, are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 19,273,000
1998 14,592,000
1999 15,684,000
2000 14,926,000
2001 14,471,000
Thereafter 150,909,000
------------
$229,855,000
</TABLE>
Escalations (contingent rentals) included in rental income were
$1,321,308, $1,551,127 and $1,431,149 for the years ended December 31,
1996, 1995 and 1994, respectively.
(Continued)
-12-
<PAGE> 49
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
9 - LEASE ARRANGEMENTS (Continued)
Approximately 41% of base rental income for the year ended December
31, 1995 was derived from an insurance company under several leases
expiring between February 28, 1998 and December 31, 2002. Another tenant's
annual base rent, under a lease expiring December 31, 1997, was
approximately 12% of base rental income for 1995. A third tenant's annual
base rent, under a lease expiring December 14, 2007, represented
approximately 11% of base rental income.
Approximately 39% of base rental income for the year ended December
31, 1996 was derived from the insurance company under several leases
expiring between February 28, 1998 and May 31, 2016. The second tenant
mentioned above terminated its lease effective August 1, 1996, as described
in Note 6(a). The third tenant accounted for approximately 13% of base
rental income for 1996. All of these leases provide for additional rents
based on increases in certain expenses over base period amounts.
10 - TENANTS' SECURITY DEPOSITS
In addition to cash deposits, the Partnership is holding letters of
credit of $705,494 at December 31, 1996 and 1995 as tenants' security
deposits pursuant to lease agreements.
11 - COMMITMENTS
The Partnership has agreed to reimburse a tenant up to a maximum of
approximately $2,900,000 for Initial Tenant Changes, as defined. At
December 31, 1996 and 1995, the Partnership has paid approximately
$1,650,000 for such changes.
The Partnership has agreed to reimburse a second tenant approximately
$5,050,000 for alterations on various areas. At December 31, 1996, only
nominal costs have been incurred.
-13-
<PAGE> 50
ANNEX D
866 U.N. PLAZA ASSOCIATES LLC
(A LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 51
866 U.N. PLAZA ASSOCIATES LLC
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Members' Equity Deficiency 5
Notes to Financial Statements 6-14
<PAGE> 52
[LETTERHEAD] 1700 BROADWAY
FRIEDMAN NEW YORK, NY 10019
ALPREN & 212-582-1600
GREEN LLP FAX 212-265-4761
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF 866 U.N. PLAZA ASSOCIATES LLC
We have audited the accompanying balance sheet of 866 U.N. PLAZA
ASSOCIATES LLC (a limited liability company) as of December 31, 1996 and 1995,
and the related statements of income, cash flows and changes in members' equity
deficiency for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 866 U.N. PLAZA ASSOCIATES
LLC as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ Friedman Alpren & Green LLP
January 15, 1997, except for
Note 2, as to which the date
is March 12,1997
-1-
<PAGE> 53
866 U.N. PLAZA ASSOCIATES LLC
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
- ------
Property and improvements - at cost, less accumulated
depreciation and amortization - 1996 - $16,028,152;
1995 - $14,958,830 - Note 4 $ 13,420,975 $ 13,893,568
Cash and short-term investments 4,132,259 3,164,525
Investment in U.S. Treasury obligations and marketable
security - Note 3 9,675,238 8,327,190
Receivables - Note 5 3,761,165 5,087,724
Prepaid leasing costs 1,606,397 1,851,500
Other prepayments 69,492 63,890
Unamortized mortgage costs 221,309 264,757
Tenants' security deposits - Note 9 444,401 343,124
------------ ------------
$ 33,331,236 $ 32,996,278
============ ============
LIABILITIES AND MEMBERS' EQUITY DEFICIENCY
Liabilities
Mortgages payable - Note 6 $ 49,779,004 $ 49,729,004
Accrued mortgage interest payable 178,709 240,736
Accounts payable and accrued expenses 269,263 306,810
Improvements payable 52,887 36,083
Tenants' security deposits payable 444,401 343,124
------------ ------------
50,724,264 50,655,757
Commitment - Note 10 -- --
Members' equity deficiency (17,393,028) (17,659,479)
------------ ------------
$ 33,331,236 $ 32,996,278
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 54
866 U.N. PLAZA ASSOCIATES LLC
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Rental income $ 12,257,747 $ 12,234,046 $ 12,371,657
Lease cancellation income 13,915 138,230 19,878
Interest and dividends 607,161 645,681 545,947
Loss on sale of marketable securities, net -- -- (49,700)
------------ ------------ ------------
12,878,823 13,017,957 12,887,782
------------ ------------ ------------
Expenses
Renting 21,463 23,660 17,442
Administrative 473,974 506,360 496,608
Operating 3,458,780 3,292,711 3,281,969
Real estate taxes 2,710,171 2,896,483 3,059,875
------------ ------------ ------------
6,664,388 6,719,214 6,855,894
------------ ------------ ------------
Income before interest expense and
depreciation and amortization 6,214,435 6,298,743 6,031,888
Interest expense 3,782,762 4,264,946 4,280,929
------------ ------------ ------------
Income before depreciation and
amortization 2,431,673 2,033,797 1,750,959
Depreciation and amortization 1,593,933 1,620,500 1,580,989
------------ ------------ ------------
Net income $ 837,740 $ 413,297 $ 169,970
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 55
866 U.N. PLAZA ASSOCIATES LLC
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 837,740 $ 413,297 $ 169,970
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 1,069,322 1,083,537 1,079,105
Amortization of leasing and mortgage costs 524,613 536,963 501,884
Loss on sale of marketable securities -- -- 49,700
Changes in assets and liabilities
Accrued interest receivable ( 14,896) 9,807 ( 71,984)
Receivables 416,059 328,460 ( 439,653)
Prepaid leasing costs ( 155,290) ( 250,145) ( 107,116)
Other prepayments ( 18,092) ( 29,856) ( 12,084)
Accrued mortgage interest payable ( 62,027) 81,341 ( 91,385)
Accounts payable and accrued expenses ( 37,547) 77,451 ( 11,605)
Leasing costs payable -- ( 11,504) ( 156,288)
Tenants' security deposits ( 101,277) ( 12,551) ( 7,213)
Tenants' security deposits payable 101,277 12,551 7,213
----------- ----------- -----------
Net cash provided by operating activities 2,559,882 2,239,351 910,544
----------- ----------- -----------
Cash flows from investing activities
Acquisition of property and improvements ( 763,396) (1,135,328) (1,350,403)
Con Edison rebate - improvements 166,667 -- --
Receivable from cooperative apartment
corporations - improvements 910,500 ( 910,500) --
Escrow deposits - tenant improvements 16,804 368,154 818,240
Purchase of U.S. Treasury obligations (8,008,823) (6,734,506) (9,159,490)
Sale and redemption of U.S. Treasury obligations 6,576,416 7,248,382 6,764,960
Purchase of marketable debt security ( 32,032) ( 317,017) --
Sale of marketable securities -- -- 2,586,618
----------- ----------- -----------
Net cash used in investing activities (1,133,864) (1,480,815) ( 340,075)
----------- ----------- -----------
Cash flows from financing activities
Mortgage principal payments - Equitable -- ( 62,305) ( 65,926)
Mortgage payable - Sumitomo 50,000 -- --
Mortgage costs ( 68,282) -- (3,964)
Distributions to members ( 440,002) ( 440,002) ( 330,000)
----------- ----------- -----------
Net cash used in financing activities (458,284) ( 502,307) ( 399,890)
----------- ----------- -----------
Net increase in cash and short-term investments 967,734 256,229 170,579
Cash and short-term investments, beginning of year 3,164,525 2,908,296 2,737,717
----------- ----------- -----------
Cash and short-term investments, end of year $ 4,132,259 $ 3,164,525 $ 2,908,296
=========== =========== ===========
Supplemental cash flow disclosures
Interest paid $ 3,844,789 $ 4,183,605 $ 4,372,314
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 56
866 U.N. PLAZA ASSOCIATES LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
The Mendik Ambassador
Company, Lawrence E. Menby Construction Madlyn
Total L.P. Goldschmidt Associates Co., Inc. Braverman
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $(17,658,190) $( 6,586,773) $( 1,162,382) $( 7,206,844) $( 540,026) $( 486,542)
Net income 169,970 72,237 12,748 61,810 4,632 4,173
Distributions ( 330,000) ( 140,250) ( 24,750) ( 120,003) ( 8,993) ( 8,102)
Unrealized loss on U.S. Treasury
obligations ( 275,318) ( 117,010) ( 20,649) ( 100,120) ( 7,503) ( 6,759)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 (18,093,538) ( 6,771,796) ( 1,195,033) ( 7,365,157) ( 551,890) ( 497,230)
Net income 413,297 175,650 30,998 150,297 11,264 10,147
Distributions ( 440,002) ( 187,001) ( 33,000) ( 160,006) ( 11,990) ( 10,802)
Reversal of prior year unrealized
loss on U.S. Treasury obligations 275,318 117,010 20,649 100,120 7,503 6,759
Unrealized gain on U.S. Treasury
obligations 185,446 78,814 13,909 67,438 5,054 4,553
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 (17,659,479) ( 6,587,323) ( 1,162,477) ( 7,207,308) ( 540,059) ( 486,573)
Net income 837,740 356,040 62,831 304,602 22,870 20,525
Distributions ( 440,002) ( 187,001) ( 33,000) ( 160,006) ( 11,990) (10,802)
Reversal of prior year unrealized
gain on U.S. Treasury obligations ( 185,446) ( 78,814) ( 13,909) ( 67,438) ( 5,054) ( 4,553)
Unrealized gain on U.S. Treasury
obligations 54,159 23,017 4,062 19,693 1,478 1,327
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $(17,393,028) $( 6,474,081) $( 1,142,493) $( 7,110,457) $( 532,755) $( 480,076)
============ ============ ============ ============ ============ ============
<CAPTION>
Leonard A. Ronald S. Jesse Bernard H. Vicki A.
Lauder Lauder Fierstein Mendik Albert
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $( 180,360) $( 180,360) $( 486,542) $( 774,878) $( 53,483)
Net income 1,546 1,546 4,173 6,646 459
Distributions ( 3,003) ( 3,003) ( 8,102) ( 12,903) ( 891)
Unrealized loss on U.S. Treasury
obligations ( 2,505) ( 2,505) ( 6,759) ( 10,765) ( 743)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 ( 184,322) ( 184,322) ( 497,230) ( 791,900) ( 54,658)
Net income 3,760 3,760 10,147 16,160 1,114
Distributions ( 4,004) ( 4,004) ( 10,802) ( 17,205) ( 1,188)
Reversal of prior year unrealized
loss on U.S. Treasury obligations 2,505 2,505 6,759 10,765 743
Unrealized gain on U.S. Treasury
obligations 1,687 1,687 4,553 7,251 500
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 ( 180,374) ( 180,374) ( 486,573) ( 774,929) ( 53,489)
Net income 7,623 7,623 20,608 32,756 2,262
Distributions ( 4,004) ( 4,004) ( 10,802) ( 17,205) ( 1,188)
Reversal of prior year unrealized
gain on U.S. Treasury obligations ( 1,687) ( 1,687) ( 4,553) ( 7,251) ( 500)
Unrealized gain on U.S. Treasury
obligations 493 493 1,332 2,118 146
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $( 177,949) $( 177,949) $( 479,988) $( 764,511) $( 52,769)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 57
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
In 1978, 866 U.N. Plaza Associates (a general partnership) was
organized and acquired the commercial property located at 866 United
Nations Plaza, New York, New York. Most of the space in the building is
generally leased to missions to the United Nations.
Effective September 8, 1995, the Partnership converted to a limited
liability company. Ownership percentages were unchanged by the conversion,
and the Partnership's income tax basis for assets and liabilities carried
over to the limited liability company. Amounts previously designated as
partners' capital deficiency have been reclassified to members' equity
deficiency for comparative purposes.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Company obtained the consent of its members to
participate in an offering of shares of common stock in accordance with a
preliminary registration statement filed with the Securities and Exchange
Commission on December 18, 1996. On March 12, 1997, the Company entered
into an agreement with Vornado Realty Trust, a publicly traded real estate
investment trust ("REIT"). The members will be resolicited to obtain their
consents to participate in this transaction, under terms and conditions
similar to those stated in the private placement memorandum dated November
11, 1996. The REIT is a fully integrated, self-administered and
self-managed real estate company which has qualified as a real estate
investment trust for Federal income tax purposes. Upon completion of the
transaction, it is anticipated that the Company will be owned by a company
controlled by the REIT.
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
(Continued)
-6-
<PAGE> 58
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement No. 13.
One of these provisions requires the recognition of scheduled rent
increases and deferred rent concessions on a straight-line basis over the
lease term. Included in rental income for the years ended December 31,
1996, 1995 and 1994 is $(343,598), $47,159 and $292,589, respectively,
representing the accrual (reduction) required by this provision (see Note
5).
(c) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization is computed over estimated useful asset lives or periods,
primarily on the straight-line basis.
Details are as follows:
Asset Asset Lives or Periods
----------------------- ----------------------
Building Lives of the building's components, ranging
from 3 to 30 years
Building improvements 15 to 39 years
Furniture and equipment 5 to 7 years
Tenant improvements Term of related lease
Leasing costs Term of related lease
Mortgage costs Term of mortgage
(Continued)
-7-
<PAGE> 59
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Investment in U.S. Treasury Obligations and Marketable Security
U.S. Treasury obligations and the marketable security are classified
as available-for-sale in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", and are carried at fair value. The net
unrealized gain (loss) at December 31, 1996, 1995 and 1994 (presented as a
component of members' equity deficiency) was $54,159, $185,446 and
$(275,318), respectively. Contractual maturities (including accrued
interest) of the U.S. Treasury obligations at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Within 1 year $1,822,539 $1,233,539
1 to 4 years 7,491,226 6,776,634
---------- ----------
$9,313,765 $8,010,173
========== ==========
</TABLE>
Accrued interest included in the investment in U.S. Treasury
obligations is $125,512 and $106,407 at December 31, 1996 and 1995,
respectively.
