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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
VORNADO OPERATING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
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PARK 80 WEST, PLAZA II,
SADDLE BROOK, NEW JERSEY 07663
TELEPHONE: (201) 587-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOSEPH MACNOW
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
VORNADO OPERATING INC.
PARK 80 WEST, PLAZA II
SADDLE BROOK, NEW JERSEY 07663
TELEPHONE: (201) 587-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
ALAN SINSHEIMER
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
TELEPHONE: (212) 558-4000
FACSIMILE: (212) 558-3588
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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Common Stock, par value $.01 per
share (including associated
preferred stock purchase
rights)......................... 2,496,861 $4.44 $11,083,294 $3,359
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(1) Calculated (solely for purposes of determining the registration fee) at the
book value of the shares being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 20, 1997
VORNADO OPERATING COMPANY
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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This Prospectus is being furnished to both the common shareholders
("Vornado Shareholders") of Vornado Realty Trust, a Maryland real estate
investment trust ("Vornado"), and the limited partners other than Vornado
("Limited Partners") of Vornado Realty L.P., a Delaware limited partnership and
a subsidiary of Vornado ("Vornado Sub"), in connection with the distribution
(the "Distribution") by Vornado Sub and Vornado of all of the outstanding shares
of common stock, par value $.01 per share ("Common Stock"), of Vornado Operating
Company, a Delaware corporation currently owned by Vornado Sub (the "Company").
In order to maintain its status as a real estate investment trust ("REIT")
for federal income tax purposes, Vornado is required to focus principally on
investments in certain qualified real estate assets. The Company is a new
corporation which has been formed to own assets that Vornado could not itself
own and conduct activities that Vornado could not itself conduct.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO THE OWNERSHIP OF COMMON STOCK.
On December --, 1997 (the "Distribution Date"), Vornado Sub will distribute
all of the outstanding shares of Common Stock to its partners (i.e., Vornado and
the Limited Partners), and Vornado in turn will distribute all of the shares of
Common Stock it receives to the Vornado Shareholders. As a result of these
distributions, Vornado Shareholders will receive one share of Common Stock for
every 30 Common Shares of Beneficial Interest, par value $0.04 per share, of
Vornado (each, a "Vornado Common Share") held of record as of the close of
business on December --, 1997 (the "Record Date"), and Limited Partners will
receive one share of Common Stock for every 30 units of limited partnership
interest (each, a "Unit") in Vornado Sub held of record as of the close of
business on the Record Date. Cash will be paid in lieu of fractional shares of
Common Stock.
NO HOLDER OF VORNADO COMMON SHARES OR UNITS WILL BE REQUIRED TO MAKE ANY
PAYMENT, EXCHANGE ANY VORNADO COMMON SHARES OR UNITS OR TAKE ANY OTHER ACTION IN
ORDER TO RECEIVE COMMON STOCK IN THE DISTRIBUTION.
43,350 shares of Common Stock to be distributed in the Distribution to
Interstate Properties, a New Jersey general partnership ("Interstate"), are
being sold by Interstate (in the open market or otherwise). The Company will not
receive any of the proceeds from the sale of the shares being sold by
Interstate. See "The Distribution -- Interstate Transaction."
The Company's restated certificate of incorporation (the "Charter")
provides that no person may own more than 9.9% of the outstanding Common Stock.
Shares of Common Stock owned in excess of such limit will be deemed "Excess
Shares" pursuant to the Charter, in which case the holder will lose certain
ownership rights with respect to such shares and the Company will have the right
to purchase such Excess Shares from the holder. See "Description of Capital
Stock -- Certain Charter and By-laws Provisions -- Restrictions on Ownership."
There is currently no public market for the Common Stock. Although the
Company will apply to the Nasdaq National Market for quotation of the Common
Stock, it has not yet been approved for quotation, there can be no assurance
that it will be approved for quotation, and there can be no assurance as to the
prices at which trading in the Common Stock will occur after the Distribution.
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NO VOTE OF VORNADO SHAREHOLDERS OR LIMITED PARTNERS IS REQUIRED IN
CONNECTION WITH THE DISTRIBUTION. THEREFORE, WE ARE NOT ASKING YOU FOR A PROXY,
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is December --, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock described herein. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information, reference is made
hereby to the Registration Statement and such exhibits and schedules. Statements
contained herein concerning any documents are not necessarily complete and, in
each instance, reference is made to the copies of such documents filed as
exhibits to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including the exhibits
and schedules thereto, can be inspected and copied at the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such information can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
web site on the World Wide Web that contains reports, proxy and information
statements and other information on registrants, such as the Company, that must
file such material with the Commission electronically. The Commission's address
on the world wide web is "http://www.sec.gov".
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined and reported upon by
independent certified public accountants for each fiscal year.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Prospectus, including the discussion of
certain factors set forth under "Risk Factors." Unless the context requires
otherwise, all references to "Vornado" in this Prospectus shall be deemed to
refer to Vornado Realty Trust and its consolidated subsidiaries, including
Vornado Sub, and all references to the "Company" in this Prospectus shall be
deemed to refer to Vornado Operating Inc. and its consolidated subsidiaries,
including Vornado Operating L.P. ("Company Sub"). Vornado is the general partner
of Vornado Sub and the Company is the general partner of Company Sub.
THE DISTRIBUTION
Distributing Companies..... Vornado Sub and Vornado.
Distribution Ratio......... One share of Common Stock for every 30 Vornado
Common Shares or Units.
Record Date................ December -- , 1997.
Distribution Date.......... December -- , 1997
No Payment Required........ No holder of Vornado Common Shares or Units will be
required to make any payment, exchange any Vornado
Common Shares or Units or take any other action in
order to receive Common Stock in the Distribution.
Background of and Reasons
for the Distribution..... In order to maintain its status as a REIT for
federal income tax purposes, Vornado is required to
focus principally on investment in certain real
estate assets. The Company is a new corporation
which has been formed to own assets that Vornado
could not itself own and conduct activities that
Vornado could not itself conduct. The Company will
be able to do so because it will be taxable as a
regular corporation rather than a REIT for taxable
years after 1997.
The Distribution of Common Stock will enable
investors who own both Vornado Common Shares (or
Units) and Common Stock the opportunity to
participate in the benefits of the REIT operations
of Vornado (including ownership of real property)
and the non-REIT operations of the Company
(including the lease and operation of certain
assets owned by Vornado and the lease or ownership
and operation of certain other non-real estate
assets).
Interstate Transaction..... Interstate and its partners -- Steven Roth
(Chairman of the Board and Chief Executive Officer
of Vornado and the Company), David Mandelbaum (a
trustee of Vornado) and Russell B. Wight, Jr. (a
trustee of Vornado and a director of the
Company) -- will beneficially own, in the
aggregate, 20.6% of the Common Stock as a result of
the Distribution (exclusive of stock appreciation
rights ("SARs") held by Messrs. Roth and Wight for
this purpose). The beneficial ownership by
Interstate and its partners of 10% or more of the
Common Stock at a time when Interstate and its
partners beneficially own Vornado Common Shares
representing 10% or more of the total value of
Vornado's outstanding shares would cause rent
Vornado receives from the Company to fail to be
treated as qualifying rent for purposes of the REIT
gross income
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requirements. Consequently, Interstate and the
Company have agreed that (a) immediately after
completion of the Distribution, (i) Interstate will
exchange shares representing 9.9% of the Common
Stock that will be outstanding immediately after
giving effect to the Distribution for a 9.9%
undivided interest in the Company's assets, and
(ii) Interstate and the Company will contribute
such assets to Company Sub (a Delaware limited
partnership through which the Company will hold its
assets and conduct its business) and in return
Interstate will receive a 9.9% limited partnership
interest and the Company will receive a 90.1%
partnership interest therein (such exchange and
contribution being collectively referred to herein
as the "Interstate Exchange"), and (b) by no later
than December 31, 1997, Interstate will sell 43,350
additional shares of Common Stock (in the open
market or otherwise) (the "Interstate Sale" and,
together with the Interstate Exchange, the
"Interstate Transaction"). See "The Distribution --
Interstate Transaction."
Distribution Agent,
Transfer Agent and
Registrar................ First Union National Bank, Charlotte, North
Carolina, will be the distribution agent for the
Distribution (the "Distribution Agent") and the
Transfer Agent and Registrar for the Common Stock.
Federal Income Tax
Considerations........... The Distribution of shares of Common Stock by
Vornado will generally be treated as a taxable
dividend to Vornado shareholders to the extent that
it is treated as made out of Vornado's current or
accumulated earnings and profits (as determined for
federal income tax purposes). To the extent that
the value of the shares of Common Stock distributed
to a Vornado Shareholder exceeds the earnings and
profits of Vornado allocated to such Distribution,
such excess will generally be treated first as a
return of such shareholder's basis in its Vornado
Common Shares to the extent thereof and thereafter
as gain on a deemed disposition of Vornado Common
Shares. Vornado will generally recognize gain in
connection with the Distribution to the extent that
the fair market value of the Common Stock
distributed by Vornado exceeds Vornado's $10
million share of the aggregate basis that Vornado
Sub had in the assets contributed by Vornado Sub to
the Company (i.e., to the extent that the fair
market value of the Common Stock exceeds $4.33 per
share). Such gain will generally give rise to
additional taxable income for Vornado Shareholders
as such gain will generally result in an increase
in Vornado's current earnings and profits for 1997.
Vornado Shareholders will receive a basis in the
Common Stock equal to the fair market value thereof
at the time of Distribution. A Limited Partner will
generally recognize gain in connection with the
Distribution to the extent that the fair market
value of the Common Stock received by the Limited
Partner exceeds the Limited Partner's basis in the
Limited Partner's partnership interest. Certain
Limited Partners, however, may not be required to
recognize gain in the full amount of such excess.
See "Federal Income Tax Considerations -- The
Distribution."
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THE COMPANY
General.................... The Company was incorporated on October 30, 1997
and has had no operations to date. The Company has
been formed to own assets that Vornado could not
itself own and conduct activities that Vornado
could not itself conduct. The Company is intended
to function principally as an operating company, in
contrast to Vornado's principal focus on investment
in real estate assets.
The Company will seek to become the lessee and
operator of certain real estate assets owned now or
in the future by Vornado, as contemplated by the
Intercompany Agreement referred to below. In
addition, the Company may pursue other
opportunities, although it currently expects that
those opportunities will relate in some manner to
Vornado and its real estate investments rather than
to unrelated businesses.
See "The Distribution -- Background of and Reasons
for the Distribution" and "Business -- General."
Intercompany Agreement and
Charter Purpose
Clauses.................. The Company and Vornado intend to enter into an
agreement (the "Intercompany Agreement"), promptly
after the Distribution, pursuant to which, among
other things, (a) Vornado will agree under certain
circumstances to offer the Company an opportunity
to become lessee of certain real property owned now
or in the future by Vornado (under mutually
satisfactory lease terms) and (b) the Company will
agree not to make any real estate investment or
other REIT-Qualified Investment (as defined) unless
it first offers Vornado the opportunity to make
such investment and Vornado has rejected that
opportunity. The Company's Charter specifies that
one of its corporate purposes is to perform the
Intercompany Agreement and, for so long as the
Intercompany Agreement remains in effect, prohibits
the Company from making any real estate investment
or other REIT-Qualified Investment without
complying with the requirement referred to in (b)
of the preceding sentence. See
"Business -- Intercompany Agreement and Charter
Purpose Clauses."
Initial Capitalization;
Specific
Operating Assets or
Operations to Be
Acquired................. Vornado Sub has capitalized the Company with an
equity contribution consisting of marketable equity
securities of unaffiliated REITs with a market
value as of November 6, 1997 of $11.1 million
(collectively, the "Initial Assets"). The Company
expects to sell such assets from time to time in
the open market as needed to raise funds to
purchase non-real estate assets in accordance with
its business strategy or as its view of market
conditions dictates. In addition, the Company
intends, promptly after the Distribution, to enter
into a $35 million revolving credit agreement with
Vornado Sub (the "Revolving Credit Agreement"). See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity
and Capital Resources."