The fair value of the marketable security, an investment in a mutual
fund, was $361,473 and $317,017 at December 31, 1996 and 1995,
respectively.
(e) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments", as amended, requires certain entities to disclose
the fair value of specified financial instruments for which it is
practicable to estimate that value. The fair value of the U.S. Treasury
Bill and U.S. government discount notes included in short-term investments
approximates carrying value. The fair values of the investment in U.S.
Treasury obligations and the investment in the marketable security are
presented in Note 3(d). It was not practicable to estimate the fair value
of the mortgages payable at December 31, 1996 and 1995 because quoted
market prices do not exist and estimates could not be made through other
means without incurring excessive costs.
(Continued)
-8-
<PAGE> 60
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Income Taxes
The Company is not a taxpaying entity for income tax purposes and,
accordingly, no provision has been made for income taxes. The members'
allocable shares of the Company 's taxable income or loss are reportable on
their income tax returns.
(g) Cash and Short-Term Investments
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be short-term investments.
Cash balances of approximately $3,827,000 and $1,958,000 at December
31, 1996 and 1995, respectively, are maintained in one bank and are insured
by the Federal Deposit Insurance Corporation up to a maximum of $100,000.
Short-term investments at December 31, 1995 include a U.S. Treasury Bill
with a cost of approximately $1,035,000.
4 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 4,279,686 $ 4,279,686
Building 12,210,181 12,210,181
Building improvements 3,120,210 3,105,450
Tenant improvements 8,530,973 7,968,075
Furniture and equipment 443,832 443,832
Improvements in progress 864,245 845,174
----------- -----------
29,449,127 28,852,398
Less - Accumulated depreciation
and amortization 16,028,152 14,958,830
----------- -----------
$13,420,975 $13,893,568
=========== ===========
</TABLE>
(Continued)
-9-
<PAGE> 61
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
5 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Receivable from tenants
Billed and not collected $ 88,399 $ 155,615
Escalation accruals 82,368 10,627
Accruals required by FASB
Statement No. 13 - Note 3(b) 3,459,423 3,803,021
Cooperative apartment corporations
860 West Tower, Inc. 80,768 512,609
870 East Tower, Inc. 50,207 480,084
Due from maintenance services
company - Note 7(b) -- 125,768
---------- ----------
$3,761,165 $5,087,724
========== ==========
</TABLE>
6 - MORTGAGES PAYABLE
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Sumitomo Trust and Banking Co., Ltd. (a) $49,779,004 $40,000,000
The Equitable Life Assurance
Society of the United States (b) -- 9,729,004
----------- -----------
$49,779,004 $49,729,004
=========== ===========
</TABLE>
(a) A credit facility of up to $50,000,000 exists with Sumitomo. The
facility is to be used as follows: (i) for working capital, tenant
improvements, leasing commissions and other purposes as determined by
the Company, (ii) to pay mortgage recording fees and taxes on
additional mortgages under this facility.
The mortgage constitutes a first mortgage lien on the land and a
second mortgage lien on the building and improvements and matures on
December 14, 1998, unless extended by the borrower to December 14,
2000. On January 2, 1996, in conjunction with the final advance under
the credit facility to purchase the Equitable mortgage, the existing
mortgages were consolidated to form a single first mortgage on the
property.
(Continued)
-10-
<PAGE> 62
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
6 - MORTGAGES PAYABLE (Continued)
Interest is payable monthly at either the LIBOR rate or a fixed rate
option. The fixed rate option has been chosen as indicated until December
14, 1998: $15,000,000 at 6.72%, $15,000,000 at 9.45%, $2,000,000 at 9.87%,
$1,000,000 at 9.25%, $7,000,000 at 6.75% and $9,779,004 at 6.10%.
(b) The first mortgage lien on the building and improvements, dated December
19, 1985, matured on January 1, 1996 and required monthly payments of
$96,180, including interest at 11-1/8%. On January 2, 1996, the mortgage
was purchased by Sumitomo Trust and Banking Co., Ltd.
7 - RELATED PARTY TRANSACTIONS
(a) Management and Leasing Services
Management and leasing services are provided to the Company by Mendik
Realty Company, Inc., which is a general partner of The Mendik Company,
L.P., a member of the Company. The annual management fee is 2-1/2% of gross
collections. Leasing commissions are calculated according to industry
guidelines.
A summary of the compensation for these services for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Management fees $329,099 $278,520 $334,073
Leasing costs 102,285 134,490 73,732
-------- -------- --------
$431,384 $413,010 $407,805
======== ======== ========
</TABLE>
(b) Maintenance Services
Maintenance services for the property are provided at cost plus an
allocable share of overhead expenses by a company controlled by a general
partner of The Mendik Company, L.P. Services of building engineers are
provided at cost. Profits earned from direct tenant services are shared
with the Company.
(Continued)
-11-
<PAGE> 63
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
7 - RELATED PARTY TRANSACTIONS (Continued)
(b) Maintenance Services (Continued)
For the years ended December 31, 1996, 1995 and 1994, cleaning and
related services were $1,242,097, $1,104,670 and $1,115,881, engineering
and preventive maintenance services were $963,120, $1,029,500 and $889,136,
and the Company's share of profits from tenant services was $26,801,
$29,629 and $44,174, respectively. The amount payable to the maintenance
services company at December 31, 1996 was $5,467. The amount receivable
from the maintenance services company at December 31, 1995 was $125,768.
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose stockholder is a
general partner of The Mendik Company, L.P. Profits earned from direct
tenant services are shared with the Company. Security services for the
years ended December 31, 1996, 1995 and 1994 were $339,494, $332,503 and
$323,776, respectively.
(d) Construction Services
Ambassador Construction Co., Inc., a member of the Company, provides
construction and related services for the property. Costs for the years
ended December 31, 1996, 1995 and 1994 were $162,748, $385,242 and
$1,033,380, respectively.
8 - LEASE ARRANGEMENTS
Space in the building is rented to a large number of tenants under various
lease agreements. These leases, which are classified as operating leases,
include renewal options and provisions for additional rent based on increases in
real estate taxes, operating expenses or porter wage rates, utilities and the
Consumer Price Index over base period amounts.
(Continued)
-12-
<PAGE> 64
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
8 - LEASE ARRANGEMENTS (Continued)
Approximate minimum future rentals required under operating leases at
December 31, 1996, excluding rentals that are cancelable at the tenant's
option, are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 9,849,000
1998 7,430,000
1999 6,601,000
2000 5,765,000
2001 5,275,000
Thereafter 17,061,000
----------
$51,981,000
===========
</TABLE>
Escalations (contingent rentals) included in rental income were $773,995,
$808,437 and $1,030,647 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Approximately 21% of base rental income is derived from a tenant whose
lease expires October 30, 1997 and whose base rent is approximately $2,200,000.
Another tenant's lease, which provides for an annual base rent of approximately
$1,092,000 (approximately 10% of base rental income), expires March 31, 2006.
9 - TENANTS' SECURITY DEPOSITS
In addition to cash deposits, the Company is holding letters of credit of
$109,840 at December 31, 1996 and 1995, pursuant to lease agreements.
(Continued)
-13-
<PAGE> 65
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
10 - COMMITMENT
The Company is in the process of installing new state-of-the-art air
conditioning equipment in the property. The total cost of the project will
be approximately $3,600,000, of which approximately $500,000 will be funded
by a Con Edison rebate program. In addition, the cooperative apartment
corporations will fund approximately $2,070,000, representing two-thirds of
the balance. The net cost of the project to the Company will be
approximately $1,030,000.
At December 31, 1996, approximately $3,073,000 of the total cost of
the project has been incurred, of which $1,725,000 has been billed to the
cooperative apartment corporations. At December 31, 1995, approximately
$1,400,000 had been incurred, of which $910,000 had been billed to the
cooperative apartment corporations.
-14-
<PAGE> 66
Annex E
Two Park Company
(A New York General Partnership)
Financial Statements
December 31, 1996 and 1995
<PAGE> 67
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report
The Partners
Two Park Company:
We have audited the accompanying balance sheets of Two Park Company (a New
York general partnership) as of December 31, 1996 and 1995, and the related
statements of operations, changes in partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Two Park Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG Pear Marwick LLP
March 14, 1997
<PAGE> 68
TWO PARK COMPANY
<TABLE>
<CAPTION>
================================================================================================
BALANCE SHEETS AT DECEMBER 31, AT DECEMBER 31,
1996 1995
- ------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Property and improvements (Note 4) $ 99,905,783 $153,245,733
Cash and cash equivalents 3,685,644 2,993,717
Restricted cash 450,398 594,200
U.S. Treasuries and Agencies, net of unamortized premium
of $1,604 in 1996 and $20,373 in 1995 2,121,910 2,458,794
Rent and other receivables
net of allowance for doubtful accounts of
$118,611 in 1996 and $65,009 in 1995 411,588 505,539
Deferred rent receivable 9,907,586 7,831,616
Leasing costs, less accumulated amortization of
$4,521,623 in 1996 and $3,662,905 in 1995 6,701,968 7,561,649
Mortgage costs, less accumulated amortization of
$1,563,160 in 1996 and $1,587,661 in 1995 325,509 576,103
Other assets 285,128 307,444
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $123,795,514 $176,074,795
================================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable (Note 6) $ 65,000,000 $ 65,000,000
Accrued interest payable 553,263 553,263
Accounts payable and accrued expenses 358,088 398,477
Due to affiliates (Note 7) 706,714 847,058
Security deposits payable 450,398 594,200
Improvements payable 31,007 227,289
Deferred rental income 6,515,337 7,355,711
-------------------------------
Total Liabilities 73,614,807 74,975,998
Partners' Capital 50,180,707 101,098,797
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $123,795,514 $176,074,795
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
M/H
TWO PARK B & B PARK
TOTAL ASSOCIATES AVENUE LP
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 107,149,063 $ 64,285,838 $ 42,863,225
Net loss (3,344,017) (2,006,410) (1,337,607)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $ 103,805,046 $ 62,279,428 $ 41,525,618
Net loss (2,706,249) (1,623,749) (1,082,500)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 101,098,797 $ 60,655,679 $ 40,443,118
Net loss (50,918,090) (30,550,854) (20,367,236)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ 50,180,707 $ 30,104,825 $ 20,075,882
===========================================================================================
</TABLE>
2
<PAGE> 69
TWO PARK COMPANY
<TABLE>
<CAPTION>
===================================================================================================================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Rental $ 23,143,570 $ 21,387,332 $ 19,813,810
Tenant expense reimbursements 2,106,736 2,369,564 2,857,458
Interest 207,478 138,906 219,612
------------------------------------------------------
Total income 25,457,784 23,895,802 22,890,880
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Operating 6,736,363 6,879,327 6,629,875
Depreciation and amortization 8,194,646 7,548,566 7,026,980
Real estate taxes 3,949,017 3,905,082 4,161,549
Interest expense 6,532,083 7,533,674 7,619,110
Administrative 779,205 703,006 772,086
Renting 36,004 32,396 25,297
Provision for write-down of property and improvements 50,148,556 -- --
------------------------------------------------------
Total expenses 76,375,874 26,602,051 26,234,897
- -------------------------------------------------------------------------------------------------------------------
NET LOSS $(50,918,090) $ (2,706,249) $ (3,344,017)
===================================================================================================================
</TABLE>
3
<PAGE> 70
TWO PARK COMPANY
<TABLE>
<CAPTION>
==========================================================================================================================
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(50,918,090) $ (2,706,249) $(3,344,017)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for write-down of property and improvements 50,148,556 -- --
Depreciation and amortization 8,194,646 7,548,565 7,026,980
Net premium (discount) amortization - U.S. Treasuries
and agencies (25,350) 50,092 (32,175)
Provision for losses on rents and receivables -- -- 384,916
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 143,802 (19,910) (31,857)
Rent and other receivables 93,951 13,885 (388,444)
Deferred rent receivable (2,075,970) 5,113,158 (234,949)
Leasing costs (112,770) (2,663,345) (1,123,135)
Other assets 22,316 (233,431) 170,569
Accrued interest payable -- (91,494) 27,617
Accounts payable and accrued expenses (40,389) (174,707) 203,374
Due to affiliates (140,344) 411,377 345,526
Security deposits payable (143,802) 19,910 31,857
Deferred income (840,374) 7,281,441 (158,457)
-----------------------------------------------------
Net cash provided by operating activities 4,306,182 14,549,292 2,877,805
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and improvements (3,976,489) (5,651,860) (4,147,411)
Acquisition of U.S. Treasuries and Agencies (3,021,038) (3,574,183) (4,659,415)
Redemption of U.S. Treasuries and Agencies 3,383,272 4,074,449 4,565,357
-----------------------------------------------------
Net cash used for investing activities (3,614,255) (5,151,594) (4,241,469)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable -- (10,000,000) --
-----------------------------------------------------
Net cash used for financing activities -- (10,000,000) --
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 691,927 (602,302) (1,363,664)
Cash and cash equivalents, beginning of period 2,993,717 3,596,019 4,959,683
-----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,685,644 $ 2,993,717 $ 3,596,019
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 6,532,083 $ 7,625,168 $ 7,591,493
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE> 71
TWO PARK COMPANY
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
Two Park Company, a New York general partnership (the "Partnership"), was
organized on December 18, 1986 for the purpose of acquiring, maintaining and
operating the property located at Two Park Avenue, New York, New York (the
"Property"). The Property is a 28-story office building that contains
approximately 948,000 net rentable square feet. The building includes two lower
levels consisting of a subway concourse, a small tenant garage containing
approximately 43 spaces, rentable storage areas and mechanical facilities. The
Property was acquired on December 22, 1986.
2. THE PARTNERSHIP AGREEMENT
CAPITAL CONTRIBUTIONS Capital contributions have been funded 60% by M/H Two Park
Associates and 40% by B&B Park Avenue L.P. Additional capital contributions as
required will be funded in the same ratio.
DISTRIBUTIONS Cash flow, as defined in the Partnership Agreement, is to be
distributed within 10 days after each fiscal quarter in the same ratio as the
capital contributions.
ALLOCATION OF NET INCOME AND NET LOSS Net income and net loss are to be
allocated in accordance with the "Distribution Percentages" as long as capital
account balances are positive. Otherwise net loss is allocated as follows;
first, to the extent of positive capital account balances in accordance with the
distribution percentages, then to the partner, if any, whose account balance is
positive until such capital account is reduced to zero and then in accordance
with the distribution percentages.
ALLOCATION OF GAINS AND LOSSES FROM CAPITAL TRANSACTIONS These items are to be
allocated first to increase or decrease the capital accounts to zero and then in
accordance with the distribution percentages.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RENTAL INCOME AND DEFERRED RENT The Partnership rents its property to tenants
under operating leases with various terms. Deferred rent receivable and deferred
rental income consist of rental income which is recognized on the straight-line
basis over the lease terms in accordance with the provisions of Statement of
Financial Accounting Standards No. 13 "Accounting for Leases".
REAL ESTATE Property and improvements are stated at cost less accumulated
depreciation and amortization and less any write-down for impairment in carrying
value. Depreciation and amortization charges are computed using the
straight-line method over the following estimated useful asset lives:
<TABLE>
<CAPTION>
Asset Useful Asset Life
----- -----------------
<S> <C>
Building 35 years
Building improvements 31-1/2 years
Tenant improvements Term of related lease
Furniture, fixtures and equipment 5-7 years
</TABLE>
ACCOUNTING FOR IMPAIRMENT In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("FAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amounts. FAS 121 also addresses the accounting for long
lived assets that are expected to be disposed of. The Partnership adopted FAS
121 in the fourth quarter of 1995.
5
<PAGE> 72
TWO PARK COMPANY
FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires the Partnership disclose the estimated fair values of its financial
instruments. Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties in a current
transaction other than in a forced liquidation.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgement regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. In addition, FAS 107 allows a wide
range of valuation techniques, therefore, comparisons between entities, however
similar, may be difficult.
LEASING COSTS Leasing costs are capitalized and amortized over the terms of the
respective leases.
MORTGAGE COSTS Mortgage costs are capitalized and amortized over the terms of
the mortgages payable.
INCOME TAXES The Partnership allocates all profits, losses and other taxable
items to the partners. No provision for income taxes is made in the financial
statements as the liabilities for such taxes are those of the partners rather
than the Partnership.
RESTRICTED CASH Restricted cash consists of tenant security deposits.
CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid
investments which have maturities of three months or less from the date of
issuance. The carrying value approximates the fair value of these assets because
of the short maturity of these instruments.
MARKETABLE SECURITIES Marketable securities, which consist of United States
Treasury securities and Agencies, are carried at amortized cost, which
approximates market.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management's review of recoverability of the carrying amount
of the Property and related accounts is one such estimate. Actual results could
differ from those estimates.
4. PROPERTY AND IMPROVEMENTS
A summary of property and improvements follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Land $ 17,389,411 $ 26,118,173
Building and improvements 69,188,976 142,995,340
Tenant improvements 13,244,146 30,436,260
Furniture, fixtures & equipment 83,250 1,478,302
-----------------------------------
99,905,783 201,028,075
Less - Accumulated depreciation
and amortization -- (47,782,342)
-----------------------------------
Property and improvements $ 99,905,783 $ 153,245,733
Leasing costs 6,701,968 7,561,649
Deferred rent receivable 9,907,586 7,831,616
Deferred rental income (6,515,337) (7,355,711)
-----------------------------------
$ 110,000,000 $ 161,283,287
-----------------------------------
</TABLE>
6
<PAGE> 73
TWO PARK COMPANY
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the Property and related accounts based
upon estimated undiscounted cash flows expected to result from the Property's
use and eventual disposition. As of December 31, 1995, it was management's
intention to hold the Property for long-term investment and, therefore
management concluded that the sum of the undiscounted future cash flows
estimated to be generated by the Property over the investment's estimated
holding period was greater than its carrying value.
Based upon continued improvements in the Midtown Manhattan commercial real
estate market in 1996, management reassessed their investment strategy.
Currently, management anticipates positioning the Property for sale over the
next 12 to 24 months and, as a result, the sum of the undiscounted future cash
flow estimated to be generated by the Property over this shorter holding period
is less than its carrying value. Based on the guidance of FAS 121, the
Partnership recorded a provision of $50,148,556 to reduce the Property's
carrying value to its estimated fair value of $110,000,000 at December 31, 1996.
The fair value was obtained from an appraisal report prepared by an independent
appraiser.
5. TENANTS' SECURITY
Additional security pledged in the form of letters of credit and U.S. Treasury
Notes of approximately $1,605,980 have been established by various tenants as
security for payments due under their leases.
6. MORTGAGES PAYABLE
A summary of mortgages payable to a lender follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
9.75% mortgage note $60,000,000 $60,000,000
11.50% mortgage note 5,000,000 5,000,000
----------------------------------
$65,000,000 $65,000,000
----------------------------------
</TABLE>
The $60,000,000 first mortgage is for a term of twelve years and accrues
interest at the rate of 9.75% per annum. Interest only is payable in monthly
installments until the maturity date (December 19, 1998) at which time the full
amount of principal and any accrued interest shall be due and payable. On June
15, 1989, the Partnership placed a second mortgage on the Property in the amount
of $10,000,000. Interest only was payable in monthly installments at a rate of
10.791% through June 15, 1992 and thereafter at the rate of 10.625% through
December 19, 1998 at which time the full amount of principal and any accrued
interest would have been due and payable. In November 1995, the Partnership
prepaid, without penalty, the $10,000,000 second mortgage from proceeds received
from a tenant under a lease extension agreement. On December 26, 1990, the
Partnership placed a third mortgage on the Property in the amount of $5,000,000.
Interest only is payable in monthly installments at a rate of 11.5% through its
maturity date (December 19, 1998) at which time the full amount of principal and
any accrued interest shall be due and payable.
The lender has the right to accelerate the maturity date of the mortgages to a
date not earlier than December 31, 1996, upon at least 180 days prior notice
(June 19, 1996). Effective January 1, 1995, the loans are payable to Portfolio U
Holdings Corporation, a sole stockholder of a general partner and a limited
partner in B & B Park Avenue L.P.
Based on the maturity date and call feature of the mortgage notes, the fair
value of the mortgages payable approximates their carrying value.
7. RELATED PARTY TRANSACTIONS
MANAGEMENT SERVICES Management services are provided by Mendik Realty Company,
Inc. ("MRC"), an affiliate of a general partner of each of the partners in the
Partnership. The annual management fee is 2% of gross operating revenues, as
defined. Management fees for the years ended December 31, 1996, 1995 and 1994
were $494,916, $444,572 and $448,433, respectively.
7
<PAGE> 74
TWO PARK COMPANY
LEASING SERVICES Leasing services are provided to the Partnership by MRC and
other unaffiliated brokers. Leasing commissions are calculated in accordance
with the management agreement and are generally consistent with industry
guidelines; however, a 25% override is payable to MRC when an unaffiliated
broker is used. If the cost of all leasing services exceeds 3% of gross
operating revenue, as defined, the fees otherwise payable to MRC will be
deferred and payable only if such 3% limit is not exceeded in any subsequent
year. No leasing commissions were paid during the years ended December 31, 1996,
1995 and 1994. The deferred liabilities to MRC as of December 31, 1996 and 1995
were approximately $706,714 and $610,877, respectively.
MAINTENANCE SERVICES Building Maintenance Service LLC, ("BMS"), an affiliate of
a general partner of each of the partners of the Partnership, provides cleaning
and related services and metal and marble cleaning services to the Partnership.
These services, provided by BMS at its cost (plus an allocable share of overhead
expenses), totalled $2,477,553, $2,620,086 and $2,304,719 for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, BMS provides
engineering services to the Partnership. The salaries and benefits of the
Property's engineering staff totalled $451,654, $494,647 and $464,818 for the
years ended December 31, 1996, 1995 and 1994, respectively.
SECURITY SERVICES Guard Management Service Corporation, an affiliate of a
general partner of each of the partners of the Partnership, provides security
services to the Partnership at its cost (plus an allocable share of overhead
expenses), totalling $300,951, $274,372 and $286,297 for the years ended
December 31, 1996, 1995 and 1994, respectively.
8. RENTAL INCOME UNDER OPERATING LEASES
Space in the building is rented to tenants under various lease agreements. These
leases, which are classified as operating leases, include renewal options and
provisions for additional rent based on increases in real estate taxes,
operating expenses and utilities over predetermined amounts. Future annual
minimum rental payments to be received from operating leases (which are not
cancellable by their terms) are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 $ 20,552,245
1998 18,472,801
1999 16,143,353
2000 15,014,726
2001 15,902,106
Thereafter 112,024,128
------------
$198,109,359
------------
</TABLE>
The Property was 98%, 97% and 92% leased at December 31, 1996, 1995 and 1994,
respectively. As of December 31, 1996, significant tenants of the office
building are Times Mirror Company Inc. and Smith Barney. Times Mirror
Company Inc. leases approximately 287,000 square feet under various leases
scheduled to expire in 2010. Smith Barney leases approximately 100,000
square feet under a lease scheduled to expire in May 1998. The Times Mirror
Company Inc. and Smith Barney leases generated 25% and 12%, respectively, of
the Property's 1996 rental income.
9. COMMITMENTS
Pursuant to the terms of leases with various tenants, the Partnership is
obligated to pay approximately $1.8 million of the cost of alterations to be
made to the leased premises. As of December 31, 1996, approximately $1.4 million
of these costs have been incurred.
8
<PAGE> 1
EXHIBIT 99.4
Annex F
B&B PARK AVENUE L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
5
<PAGE> 2
B&B PARK AVENUE L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Operations 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital 5
Notes to Financial Statements 6-9
6
<PAGE> 3
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF B&B PARK AVENUE L.P.
We have audited the accompanying balance sheet of B&B PARK AVENUE L.P. (a
limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, cash flows and changes in partners' capital for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the managing general partner. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Two Park Company, a
general partnership, the investment in which, as discussed in Note 4 to the
financial statements, is accounted for by the equity method of accounting. The
investment in Two Park Company was $17,935,304 and $17,543,118 as of December
31, 1996 and 1995, respectively, and the distributive share of its net income
(loss) was $392,186, $(382,500) and $(637,607) for the years ended December 31,
1996, 1995 and 1994, respectively. The financial statements of Two Park Company
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for Two Park Company, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
managing general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of B&B PARK AVENUE L.P. as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ FRIEDMAN ALPREN & GREEN LLP
-------------------------------
January 15, 1997, except for
Note 2, as to which the date
is March 12, 1997
7
<PAGE> 4
B&B PARK AVENUE L.P.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Investment in Two Park Company - Notes 4 and 5 $17,935,304 $17,543,118
Cash 371 145,691
Due from maintenance services company - Note 6 712 78,064
----------- -----------
$17,936,387 $17,766,873
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued expenses $ 9,200 $ 9,700
Partners' capital 17,927,187 17,757,173
----------- -----------
$17,936,387 $17,766,873
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 5
B&B PARK AVENUE L.P.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Revenues
Distributive share of net income (loss) from
Two Park Company $ 392,186 $(382,500) $(637,607)
Rebate, maintenance services company -
Note 6 49,712 82,377 79,795
Interest income 3,612 1,044 --
--------- --------- ---------
445,510 (299,079) (557,812)
Expenses
Professional fees 60,496 82,610 45,608
--------- --------- ---------
Net income (loss) $ 385,014 $(381,689) $(603,420)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 6
B&B PARK AVENUE L.P.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 385,014 $(381,689) $(603,420)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Distributive share of net (income) loss from
Two Park Company (392,186) 382,500 637,607
Changes in assets and liabilities
Due from maintenance services company 77,352 ( 2,727) ( 29)
Accrued expenses ( 500) ( 10,700) 15,400
--------- --------- ---------
Net cash provided by (used in)
operating activities 69,680 ( 12,616) 49,558
Cash flows from financing activities
Distributions to partners (215,000) -- --
--------- --------- ---------
Net decrease in cash (145,320) ( 12,616) 49,558
Cash, beginning of year 145,691 158,307 108,749
--------- --------- ---------
Cash, end of year $ 371 $ 145,691 $ 158,307
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 7
B&B PARK AVENUE L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners
---------------------------
General Partners
------------------------------- Carborundum
Nancy Mendik Center Bernard H.