The Company has not yet identified specific
operating assets or operations that it will
acquire. Although the Company expects to
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attempt to negotiate to become lessee and operator
of some or all of the real estate assets and to
purchase some or all of the non-real estate assets
of the Cold Storage Companies referred to under
"Business -- Initial Capitalization; Specific
Operating Assets or Operations to be Acquired,"
there is no assurance that the Company will be
successful in doing so and there is no assurance as
to the terms of any such transaction.
Company Sub................ The Company will hold its assets and conduct its
business through Company Sub. The Company will be
the sole general partner of, and will own a 90.1%
partnership interest in, Company Sub.
Management of the
Company.................. Steven Roth (Chairman of the Board and Chief
Executive Officer of Vornado), Michael D.
Fascitelli (President of Vornado) and other senior
officers of Vornado serve (and after the
Distribution are expected to continue to serve) in
the same capacities at the Company. See
"Management."
Dividend Policy............ The Company intends to use its available funds to
pursue investment and business opportunities and,
therefore, does not anticipate the payment of any
cash dividends on the Common Stock in the
foreseeable future, except to the extent that the
Company is required to make distributions in order
to qualify for federal income tax purposes as a
REIT for the taxable year ending December 31, 1997.
See "Federal Income Tax Considerations -- Taxation
of the Company in General -- Taxation of the
Company as a REIT for 1997 (But Not Thereafter)."
REIT for 1997
(But Not Thereafter)..... The Company will seek to qualify as a REIT for
federal income tax purposes for its taxable year
ending December 31, 1997, but not for subsequent
years. The Company's qualification as a REIT for
its taxable year ending December 31, 1997 would
help to ensure that the Distribution will not
adversely effect Vornado's REIT status. The Company
will be subject to federal income tax as a regular
corporation in taxable years after 1997. See
"Federal Income Tax Considerations -- Taxation of
the Company in General."
RISK FACTORS
Vornado Shareholders and Limited Partners should consider carefully, in
addition to the other information contained in this Prospectus, the matters set
forth under the caption "Risk Factors."
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SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The Company is a new corporation which has been formed to own assets that
Vornado could not itself own and conduct activities that Vornado could not
itself conduct. See "The Distribution -- Background of and Reasons for the
Distribution." The Company was incorporated on October 30, 1997 and has had no
operations to date. The following sets forth unaudited summary data for the
Company as of November 6, 1997, adjusted to give pro forma effect to the
contribution of the Initial Assets to the Company, the Distribution and the
Interstate Transaction as if such transactions had occurred as of such date.
PRO FORMA CONSOLIDATED FINANCIAL DATA (in thousands, except share and per share
data)
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Marketable equity securities of unaffiliated REITs and cash................ $ 11,083(1)
Minority interest of Interstate in Company Sub............................. $ 1,097(1)
Stockholders' equity....................................................... $ 9,986(1)
Number of shares of Common Stock outstanding............................... 2,249,672(2)
Stockholders' equity per share............................................. $ 4.44(1)(2)
</TABLE>
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(1) Based on market value of marketable equity securities as of November 6,
1997. Market value as of December -- , 1997 was $ -- . For further
information about these assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(2) Based on number of Vornado Common Shares and Units outstanding as of
November 6, 1997 and a Distribution ratio of one share of Common Stock for
every 30 Vornado Common Shares or Units. If based on number of Vornado
Common Shares and Units outstanding on Record Date, number of shares of
Common Stock outstanding would be -- and stockholders' equity per share
would be $--.
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RISK FACTORS
Vornado Shareholders and Limited Partners should carefully consider and
evaluate all of the information set forth in this Prospectus, including the risk
factors listed below.
LACK OF OPERATING HISTORY AND OPERATING RESULTS; NO OPERATING ASSETS
The Company was incorporated on October 30, 1997 and has had no operations
to date. The Company owns no operating assets and has not yet entered into any
agreement to lease or purchase operating assets.
RESTRICTIONS ON THE COMPANY'S BUSINESS AND FUTURE OPPORTUNITIES
The Intercompany Agreement and the Charter will prohibit the Company from
making any real estate investment or other REIT-Qualified Investment unless it
first offers Vornado the opportunity to make such investment and Vornado has
rejected that opportunity. See "Business -- Intercompany Agreement and Charter
Purpose Clauses." Because of the provisions of the Intercompany Agreement and
the Charter, the nature of the Company's business and the opportunities it may
pursue are significantly restricted.
DEPENDENCE UPON VORNADO
The Company expects to rely exclusively on Vornado to identify business
opportunities for the Company, and the Company currently expects that those
opportunities will relate in some manner to Vornado and its real estate
investments rather than to unrelated businesses. There is no assurance that
Vornado will identify opportunities for the Company or that any opportunities
that Vornado identifies will be within the Company's financial, operational or
management parameters. Vornado will be required under the Intercompany Agreement
to provide the Company with an opportunity to become the lessee of real property
acquired by Vornado only if Vornado determines in its sole discretion that,
consistent with Vornado's status as a REIT, it is required to enter into a
master lease arrangement with respect to such property and that the Company is
qualified to act as lessee thereof. Moreover, the Company will be entitled to
enter into such a master lease arrangement with Vornado only if the Company and
Vornado are able to agree on mutually satisfactory lease terms.
If Vornado in the future should fail to qualify as a REIT and thereafter
acquired a property, Vornado would have the right under the Intercompany
Agreement to lease the property to any person or entity pursuant to any type of
lease (including a master lease arrangement) or to operate the property itself,
in either case without offering the Company an opportunity to become a lessee
thereof. The Company, however, would remain subject to all of the limitations on
its operations contained in the Charter and the Intercompany Agreement.
Accordingly, if Vornado should fail to qualify as a REIT, that failure could
have a material adverse effect on the Company. For a discussion of Vornado's
status as a REIT, see "Federal Income Tax Considerations -- Taxation of Vornado
in General."
If Vornado in the future should sell any property which is leased to the
Company, it is possible that the new owner might refuse to renew the lease upon
the expiration of its term.
SUBSTANTIAL INFLUENCE OF CONTROLLING SHAREHOLDERS; POSSIBLE CONFLICTS OF
INTEREST
Interstate and its partners -- Steven Roth (Chairman of the Board and Chief
Executive Officer of Vornado and the Company), David Mandelbaum (a trustee of
Vornado) and Russell B. Wight, Jr. (a trustee of Vornado and a director of the
Company) -- beneficially own, in the aggregate, 22.2% of the outstanding Vornado
Common Shares (excluding shares issuable on conversion of Units for this
purpose) and will, after giving effect to the Interstate Transaction,
beneficially own, in the aggregate, a 9.9% limited partnership interest in
Company Sub and 9.9% of the Common Stock (exclusive of SARs held by Messrs. Roth
and Wight for this purpose). Because of the foregoing, Messrs. Roth, Mandelbaum
and Wight and Interstate (collectively, the "Interstate Parties") will have
substantial influence on the Company and Vornado and on the outcome of any
matters submitted to the Company's or Vornado's shareholders for approval.
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Four of the members of the Company's Board (including Messrs. Roth and
Fascitelli) are members of Vornado's Board, and each member of senior management
of the Company holds a corresponding position with Vornado. Members of the
Company's Board and senior management may have different percentage equity
interests in the Company and in Vornado. Moreover, the Interstate Parties engage
in a wide variety of activities in the real estate business. Thus, members of
the Board and senior management of the Company and Vornado and the Interstate
Parties may be presented with conflicts of interest with respect to certain
matters affecting the Company, such as determination of which of such entities
or persons, if any, may take advantage of potential business opportunities,
decisions concerning the business focus of such entities (including decisions
concerning the types of properties and geographic locations in which such
entities make investments), potential competition between business activities
conducted, or sought to be conducted, by such entities or persons (including
competition for properties and tenants), possible corporate transactions (such
as acquisitions) and other strategic decisions affecting the future of such
parties.
Neither Mr. Roth nor any other member of management is committed to
spending a particular amount of time on the Company's affairs, nor will any of
them devote his full time to the Company.
RISKS ASSOCIATED WITH POTENTIAL INVESTMENTS AND ABILITY TO MANAGE THOSE
INVESTMENTS; COMPETITION
Although the Company currently expects that the opportunities it pursues
will relate in some manner to Vornado and its real estate investments rather
than to unrelated businesses, it is possible that they will not. In addition,
whether or not such opportunities relate in some manner to Vornado and its real
estate investments, the businesses in which it engages may require a wide range
of skills and qualifications, and there is no assurance that the Company
management or employees will have, or that the Company will be able to hire and
retain employees with, such skills and qualifications. There also is no
assurance that the opportunities the Company pursues will be integrated, perform
as expected or contribute significant revenues or profits to the Company, and
there is a risk that the Company may realize substantial losses with respect
thereto. The industries in which the Company will compete may be subject to
government regulation and restrictions, some of which may be significant and
burdensome. The businesses with which it will compete may be better capitalized
or have other features that will make it difficult for the Company to compete
effectively.
RISK OF LOSS ON INITIAL ASSETS; OBLIGATIONS UNDER REVOLVING CREDIT FACILITY;
LIMITED FINANCIAL RESOURCES
Vornado Sub has capitalized the Company with an equity contribution of the
Initial Assets, which consist of marketable equity securities of unaffiliated
REITs with a market value as of November 6, 1997 of $11.1 million. The Company
expects to sell such assets from time to time in the open market as needed to
raise funds to purchase non-real estate assets in accordance with its business
strategy or as its view of market conditions dictates. There can be no assurance
as to the amount of cash that will be ultimately realized in respect of such
assets, and it is possible that the Company will incur substantial losses with
respect thereto.
The Company intends, promptly after the Distribution, to enter into a $35
million Revolving Credit Agreement with Vornado Sub. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Although only interest and
commitment fees will be payable under the Revolving Credit Agreement until it
expires on December 31, 2002, there can be no assurance that the Company will be
able to satisfy all of its obligations under the Revolving Credit Agreement.
The Company expects that sales of its Initial Assets and borrowings under
the Revolving Credit Agreement will be used to support future acquisitions of
assets by the Company and other cash
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requirements. There is no assurance that the Company will have sufficient
working capital to finance future acquisitions or pursue additional
opportunities. The Company expects to be able to access capital markets or to
seek other financing, including financing from Vornado, but there is no
assurance that it will be able to do so at all or in amounts or on terms
acceptable to the Company. Under certain circumstance it may be deemed desirable
by the Company and Vornado to offer and sell Common Stock and Vornado Common
Shares under a common plan of distribution. There is no assurance that the
timing, terms and manner of such an offering will be as favorable to the Company
as the timing, terms and manner of an offering of Common Stock made
independently of Vornado. Neither Vornado nor any other person is obligated to
provide any additional funds to the Company, to offer securities under a common
plan of distribution or to assist it in obtaining additional financing.
ABSENCE OF A PUBLIC MARKET FOR COMMON STOCK
There is currently no public market for the Common Stock. Although the
Company will apply to the Nasdaq National Market for quotation of the Common
Stock, it has not yet been approved for quotation, there can be no assurance
that it will be approved for quotation, and there can be no assurance as to the
prices at which trading in the Common Stock will occur after the Distribution.
Interstate has agreed to sell 43,350 shares of Common Stock by December 31,
1997, and these sales could adversely affect the market price of the Common
Stock. Until the Common Stock is fully distributed and an orderly trading market
develops, the prices at which trading in such stock occurs may fluctuate
significantly. There can be no assurance that an active trading market in the
Common Stock will develop or be sustained in the future. In the event no active
trading market develops for the Common Stock, holders of shares of Common Stock
may not be able to sell their shares promptly at a reasonable price.
Accordingly, holders of Common Stock should consider the Common Stock a
long-term investment.
The prices at which the Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
Company's performance and prospects, the depth and liquidity of the market for
the Common Stock, investor perception of the Company and of the industries in
which the Company operates and economic conditions in general, the Company's
dividend policy, and general financial and other market conditions. In addition,
financial markets have experienced extreme price and volume fluctuations that
have affected the market price of the stocks of many companies and that, at
times, could be viewed as unrelated or disproportionate to the operating
performance of such companies. Such fluctuations have also affected the share
prices of many newly public issuers. Such volatility and other factors may
materially adversely affect the market price of the Common Stock.
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company intends to use its available funds to pursue investment and
business opportunities and, therefore, does not anticipate the payment of any
cash dividends on the Common Stock in the foreseeable future, except to the
extent that the Company is required to make distributions in order to qualify
for federal income tax purposes as a REIT for the taxable year ending December
31, 1997. See "Federal Income Tax Considerations -- Taxation of the Company in
General -- Taxation of the Company as a REIT for 1997 (But Not Thereafter)."
Except for distributions described in the preceding sentence, payment of
dividends on the Common Stock is prohibited under the Revolving Credit Agreement
until all amounts outstanding thereunder have been paid in full and the
commitment thereunder is terminated, and will also be subject to such
limitations as may be imposed by any other credit facilities that the Company
may obtain from time to time.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of Steven Roth, the Chairman and
Chief Executive Officer of the Company, and Michael D. Fascitelli, the President
of the Company. While the Company believes that it could find replacements for
these key personnel, the loss of their services could have an adverse effect on
the operations of the Company.
10
<PAGE> 12
CERTAIN ANTITAKEOVER PROVISIONS
The Charter and By-laws, the Company's rights plan and applicable sections
of the Delaware General Corporation Law (the "DGCL") contain provisions that may
make more difficult the acquisition of control of the Company without the
approval of the Company's Board. See "Description of Capital Stock."
LEGAL STRUCTURE
Substantially all of the Company's assets will consist of its partnership
interests in Company Sub, of which the Company will be a general partner.
Substantially all of Company Sub's properties and assets are expected to be held
through subsidiaries. Any right of the Company's stockholders to participate in
any distribution of the assets of any indirect subsidiary of the Company upon
the liquidation, reorganization or insolvency of such subsidiary (and any
consequent right of the Company's securityholders to participate in those
assets) will be subject to the claims of the creditors (including trade
creditors) and preferred holders of equity, if any, of Company Sub and such
subsidiary, except to the extent the Company has a recognized claim against such
subsidiary as a creditor of such subsidiary. In addition, in the event that
claims of the Company as a creditor of a subsidiary are recognized, such claims
would be subordinate to any security interest in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate (including, e.g., the
Company as lessee 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 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 or the operator's
ability to sell or finance the operations. 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, including the properties
it expects to lease from Vornado or others, the Company could be held liable for
the costs of remedial action with respect to such regulated substances or tanks
or related claims.
FEDERAL INCOME TAX RISKS
The Distribution of shares of Common Stock by Vornado will generally be
treated as a taxable dividend to Vornado shareholders to the extent that it is
treated as made out of Vornado's current or accumulated earnings and profits (as
determined for federal income tax purposes). To the extent that the value of the
shares of Common Stock distributed to a Vornado Shareholder exceeds the earnings
and profits of Vornado allocated to such Distribution, such excess will
generally be treated first as a return of such shareholder's basis in its
Vornado Common Shares to the extent thereof and thereafter as gain on a deemed
disposition of Vornado Common Shares. Vornado will generally recognize gain in
connection with the Distribution to the extent that the fair market value of the
Common Stock distributed by Vornado exceeds Vornado's $10 million share of the
aggregate basis that Vornado Sub had in the assets contributed by Vornado Sub to
the Company (i.e., to the extent that the fair market value of the Common Stock
exceeds approximately $4.33 per share). Such gain will generally give rise to
additional taxable income for Vornado Shareholders as such gain will generally
result in an increase in Vornado's current earnings and profits for 1997.
Vornado Shareholders will receive a basis in the Common Stock equal to the fair
market value thereof at the time of Distribution. A Limited Partner will
generally recognize gain in connection with the Distribution to the extent that
the fair market value of the Common Stock received by the Limited Partner
exceeds the Limited Partner's basis in the Limited Partner's partnership
interest. Certain Limited Partners, however, may not be required to recognize
gain in the full amount of such excess. See "Federal Income Tax
Considerations -- The Distribution."
11
<PAGE> 13
THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
In order to maintain its status as a REIT for federal income tax purposes,
Vornado is required to focus principally on investment in certain real estate
assets. See "Federal Income Tax Considerations -- Taxation of Vornado in
General." Accordingly, Vornado has been prevented from owning certain assets and
conducting certain activities that would be inconsistent with its status as a
REIT.
The Company is a new corporation which has been formed to own assets that
Vornado could not itself own and conduct activities that Vornado could not
itself conduct. The Company will be able to do so because it will be taxable as
a regular corporation rather than a REIT for taxable years after 1997. In this
regard, the Company and Vornado intend to enter into the Intercompany Agreement,
promptly after the Distribution, pursuant to which, among other things, (a)
Vornado will agree under certain circumstances to offer the Company an
opportunity to become lessee of certain real property owned now or in the future
by Vornado (under mutually satisfactory lease terms) and (b) the Company will
agree not to make any real estate investment or other REIT-Qualified Investment
unless it first offers Vornado the opportunity to make such investment and
Vornado has rejected that opportunity. See "Business -- Intercompany Agreement
and Charter Purpose Clauses."
The Distribution of Common Stock will enable investors who own both Vornado
Common Shares (or Units) and Common Stock the opportunity to participate in the
benefits of the REIT operations of Vornado (including ownership of real
property) and the non-REIT operations of the Company (including the lease and
operation of certain assets owned by Vornado and the lease or ownership and
operation of certain other non-real estate assets). A small number of REITs,
operating under tax provisions that no longer are available, have shares that
are "paired" or "stapled" with shares of a related operating company. The shares
of Common Stock and the Vornado Common Shares are not, and will not be, paired
or stapled in any manner and may be owned and transferred separately and
independently of each other. However, investors who choose to own shares of
Common Stock and Vornado Common Shares will in effect have the economic
equivalent of a paired investment in the Company and Vornado.
MANNER OF EFFECTING THE DISTRIBUTION
On the Distribution Date, Vornado Sub will distribute all of the
outstanding shares of Common Stock to its partners (i.e., Vornado and the other
Limited Partners), pro rata in accordance with their respective interests in
Vornado Sub held of record as of the close of business on the Record Date, and
will deliver to Vornado and the other Limited Partners certificates representing
such shares. Vornado in turn will distribute all of the shares of Common Stock
it receives to the Vornado Shareholders, pro rata in accordance with the number
of Vornado Common Shares held of record as of the close of business on the
Record Date, and will cause the Distribution Agent to mail certificates
representing such shares to the Vornado Shareholders entitled thereto. As a
result of these distributions, Vornado Shareholders will receive one share of
Common Stock for every 30 Vornado Common Shares held of record as of the close
of business on the Record Date, and Limited Partners will receive one share of
Common Stock for every 30 Units held of record as of the close of business on
the Record Date.
No Vornado Shareholder or Limited Partner will be entitled to receive a
fractional share of Common Stock in connection with the Distribution. Instead,
the Distribution Agent will (a) aggregate all fractional shares of Common Stock
which would otherwise be issuable in connection with the Distribution, (b) sell
those shares in the open market for cash and (c) mail to each Vornado
Shareholder or Limited Partner, in lieu of the fractional share such Vornado
Shareholder or Limited Partner would otherwise receive, a check in an amount
equal to such Vornado Shareholder's or Limited Partner's pro rata share in the
aggregate amount received for such shares.
12
<PAGE> 14
Inquiries relating to the Distribution should be directed to the
Distribution Agent at First Union National Bank, 1525 West W.T. Harris
Blvd. -- 3C3, Charlotte, North Carolina 28288-1153, Attention: Corporate Trust
Client Services NC-1153; or by telephone at 800-829-8432, Monday through Friday,
9:00 a.m. to 5:00 p.m. (Eastern time).
NO HOLDER OF VORNADO COMMON SHARES OR UNITS WILL BE REQUIRED TO MAKE ANY
PAYMENT, EXCHANGE ANY VORNADO COMMON SHARES OR UNITS OR TAKE ANY OTHER ACTION IN
ORDER TO RECEIVE COMMON STOCK IN THE DISTRIBUTION.
INTERSTATE TRANSACTION
Interstate, a New Jersey general partnership, and its partners -- Steven
Roth (Chairman of the Board and Chief Executive Officer of Vornado and the
Company), David Mandelbaum (a trustee of Vornado) and Russell B. Wight, Jr. (a
trustee of Vornado and a director of the Company) -- will beneficially own, in
the aggregate, 20.6% of the Common Stock as a result of the Distribution
(ignoring SARs held by Messrs. Roth and Wight for this purpose). Under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Vornado will not continue to be treated as a REIT unless it satisfies,
among other things, requirements relating to the sources of its gross income.
See "Federal Income Tax Considerations -- Taxation of Vornado in General." Rents
received or accrued by Vornado from the Company will not be treated as
qualifying rent for purposes of these requirements if Vornado is treated, either
directly or under the applicable attribution rules, as owning 10% or more of the
Common Stock of the Company. Vornado will be treated as owning, under the
applicable attribution rules, 10% or more of the Common Stock at any time that
Interstate and its partners own, directly or under the applicable attribution
rules, (a) Vornado shares with a value equal to 10% or more of the total value
of Vornado's outstanding shares and (b) 10% or more of the Common Stock of the
Company. Thus, in order to enable rents received or accrued by Vornado from the
Company to be treated as qualifying rent for purposes of the REIT gross income
requirements, Interstate and the Company have agreed that (a) immediately after
completion of the Distribution, (i) Interstate will exchange shares representing
9.9% of the Common Stock that will be outstanding after giving effect to the
Distribution for a 9.9% undivided interest in the Company's assets and (ii)
Interstate and the Company will contribute such assets to Company Sub (a
Delaware limited partnership through which the Company will hold its assets and
conduct its business) and in return Interstate will receive a 9.9% limited
partnership interest and the Company will receive a 90.1% partnership interest
therein, and (b) by no later than December 31, 1997, Interstate will sell 43,350
additional shares of Common Stock (in the open market or otherwise). Interstate
will have the right to have its limited partnership interest in Company Sub
redeemed by Company Sub either (a) for cash in an amount equal to the fair
market value, at the time of redemption, of a number of shares of Common Stock
equal to the number originally exchanged by Interstate as described in the
preceding sentence or (b) for such number of shares of Common Stock, in each
case as selected by the Company and subject to customary anti-dilution
adjustments.
TRADING OF COMMON STOCK
There is currently no public market for the Common Stock. Although the
Company will apply to the Nasdaq National Market for quotation of the Common
Stock, it has not yet been approved for quotation, there can be no assurance
that it will be approved for quotation, and there can be no assurance as to the
prices at which trading in the Common Stock will occur after the Distribution.
Until the Common Stock is fully distributed and an orderly trading market
develops, the prices at which trading in such stock occurs may fluctuate
significantly. There can be no assurance that an active trading market in the
Common Stock will develop or be sustained in the future.
The Company will have approximately 2,000 stockholders of record, based on
the number of record holders of Vornado Common Shares and Units on the Record
Date. The Transfer Agent and Registrar for the Common Stock will be First Union
National Bank, Charlotte, North Carolina.
After giving effect to the Distribution and the Interstate Transaction,
2,249,672 million shares of Common Stock will be outstanding. These shares will
be freely transferable, except for securities received by persons who may be
deemed to be "affiliates" of the Company under the Securities Act of 1933, as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
the Company
13
<PAGE> 15
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company and may include
certain officers and directors of the Company as well as principal stockholders
of the Company, if any. Persons who are affiliates of the Company will be
permitted to sell their shares of Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(2) of the Securities Act (relating to private sales) or by Rule 144
under the Securities Act. Interstate has agreed to sell 43,350 shares of Common
Stock following the Distribution, and these sales have been registered under the
Registration Statement of which this Prospectus is a part. See "-- Interstate
Transaction." Besides these shares, neither Vornado nor the Company is able to
predict whether substantial amounts of Common Stock will be sold in the open
market following the Distribution. Sale of substantial amounts of Common Stock
in the public market, or the perception that such sales might occur, could
adversely affect the market price of Common Stock.