Total Creek, Inc. Corporation Joint Venture Mendik
------------ ------------ ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 18,742,282 $ 58,492 $ (160,423) $ 18,844,213 $ --
Net loss (603,420) (6,004) ( 3,017) (594,399) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 18,138,862 52,488 (163,440) 18,249,814 --
Net loss (381,689) (3,798) ( 1,908) (375,983) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 17,757,173 48,690 (165,348) 17,873,831 --
Net income 385,014 3,830 1,926 379,258 --
Distributions (215,000) (2,150) -- (212,850) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 17,927,187 $ 50,370 $ (163,422) $ 18,040,239 $ -0-
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 8
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
B&B Park Avenue L.P., a Delaware limited partnership, was organized on
December 15, 1986 to acquire a 40% general partnership interest in Two Park
Company. The property located at Two Park Avenue, New York, New York was
acquired by Two Park Company on December 22, 1986.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnership obtained the consent of its
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the managing general partner entered into an agreement with Vornado Realty
Trust, a publicly traded real estate investment trust ("REIT"). The
partners will be resolicited to obtain their consents to participate in
this transaction, under terms and conditions similar to those stated in the
private placement memorandum dated November 11, 1996. The REIT is a fully
integrated, self-administered and self-managed real estate company which
has qualified as a real estate investment trust for Federal income tax
purposes. Upon completion of the transaction, it is anticipated that the
Partnership will be owned by a company controlled by the REIT.
3 - THE PARTNERSHIP AGREEMENT
Capital Contributions
Of the total initial capital, $37,425,103 was contributed by Delaware
Acres, Inc. (CLP) and $378,031 by New York Acres, Inc. (CGP). On September
30, 1992, the partnership interests of CLP and CGP were transferred to
Carborundum Center Joint Venture (MGP) and Nancy Creek, Inc. (Nancy Creek),
respectively. Additional capital contributions required for improvements
and leasing costs of the property are to be contributed by MGP. Mendik
Corporation (Mendco) and Bernard H. Mendik (Mendik) are not required to
make cash contributions.
Distributions
Net cash from operations is to be distributed as follows: After
repaying loans as required, 99% to MGP, until an amount equal to an 8%
annual preferred return (as defined) has been received, and 1% to the
general partners (as defined); then 99% to Mendik and 1% to Mendco until
Mendik has received his special preferred return (as defined); then 85% to
MGP, 14% to Mendik and 1% to the general partners until all distributions
to Nancy Creek aggregate $200,000; all remaining cash: 85% to MGP, 14% to
Mendik and 1% to Mendco.
(Continued)
12
<PAGE> 9
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
3 - THE PARTNERSHIP AGREEMENT (Continued)
Distributions (Continued)
Net proceeds from sales and refinancing will be distributed as
follows: first, 99% to MGP and 1% to Nancy Creek until each has received an
8% cumulative return (as defined); then to MGP and Nancy Creek until each
has received its adjusted total capital (as defined); then 99% to Mendik
and 1% to Mendco until Mendik has received the unpaid special cumulative
return (as defined); then 50% to Mendco and 50% to MGP until each has
received its unpaid deferred incentive share (as defined); finally, the
remainder, 79.17% to MGP, 20.33% to Mendik and .5% to Mendco.
Allocation of Loss or Income
Net losses will be allocated first to the extent that capital accounts
exceed certain amounts, as defined. However, as this criterion does not
presently exist, net losses are allocated .995% to Nancy Creek, 98.505% to
MGP and .5% to Mendco.
Net income will generally be allocated in the same manner as cash is
distributed.
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The managing general partner uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Investment in Two Park Company
The investment in Two Park Company is recorded on the equity method,
reflecting cost adjusted for the Partnership's interest in the net income
or losses of, and distributions from, that partnership.
As of December 31, 1996, the managing general partner of Two Park
Company concluded that the total estimated undiscounted future cash flow to
be generated by its property, from operations and its eventual disposition,
over an estimated holding period is less than its carrying value. As a
result, Two Park Company recorded a write-down of $50,148,556 at December
31, 1996 to reduce the property's carrying value to its estimated fair
value. The Partnership had previously determined that, prior to 1993, its
investment in Two Park Company had declined in value and that such decline
was deemed to be other than temporary. Accordingly, the investment was
written down by $25,000,000 prior to 1993, and the Partnership's 1996
financial statements do not reflect its distributive share of the 1996
write-down by Two Park Company. The difference between the carrying amount
(Continued)
13
<PAGE> 10
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Two Park Company (Continued)
of the investment and the underlying equity in the investee is being
amortized over the life of the property, with amortization being reflected
as reductions in the distributive share of net losses from Two Park
Company.
Income Taxes
The Partnership is not a taxpaying entity for income tax purposes and,
accordingly, no provision has been made for income taxes. The partners'
allocable shares of the Partnership's taxable income or loss are reportable
on their income tax returns.
Concentration of Credit Risk for Cash
Cash at December 31, 1995 included approximately $18,000 in excess of
amounts insured by the Federal Deposit Insurance Corporation.
5 - INVESTMENT IN TWO PARK COMPANY
Summarized financial information of Two Park Company is as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Balance Sheet
Assets
Property and improvements $ 99,905,783 $ 153,245,733
Cash and short-term investments 6,257,952 6,046,711
Receivables 10,604,302 8,644,599
Prepaid expenses 6,701,968 7,561,649
Unamortized costs 325,509 576,103
----------------- -----------------
$ 123,795,514 $ 176,074,795
================= =================
Liabilities and Partners' Capital
Mortgage payable $ 65,000,000 $ 65,000,000
Accrued interest payable 553,263 553,263
Accounts payable and accrued expenses 1,064,802 1,245,535
Security deposits payable 450,398 594,200
Deferred income 6,515,337 7,355,711
Improvements payable 31,007 227,289
Partners' capital 50,180,707 101,098,797
----------------- -----------------
$ 123,795,514 $ 176,074,795
================= =================
</TABLE>
(Continued)
14
<PAGE> 11
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
5 - INVESTMENT IN TWO PARK COMPANY (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Statement of Operations
Revenues $ 25,457,784 $ 23,895,802 $ 22,890,880
Expenses 11,500,589 11,519,811 11,588,807
------------ ------------ ------------
Income before interest expense,
depreciation and amortization
and write-down of property and
improvements 13,957,195 12,375,991 11,302,073
------------ ------------ ------------
Interest expense 6,532,083 7,533,674 7,619,110
Depreciation and amortization 8,194,646 7,548,566 7,026,980
Loss on write-down of property and
improvements 50,148,556 -- --
------------ ------------ ------------
64,875,285 15,082,240 14,646,090
------------ ------------ ------------
Net loss $(50,918,090) $ (2,706,249) $ (3,344,017)
============ ============ ============
</TABLE>
6 - RELATED PARTY TRANSACTION
Maintenance services for the Two Park Avenue property are provided by
a company that is controlled by a stockholder of a general partner of the
Partnership (Mendik). As defined in the maintenance contract, the
Partnership is entitled to receive a 20% share of the profits realized by
the maintenance services company from the performance of tenant services.
The Partnership's share of profits realized from tenant services for the
years ended December 31, 1996, 1995 and 1994 was $49,712, $82,377 and
$79,795, respectively.
15
<PAGE> 1
EXHIBIT 99.5
<TABLE>
<CAPTION>
YEAR
PRINCIPAL OCCUPATION TERM
AND PRESENT POSITION WILL INITIAL
NAME AGE WITH THE COMPANY EXPIRE ELECTION
- ------------------- --- ----------------------- ------ --------
<S> <C> <C> <C> <C>
NOMINEES FOR ELECTION TO SERVE UNTIL
THE ANNUAL MEETING IN 2000
- ------------------------------------------------
STEVEN ROTH* 55 Chairman of the Board 1997 1979
and Chief Executive
Officer of the Company;
managing general
partner of Interstate
Properties
("Interstate")
RUSSELL B.
WIGHT, JR.* 57 A general partner of 1997 1979
Interstate
MICHAEL D.
FASCITELLI 40 President of the 1997 1996
Company
NOMINEE FOR ELECTION TO SERVE UNTIL
THE ANNUAL MEETING IN 1999
- ------------------------------------------------
BERNARD H.
MENDIK 67 Co-Chairman of the 1997 1997
Board and Chief
Executive Officer of
the Mendik Division of
the Company
PRESENT TRUSTEES ELECTED TO SERVE UNTIL
THE ANNUAL MEETING IN 1998
- ------------------------------------------------
DAVID MANDELBAUM* 61 A member of the law 1998 1979
firm of Mandelbaum &
Mandelbaum, P.C.; a
general partner of
Interstate
RICHARD WEST 59 Dean Emeritus, Leonard 1998 1982
N. Stern School of
Business, New York
University
</TABLE>
3
<PAGE> 2
<TABLE>
<CAPTION>
YEAR
PRINCIPAL OCCUPATION TERM
AND PRESENT POSITION WILL INITIAL
NAME AGE WITH THE COMPANY EXPIRE ELECTION
- ------------------- --- ----------------------- ------ --------
<S> <C> <C> <C> <C>
PRESENT TRUSTEES ELECTED TO SERVE UNTIL
THE ANNUAL MEETING IN 1999
- ------------------------------------------------
STANLEY SIMON* 79 Owner of Stanley Simon 1999 1960
and Associates,
management and fi-
nancial consultants
RONALD TARGAN 70 A member of the law 1999 1980
firm of Schechner and
Targan, P.A.; Presi-
dent of Malt Products
Corporation of New
Jersey, a producer of
malt syrup
</TABLE>
- ---------------
* Member of Executive Committee of the Board of the Company.
Mr. Roth has been Chairman of the Board and Chief Executive Officer of the
Company since May 1989 and Chairman of the Executive Committee of the Board of
the Company since April 1980. Since 1968, he has been a general partner of
Interstate and, more recently, he has been managing general partner. On March 3,
1995, he also became Chief Executive Officer of Alexander's, Inc. Mr. Roth is
also a director of Alexander's, Inc. and Insituform Technologies, Inc.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight is
also a director of Alexander's, Inc. and Insituform Technologies, Inc.
Mr. Fascitelli became the President and a Trustee of the Company on
December 2, 1996. He was a partner at Goldman Sachs, in charge of its real
estate practice, from December 1992 to December 1996 and was a vice president
there prior to December 1992. He is also a director of Alexander's, Inc.
Mr. Mendik has been Chief Executive Officer of the Mendik Division of the
Company since April 15, 1997 and Co-Chairman of the Board since April 28, 1997
(see the description of the Mendik Transaction included in "Certain
4
<PAGE> 3
PRINCIPAL SECURITY HOLDERS
The following table sets forth the beneficial ownership of Common Shares
and Units (see the description of the Mendik Transaction included in "Certain
Transactions") (based on 26,549,617 Common Shares and 2,840,562 Units
outstanding as of April 21, 1997) of (i) each person holding more than a 5%
interest in the Operating Partnership or Vornado, (ii) trustees of Vornado,
(iii) the Named Executive Officers, and (iv) the trustees and executive officers
of Vornado as a group. Unless otherwise noted, all of such interests are owned
directly, and the indicated person or entity has sole voting and investment
power. In addition, unless otherwise noted, the address of all such persons is
c/o Vornado Realty Trust, Park 80 West, Plaza II, Saddle Brook, New Jersey
07663.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES PERCENT OF
AND UNITS PERCENT OF ALL COMMON
BENEFICIALLY ALL COMMON SHARES AND
NAME OF BENEFICIAL OWNER OWNED(1) SHARES(2)(3) UNITS(2)(4)
- ---------------------------------------- ---------------- -------------
<S> <C> <C> <C>
Steven Roth(5)(6).......... 7,262,950 27.4% 24.6%
Russell B. Wight,
Jr.(5)(7)................. 6,755,900 25.4% 22.9%
David Mandelbaum(5)........ 6,630,999 25.0% 22.4%
Interstate Properties(5)... 6,471,500 24.4% 21.9%
Cohen & Steers Capital
Management, Inc.(8)....... 2,588,700 9.8% 8.8%
Frederick Zissu(9)......... 1,832,615 6.9% 6.2%
Bernard H. Mendik
(10)(11).................. 1,676,277 5.9% 5.7%
David R.
Greenbaum(10)(12)......... 1,687,642 6.0% 5.7%
Michael D.
Fascitelli(13)............ 459,770 1.7% 1.6%
Richard T. Rowan........... 64,375 * *
Joseph Macnow.............. 121,875 * *
Ronald Targan.............. 375,000 1.4% 1.3
Stanley Simon.............. 37,500 * *
Richard West(14)........... 10,500 * *
All trustees and executive
officers as a group (11
persons).................. 10,482,684 36.9% 35.5%
</TABLE>
- ---------------
* Less than 1%.
10
<PAGE> 4
(1) Unless otherwise indicated, each person is the direct owner of and has sole
voting power and sole investment power with respect to such Common Shares or
Units.
(2) At any time after April 14, 1998 (or April 14, 1999 in the case of certain
holders), holders of limited partnership Units (other than the Company) will
have the right to have their Units redeemed in whole or in part by the
Operating Partnership for cash equal to the fair market value, at the time
of redemption, of one Common Share of the Company for each Unit redeemed or,
at the option of the Company, one Common Share of the Company for each Unit
tendered, subject to customary anti-dilution provisions (the "Unit
Redemption Right"). Holders of Units may be able to sell Common Shares
received upon the exercise of their Unit Redemption Right in the public
market pursuant to a registration rights agreement with the Company.
(3) Assumes that all Units held by the beneficial owner are redeemed for Common
Shares. The total number of Common Shares outstanding used in calculating
this percentage assumes that none of the Units held by other persons are
redeemed for Common Shares.
(4) Assumes that all Units are redeemed for Common Shares.