FEDERAL INCOME TAX CONSIDERATIONS
The Distribution of shares of Common Stock by Vornado will generally be
treated as a taxable dividend to Vornado shareholders to the extent that it is
treated as made out of Vornado's current or accumulated earnings and profits (as
determined for federal income tax purposes). To the extent that the value of the
shares of Common Stock distributed to a Vornado Shareholder exceeds the earnings
and profits of Vornado allocated to such Distribution, such excess will
generally be treated first as a return of such shareholder's basis in its
Vornado Common Shares to the extent thereof and thereafter as gain on a deemed
disposition of Vornado Common Shares. Vornado will generally recognize gain in
connection with the Distribution to the extent that the fair market value of the
Common Stock distributed by Vornado exceeds Vornado's $10 million share of the
aggregate basis that Vornado Sub had in the assets contributed by Vornado Sub to
the Company (i.e., to the extent that the fair market value of the Common Stock
exceeds $4.33 per share). Such gain will generally give rise to additional
taxable income for Vornado's shareholders as such gain will generally result in
an increase in Vornado's current earnings and profits for 1997. Vornado
Shareholders will receive a basis in the Common Stock equal to the fair market
value thereof at the time of Distribution. A Limited Partner will generally
recognize gain in connection with the Distribution to the extent that the fair
market value of the Common Stock received by the Limited Partner exceeds the
Limited Partner's basis in the Limited Partner's partnership interests. Certain
Limited Partners, however, may not be required to recognize gain in the full
amount of such excess.
All Vornado Shareholders and Limited Partners should carefully read the
discussion of the material federal income tax consequences of the Distribution
under "Federal Income Tax Considerations -- The Distribution" and are urged to
consult their own tax advisers as to the federal, state, local and foreign tax
consequences in their particular circumstances.
DIVIDEND POLICY
The Company intends to use its available funds to pursue investment and
business opportunities and, therefore, does not anticipate the payment of any
cash dividends on the Common Stock in the foreseeable future, except to the
extent that the Company is required to make distributions in order to qualify
for federal income tax purposes as a REIT for the taxable year ending December
31, 1997. See "Federal Income Tax Considerations -- Taxation of the Company in
General -- Taxation of the Company as a REIT for 1997 (But Not Thereafter)."
Except for distributions described in the preceding sentence, payment of
dividends on the Common Stock is prohibited under the Revolving Credit Agreement
until all amounts outstanding thereunder are paid in full and the commitment
thereunder is terminated, and will also be subject to such limitations as may be
imposed by any other credit facilities that the Company may obtain from time to
time. The declaration of dividends will be subject to the discretion of the
Board.
14
<PAGE> 16
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Company is a new corporation which has been formed to own assets that
Vornado could not itself own and conduct activities that Vornado could not
itself conduct. See "The Distribution -- Background of and Reasons for the
Distribution." The Company was incorporated on October 30, 1997 and has had no
operations to date. The following sets forth unaudited selected data for the
Company as of November 6, 1997, adjusted to give pro forma effect to the
contribution of the Initial Assets to the Company, the Distribution and the
Interstate Transaction as if such transactions had occurred as of such date.
PRO FORMA CONSOLIDATED FINANCIAL DATA (in thousands, except share and per share
data)
<TABLE>
<S> <C>
Marketable equity securities of unaffiliated REITs and cash................ $ 11,083(1)
Minority interest of Interstate in Company Sub............................. $ 1,097(1)
Stockholders' equity....................................................... $ 9,986(1)
Number of shares of Common Stock outstanding............................... 2,249,672(2)
Stockholders' equity per share............................................. $ 4.44(1)(2)
</TABLE>
- ---------------
(1) Based on market value of marketable equity securities as of November 6,
1997. Market value as of December --, 1997 was $--. For further information
about these assets, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
(2) Based on number of Vornado Common Shares and Units outstanding as of
November 6, 1997 and a Distribution ratio of one share of Common Stock for
every 30 Vornado Common Shares or Units. If based on number of Vornado
Common Shares and Units outstanding on Record Date, number of shares of
Common Stock outstanding would be -- and stockholders' equity per share
would be $ -- .
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Pro Forma Consolidated Financial Data" and the historical and pro forma balance
sheets and notes thereto appearing elsewhere in this Prospectus.
The Company was incorporated on October 30, 1997 and has had no operations
to date. The Company has been formed to own assets that Vornado could not itself
own and conduct activities that Vornado could not itself conduct. The Company is
intended to function principally as an operating company, in contrast to
Vornado's principal focus on investment in real estate assets.
The Company will seek to become the lessee and operator of certain real
estate assets owned now or in the future by Vornado, as contemplated by the
Intercompany Agreement. In addition, the Company may pursue other opportunities,
although it currently expects that those opportunities will relate in some
manner to Vornado and its real estate investments rather than to unrelated
businesses.
See "Business -- Intercompany Agreement and Charter Purpose Clauses."
LIQUIDITY AND CAPITAL RESOURCES
Vornado Sub has capitalized the Company with an equity contribution of the
Initial Assets, which consist of marketable equity securities of unaffiliated
REITs with a market value as of November 6, 1997 of $11.1 million. The Company
expects to sell such assets from time to time in the open market as needed to
raise funds to purchase non-real estate assets in accordance with its business
strategy or as its view of market conditions dictates.
The market values of the marketable equity securities contributed by
Vornado Sub as of November 6, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON MARKET
ISSUER SHARES CONTRIBUTED VALUE(1)
--------------------------------------------------- ------------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Atlantic Realty Trust.............................. 29,987 $ 360
Crown American Realty Trust........................ 349,500 3,211
Kranzco Realty Trust............................... 245,700 4,638
Ramco Gershenson Properties Trust.................. 59,975 1,124
Saul Centers, Inc. ................................ 60,000 1,042
Taubman Centers, Inc. ............................. 58,900 707
-------
Total..................................... $ 11,082
=======
</TABLE>
- ---------------
(1) Calculated based on the closing sale prices on November 6, 1997 as reported
by the New York Stock Exchange or Nasdaq.
The Company intends to obtain a $35 million unsecured five-year revolving
credit facility from Vornado Sub under the Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement will bear interest at a floating
rate per annum equal to LIBOR plus 3%. The Company will pay Vornado Sub a
commitment fee equal to 1% per annum on the average daily unused portion of the
facility. Amounts may be borrowed under the Revolving Credit Agreement, repaid
and reborrowed from time to time on a revolving basis (so long as the principal
amount outstanding at any time does not exceed $35 million). Only interest and
commitment fees will be payable under the Revolving Credit Agreement until it
expires on December 31, 2002. The Revolving Credit Agreement will prohibit the
Company from incurring indebtedness to third parties (other than certain
purchase money debt and certain other exceptions) and will prohibit the Company
from paying dividends (except to the extent that the Company is required to pay
dividends in order to qualify for federal income tax purposes as a REIT for the
taxable year ending December 31, 1997). Debt under the Revolving Credit
Agreement will be fully recourse against the Company. The Company expects that
borrowings under the Revolving Credit Agreement will be used to support future
acquisitions of assets by the Company and other cash requirements.
The Company owns no operating assets and has not yet entered into any
agreement to lease or purchase operating assets. The Company will have no
external sources of financing except for the Revolving Credit Agreement.
16
<PAGE> 18
BUSINESS
GENERAL
The Company was incorporated on October 30, 1997 and has had no operations
to date. The principal executive offices of the Company are located at Park 80
West, Plaza II, Saddle Brook, New Jersey 07663, and its telephone number at that
location is (201) 587-1000.
The Company has been formed to own assets that Vornado could not itself own
and conduct activities that Vornado itself could not conduct. The Company is
intended to function principally as an operating company, in contrast to
Vornado's principal focus on investment in real estate assets. See "The
Distribution -- Background of and Reasons for the Distribution."
The Company will seek to become the lessee and operator of certain real
estate assets owned now or in the future by Vornado, as contemplated by the
Intercompany Agreement referred to below. In addition, the Company may pursue
other opportunities, although it currently expects that those opportunities will
relate in some manner to Vornado and its real estate investments rather than to
unrelated businesses.
INTERCOMPANY AGREEMENT AND CHARTER PURPOSE CLAUSES
The Company and Vornado intend to enter into the Intercompany Agreement,
promptly after the Distribution, pursuant to which, among other things, (a)
Vornado will agree under certain circumstances to offer the Company an
opportunity to become the lessee of certain real property owned now or in the
future by Vornado (under mutually satisfactory lease terms) and (b) the Company
will agree not to make any real estate investment or other REIT-Qualified
Investment unless it first offers Vornado the opportunity to make such
investment and Vornado has rejected that opportunity.
More specifically, the Intercompany Agreement will require, subject to
certain terms, that Vornado provide the Company with an opportunity (a "Tenant
Opportunity") to become the lessee of any real property owned now or in the
future by Vornado if Vornado determines in its sole discretion that, consistent
with Vornado's status as a REIT, it is required to enter into a "master" lease
arrangement with respect to such property and that the Company is qualified to
act as lessee thereof. In general, a master lease arrangement is an arrangement
pursuant to which an entire property or project (or a group of related
properties or projects) are leased to a single lessee. Under the Intercompany
Agreement, the Company will have a right to negotiate with Vornado on an
exclusive basis for 30 days regarding the terms and conditions of the lease. If
a mutually satisfactory agreement cannot be reached within the 30-day period,
Vornado may offer the Tenant Opportunity to third parties for a period of one
year thereafter (on terms no more favorable to the third parties than the terms
last offered to the Company) before it must again offer the Tenant Opportunity
to the Company in accordance with the procedures specified above.
In addition, the Intercompany Agreement will prohibit the Company from
making (i) any investment in real estate (which term, for purposes of the
Intercompany Agreement and the Charter provision referred to below, will include
the provision of services related to real estate, real estate mortgages, real
estate derivatives or entities that invest in the foregoing) or (ii) any other
REIT-Qualified Investment, unless it has provided written notice to Vornado of
the material terms and conditions of the investment opportunity and Vornado has
determined not to pursue such investment either by providing written notice to
the Company rejecting the opportunity within 10 days from the date of receipt of
notice of the opportunity or by allowing such 10-day period to lapse. As used
herein, "REIT-Qualified Investment" means an investment, the income from which
would qualify under the 95% gross income test set forth in section 856(c)(2) of
the Code (or could be structured to so qualify) and the ownership of which would
not cause Vornado to violate the asset limitations set forth in section
856(c)(5) of the Code (or could be structured not to cause Vornado to violate
the section 856(c)(5) limitation); provided, however, that "REIT-Qualified
Investment" does not include an investment in U.S. government obligations, cash
or cash items (as defined for puposes
17
<PAGE> 19
of Section 856(c)(5) of the Code), certain portfolio investments in securities
or the securities transferred to the Company by Vornado Sub. The Intercompany
Agreement will also require the Company to assist Vornado in structuring and
consummating any such investment which Vornado elects to pursue, on terms
determined by Vornado. In addition, the Company will agree to notify Vornado of,
and make available to, Vornado investment opportunities developed by the Company
or of which the Company becomes aware but is unable or unwilling to pursue.
Under the Intercompany Agreement, Vornado will agree to provide the Company
with certain corporate, accounting, legal, data processing and operational
functions for which the Company will compensate Vornado on an arm's-length
basis.
Under the Intercompany Agreement, the Company will agree that it will seek
to qualify as a REIT for its taxable year ending December 31, 1997. The
Company's qualification as a REIT for its taxable year ending December 31, 1997
would help to ensure that Vornado's status as a REIT will not be adversely
affected by the Distribution. See "Federal Income Tax Considerations -- Taxation
of the Company in General -- Taxation of the Company as a REIT for 1997 (But Not
Thereafter)."
The Company's Charter specifies that one of its corporate purposes is to
perform the Intercompany Agreement and, for so long as the Intercompany
Agreement remains in effect, prohibits the Company from making any real estate
investment or other REIT-Qualified Investment without first offering the
opportunity to Vornado in the manner specified in the Intercompany Agreement.
COMPANY SUB
The Company will hold its assets and conduct its business through Company
Sub. The Company will be the sole general partner of, and will own a 90.1%
partnership interest in, Company Sub.
INITIAL CAPITALIZATION; SPECIFIC OPERATING ASSETS OR OPERATIONS TO BE ACQUIRED
Vornado Sub has capitalized the Company with an equity contribution of the
Initial Assets, which consist of marketable equity securities of unaffiliated
REITs with a market value as of November 6, 1997 of $11.1 million. The Company
expects to sell such assets from time to time in the open market as needed to
raise funds to purchase non-real estate assets in accordance with its business
strategy or as its view of market conditions dictates. In addition, the Company
intends, promptly after the Distribution, to enter into a $35 million Revolving
Credit Agreement with Vornado Sub.
The Company has not yet identified specific operating assets or operations
that it will acquire. However, the Company expects to attempt to negotiate to
become lessee and operator of some or all of the real estate assets and to
purchase some or all of the non-real estate assets of the Cold Storage Companies
referred to below.
On October 31, 1997, a partnership in which preferred stock affiliates of
Vornado have a 60% interest and affiliates of Crescent Real Estate Equities
Limited ("Crescent") have a 40% interest acquired each of Americold Corporation
("Americold") and URS Logistics, Inc. ("URS," and together with Americold, the
"Cold Storage Companies").
Americold, headquartered in Portland, Oregon, is the nation's largest cold
storage and logistics warehouse company. In connection with its warehouse
business, Americold manages an integrated distribution logistics system serving
the frozen food industry. URS, headquartered in Atlanta, Georgia, provides
refrigerated and frozen storage and distribution to the leading food
manufacturers in the nation.
Americold's consolidated revenues in 1996 were $310.8 million and URS's
consolidated revenues in 1996 were $144.2 million.
18
<PAGE> 20
The Cold Storage Companies collectively own and operate 80 warehouse
facilities with an aggregate of approximately 367 million cubic feet of
refrigerated, frozen and dry storage space. The Cold Storage Companies currently
operate the warehouses pursuant to arrangements with national food suppliers
such as Tyson Foods, Kraft Foods, ConAgra and Pillsbury, and employ
approximately 3,900 employees. The management and operation of the Cold Storage
Companies includes, among other things, the management of the warehouse
facilities and the performance of certain logistics, transportation management,
accounting, marketing, engineering, data processing and operational functions.
Vornado has not provided the Company with an opportunity to become a lessee
with respect to any property owned by the Cold Storage Companies and has not
commenced negotiations regarding the terms and conditions of any lease.
Significant structuring considerations must be resolved before Vornado
determines whether to provide the Company with an opportunity to become a lessee
and, accordingly, no assurance can be given that Vornado will provide the
Company with such an opportunity.
Vornado, Crescent and the Company have not previously engaged in the cold
storage business and, if the Company does enter into a "master" lease
arrangement in respect of any portion or all of the Cold Storage Companies'
businesses, there can be no assurance that the Company will be able to
successfully manage such businesses. The businesses of the Cold Storage
Companies may also be subject to certain other risks, including dependence on
key customers and downturns in agricultural markets resulting from severe
weather or other factors.
CERTAIN ACTIVITIES
Prior to January 1, 1998, the Company does not expect to (a) issue senior
securities, (b) borrow money (other than under the Revolving Credit Agreement),
(c) make loans to other persons, (d) invest in the securities of other issuers
for the purpose of exercising control (other than securities of Company Sub),
(e) underwrite securities of other issuers, (f) engage in the purchase and sale
(or turnover) of investments (other than with respect to the marketable equity
securities, (g) offer securities in exchange for property, (h) repurchase or
otherwise reacquire its shares or other securities (other than with respect to
the Interstate Transaction), (i) make investments in real estate or interests in
real estate, (j) make investments in real estate mortgages, or (k) invest in
securities of or interests in persons primarily engaged in real estate
activities (other than with respect to the marketable securities contributed by
Vornado Sub). After such time, the Company intends to conduct its business in a
manner consistent with its Charter and the Intercompany Agreement. See
"-- General" and "-- Intercompany Agreement and Charter Purpose Clauses."
Subject to the provisions of the Charter and the Intercompany Agreement, the
Company's policy with respect to engaging in the foregoing activities may be
changed by its officers and directors without a vote of its stockholders.
PROPERTY
Under the Intercompany Agreement, Vornado will agree to make available to
the Company, at Vornado's principal office in Saddle Brook, New Jersey, space
for the Company's principal corporate office, for which the Company will
compensate Vornado on an arm's-length basis. The Company believes that such
facilities will be adequate to meet its expected requirements for the coming
year.
19
<PAGE> 21
EMPLOYEES
As of the date of this Prospectus, the Company had no employees. The
Company expects that, when it acquires specific assets and business operations,
the subsidiaries of the Company making such acquisitions will have their own
employees.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or
which any of its properties are subject.
20
<PAGE> 22
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to those
persons who have agreed to serve as the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME CLASS AGE POSITION
- ----------------------------------- -------- --- ----------------------------------------
<S> <C> <C> <C>
Steven Roth(1)..................... III 56 Chairman of the Board and Chief
Executive Officer
Michael D. Fascitelli(1)........... III 40 President and Director
Russell B. Wight, Jr.(1)........... II 57 Director
[First independent director]....... II -- Director
Richard West....................... I 59 Director
[Second independent director]...... I -- Director
Joseph Macnow...................... 52 Vice President -- Chief Financial
Officer
</TABLE>
- ---------------
(1) Member of Executive Committee.
Officers are appointed by and serve at the discretion of the Board of
Directors.
Mr. Roth has been Chairman of the Board and Chief Executive Officer of
Vornado since May 1989 and Chairman of the Executive Committee of the Board of
Vornado since April 1980. Since 1968, he has been a general partner of
Interstate and more recently, managing general partner. On March 3, 1995, he
became Chief Executive Officer of Alexander's, Inc. ("Alexander's"). Mr. Roth is
also a director of Alexander's.
Mr. Fascitelli has been President and a trustee of Vornado, and a Director
of Alexander's, since December 2, 1996. From December 1992 to December 1996, Mr.
Fascitelli was a partner at Goldman, Sachs & Co. in charge of its real estate
practice.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight
became a director of Alexander's in March 1995 and is also a trustee or director
of Vornado and Insituform Technologies, Inc.
Mr. West is Dean Emeritus of the Leonard N. Stern School of Business, New
York University. He was a professor there from September 1984 until September
1995. He was also Dean from September 1984 until August 1993. From July 1976
through August 1984, he was a faculty member of the Amos Tuck School of Business
Administration of Dartmouth College. From July 1976 until 1983, Mr. West was
also Dean of the Amos Tuck School. Mr. West is also a director or a trustee of
Vornado, Alexander's, Smith-Corona, Inc., Bowne & Co., Inc., and various
investment companies managed by Merrill Lynch Asset Management, Inc., an
affiliate of Merrill Lynch & Co.
Mr. Macnow has been Vice President and Chief Financial Officer of Vornado
since 1985 and Controller of Vornado since 1982.
The Company is not aware of any family relationships between any directors
or executive officers of the Company. Messrs. Roth and Wight are affiliated with
each other as general partners of Interstate and in other businesses.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Audit Committee and a Compensation Committee. The Audit
Committee's functions include reviewing annual and quarterly reports and proxy
statements sent to stockholders and filed with the Commission, recommending to
the Board the engaging of the independent auditors, reviewing with the
independent auditors the plan and results of the auditors' engagement and other
matters of interest to the Audit Committee, including the effectiveness of the
Company's
21
<PAGE> 23
internal controls and the results of its operations. The Audit Committee
consists of two members, Messrs. -- and --. Mr. -- is the Chairman of the Audit
Committee.
The Compensation Committee is responsible for establishing the terms of the
compensation of the executive officers and the granting of awards under the
Company's Omnibus Share Plan. The Committee consists of two members, Messrs. --
and -- . Mr. -- is the Chairman of the Compensation Committee.
STAGGERED BOARD OF DIRECTORS
The Board currently has six members. The Charter provides that the
directors of the Company will be divided into three classes, as nearly equal in
number as reasonably possible, as determined by the Board of Directors. The
initial term of office of Class I directors will expire at the first annual
meeting of stockholders, the initial term of office of Class II directors will
expire at the second annual meeting of stockholders and the initial term of
office of Class III directors will expire at the third annual meeting of
stockholders, with each class of directors to hold office until their successors
have been duly elected and qualified. At each annual meeting of stockholders,
directors elected to succeed the directors whose terms expire at such annual
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders in the third year following the year of their election
and until their successors have been duly elected and qualified.
COMPENSATION OF DIRECTORS
Each member of the Board who is not an employee of the Company will receive
from the Company compensation at a rate of $ -- per year for serving as a
director.
EXECUTIVE COMPENSATION
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation.
Although the Company currently has no employment agreements with any person and
does not currently pay a salary or other compensation to any executive officer
for his services in such capacity (except that options or SARs have been granted
to executive officers), the Company expects that it will pay salaries and other
compensation to its executive officers when it begins conducting business
operations material enough to warrant such compensation.
The following table lists all grants of share options or SARs to the
Company's named executive officers made as of December --, 1997 and their
potential realizable values, assuming annualized rates of share price
appreciation of 5% and 10% over the term of the grant. All of such grants were
made in 1997. The Company has not, to date, granted any performance shares or
restricted stock under the Omnibus Share Plan referred to below.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS/SARS EXERCISE ANNUAL RATES OF
UNDERLYING GRANTED OR BASE STOCK PRICE
OPTIONS/SARS IN FISCAL PRICE PER EXPIRATION APPRECIATION FOR
NAME GRANTED 1997 SHARE(1) DATE OPTION/SAR TERM(2)
- -------------------------- ------------ ------------ --------- ------------- ---------------------------
5% 10%
---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven Roth............... 125,000 $ 4.44 11/30/2007 $348,949 $884,306
Michael D. Fascitelli..... 125,000 $ 4.44 11/30/2007 $348,949 $884,306
Joseph Macnow............. 10,000 $ 4.44 11/30/2007 $27,916 $70,744
</TABLE>
- ---------------
(1) The exercise or base price per share is equal to the book value per share as
of December --, 1997 (the date of grant), which the Company's Board of
Directors has determined represents the fair market value as of the date of
grant.
(2) Potential Realizable Value is based on the assumed annual growth rates for
the market value of the Common Stock shown over their ten-year term
(assuming the per share market value as of the date of grant equals the book
value per share after giving effect to the Interstate Transaction). For
example, a 5% growth rate, compounded annually, results in a stock price of
$7.23 per share and a 10% growth rate, compounded annually, results in a
stock price of $11.51 per share. These Potential Realizable Values are
listed to comply with the regulations of the Commission, and the Company
cannot predict whether these values will be achieved. Actual gains, if any,
on stock option and SAR exercises are dependent on the future performance of
the Common Stock.
22
<PAGE> 24
OMNIBUS SHARE PLAN
The 1997 Omnibus Share Plan of Vornado Operating Company (the "Omnibus
Share Plan") was approved prior to the Distribution by Vornado Sub (the sole
stockholder of the Company) and by the Company's independent directors. Of the
- -- shares authorized under the Omnibus Share Plan, -- shares were available for
issuance as of December --, 1997.
The purpose of the Omnibus Share Plan is to promote the financial interests
of the Company and its subsidiaries by encouraging their officers, directors,
employees and consultants (collectively, "employees") to acquire an ownership
position in the Company, enhancing its ability to attract and retain employees
of outstanding ability and providing such employees with a way to acquire or
increase their proprietary interest in the Company's success.
The following summary of the Omnibus Share Plan is qualified by the full
text of the Omnibus Share Plan, a copy of which is an Exhibit to the
Registration Statement of which this Prospectus is a part.