(5) Interstate, a partnership of which Messrs. Roth, Wight and Mandelbaum are
the general partners, owns 6,471,500 Shares. These Common Shares are
included in the total Common Shares and the percentage of class for
Interstate. Messrs. Roth, Wight and Mandelbaum share voting power and
investment power with respect to these Common Shares.
(6) Includes 17,200 Common Shares owned by the Daryl and Steven Roth Foundation,
over which Mr. Roth holds sole voting power and investment power. Does not
include 18,000 Common Shares owned by
11
<PAGE> 5
Mr. Roth's wife, as to which Mr. Roth disclaims any beneficial interest.
(7) Includes 46,900 Common Shares owned by the Wight Foundation, over which Mr.
Wight holds sole voting power and investment power.
(8) Based on Schedule 13G dated February 11, 1997, Cohen & Steers Capital
Management, Inc. has the sole power to vote or to direct the vote of
2,225,800 Common Shares and has the sole power to dispose or to direct the
disposition of 2,588,700 Common Shares. The address of this beneficial owner
is 757 Third Avenue, New York, New York 10017.
(9) Based on a Schedule 13D filed on May 14, 1993 by Frederick Zissu, he owns
1,861,912 Common Shares. According to Vornado's records, he presently owns
1,832,615 Common Shares. Does not include 23,385 Common Shares owned by Mr.
Zissu's wife, as to which Mr. Zissu disclaims any beneficial interest. The
address of this person is 80 Hamilton Drive West, No. Caldwell, New Jersey
07006.
(10) The address for this beneficial owner is c/o Mendik Realty Company, Inc.,
330 Madison Avenue, New York, New York 10017.
(11) Includes (i) 1,274,891 Units which are held by The Mendik Partnership, L.P.
(TMP) in which Mr. Mendik is a limited partner and controls the company
which is the general partner of TMP, (ii) 400,963 Units which are held by
FW/Mendik REIT, L.L.C. ("FW/Mendik"), which is comprised of two members
controlled by Mr. Mendik, and (iii) 423 Units which are held by Mendik RELP
Corp., a corporation controlled by Mr. Mendik.
(12) Includes (i) 1,274,891 Units which are held by TMP, in which Mr. Greenbaum
is a limited partner and controls the company which is the general partner
of TMP, (ii) 400,963 Units which are held by FW/Mendik, which is comprised
of two members controlled by
12
<PAGE> 6
Mr. Greenbaum, and (iii) 11,788 Units which are held by Mr. Greenbaum's
wife.
(13) These Common Shares are held in a trust for the benefit of Mr. Fascitelli.
Does not include options to purchase 1,750,000 Common Shares that are not
exercisable within 60 days.
(14) Mr. West and his wife own 1,500 of these Common Shares jointly. Mr. West
holds 9,000 of these Common Shares in self-directed Keogh accounts.
13
<PAGE> 7
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or accrued during
the past three fiscal years for each of the highest paid executive officers of
the Company whose total compensation aggregated $100,000 or more in 1996
("Covered Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND -------------------------- ------------ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(4)
- --------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Steven Roth 1996 $625,000 $ 0 0 $57,106
Chairman and Chief 1995 625,000 0 0 53,537
Executive Officer 1994 625,000 0 0 33,536
Michael D. Fascitelli 1996 $ 34,615 $ 0 1,750,000(1) $ 0
President
Richard Rowan 1996 $365,500 $ 0 37,500(2) $16,316
Vice President -- 1995 354,000 250,000 37,500(2) 16,848
Real Estate 1994 343,500 0 0(3) 10,214
Joseph Macnow 1996 $365,500 $ 0 37,500(2) $17,218
Vice President -- 1995 354,000 0 37,500(2) 16,100
Chief Financial 1994 343,500 0 0(3) 10,468
Officer
</TABLE>
- ---------------
(1) The option vests in 20% increments annually on December 2 of each year
commencing in 1997.
(2) Options are exercisable 25% nine months after grant, and 25% after each of
the following three six-month periods.
(3) In December 1993, 37,500 share options were granted for the 1994 year each
to Messrs. Rowan and Macnow.
(4) Represents premiums paid by the Company for whole life insurance policies
for the Covered Executives. These policies provide coverage in an amount
equal to the excess of the amount covered under the Company's
non-discriminatory group term life insurance benefit for all full time
employees (i.e., two times salary) over the benefit cap imposed by the term
insurance carrier.
14
<PAGE> 8
The following table lists all grants of share options and share
appreciation rights to the Covered Executives made in 1996 and their potential
realizable values, assuming annualized rates of share price appreciation of 5%
and 10% over the term of the grant. The Company has not, to date, granted any
share appreciation rights.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------ POTENTIAL REALIZABLE
% OF
TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF
GRANTED SHARE PRICE APPRECIATION
TO
EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL OR BASE EXPIRATION -------------------------
NAME GRANTED YEAR PRICE DATE 5% 10%
- ----------------- --------- --------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven Roth 0 0% N/A N/A N/A N/A
Michael D.
Fascitelli 1,750,000 94% $46.9375 12/1/2006 $51,657,798 $130,911,002
Richard Rowan 37,500 2% $36.5625 1/14/2006 $ 862,273 $ 2,185,170
Joseph Macnow 37,500 2% $36.5625 1/14/2006 $ 862,273 $ 2,185,170
</TABLE>
The following table summarizes all exercises of options during 1996, and
the options held at December 31, 1996, by the Covered Executives.
AGGREGATED OPTION EXERCISES IN 1996 AND 1996-YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED 12/31/96 12/31/96
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------- -------- ---------- ------------- ------------------
<S> <C> <C> <C> <C>
Steven Roth 0 $ 0 0/0 $ 0/0
Michael D. Fascitelli 0 0 0/1,750,000 0/9,734,375
Richard Rowan 95,921 1,617,408 55,000/37,500 946,914/607,617
Joseph Macnow 155,991 3,786,349 75,000/37,500 1,311,914/607,617
</TABLE>
EMPLOYEE RETIREMENT PLAN
The Company's employee retirement plan provides retirement benefits to
full-time employees of the Company. Benefits under the plan vest upon the
completion of five years of service. Annual retirement benefits are equal to 1%
of the participant's base salary for each year of service. However, the portion
of retirement benefits payable for
15
<PAGE> 9
service prior to plan participation is equal to 1% of the participant's base
salary as of December 31 of the year before the participant began to participate
in the plan for each year of the participant's past service. The amount of base
salary which may be taken into account for benefit accrual purposes is limited
to $150,000 in 1996 and $160,000 for 1997 (adjusted in future years to reflect
increases in the cost of living) pursuant to the requirements of the Internal
Revenue Code.
The amounts shown below are the estimated annual benefits (payable in the
form of a life annuity) for each of the Covered Executives payable upon normal
retirement at age 65. This amount assumes a maximum base salary for benefit
accrual purposes of $150,000 for 1996 and $160,000 for 1997 and forward, and
that the Covered Executive's service is continued until age 65. Such estimated
annual benefit payable to Mr. Roth is $59,403; to Mr. Rowan, $52,427; and to Mr.
Macnow, $49,802.
EMPLOYMENT CONTRACTS
Mr. Fascitelli has a five year employment contract which provides for an
annual salary of $600,000. In addition to his annual salary, he received a
deferred payment consisting of $5,000,000 in cash and a $20,000,000 convertible
obligation payable at the Company's option in 459,770 of its Common Shares or
the cash equivalent of their appreciated value. Accordingly, cash of $5,000,000
and 459,770 Common Shares are being held in an irrevocable trust. The deferred
payment obligation to Mr. Fascitelli vests as of December 2, 1997. Further, Mr.
Fascitelli was granted options for 1,750,000 Common Shares of the Company. Mr.
Fascitelli may also receive loans of up to $10 million from Vornado during the
term of the employment agreement. He has also been given the use of a company
automobile.
The agreement also provides that if his employment is terminated by the
Company without cause or by him for good reason (as defined in the agreement to
include a change in Mr. Fascitelli's responsibilities, change in control of the
Company, relocation of the Company or the failure of
16
<PAGE> 10
the Company to comply with the terms of the agreement)
payment of his base salary shall continue for three years, offset in the second
and third years for compensation received from another employer, benefits to him
and his family shall continue for three years and the deferred payment will
vest. The agreement further provides that if his employment is terminated by him
without good reason or by the Company for cause (as defined in the agreement to
include conviction of, or plea of guilty or nolo contendere to, a felony,
failure to perform his duties or willful misconduct) payment of salary will
cease and the deferred payment will vest if the termination was by the Company
for cause.
Vornado has entered into an employment agreement with David Greenbaum with
an initial term through April 30, 2000 (subject to extension) pursuant to which
Mr. Greenbaum serves as President of the Mendik Division of Vornado. The
employment agreement provides for annual base compensation in the amount of
$300,000. Mr. Greenbaum was granted options for 285,000 Common Shares of the
Company. Mr. Greenbaum also may receive loans of up to $10 million from Vornado
during the term of the employment agreement.
The agreement also provides that if his employment is terminated by the
Company without cause or by him for good reason (as defined in the agreement to
include, among other things, a change in Mr. Greenbaum's responsibilities,
change in control of the Company, relocation of the Mendik Division's principal
executive offices, the failure of Mr. Mendik to be elected as a trustee of the
Company prior to April 30, 2003 or the failure of the Company to comply with the
terms of the agreement), Mr. Greenbaum will receive a lump sum payment of three
times his compensation and continued participation of benefits to him and his
family for three years. The agreement further provides that if his employment is
terminated by him without good reason or by the Company for cause (as defined in
the agreement to include conviction of, or plea of guilty or nolo contendere to,
a felony, failure to perform his duties or willful misconduct) payment of salary
will cease.
17
<PAGE> 11
Mr. Rowan and Mr. Macnow each have employment agreements expiring December
31, 1997 with the Company. The terms and conditions of these agreements, entered
into on January 1, 1995, are the same as the terms and conditions of the
employment agreements that expired on December 31, 1994. The agreements provide
to each of Messrs. Rowan and Macnow an initial annual salary of $354,000,
subject to increases in the second and third years by a factor equal to 125% of
the percentage increase in the prior year's consumer price index; use of a
company automobile; and an undertaking to use best efforts to cause the
Compensation Committee of the Board to grant each of them options to purchase
37,500 Shares during each of the three years at a purchase price equal to the
fair market value of the stock on the dates the options are granted. The
agreements also provide that, if the Company should terminate Mr. Rowan's or Mr.
Macnow's employment other than for just cause, payment of salary shall continue
until the earlier of two years after the date of termination or the employee's
becoming self-employed or employed with another company. The agreements further
provide that if either Mr. Rowan or Mr. Macnow should terminate employment for
just cause (defined as change of the employee's responsibility, change in
control of the Company or relocation of the Company), such employee will be paid
2.99 times his annual salary and his unvested stock options will vest.
COMPENSATION OF TRUSTEES
The Company compensated Messrs. Wight, Mandelbaum and Targan at a rate of
$15,000 per year for serving as trustees plus $750 for each meeting of the Board
or of any committee of the Board which the trustee attends. The Company
compensated Stanley Simon and Associates, of which Stanley Simon is the owner,
at a rate of $30,000 per year and Richard West at a rate of $40,000 per year in
addition to $750 for each meeting. Messrs. Roth, Fascitelli and Mendik receive
no compensation as trustees.
18
<PAGE> 12
COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Company has a Compensation Committee, consisting of Messrs. Simon and
West, which grants awards under the Company's Omnibus Share Plan and makes all
other executive compensation determinations. Messrs. Roth, Fascitelli and Mendik
are the only officers of the Company who are members of the Board. There are no
interlocking relationships involving the Company's Board which require
disclosure under the executive compensation rules of the Securities and Exchange
Commission.
CERTAIN TRANSACTIONS
On April 15, 1997, the Company consummated the acquisition, through an
operating partnership, of interests in all or a portion of seven Manhattan
office buildings (the "Mendik Properties") and certain management and leasing
assets held by the Mendik Group (which means, as used herein. Bernard H. Mendik,
David R. Greenbaum and certain entities controlled by them, including Mendik
Realty Company, Inc. and the subsidiaries and affiliates of such entities) and
certain of its affiliates (the "Mendik Transaction"). In connection with the
closing of the Mendik Transaction, the Company converted to an Umbrella
Partnership REIT (UPREIT) by transferring (by contribution, merger or otherwise)
its interests in its properties and other assets to The Mendik Company, L.P., a
Delaware limited partnership which has been renamed Vornado Realty L.P. (the
"Operating Partnership"), of which the Company is the sole general partner. As a
result of such conversion, the Company activities are conducted through the
Operating Partnership.
The consideration for the Mendik Transaction was approximately $656
million, including $264 million in cash, $177 million in the limited partnership
units (the "Units") of the Operating Partnership (valued at $61.75 per Unit for
"Purchase Accounting" purposes) and $215 million in indebtedness. When the
Company and the Mendik Group reached an initial understanding regarding the
basic terms with respect to the Mendik Transaction, the market price of
19
<PAGE> 13
the Company's Common Shares was $52.00 per share.
Such price was used to determine the number of Units issued in the Mendik
Transaction and the preferential annual distribution amount on such Units. In
connection with the Mendik Transaction, FW/Mendik REIT, LLC, which is comprised
of two members controlled by Messrs. Mendik and Greenbaum, received
approximately $7,425,000 in cash.