Under the Omnibus Share Plan, officers, directors, employees and
consultants of the Company and its subsidiaries may be granted awards of stock
options, stock appreciation rights, performance shares and restricted stock. The
Omnibus Share Plan is administered by the Compensation Committee of the Board of
Directors, which is authorized to select officers, directors, employees and
consultants to receive awards, determine the type of awards to be made,
determine the number of shares or share units subject to any award and determine
the other terms and conditions of any award. All officers, directors, employees
and consultants of the Company and its subsidiaries who have demonstrated
significant management potential or who have the capacity for contributing in a
substantial measure to the successful performance of the Company, as determined
by the Compensation Committee, are eligible to receive awards under the Omnibus
Share Plan. As such criteria are subjective in nature, the Company cannot
accurately estimate the number of persons who may be included in such class from
time to time.
Except as determined by the Compensation Committee with respect to
non-qualified stock options, the awards are not assignable or transferable
except by will or the laws of descent and distribution and no right or interest
of any participant may be subject to any lien, obligation or liability of the
holder.
STOCK OPTIONS
Stock options entitle the holder to purchase the Company's Common Stock at
a per share price determined by the Compensation Committee which in no event may
be less than the fair market value of the shares on the date of grant. Options
may be either "incentive stock options" within the meaning of Section 422 of the
Code or "non-qualified" stock options. Stock options are exercisable for such
period as is determined by the Compensation Committee, but in no event may
options be exercisable after 10 years from the date of grant. The option price
for shares purchased upon the exercise of an option must be paid in full at the
time of exercise and may be paid in cash, by tender of Common Stock, by such
other consideration as the Compensation Committee deems appropriate or by a
combination of cash, Common Stock and such other consideration.
Upon the grant or exercise of an incentive stock option, no income will be
recognized by the optionee for Federal income tax purposes, and the Company will
not be entitled to any deduction. If the shares acquired upon exercise are not
disposed of within the one-year period beginning on the date of the transfer of
the shares to the optionee, nor within the two-year period beginning on the date
of the grant of the option, any gain or loss realized by the optionee upon the
disposition of such shares will be taxed as long-term capital gain or loss. In
such event, no deduction will be allowed to the Company. If such shares are
disposed of within the one-year or two-year periods referred to above, the
excess of the fair market value of the shares on the date of exercise (or, if
less, the fair market value on the date of disposition) over the exercise price
will be taxable as ordinary income to
23
<PAGE> 25
the optionee at the time of disposition, and the Company will be entitled to a
corresponding deduction. The amount by which the fair market value of the shares
at the time of exercise of an incentive stock option exceeds the option price
will constitute an item of tax preference which could subject the optionee to
the alternative minimum tax. Whether the optionee will be subject to such tax
depends on the facts and circumstances applicable to the individual.
Upon the grant of a non-qualified stock option, no income will be realized
by the optionee, and the Company will not be entitled to any deduction. Upon the
exercise of such an option, the amount by which the fair market value of the
shares at the time of exercise exceeds the exercise price will be taxed as
ordinary income to the optionee and the Company will be entitled to a
corresponding deduction.
STOCK APPRECIATION RIGHTS
Stock appreciation rights entitle the holder to receive from the Company an
amount equal to the amount by which the fair market value of a share on the date
of exercise exceeds the grant price. Stock appreciation rights may be granted in
tandem with a stock option, in addition to a stock option or may be freestanding
and unrelated to a stock option and may not be exercised earlier than six months
after grant except in the event of the holder's death or disability. The
Compensation Committee is authorized to determine whether a stock appreciation
right will be settled in cash, shares or a combination thereof.
PERFORMANCE SHARES
Performance share awards consist of a grant of actual shares or share units
having a value equal to an identical number of the Company's shares in amounts
determined by the Compensation Committee at the time of grant. Performance share
awards consisting of actual shares entitle the holder to receive shares in an
amount based upon performance conditions of the Company over a performance
period as determined by the Compensation Committee at the time of grant. Such
performance share awards may provide the holder with dividends and voting rights
prior to vesting. Performance share awards consisting of share units entitle the
holder to receive the value of such units in cash, shares or a combination
thereof based upon performance conditions and over a performance period as
determined by the Compensation Committee at the time of grant. Such performance
share awards may provide the holder with dividend equivalents prior to vesting.
RESTRICTED STOCK
Restricted stock awards consist of a grant of actual shares or share units
having a value equal to an identical number of shares of the Company. Restricted
stock awards consisting of actual shares entitle the holder to receive shares of
the Company. Such restricted stock awards may provide the holder with dividends
and voting rights prior to vesting. Restricted stock awards consisting of share
units entitle the holder to receive the value of such units in cash, shares or a
combination thereof as determined by the Compensation Committee. Such restricted
stock awards may provide the holder with dividend equivalents prior to vesting.
The employment conditions and the length of the period for vesting of restricted
stock awards are established by the Compensation Committee at the time of grant.
24
<PAGE> 26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER THE
DISTRIBUTION AND THE INTERSTATE TRANSACTION
The following table sets forth the number of shares of Common Stock that
will be beneficially owned following the Distribution by (i) each person who
will hold more than a 5% interest in the Company, (ii) directors of the Company,
(iii) executive officers of the Company, and (iv) the directors and executive
officers of the Company as a group. 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>
SHARES OF COMMON STOCK
TO BE BENEFICIALLY OWNED
AFTER THE DISTRIBUTION
-------------------------------------
AFTER THE
INTERSTATE
AFTER THE EXCHANGE AND
INTERSTATE INTERSTATE
EXCHANGE(1) SALE(1)
---------------- ----------------
NAME OF BENEFICIAL OWNER NUMBER % NUMBER %
- ------------------------------------------------------- ------- ---- ------- ----
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Steven Roth(2)(3)...................................... 237,007 10.5 193,658 8.6
Michael D. Fascitelli(4)............................... 30,651 1.4 30,651 1.4
Russell B. Wight, Jr.(2)(5)............................ 202,671 9.0 159,321 7.1
[First independent director](6)........................ -- -- -- --
Richard West(7)........................................ 700 * 700 *
[Second independent director](6)....................... -- -- -- --
Joseph Macnow(8)....................................... 2,500 * 2,500 *
All executive officers and directors as a group (7
persons)(9).......................................... 289,285 12.9 245,936 10.9
OTHER BENEFICIAL OWNERS
David Mandelbaum(2).................................... 194,877 8.7 151,527 6.7
Interstate(2).......................................... 184,244 8.2 140,894 6.3
Cohen & Steers Capital Management, Inc.(10)............ 172,580 7.7 172,580 7.7
Frederick Zissu(11).................................... 122,174 5.4 122,174 5.4
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, each person will be the direct owner of and
have sole voting power and sole investment power with respect to such
Common Stock. Numbers and percentages in table are based on number of
Vornado Common Shares and Units outstanding as of November 6, 1997 and a
Distribution ratio of one share of Common Stock for every 30 Vornado Common
Shares or Units.
(2) Interstate, a partnership of which Messrs. Roth, Wight and Mandelbaum are
the general partners, will own 184,244 shares before the Interstate Sale
and 140,894 shares after the Interstate Sale and will also own a 9.9%
limited partnership interest in Company Sub. Interstate will have the right
to have its limited partnership interest in Company Sub redeemed by Company
Sub either (a) for cash in an amount equal to the fair market value, at the
time of redemption, of 247,189 shares of Common Stock or (b) for 247,189
shares of Common Stock, in each case as selected by the Company and,
subject to customary anti-dilution provisions. Although shares of Common
Stock that will be owned by Interstate are reflected in the numbers and
percentages set forth in this table for Interstate and for each of Messrs.
Roth, Wight and Mandelbaum (who will share voting and investment power with
respect thereto), neither Interstate's 9.9% limited partnership interest in
Company Sub nor the shares for which that interest may be redeemed are
reflected in such numbers or percentages. If the shares for which such
interest may be redeemed were reflected in such numbers and percentages,
the percentages to be owned after the Distribution and the Interstate
Exchange
25
<PAGE> 27
would increase to 19.4%, 18.0%, 17.7% and 17.3% for Messrs. Roth, Wight and
Mandelbaum and Interstate, respectively, and the percentages to be owned
after the Distribution, the Interstate Exchange and the Interstate Sale
would increase to 17.7%, 16.3%, 16.0% and 15.5% for Messrs. Roth, Wight and
Mandelbaum and Interstate, respectively.
(3) Includes 1,146 shares to be owned by the Daryl and Steven Roth Foundation,
over which Mr. Roth holds sole voting power and investment power. Does not
include 1,200 shares to be owned by Mr. Roth's wife, as to which Mr. Roth
disclaims any beneficial interest. Does not include SARs with respect to
125,000 shares.
(4) Does not include options to purchase 125,000 shares that will not be
exercisable within 60 days.
(5) Includes 3,126 shares to be owned by the Wight Foundation, over which Mr.
Wight holds sole voting power and investment power. Does not include SARs
with respect to 10,000 shares.
(6) Does not include options to purchase 10,000 shares that will not be
exercisable within 60 days.
(7) Mr. West and his wife will own 100 shares jointly. Mr. West will hold 600
of these shares in self-directed Keogh accounts. Does not include options
to purchase 10,000 shares that will not be exercisable within 60 days.
(8) Does not include options to purchase 10,000 shares that will not be
exercisable within 60 days.
(9) Does not include SARs with respect to 125,000 shares and 10,000 shares held
by Messrs. Roth and Wight, respectively. Does not include options to
purchase 125,000 shares held by Mr. Fascitelli and options to purchase
10,000 shares held by each of Messrs. --, West, -- and Macnow, in each case
that are not exercisable within 60 days.
(10) Based on Schedule 13G dated February 11, 1997 in respect of Vornado, Cohen
& Steers Capital Management, Inc. will have the sole power to vote or to
direct the vote of 148,386 shares and will have the sole power to dispose
or to direct the disposition of 172,580 shares. The address of this
beneficial owner is 757 Third Avenue, New York, New York 10017.
(11) Based on Schedule 13D filed on May 14, 1993 by Frederick Zissu in respect
of Vornado, he will own 124,127 shares. According to Vornado's records, he
will own 122,174 shares. Does not include 1,559 shares to be 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.
26
<PAGE> 28
CERTAIN TRANSACTIONS
OWNERSHIP OF COMMON STOCK; CAPITALIZATION OF THE COMPANY
Vornado Sub is the sole stockholder of the Company as of the date of this
Prospectus. Prior to the date of this Prospectus, the Company received an equity
contribution from Vornado Sub as described under "Business -- Initial
Capitalization; Specific Operating Assets or Operations to be Acquired."
REVOLVING CREDIT AGREEMENT
The Company intends, promptly after the Distribution, to enter into a $35
million Revolving Credit Agreement with Vornado Sub. For a discussion of the
terms of the Revolving Credit Agreement, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
THE INTERCOMPANY AGREEMENT
The Intercompany Agreement between the Company and Vornado will set forth
the basis on which the Company and Vornado will refer opportunities to one
another. For a discussion of the terms of the Intercompany Agreement, see
"Business -- Intercompany Agreement and Charter Purpose Clauses."
INTERSTATE TRANSACTION; MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a discussion of the Interstate Transaction and the beneficial ownership
by the Interstate Parties and Mr. Fascitelli of Vornado Common Shares, Common
Stock and interests in Company Sub, see "The Distribution -- Interstate
Transaction" and "Management -- Security Ownership of Certain Beneficial Owners
and Management After the Distribution and the Interstate Transaction."
27
<PAGE> 29
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Charter authorizes the issuance of up to 30,000,000 shares, consisting
of 10,000,000 shares of Common Stock, par value $.01 per share, 5,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), and
15,000,000 excess shares, par value $.01 per share (the "Excess Shares").
Immediately following the Distribution (and after giving effect to the
Interstate Transaction), approximately 2,249,672 shares of Common Stock will be
outstanding and held of record by approximately 2,000 stockholders. As of the
date of this Prospectus, no shares of Preferred Stock or Excess Shares were
issued and outstanding. All of the shares of Common Stock that will be
outstanding immediately following the Distribution will be validly issued, fully
paid and nonassessable.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share
held of record on all matters voted on generally by stockholders, including
elections of directors, and, except as otherwise required by law or provided in
any resolution adopted by the Company's Board with respect to any series of
Preferred Stock, the holders of such shares will possess all voting power. The
Charter does not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of Preferred Stock
created by the Board from time to time, the holders of Common Stock will be
entitled to such dividends as may be declared from time to time by the Board
from funds available therefor, and upon liquidation will be entitled to receive
pro rata all assets of the Company available for distribution to such holders.
PREFERRED STOCK
The Charter provides that shares of Preferred Stock may be issued in one or
more series from time to time by the Board, and the Board is expressly
authorized to fix by resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of the shares of each series of Preferred Stock, including without
limitation the following: (a) the distinctive serial designation of such series
which shall distinguish it from other series; (b) the number of shares included
in such series; (c) the dividend rate (or method of determining such rate)
payable to the holders of the shares of such series, any conditions upon which
such dividends shall be paid and the date or dates upon which such dividends
shall be payable; (d) whether dividends on the shares of such series shall be
cumulative and, in the case of shares of any series having cumulative dividend
rights, the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative; (e) the amount or
amounts which shall be payable out of the assets of the Company to the holders
of the shares of such series upon voluntary or involuntary liquidation,
dissolution or winding up of the Company, and the relative rights of priority,
if any, of payment of the shares of such series; (f) the price or prices at
which, the period or periods within which and the terms and conditions upon
which the shares of such series may be redeemed, in whole or in part, at the
option of the Company or at the option of the holder or holders thereof or upon
the happening of a specified event or events; (g) the obligation, if any, of the
Company to purchase or redeem shares of such series pursuant to a sinking fund
or otherwise and the price or prices at which, the period or periods within
which and the terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation; (h)
whether or not the shares of such series shall be convertible or exchangeable,
at any time or times at the option of the holder or holders thereof or at the
option of the Company or upon the happening of a specified event or events, into
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Company, and the price or prices or rate
or rates of exchange or conversion and any adjustments applicable thereto; and
(i) whether or not the holders of the shares of such series shall have voting
28
<PAGE> 30
rights, in addition to the voting rights provided by law, and if so the terms of
such voting rights. Subject to the rights of the holders of any series of
Preferred Stock, the number of authorized shares of any class or series of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote, irrespective of the
provisions of Section 242(b)(2) of the DGCL or any corresponding provision
hereafter enacted.
CERTAIN CHARTER AND BY-LAWS PROVISIONS
RESTRICTIONS ON OWNERSHIP
The Charter contains a number of restrictions relating to the ownership and
transfer of the Company's stock, including Common Stock. The Charter provides,
with certain exceptions, that no person may own, either directly or under the
attribution rules set forth in Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code, more than 9.9% of the shares of any class of the
Company's stock (the "Ownership Limit").
The Charter provides that a transfer of Common Stock that would otherwise
result in ownership of Common Stock in excess of the Ownership Limit will be
void ab initio as to the Common Stock that would otherwise be owned in violation
of the Ownership Limit and the intended transferee will acquire no rights or
economic interest in such Common Stock. In addition, the Charter provides that
Common Stock that would otherwise be owned, whether as a result of a transfer or
otherwise, in violation of the Ownership Limit will automatically be designated
as Excess Shares that shall be transferred, by operation of law, to a special
trust for the benefit of a charitable organization designated by the Board of
Directors of the Company.
The trustee of the special trust shall have the authority to exercise any
voting rights associated with Excess Shares during the period that they are held
as Excess Shares. Except as described below, any distributions on Excess Shares
shall be paid to the trustee of the special trust for the benefit of the
charitable organization designated by the Board of Directors of the Company.
Excess Shares may be transferred only to a person designated by the Board of
Directors whose ownership of the Excess Shares will not result in a violation of
the Ownership Limit, in which case such Excess Shares cease to be held as Excess
Shares. In the event of a transfer of Excess Shares, the holder of the shares of
Common Stock that were automatically exchanged for Excess Shares shall be
entitled to receive, from the proceeds of the transfer of the Excess Shares, an
amount equal to the lesser of (a) the proceeds from the transfer of the Excess
Shares and (b) the amount paid by such holder if the automatic designation as
Excess Shares resulted from a transfer for value or, if the automatic
designation did not result from a transfer for value, the fair market value of
the shares of Common Stock on the date of their designation as Excess Shares. In
the event of a liquidation, dissolution or winding up of the Company while
shares are held as Excess Shares, the holder of the shares of Common Stock that
were automatically designated as Excess Shares will be entitled to receive, from
the proceeds of such liquidation, dissolution or winding-up, an amount equal to
the lesser of (a) the proceeds from the liquidation, dissolution or winding-up
which would have been applicable to such shares if they had remained shares of
Common Stock and (b) the amount paid by such holder if the automatic designation
as Excess Shares resulted from a transfer for value or, if the automatic
designation did not result from a transfer for value, the fair market value of
the shares of Common Stock on the date of their designation as Excess Shares.
Any excess proceeds from a transfer of the Excess Shares or on liquidation,
dissolution or winding-up shall be paid to the trustee of the special trust for
the benefit of the designated charitable organization.
The Company shall also have the right to purchase any Excess Shares at a
price equal to the lesser of (a) the fair market value of such shares on the
date that the Company or its designee exercises such right to purchase and (b)
the price per share in the transaction that resulted in designation of such
Excess Shares or, if the Excess Share designation resulted from an event other
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than a transfer for value, the fair market value of the Common Stock designated
as Excess Shares at the time of such designation.
The Charter provides that the Ownership Limit shall not apply to Vornado,
Vornado Sub, Interstate, the partners in Interstate or certain affiliates until
after December 31, 1997.
STAGGERED BOARD OF DIRECTORS
The Board currently has six members. The Charter provides that the
directors of the Company will be divided into three classes, as nearly equal in
number as reasonably possible, as determined by the Board. The initial term of
office of Class I directors will expire at the first annual meeting of
stockholders, the initial term of office of Class II directors will expire at
the second annual meeting of stockholders and the initial term of office of
Class III directors will expire at the third annual meeting of stockholders,
with each class of directors to hold office until their successors have been
duly elected and qualified. At each annual meeting of stockholders, directors
elected to succeed the directors whose terms expire at such annual meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders in the third year following the year of their election and until
their successors have been duly elected and qualified. The classification of the
Board will have the effect of making it more difficult for stockholders to
change the composition of the Board, because only a minority of the directors
are up for election at each annual meeting, and the Board may not be replaced by
vote of the stockholders at any one time.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Charter provides that the Board of Directors will consist of one or
more members, the number of which will be fixed from time to time pursuant to
the By-laws. The By-laws provide that the Board will consist of one or more
members, the number of which will be determined from time to time by the Board.
The Charter and By-laws provide that in the event of any increase or decrease in
the authorized number of directors, (a) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his earlier death, retirement,
resignation, or removal, and (b) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board among
the three classes of directors so as to maintain such classes as nearly equal in
number as reasonably possible. The Charter and By-laws provide that directors
may be removed only for cause. The By-laws provide that vacancies, whether
arising through death, retirement, resignation or removal of a director or
through an increase in the authorized number of directors of any class, may only
be filled by a majority vote of the remaining directors of the class in which
such vacancy occurs, or by the sole remaining director of that class if one such
director remains, or by the majority vote of the directors of the remaining
classes if no such director remains, or by stockholders at an annual meeting of
stockholders of the Company. A director elected to fill a vacancy shall serve
for the remainder of the then present term of office of the class to which he is
elected. These provisions would prevent any stockholder from enlarging the Board
and then filling the new directorships with such stockholder's own nominees.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Charter and By-laws provide that any action required or permitted to be
taken by the stockholders of the Company must be duly effected at a duly called
annual or special meeting of such holders and may not be taken by any consent in
writing by such holders. The Charter and By-laws provide that special meetings
of stockholders of the Company may be called only by the Chairman of the Board,
the Vice Chairman of the Board, the President or the Board pursuant to a
resolution stating the purpose or purposes thereof, and any power of
stockholders to call a special meeting is specifically denied. No business other
than that stated in the notice shall be transacted at any special meeting. These
provisions will have the effect of delaying consideration of a stockholder
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proposal until the next annual meeting unless a special meeting is called by the
Chairman, Vice Chairman, President or the Board for consideration of such
proposal.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS AND PROPOSALS OF NEW BUSINESS
The By-laws require notice of any proposal to be presented by any
stockholder or of the name of any person to be nominated by any stockholder for
election as a director of the Company at a meeting of stockholders to be
delivered to the Secretary of the Company not less than 60 nor more than 90 days
prior to the date of the meeting. Accordingly, failure by a stockholder to act
in compliance with the notice provisions will mean that the stockholder will not
be able to nominate directors or propose new business.
AMENDMENTS
The Charter provides that the affirmative vote of the holders of at least
80% of the stock entitled to vote generally in the election of directors, voting
together as a single class, or a majority of the Board is required to amend
provisions of the By-laws relating to stockholder action without a meeting; the
calling of special meetings; the number (or manner of determining the number),
election and term of the Company's directors; the filling of vacancies; and the
removal of directors.
RIGHTS PLAN
The Company has entered into a Stockholder Protection Rights Agreement,
dated as of December 15, 1997 (the "Rights Agreement"), between the Company and
First Union National Bank, Charlotte, North Carolina, as Rights Agent (the
"Rights Agent"). Under the Rights Agreement, each share of Common Stock
outstanding on the date of this Prospectus or issued thereafter and prior to the
Separation Time (as defined herein) will have attached to it a right ("Right").
Each Right entitles its registered holder to purchase from the Company, after
the Separation Time, one one-hundredth of a share of Participating Preferred
Stock, par value $.01 per share ("Participating Preferred Stock"), for $ -- (the
"Exercise Price"), subject to adjustment.
The Rights will be evidenced by the Common Stock certificates until the
"Separation Time," which is the close of business on the earlier of (i) the
tenth business day (or such later date as the Board may from time to time fix by
resolution adopted prior to the Separation Time that would otherwise have
occurred) after the date on which any Person (as defined in the Rights
Agreement) commences a tender or exchange offer which, if consummated, would
result in such Person's becoming an Acquiring Person, as defined below, and (ii)
the tenth day after the first date of public announcement by the Company that
any Person has become an Acquiring Person (the date of such public announcement
being the "Stock Acquisition Date") or such earlier or later date as the Board
may from time to time fix by resolution adopted before the Flip-in Date that
would otherwise have occurred (the "Flip-in Date"), provided that if a tender or
exchange offer referred to in clause (i) is canceled, terminated or otherwise
withdrawn prior to the Separation Time without the purchase of any shares of
stock pursuant thereto, such offer shall be deemed never to have been made. An
Acquiring Person is any Person having Beneficial Ownership (as defined in the
Rights Agreement) of 10% or more of the outstanding shares of Common Stock,
which term shall not include (i) the Company, any wholly-owned subsidiary of the
Company or any employee stock ownership or other employee benefit plan of the
Company or a wholly-owned subsidiary of the Company, (ii) any person who is the
Beneficial Owner of 10% or more of the outstanding Common Stock as of the date
of the Rights Agreement or who shall become the Beneficial Owner of 10% or more
of the outstanding Common Stock solely as a result of an acquisition of Common
Stock by the Company, until such time as such Person acquires additional Common
Stock, other than through a dividend or stock split, (iii) any Person who
becomes the Beneficial Owner of 10% or more of the outstanding Common Stock
without any plan or intent to seek or affect control of the Company if such
Person promptly divests sufficient securities such that such 10% or greater
Beneficial Ownership ceases, (iv) any Person who Beneficially Owns shares of
Common Stock consisting solely of (A) shares acquired pursuant to the grant or
exercise of an option granted by the Company in connection with
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an agreement to merge with, or acquire, the Company entered into prior to a
Flip-in Date, (B) shares owned by such Person and its Affiliates and Associates
at the time of such grant and (C) shares, amounting to less than 1% of the
outstanding Common Stock, acquired by Affiliates and Associates of such Person
after the time of such grant or (v) Vornado, Vornado Sub, Interstate and their
affiliates. The Rights Agreement provides that, until the Separation Time, the
Rights will be transferred with and only with the Common Stock. Common Stock
certificates issued prior to the Separation Time shall evidence one Right for
each share of Common Stock represented thereby and shall contain a legend
incorporating by reference the terms of the Rights Agreement (as such may be
amended from time to time). Promptly following the Separation Time, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of Common Stock at the Separation Time.