Pursuant to the Mendik Transaction, Mendik Management Company Inc. ("MMC")
was formed. The Operating Partnership received 100% of MMC's non-voting common
stock which entitles it to 95% of the net operating cash flow distributed by MMC
to its shareholders. Michael Fascitelli, President and Trustee of the Company,
Bernard Mendik, Co-Chairman of the Board of Trustees of the Company and Chief
Executive Officer of the Mendik Division of the Company and David Greenbaum,
President of the Mendik Division of the Company own the voting common stock of
MMC. In addition, the Operating Partnership lent $6,000,000 to MMC for working
capital purposes under a ten-year term loan, due April 15, 2007, bearing
interest at 12% per annum. MMC will allocate expenses to the Operating
Partnership to the extent that MMC employees perform services on behalf of the
Operating Partnership.
During 1996, the Company paid $117,600 for legal services, in connection
with certiorari proceedings at its shopping centers, to the firm of Mandelbaum &
Mandelbaum, P.C., of which David Mandelbaum is a member, all or substantially
all of which is expected to be reimbursed to the Company by its tenants. In
addition, during 1996, the Company paid $82,995 for legal services to the firm
of Schechner and Targan, P.A., of which Ronald Targan is a member.
The Company currently manages and leases the real estate assets of
Interstate Properties pursuant to a Management Agreement for which the Company
receives a quarterly fee equal to 4% of base rent and percentage rent and other
commissions. The Management Agreement has a term of one year and is
automatically renewable unless terminated by either of the parties on sixty
days' notice at the end of the term. Although the Management Agreement was not
negotiated at arms' length, the Company believes, based upon
20
<PAGE> 14
comparable fees charged by other real estate companies, that its terms are fair
to the Company. For the year ended December 31, 1996, $2,074,000 of management
fees were earned by the Company pursuant to the Management Agreement.
The Company owns 29.3% of the common stock of Alexander's. In March 1995,
the Company lent Alexander's $45 million, the subordinated tranche of a $75
million secured financing, the balance of which was funded by a bank. The
Company's loan has a three-year term and presently bears interest at 15.60% per
annum and bore interest at 16.43% per annum through March 1997. In addition, the
Company received a loan origination fee of $1,500,000 from Alexander's.
The Company receives a leasing fee from Alexander's under an agreement (the
"Leasing Agreement") which has been in effect since 1992 and which has been
extended to be coterminous with the term of the Management Agreement (see
paragraph below). The Company recognized leasing fee income of $695,000 in 1996.
Subject to the payment of rents by Alexander's tenants, the Company is due
$5,565,000 as of December 31, 1996. Such amount is receivable annually in an
amount not to exceed $2,500,000 until the present value of such installments
(calculated at a discount rate of 9% per annum) equals the amount that would
have been paid had it been paid on September 21, 1993, or at the time the
transactions which gave rise to the commissions occurred, if later.
Also, in March 1995, the Company and Alexander's entered into a three-year
management and development agreement (the "Management Agreement"). The annual
management fee payable to the Company by Alexander's is $3,000,000, plus 6% of
development costs with a minimum guaranteed fee for the development portion of
$1,650,000 in the first year and $750,000 in each of the second and third years.
On July 6, 1995, the Company assigned its Management Agreement with
Alexander's to Vornado Management Corp. ("VMC"), a newly formed New Jersey
corporation. In ex-
21
<PAGE> 15
change, the Company received 100% of the preferred stock of VMC, which entitles
it to 95% of net operating cash flow distributed by VMC to its shareholders.
Steven Roth and Richard West, Trustees of the Company, own the common stock of
VMC. In addition, the Company lent $5,000,000 to VMC for working capital
purposes under a three-year term loan bearing interest at the prime rate plus 2%
(10.3% at December 31, 1996). VMC is responsible for its pro-rata share of
compensation and fringe benefits of common employees and 30% of other common
expenses.
As of December 31, 1996, Interstate Properties owned 24.4% of the
outstanding common shares of the Company and 27.1% of Alexander's outstanding
shares of common stock. Steven Roth is the Chairman of the Board and Chief
Executive Officer of the Company, the managing general partner of Interstate
Properties and the Chief Executive Officer and a director of Alexander's.
Effective March 2, 1995, for a three-year period, the Company and Interstate
agreed not to own in excess of two-thirds of Alexander's common stock or to
enter into certain other transaction with Alexander's, other than the
transactions described above, without the consent of Alexander's independent
directors.
At December 31, 1996, the loan due from Mr. Roth was $13,122,500. The loan
bears interest at a rate equal to the broker call rate (7.0% at December 31,
1996) but not less than the minimum applicable federal rate provided under the
Internal Revenue Code. Interest on the loan is payable quarterly. The loan is
due December 29, 2002 after being extended by the Board of Trustees in April
1997 for a five year period.
At December 31, 1996, the loan due from Mr. Rowan was $299,000 and from Mr.
Macnow was $268,000. The loans were issued in connection with their option
exercises in prior years. The loans bear interest at a rate equal to the broker
call rate (7.0% at December 31, 1996) but not less than the minimum applicable
federal rate provided under the Internal Revenue Code. The Company has agreed
that on each January 1st (commencing January 1, 1997) to forgive one-fifth of
the amounts due from Messrs. Rowan and Macnow, provided they remain employees of
the Company.
22
<PAGE> 1
EXHIBIT 99.6
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
of Alexander's, Inc.
Saddle Brook, New Jersey
We have audited the accompanying consolidated balance sheets of Alexander's,
Inc. and Subsidiaries (the "Company") as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years ended December 31, 1996, 1995 and 1994. Our audits
also included the financial statement schedules listed in the index at Item
14(a)(2). These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996, and
1995, and the results of their operations and their cash flows for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 27, 1997
-21-
<PAGE> 2
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 45,999 $ 46,082
Buildings, leaseholds and leasehold improvements
(including $242 and $34,996 of construction
in progress at December 31, 1996 and 1995) 114,280 96,238
Capitalized expenses and predevelopment costs 47,488 33,165
-------- --------
Total 207,767 175,485
Less accumulated depreciation and amortization (39,375) (37,794)
-------- --------
168,392 137,691
Investment in unconsolidated joint venture 12,613 12,744
-------- --------
Real estate, net 181,005 150,435
Cash and cash equivalents 5,480 8,471
Restricted cash 5,620 16,905
Accounts receivable, net of allowance for doubtful accounts
of $147 in 1996 and 1995 201 180
Receivable arising from the straight-lining of rents, net 5,984 4,228
Deferred lease and other expenses 9,966 10,460
Deferred debt expense 2,364 4,341
Other assets 965 3,521
-------- --------
TOTAL ASSETS $211,585 $198,541
======== ========
</TABLE>
See notes to consolidated financial statements
-22-
<PAGE> 3
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(amounts in thousands except share amounts)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Continuing Operations:
Debt $ 192,347 $ 182,883
Amounts due to Vornado Realty Trust and its affiliate 6,207 8,482
Liability for postretirement healthcare benefits -- 15,526
Accounts payable and accrued liabilities 4,246 4,389
Minority interest 600 600
--------- ---------
Total continuing operations 203,400 211,880
--------- ---------
Discontinued Retail Operations:
Accounts payable and accrued liabilities 976 2,328
Liabilities subject to settlement under reorganization proceedings 1,646 3,469
--------- ---------
Total discontinued retail operations 2,622 5,797
--------- ---------
TOTAL LIABILITIES 206,022 217,677
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock: no par value; authorized, 3,000,000 shares;
issued, none
Common stock: $1.00 par value per share; authorized, 10,000,000 shares;
issued, 5,173,450 shares 5,174 5,174
Additional capital 24,843 24,843
Deficit (23,494) (48,193)
--------- ---------
6,523 (18,176)
Less treasury shares, 172,600 shares at cost (960) (960)
--------- ---------
Total stockholders' equity (deficit) 5,563 (19,136)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 211,585 $ 198,541
========= =========
</TABLE>
See notes to consolidated financial statements
-23-
<PAGE> 4
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Property rentals $15,952 $10,239 $10,283
Expense reimbursements 1,872 1,188 1,102
Equity in income of unconsolidated joint venture 4,009 3,334 1,821
-------- -------- --------
Total revenues 21,833 14,761 13,206
-------- -------- --------
Expenses:
Operating (including management fee of $840 and $700
to Vornado in 1996 and 1995) 5,562 3,807 2,246
General and administrative (including management
fee of $2,160 and $1,800 to Vornado in 1996 and 1995) 4,402 4,820 2,983
Depreciation and amortization 2,128 1,858 1,821
Reorganization costs -- 1,938 3,721
-------- -------- --------
Total expenses 12,092 12,423 10,771
-------- -------- --------
Operating income 9,741 2,338 2,435
Interest and debt expense (including interest on loan
from Vornado in 1996 and 1995) (13,934) (13,156) (3,331)
Interest and other income, net 2,918 1,716 4,929
Gain on reversal of liability for post-retirement
healthcare benefits 14,372 -- --
-------- ---------- ----------
Income (loss) before reversal of deferred taxes 13,097 (9,102) 4,033
Reversal of deferred taxes -- 1,406 --
-------- -------- ---------
Income (loss) from continuing operations 13,097 (7,696) 4,033
Income from discontinued operations 11,602 10,133 --
-------- -------- ---------
NET INCOME $24,699 $ 2,437 $ 4,033
======= ======= ========
Net Income (Loss) Per Share:
Continuing operations $ 2.62 $(1.54) $ .81
Discontinued operations 2.32 2.03 --
------ ------ -------
Net income $ 4.94 $ .49 $ .81
====== ======= ======
</TABLE>
See notes to consolidated financial statements.
-24-
<PAGE> 5
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands)
<TABLE>
<CAPTION>
Common Additional Treasury Stockholders'
Stock Capital Deficit Stock Equity (Deficit)
------ ------- -------- ----- ----------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $5,174 $24,843 $(54,663) $(960) $(25,606)
Net income -- -- 4,033 -- 4,033
------ ------- -------- ----- --------
Balance, December 31, 1994 5,174 24,843 (50,630) (960) (21,573)
Net income -- -- 2,437 -- 2,437
------ ------- -------- ----- --------
Balance, December 31, 1995 5,174 24,843 (48,193) (960) (19,136)
Net income -- -- 24,699 -- 24,699
------ ------- -------- ----- --------
Balance, December 31, 1996 $5,174 $24,843 $(23,494) $(960) $ 5,563
====== ======= ======== ====== ========
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE> 6
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 13,097 $ (7,696) $ 4,033
Adjustments to reconcile net income/(loss) to
net cash provided by (used in) continuing
operating activities:
Depreciation and amortization (including debt
issuance costs) 4,105 4,687 2,251
Gain on reversal of postretirement healthcare liability (14,372) -- --
Straight-lining of rental income, net (1,756) (1,340) (1,581)
Equity in income of unconsolidated joint venture
(net of distributions of $(4,142), $(951) and $(583)
for the years ended December 31, 1996, 1995
and 1994, respectively) 133 (4,285) (1,260)
Change in assets and liabilities:
Accounts receivable (21) (137) --
Note receivable -- 4,550 (4,550)
Amounts due to Vornado Realty Trust and its affiliate (2,094) (2,001) 591
Liability for postretirement healthcare benefits (1,154) (356) --
Accounts payable and accrued liabilities (143) (502) 892
Other 2,352 (2,453) 3,222
-------- --------- --------
Net cash provided by (used in) operating activities
of continuing operations 147 (9,533) 3,598
-------- --------- --------
Income from discontinued operations 11,602 10,133 --
Payment of liabilities of discontinued operations (1,175) (29,488) (5,229)
Change in other liabilities of discontinued operations (2,000) (4,322) --
-------- --------- --------
Net cash provided by (used in) discontinued operations 8,427 (23,677) (5,229)
-------- --------- --------
Net cash provided by (used in) operating activities 8,574 (33,210) (1,631)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate (32,314) (45,933) (11,170)
Cash restricted for construction financing 2,057 (6,181) 775
Cash restricted for operating liabilities 9,228 (10,724) --
-------- --------- --------
Net cash used in investing activities (21,029) (62,838) (10,395)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 10,527 147,806 10,000
Debt repayments (1,063) (39,878) (775)
Deferred debt expense -- (5,772) (1,889)
-------- --------- --------
Net cash provided by financing activities 9,464 102,156 7,336
-------- --------- --------
Net (decrease) increase in cash and cash equivalents (2,991) 6,108 (4,690)
Cash and cash equivalents at the beginning of the
period 8,471 2,363 7,053
-------- --------- --------
Cash and cash equivalents at the end of the period $ 5,480 $ 8,471 $ 2,363
======== ========= ========
SUPPLEMENTAL INFORMATION
Cash payments for interest $ 20,140 $ 16,352 $ 5,133
======== ========= ========
Capitalized interest $ 8,552 $ 6,575 $ 1,718
======== ========= ========
</TABLE>
The 1995 amounts exclude an increase in real estate of $20,838 and debt of
$21,812 and a reduction in minority interest of $974 as a result of the Company
acquiring a partnership interest (see Note 5).
See notes to consolidated financial statements.
-26-
<PAGE> 7
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Alexander's is a real estate investment trust engaged in the business of
leasing, managing, developing and redeveloping real estate properties, focusing
on the properties where its department stores (which ceased operations in 1992)
formerly operated. The Company's properties are located in mature, densely
populated areas in New York City and Paramus, New Jersey.
In May 1992, at a time when the Company's business consisted of retail store
operations, the Company and sixteen of its subsidiaries filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). In September 1993, the Bankruptcy Court confirmed the Joint Plan of
Reorganization (the "Plan"), pursuant to which the Company and its subsidiaries
reorganized their business as a real estate company.
In March 1995, the Company paid holders of allowed general unsecured claims
in full, together with accrued interest in respect of their claims. Such
payments aggregated approximately $24,000,000. The Official Committee of
Unsecured Creditors has been dissolved and all secured and unsecured creditors
having allowed claims in the Bankruptcy Court cases have received the cash
payments or debt instruments contemplated to be delivered to them under the
Plan.
Alexander's current operating properties (five of its nine properties) do not
generate sufficient cash flow to pay all of its expenses. The Company's four
non-operating properties (Lexington Avenue, Paramus, Kings Plaza Store and Rego
Park II) are in various stages of redevelopment. As rents commence from a
portion of the development properties, the Company expects that cash flow will
become positive. See Note 6 - "Leases" for significant tenants.
The Company estimates that the fair market values of its assets are
substantially in excess of their historical cost, and that there is additional
borrowing capacity. Alexander's continues to evaluate its needs for capital,
which may be raised through (a) property specific or corporate borrowing, (b)
the sale of securities and (c) asset sales. In addition, the Company may receive
the proceeds from a condemnation proceeding -- see Note 10 - "Contingencies
- -Paramus Property". Although there can be no assurance, the Company believes
that these cash sources will be adequate to fund cash requirements until its
operations generate adequate cash flow.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, and a partnership in
which the Company held a majority interest at December 31, 1996. Investments in
real estate and other property which are 50% owned joint ventures are accounted
for under the equity method. All material intercompany accounts and transactions
have been eliminated.
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles. Management has made estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
-27-
<PAGE> 8
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective January 1, 1995, to be consistent with prevalent real estate
industry practice, the Company changed the presentation of its consolidated
statements of operations to show tenant reimbursements, previously offset
against operating expenses, as part of revenues. Further, operating expenses and
general and administrative expenses have been shown separately. Prior period's
amounts have been reclassified to conform with the current year's presentation.
Cash and Cash Equivalents -- The Company includes in cash and cash
equivalents both cash and short-term highly liquid investments purchased with
original maturities of three months or less. Cash and cash equivalents does not
include cash restricted for construction financing and operating liabilities
which is disclosed separately.
Real Estate and Other Property -- Real estate and other property is carried
at cost, net of accumulated depreciation. Depreciation is provided on buildings
and improvements on a straight-line basis over their estimated useful lives.
When real estate and other property is undergoing development activities, all
property operating expenses, including interest expense, are capitalized to the
cost of the real property to the extent that management believes such costs are
recoverable through the value of the property.
The Company's policy, pursuant to the Financial Accounting Standards Board
Statement No. 121, "Accounting For the Impairment of Long-Lived Assets and For
Long-Lived Assets to be Disposed Of" (SFAS No. 121), is to annually assess any
impairment in value by making a comparison of the current and projected
operating cash flows of each of its properties over its remaining useful life on
an undiscounted basis, to the carrying amount of such property. Such carrying
amount would be adjusted, if necessary, to reflect an impairment in the value of
the asset.
Deferred Lease Expense -- The Company capitalizes the costs incurred in
connection with obtaining long-term leases. Deferred lease expense is amortized
on the straight-line method over the initial terms of the leases.
Deferred Finance and Debt Expense -- The Company capitalizes the costs
incurred in connection with obtaining short-term or long-term debt or
refinancing existing debt. These costs are amortized on the straight-line method
over the initial terms of the debt, which approximates the interest method.
Leases -- All leases are operating leases whereby rents and reimbursements of
operating expenses are recorded as real estate operating revenue. The
straight-line basis is used to recognize rents under leases entered into which
provide for varying rents over the lease terms.
Income Taxes -- The Company elected, with its federal income tax return for
1995, to be taxed as a real estate investment trust ("REIT") under sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). To
qualify for taxation as a REIT, the Company must meet various federal income tax
law requirements. In general, a REIT that distributes to its stockholders at
least 95% of its taxable income as a dividend for a taxable year and that meets
certain other conditions will not be taxed on income distributed that year.
The net basis in the Company's assets and liabilities for tax purposes is
approximately $53,000,000 lower than the amount reported for financial statement
purposes.
Reorganization Costs -- Reorganization costs consist of legal, accounting and
other professional fees incurred in connection with consultations on
restructuring alternatives of the Company.
Amounts Per Share -- Amounts per share are computed based upon the weighted
average number of shares outstanding during the period.
-28-
<PAGE> 9
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN UNCONSOLIDATED 50% OWNED JOINT VENTURE (KINGS PLAZA MALL)
The Kings Plaza Shopping Center (the "Center") comprises a two-level mall
(the "Kings Plaza Mall"), and two four-level anchor stores. The Company owns one
anchor store in the center(leased to Sears for use as a full-line department
store expected to open in the last quarter of 1997) and an undivided one-half
interest in the Kings Plaza Mall. The other anchor store is owned and operated
as a Macy's store by Federated Department Stores, Inc. ("Federated").
Summary financial information for the Kings Plaza Mall is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
Year Ended Six Months Ended -----------------------
Dec. 31, 1996 Dec. 31 1995 1995 1994
------------- ------------ ---- ----
<S> <C> <C> <C> <C>
Operating revenue $26,530 $14,571 $24,828 $24,635
------- ------- ------- -------
Operating costs 16,511 9,035 18,176 17,662
Depreciation and amortization 1,269 593 1,101 1,147
Interest expense 838 465 1,204 1,945
------- ------- ------- -------
18,618 10,093 20,481 20,754
------- ------- ------- -------
Income before taxes $ 7,912 $ 4,478 $ 4,347 $ 3,881
======= ======= ======= =======
Assets $35,400 $40,700 $28,100 $33,800
======= ======= ======= =======
Liabilities $16,300 $20,100 $14,900 $19,500
======= ======= ======= =======
</TABLE>
In December 1995, the Company completed a tax certiorari proceeding with the
City of New York regarding the Kings Plaza Shopping Center property. The Company
and its joint venture partner agreed with the City of New York to a reduction in
the assessed values covering the tax years 1988/1989 through 1995/1996,
generating tax credits of $28,350,000 (of which $6,050,000 was applied to 1995
taxes). The Company's allocated share of these credits, approximately
$8,600,000, net of expenses, was recorded as follows: (i) $6,100,000 as income
from discontinued operations and (ii) $2,500,000 as a reduction of previously
capitalized real estate taxes. As a result of this settlement, $6,700,000 of the
$8,000,000 held in escrow for unpaid real estate taxes was released in 1996 and
the balance is expected to be released in the near future.
4. DISCONTINUED OPERATIONS
The Company recorded income from discontinued operations of $11,602,000 in
1996, and $10,133,000 in 1995 of which $9,602,000 and $6,133,000 resulted from
the settlement of tax certiorari proceedings and $2,000,000 and $4,000,000
resulted from the reduction of other liabilities of discontinued operations to
amounts considered necessary to cover the remaining estimates of these
liabilities. Management periodically evaluates the reserves and adjusts them
accordingly. A reconciliation of the liabilities from the discontinued retail
operations is as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
Year Ended December 31,
-----------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period $ 5,797 $ 43,160 $ 60,991
Adjustments during period (2,000) (4,000) --
Liability for postretirement
healthcare benefits reclassified to
continuing operations from a separate
line in discontinued operations -- -- (15,882)
Utilized during period (1,175) (33,363) (1,949)
------- -------- --------
Balance at end of period $ 2,622 $ 5,797 $ 43,160
======= ======== ========
</TABLE>
-29-
<PAGE> 10
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DEBT
Debt comprises:
<TABLE>
<CAPTION>
(amounts in thousands) December 31, December 31,
1996 1995
-------- --------
<S> <C> <C>
First mortgage loans, payable to 2000, with interest
rates ranging from 8.22% to 9.84% at
December 31, 1996 and 8.08% to 10.28% at
December 31, 1995(1) 37,202 $ 38,265
Term loans payable to 1998, with interest rates
ranging from 9.86% to 16.43% at
December 31, 1996 and 1995, respectively(2) 75,000 75,000
Construction loan, payable to 1998, with average
interest rates of 7.28% and 7.36% at
December 31, 1996 and 1995(3) 58,333 47,806
Secured note, due in 1998, with interest at 9.25%
and 9.50% at December 31, 1996 and 1995(4) 21,812 21,812
-------- --------
$192,347 $182,883
======== ========
</TABLE>
(1) First mortgage loans are comprised of:
(a) A $23,611,000 five year loan maturing February 24, 2000, secured
principally by a mortgage on the Company's Fordham Road property.
The loan bears annual interest at 30 day LIBOR plus 4.25% (9.69% at
December 31, 1996), capped at LIBOR 9.75% (all-in rate, 14%) and
requires amortization based on a 20 year term with an assumed
interest rate of 9 1/2%. The weighted average interest rate for 1996
was 9.88%. Beginning in year four, all cash flow of the property,
after debt service, will further amortize the loan. The loan is
prepayable without penalty. Caldor, Inc. ("Caldor"), who is the
tenant at this property, failed to meet certain financial tests
under the mortgage. As a result, commencing January 1, 1996 the
Company was required to remit the net cash flow of the property into
an account of the lender as additional payments under the loan. The
amount remitted to the lender for 1996 was $590,000.
(b) A $13,591,000 loan maturing December 31, 1998, secured principally
by a mortgage on the Company's Paramus property. The loan bears
interest at a floating rate (8.22% at December 31, 1996), fixed
annually, equal to 2.5% above the one-year U.S. Treasury bill rate
with a floor of 6.5%. The weighted average interest rate for 1996
was 8.11%. The loan contains customary mortgage covenants and events
of default. The loan is prepayable at any time.
-30-
<PAGE> 11
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2)A $75,000,000 three year loan maturing March 15, 1998, secured by
mortgages on all of the Company's assets and/or pledges of the stock of
subsidiaries owning the assets and/or guarantees of such subsidiaries
and the parent. The loan bears interest at a blended rate of 13.8% per
annum for the first two years and is comprised of two separate notes of
$45,000,000 to Vornado and $30,000,000 to a bank. Each note is
separately secured by the collateral described above. The Vornado loan
is subordinate to that of the bank and bears interest at 16.43% per
annum (effective rate 17.54%) for the first two years and at a fixed
rate for the third year of 992 basis points over the one-year Treasury
bill rate. The bank's loan bears interest at 9.86% for the first two
years and at a fixed rate for the third year of 325 basis points over
the one-year Treasury bill rate. The Company paid a loan origination fee
to Vornado and the bank of $1,500,000 and $375,000, respectively. The
loans are prepayable at the end of the second year of their term without
penalty. The loans contain customary covenants including, among others,
lease approval rights, limitations on additional debt, dividends,
acquisitions, mergers, property sales and restrict the Company from
developing property without signed leases for more than 50% of such
property's leasable space. No dividends can be paid unless required to
maintain Real Estate Investment Trust ("REIT") status.
(3)A two year $60,000,000 construction loan and a two year $25,000,000
bridge loan from a group of banks, each secured by a mortgage on the
Rego Park I property. The loans mature on April 1, 1997 (extendable at
the Company's option for an additional year). As of December 31, 1996,
approximately $58,300,000 was funded under such construction loan and
there were no borrowings under the $25,000,000 bridge loan. The weighted
average interest rate for 1996 was 7.28%. On February 27, 1997, the
Company obtained a commitment from one of the existing bank lenders to
make a one-year $75,000,000 loan secured by a mortgage on this property
and guaranteed by the Company. The proceeds of this loan will be used to
repay the existing construction loan and provide the Company with an
additional $15,000,000 of working capital. The new loan will bear
interest at LIBOR plus 1.00% or Federal Funds Rate plus .50% and
provides for a one-time facility fee of .125%. The Company has agreed
with the bank to refinance the new loan through the issuance of rated
commercial mortgage backed securities later this year.
(4)In January 1995, the Seven Thirty One Limited Partnership ("the
Partnership"), redeemed the first portion of the non-affiliated limited
partners' interest by giving such limited partners a promissory note due
in August 1998 in the amount of $21,812,000 (the "Note"). The Note bears
annual interest at Prime plus 1% (9.25% at December 31, 1996) and is
secured by a third mortgage on the Lexington Avenue property. The
weighted average interest rate for 1996 was 9.25%. The non-affiliated
limited partners have the right to put their remaining 7.64% interest to
the Partnership until October 1998, in exchange for a five year secured
note in the principal amount of $15,000,000, bearing annual interest at
Prime plus 1%.
As at December 31, 1996, a summary of maturities of debt is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C> <C>
1997 $ 520
1998 169,307
1999 628
2000 21,892
---------
$ 192,347
=========
</TABLE>
All of the Company's debt is secured by mortgages and/or pledges of the
stock of subsidiaries holding the properties. The net carrying value of real
estate collateralizing the debt amounted to $168,392,000 at December 31, 1996.
-31-
<PAGE> 12
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LEASES
As Lessor
The Company leases properties to tenants. The rental terms for the
properties leased range from 20 years to approximately 34 years. The leases
provide for the payment of fixed base rentals payable monthly in advance and for
the payment by the lessees of additional rents based on a percentage of the
tenants' sales as well as reimbursements of real estate taxes, insurance and
maintenance.
As of December 31, 1996, future base rental revenue under these
noncancellable operating leases is as follows:
<TABLE>
<CAPTION>
Year Ending Total
December 31, Amounts
------------ ----------
<S> <C> <C>
1996 $ 13,352,000
1997 13,716,000
1998 13,850,000
1999 13,872,000
2000 14,296,000
Thereafter 289,509,000
</TABLE>
The following tenants accounted for more than 10% of the Company's
consolidated revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Caldor 36% 56% 64%
Sears 23% -- --
Conway 6% 13% 14%
</TABLE>
In addition, the Company has entered into leases, which had not commenced
as of December 31, 1996, with Circuit City (50,000 square feet) and Bed Bath &
Beyond (46,000 square feet) at the Rego Park I location and with Sears (289,000
square feet) at the Kings Plaza location. Sears has the right to cancel the
lease, if Alexander's does not commit to make certain improvements to the Kings
Plaza Shopping Center.
On September 18, 1995, Caldor, which leases the Company's Fordham Road and
Flushing locations, filed for relief under Chapter 11 of the United States
Bankruptcy Code. The loss of property rental payments under either of these
leases could have a material adverse effect on the financial condition and
results of operations of the Company. On February 11, 1997 Caldor announced
that, subject to Bankruptcy Court approval, it expects to close the Fordham Road
store in May 1997. The annual base rental revenue under this lease is
$3,537,000.
-32-
<PAGE> 13
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As Lessee
The Company is a tenant under a long-term lease for the Flushing property
which expires on January 31, 2027. Future minimum lease payments under the
operating lease at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending Total
December 31, Amounts
------------ ----------
<S> <C> <C>
1997 $ 344,000
1998 331,000
1999 331,000
2000 331,000
2001 331,000
Thereafter 5,355,000
</TABLE>
Rent expense was $496,000 for each of the years ended December 31, 1996,
1995 and 1994.
7. INTEREST AND OTHER INCOME, NET
Interest and other income, net is comprised of (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest income $1,009 $1,601 $ 141
Income from a
zoning-related matter -- -- 4,550
Refund of previously
paid taxes 199 115 77
Gain on sale of real estate -- -- 161
Amortization of deferred
gain on post retirement
benefit 794 -- --
Reimbursement of expenses
from joint venture partner 764 -- --
Workers compensation
insurance refund 152 -- --
------ ------ ------
$2,918 $1,716 $4,929
====== ====== ======
</TABLE>
8. INCOME TAXES
The Company elected to be taxed as a real estate investment trust ("REIT")
under sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"), effective for the taxable year ended December 31, 1995. Under the
Code, the Company's net operating loss ("NOL") carryovers generally would be
available to offset the amount of the Company's REIT taxable income that
otherwise would be required to be distributed as a dividend to its stockholders.
In addition, the Company had a deferred tax liability of approximately
$1,406,000 at December 31, 1994, which amount was reversed in 1995 when the
Company elected to be taxed as a REIT.
-33-
<PAGE> 14
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has reported NOL carryovers for federal tax purposes of
approximately $138,000,000 at December 31, 1996, of which $5,000,000,
$52,000,000, $22,000,000, $15,000,000, $16,000,000, $20,000,000 and $8,000,000
expire in 2005, 2006, 2007, 2008, 2009, 2010 and 2011, respectively. The Company
also had investment tax and targeted jobs tax credits of approximately
$3,000,000 expiring in 2002 through 2005.
9. RELATED PARTY TRANSACTIONS
Steven Roth is Chief Executive Officer and a Director of the Company, the
Managing General Partner of Interstate Properties ("Interstate") and Chairman of
the Board and Chief Executive Officer of Vornado Realty Trust ("Vornado").
Interstate owns 27.1% of the outstanding common stock of the Company and owns
24.4% of the outstanding common shares of beneficial interest of Vornado. In
addition, Mr. Roth owns 3.0% of the outstanding common shares of beneficial
interest of Vornado. Mr. Roth, Interstate and the other two general partners of
Interstate, David Mandelbaum and Russell B. Wight, Jr. (who are also directors
of the Company and trustees of Vornado) own, in the aggregate, 29.1% of the
outstanding common shares of beneficial interest of Vornado. Vornado owns 29.3%
of the outstanding common stock of the Company, including 27.1% purchased in
March 1995.
In March 1995, the Company and Vornado entered into a three-year management
and development agreement (the "Management Agreement"). The annual management
fee payable by the Company to Vornado is $3,000,000, plus 6% of development
costs with minimum guaranteed fees for the development portion of $1,650,000 in
the first year of the Management Agreement and $750,000 in each of the second
and third years. For the year ended December 31, 1996, the Company paid
development fees of $2,343,000 to Vornado. On July 6, 1995, Vornado assigned its
Management Agreement to Vornado Management Corp., an affiliate of Vornado.
The fee pursuant to the Management Agreement is in addition to the leasing
fee the Company pays to Vornado under the leasing agreement (the "Leasing
Agreement") which has been in effect since 1992. Subject to the payment of rents
by tenants, Vornado is due $5,565,000. Such amount is payable annually in an
amount not to exceed $2,500,000, until the present value of such installments
(calculated at a discount rate of 9% per annum) equals the amount that would
have been paid had it been paid on September 21, 1993, or at the time the
transactions which gave rise to the commissions occurred, if later. The term of
the Leasing Agreement has been extended to be coterminous with the term of the
Management Agreement.
In March 1995, the Company borrowed $45,000,000 from Vornado, the
subordinated tranche of a $75,000,000 secured financing (see Note 5(2)). The
Company incurred interest on the loan of $7,517,000 and $5,976,000 for the years
ended December 31, 1996 and 1995, of which $3,989,000 and $1,294,000 was
capitalized.
Effective March 2, 1995, for a three-year period, Vornado and Interstate
agreed not to own in excess of two-thirds of the Company's common stock or to
enter into certain other transactions with the Company, other than the
transactions described above, without the consent of the Company's independent
directors.
In September 1994, the Company obtained from Interprop Fordham, Inc., an
affiliate of Interstate, and Citibank, N.A. a short-term secured loan of
$10,000,000 which enabled the Company to make a $2,600,000 payment to the
unsecured creditors and to fund a portion of the Company's working capital and
capital expenditure requirements. This loan was repaid during the first quarter
of 1995.
-34-
<PAGE> 15
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the years ended December 31, 1996, 1995 and 1994, Vornado through
Interstate was paid $1,007,000, $463,000 and $57,000, respectively, by the Kings
Plaza Shopping Center for performing leasing services.
10. COMMITMENTS AND CONTINGENCIES
Lexington Avenue
The Company is evaluating redevelopment plans for this site, which may
involve razing the existing buildings (in which case, the carrying cost of
approximately $15,000,000 would be written off) and developing a large multi-use
building requiring capital in excess of $300,000,000 to be expended. No
development decisions have been finalized.
Paramus Property
The Paramus property consists of 39.3 acres of land, including its former
store building, located in Paramus, New Jersey. Approximately 9 acres located on
the property's periphery are subject to condemnation by the State of New Jersey.
Alexander's and the New Jersey Department of Transportation (the "DOT") are
negotiating an agreement pursuant to which the DOT will pay approximately $14.7
million for the property subject to condemnation and grant Alexander's the right
to develop up to 550,000 square feet on the remaining acreage. The agreement
with the DOT is subject to negotiation of final documentation and to certain
municipal approvals. Alexander's is considering razing the existing building
(in which case, the carrying cost of approximately $5,400,000 would be written
off) and developing a two or three level shopping center on the site. The
estimated total cost of such redevelopment is between $60,000,000 and
$70,000,000. No development decisions have been finalized.
Environmental
The results of a 1993 Phase I environmental study at the Kings Plaza
Shopping Center's ("Center") property show that certain adjacent properties
owned by third parties have experienced petroleum hydrocarbon contamination.
Based on this study and preliminary investigation of the Center's property and
its history, there is potential for contamination on the property. The study
also revealed an underground storage tank which failed an integrity test,
although no contamination has been observed to date. The tank failure has been
reported to the New York State Department of Environmental Conservation ("DEC")
and the tank was repaired in early 1994. In October 1994, independent testing
revealed that all of the Center's underground storage tanks (used for storing
heating oil) and related distribution lines passed a tank and line leak status
test. Such results were furnished to the DEC. If contamination is found on the
property, the Center may be required to engage in remediation activities;
management is unable to estimate the financial impact of potential contamination
if any is discovered in the future. If further investigations reveal that there
is contamination on its site, since the Center believes such contamination would
have resulted from activities of third parties, the Center intends to pursue all
available remedies against any of these third parties.
The Company is aware of the presence of asbestos-containing materials at
several of its properties and believes that it manages such asbestos in
accordance with applicable laws. The Company plans to abate or remove such
asbestos as appropriate.
The Company believes that known and potential environmental liabilities will
not have a material adverse effect on the Company's business, assets, results of
operations or cash flow. However, there can be no assurance that the
confirmation of the existence of contamination or the identification of
potential new areas of contamination would not be material to the Company.
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<PAGE> 16
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Letters of Credit
Approximately $900,000 in standby letters of credit were issued at December
31, 1996.
11. EMPLOYEE BENEFITS PLAN
The Company has a postretirement healthcare benefit plan (the "Plan").
Beginning on October 1, 1996, coverage for retirees and their covered
dependents is being provided through a medicare health maintenance organization
or other insurance providers. This change reduced the costs to the retirees and
eliminated the Company's liability. Accordingly, the Company has reversed the
liability for postretirement healthcare costs resulting in the recognition of a
$14,372,000 gain.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The disclosure of the estimated fair value of financial instruments is made
in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments" which
was adopted by the Company on December 31, 1995. The estimated fair value of
cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses are reflected in the balance sheet. The fair value of debt has been
estimated by discounting cash flows at the current rate at which similar loans
would be made to borrowers with similar credit ratings for the remaining term.
At December 31, 1996 and 1995, the fair value of debt was estimated to be
$192,481,000 and $184,883,000, compared to a carrying value of $192,347,000 and
$182,883,000, respectively. The fair value estimates presented herein are based
on pertinent information available to management as of December 31, 1996 and
1995.
13. STOCK OPTION PLAN
Under the Omnibus Stock Plan (the "Plan"), approved by the Company's
stockholders on May 22, 1996, officers, key employees, employees of Vornado
Realty Trust and any other person or entity as designated by the Omnibus Stock
Plan Committee are eligible to be granted incentive share options and
non-qualified options to purchase common shares. Options granted are at prices
equal to 100% of the market price of the Company's shares at the date of grant,
vest on a graduated basis, becoming fully vested 60 months after grant and
expire ten years after grant. The Plan also provides for the award of Stock
Appreciation Rights, Performance Shares and Restricted Stock, as defined, none
of which have been awarded as of December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 requires
expanded disclosure of stock-based compensation arrangements with employees, and
encourages, but does not require compensation cost be measured based on the fair
value of the equity instrument awarded. Companies are permitted, however, to
continue to apply Accounting Principles Board Opinion No. 25 ("APB 25"), which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB 25 to its stock-based
compensation awards.
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<PAGE> 17
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If compensation cost for Plan awards had been determined based on fair value
at the grant dates, net income and income per share would have been reduced to
the pro forma amounts below, for the year ended December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Net income:
As reported $24,699,000
Pro-forma 24,495,000
Net income per share:
As reported $ 4.94
Pro-forma $ 4.90
</TABLE>
The pro-forma effect of applying SFAS 123 is not necessarily indicative of
the effect on reported net income for future years.
The fair value of each option grant is estimated on the date of grant using
the Binomial option-pricing model with the following weighted-averages
assumptions used for grants in the period ended December 31, 1996.
<TABLE>
<S> <C>
Expected volatility 19%
Expected life 10 years
Risk-free interest rate 5.9%
Expected dividend yield 0%
</TABLE>
A summary of the Plan's status, and changes during the year ended December
31, 1996, is presented below:
<TABLE>
<CAPTION>
December 31, 1996
Weighted-Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at January 1 -- --
Granted 350,000 $73.88
Exercised -- --
------- ------
Outstanding at December 31 350,000 $73.88
=======
Options exercised at December 31 --
Weighted-average fair value of options granted
during the year ended December 31 (per option) $35.04
</TABLE>
Shares available for future grant at December 31, 1996 were 350,000.
-37-
<PAGE> 18
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
--------------------------------------------- --------------------------------------------
Quarter Ended Quarter Ended
--------------------------------------------- --------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $ 4,684 $ 5,686 $ 5,379 $ 6,084 $ 3,554 $ 2,945 $ 4,121 $ 4,141
------- ------- ------- ------- ------- ------- ------- --------
(Loss) income from
continuing operations (462) 53 (630) 14,136(2) (1,444) (3,260) (1,926) (1,066)
Income from discontinued
operations -- 11,602(1) -- -- -- -- -- 10,133(3)
------- ------- ------- ------- ------- ------- ------- --------
Net (loss) income $ (462) $11,655 $ (630) $14,136 $(1,444) $(3,260) $(1,926) $ 9,067
======= ======= ======= ======= ======= ======= ======= ========
(Loss) income per common share:
Continuing operations $ (.09) $ .01 $ (.13) $ 2.83 $ (.29) $ (.65) $ (.39) $ (.21)
Discontinued operations -- 2.32 -- -- -- -- -- 2.03
------- ------- ------- ------- ------- ------- ------- --------
Net (loss) income $ (.09) $ 2.33 $ (.13) $ 2.83 $ (.29) $ (.65) $ (.39) $ 1.82
======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
(1) Comprised of (i) $9,602,000 upon completion of a tax certiorari
proceeding and (ii) $2,000,000 from the reduction of other liabilities
of discontinued operations to amounts considered necessary to cover the
remaining estimates of these liabilities.
(2) Includes gain on reversal of postretirement healthcare liability in the
amount of $14,372,000.
(3) Comprised of (i) $6,133,000 upon completion of a tax certiorari
proceeding and (ii) $4,000,000 from the reduction of other liabilities
of discontinued operations to amounts considered necessary to cover the
remaining estimates of these liabilities.
-38-