The Rights will not be exercisable until the Business Day (as defined in
the Rights Agreement) following the Separation Time. The Rights will expire on
the earliest of (i) the Exchange Time (as defined below), (ii) the close of
business on December 15, 2007, (iii) the date on which the Rights are redeemed
as described below and (iv) the merger of the Company into another corporation
pursuant to an agreement entered into prior to a Stock Acquisition Date (in any
such case, the "Expiration Time").
The Exercise Price and the number of Rights outstanding, or in certain
circumstances the securities purchasable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution in the event of a
Common Stock dividend on, or a subdivision or a combination into a smaller
number of shares of, Common Stock, or the issuance or distribution of any
securities or assets in respect of, in lieu of or in exchange for Common Stock.
In the event that prior to the Expiration Time a Flip-in Date occurs, the
Company shall take such action as shall be necessary to ensure and provide that
each Right (other than Rights Beneficially Owned by the Acquiring Person or any
affiliate or associate thereof, which Rights shall become void) shall constitute
the right to purchase from the Company, upon the exercise thereof in accordance
with the terms of the Rights Agreement, that number of shares of Common Stock of
the Company having an aggregate Market Price (as defined in the Rights
Agreement), on the Stock Acquisition Date that gave rise to the Flip-in Date,
equal to twice the Exercise Price for an amount in cash equal to the then
current Exercise Price. In addition, the Board may, at its option, at any time
after a Flip-in Date and prior to the time that an Acquiring Person becomes the
Beneficial Owner of more than 50% of the outstanding shares of Common Stock,
elect to exchange all (but not less than all) the then outstanding Rights (other
than Rights Beneficially Owned by the Acquiring Person or any affiliate or
associate thereof, which Rights shall become void) for shares of Common Stock at
an exchange ratio of one share of Common Stock per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date of the Separation Time (the "Exchange Ratio"). Immediately upon
such action by the Board (the "Exchange Time"), the right to exercise the Rights
will terminate and each Right will thereafter represent only the right to
receive a number of shares of Common Stock equal to the Exchange Ratio.
Whenever the Company shall become obligated, as described in the preceding
paragraph, to issue shares of Common Stock upon exercise of or in exchange for
Rights, the Company, at its option, may substitute therefor shares of
Participating Preferred Stock, at a ratio of one one-hundredth of a share of
Participating Preferred Stock for each share of Common Stock so issuable.
In the event that prior to the Expiration Time the Company enters into,
consummates or permits to occur a transaction or series of transactions after
the time an Acquiring Person has become such in which, directly or indirectly,
(i) the Company shall consolidate or merge or participate in a binding share
exchange with any other Person if, at the time of the consolidation, merger or
share exchange or at the time the Company enters into an agreement with respect
to such consolidation, merger or share exchange, the Acquiring Person controls
the Board and (A) any term of or arrangement concerning the treatment of shares
of capital stock in such merger, consolidation or share exchange
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relating to the Acquiring Person is not identical to the terms and arrangements
relating to other holders of Common Stock or (B) the Person with whom such
transaction or series of transactions occurs is the Acquiring Person or an
Affiliate or Associate thereof or (ii) the Company shall sell or otherwise
transfer (or one or more of its subsidiaries shall sell or otherwise transfer)
assets (A) aggregating more than 50% of the assets (measured by either book
value or fair market value) or (B) generating more than 50% of the operating
income or cash flow, of the Company and its subsidiaries (taken as a whole) to
any other Person (other than the Company or one or more of its wholly owned
subsidiaries) or to two or more such Persons which are affiliated or otherwise
acting in concert, if, at the time of such sale or transfer of assets or at the
time the Company (or any such subsidiary) enters into an agreement with respect
to such sale or transfer, the Acquiring Person controls the Board (a "Flip-over
Transaction or Event"), the Company shall take such action as shall be necessary
to ensure, and shall not enter into, consummate or permit to occur such
Flip-over Transaction or Event until it shall have entered into a supplemental
agreement with the Person engaging in such Flip-over Transaction or Event or the
parent corporation thereof (the "Flip-over Entity"), for the benefit of the
holders of the Rights, providing, that upon consummation or occurrence of the
Flip-over Transaction or Event (i) each Right shall thereafter constitute the
right to purchase from the Flip-over Entity, upon exercise thereof in accordance
with the terms of the Rights Agreement, that number of shares of common stock of
the Flip-over Entity having an aggregate Market Price on the date of
consummation or occurrence of such Flip-over Transaction or Event equal to twice
the Exercise Price for an amount in cash equal to the then current Exercise
Price and (ii) the Flip-over Entity shall thereafter be liable for, and shall
assume, by virtue of such Flip-over Transaction or Event and such supplemental
agreement, all the obligations and duties of the Company pursuant to the Rights
Agreement.
The Board of Directors of the Company may, at its option, at any time prior
to the close of business on the Flip-in Date, redeem all (but not less than all)
the then outstanding Rights at a price of $.01 per Right (the "Redemption
Price"), as provided in the Rights Agreement. Immediately upon the action of the
Board electing to redeem the Rights, without any further action and without any
notice, the right to exercise the Rights will terminate and each Right will
thereafter represent only the right to receive the Redemption Price in cash for
each Right as held.
The holders of Rights will, solely by reason of their ownership of Rights,
have no rights as stockholders of the Company, including, without limitation,
the right to vote or to receive dividends.
The Rights will not prevent a takeover of the Company. However, the Rights
may cause substantial dilution to a person or group that acquires 10% or more of
the Common Stock unless the Rights are first redeemed by the Board.
Nevertheless, the Rights should not interfere with a transaction that is in the
best interests of the Company and its stockholders because the Rights can be
redeemed prior to the close of business on the Flip-in Date, before the
consummation of such transaction.
The Rights contain certain provisions to exclude Vornado, Vornado Sub,
Interstate and their affiliates from the operative provisions thereof.
A copy of the Rights Agreement (which includes as Exhibit A the forms of
Rights Certificate and Election to Exercise and as Exhibit B the form of
Certificate of Designation and Terms of the Participating Preferred Stock) is an
exhibit to the Registration Statement of which this Prospectus forms a part. The
foregoing description of the Rights is qualified in its entirety by reference to
the Rights Agreement and such exhibits thereto.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is incorporated under the DGCL. The Company is subject to
Section 203 of the DGCL, which, subject to certain exceptions, restricts certain
transactions and "business combinations" between a Delaware corporation and an
"interested stockholder" (defined generally as any person who beneficially owns
15% or more of the outstanding voting stock of the Company or any
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person affiliated with such person), for a period of three years following the
time that such stockholder becomes an interested stockholder, unless (i) prior
to such time the board of directors of the corporation approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers of the corporation and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) at or subsequent to such time the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of the stockholders (and not by written consent) by the
affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder.
Section 203 and the provisions of the Company's Charter, By-laws and Rights
Agreement described above may make it more difficult for a third party to
acquire, or discourage acquisition bids for, the Company. Section 203 and these
provisions could have the effect of inhibiting attempts to change the membership
of the Company's Board of Directors.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION; INSURANCE
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
personal liability of its directors to the corporation and its stockholders for
monetary damages for breach of the directors' fiduciary duty of care. The duty
of care requires that, when acting on behalf of the corporation, directors
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
provision, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Although Section 102 of the DGCL does not change a
director's duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Company's Charter and
By-laws include provisions which limit or eliminate the personal liability of
its directors to the fullest extent permitted by Section 102 of the DGCL.
Consequently, a director or officer will not be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for (i) any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) unlawful
payments of dividends or unlawful stock repurchases, redemptions or other
distributions and (iv) any transaction from which the director derived an
improper personal benefit.
The Charter and By-laws provide that the Company will indemnify to the full
extent permitted by law any person made or threatened to be made a party to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a director, officer or employee of the Company or serves
or served at the request of the Company any other enterprise as a director,
officer or employee. The Charter and By-laws provide that expenses, including
attorneys' fees, incurred by any such person in defending any such action, suit
or proceeding will be paid or reimbursed by the Company promptly upon receipt by
it of an undertaking of such person to repay such expenses if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Company. The inclusion of these indemnification provisions in the Company's
Charter and By-laws is intended to enable the Company to attract qualified
persons to serve as directors and officers who might otherwise be reluctant to
do so.
The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim
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made against them by reason of being or having been such officers or directors.
In addition, Vornado Sub has entered into indemnification agreements with all of
the Company's directors and officers providing, subject to the terms therein,
that Vornado Sub will indemnify such individuals to the full extent authorized
or permitted by law for damages suffered by reason of the fact that any such
individual is or was a director or officer of the Company or is or was serving
at the request of the Company as a director or officer of another corporation or
enterprise.
In addition, the limited liability provisions in the Charter and the
indemnification provisions in the Charter and By-laws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefitted the Company and its stockholders. Furthermore, a
stockholder's investment in the Company may be adversely affected to the extent
the Company pays the costs of settlement and damage awards against directors and
officers of the Company pursuant to the indemnification provisions in the
Company's By-laws. The limited liability provisions in the Charter will not
limit the liability of directors under federal securities laws.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
associated with the Distribution and the ownership of Common Stock is for
general information only and is not tax advice. This summary is based on the
Code, its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all
subject to change at any time, perhaps with retroactive effect. This summary
does not purport to deal with the federal income or other tax consequences
applicable to all Vornado Shareholders or Limited Partners in light of their
particular circumstances or to all categories of investors, some of which may be
subject to special rules (including dealers in securities, banks, tax-exempt
organizations, life insurance companies, foreign corporations and persons that
are not citizens or residents of the United States). No ruling on the federal,
state or local tax considerations relevant to the operation of Vornado or the
Company or to the Distribution is being requested from the Internal Revenue
Service (the "Service") or from any other tax authority. Sullivan & Cromwell has
rendered certain opinions discussed herein, which address the material issues
with respect to the Distribution and with respect to the qualification of
Vornado (and, for 1997, the Company) as a REIT which are raised by the structure
and currently anticipated activities of the Company.
ALL VORNADO SHAREHOLDERS AND LIMITED PARTNERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO
THEM, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
THE DISTRIBUTION
INCOME RECOGNITION BY VORNADO AS A RESULT OF THE DISTRIBUTION
Vornado will generally recognize gain in connection with the Distribution
to the extent the fair market value of the Common Stock distributed by Vornado
exceeds Vornado's share of the aggregate basis Vornado Sub had in the assets
contributed by Vornado Sub to the Company. The amount of such gain, if any, will
generally increase Vornado's current earnings and profits for 1997. Such
increase in Vornado's current earnings and profits will result in taxable income
to Vornado's shareholders by increasing the portion of Vornado's distributions
that are treated as made out of current earnings and profits for federal income
tax purposes. Vornado's current earnings and profits for 1997 will generally be
allocated, for purposes of determining which portions of Vornado's distributions
made or deemed made in 1997, including the Distribution, were attributable to
Vornado's earnings and profits, first to distributions made or deemed made in
1997 on Vornado's preferred shares of beneficial interest and thereafter to
distributions, including the Distribution, made or deemed made by Vornado in
1997 on Vornado Common Shares in proportion to the relative size of such
distributions on Vornado Common Shares. For purposes of allocating Vornado's
earnings and profits among distributions on Vornado Common Shares, any
distribution declared by Vornado in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by Vornado and received by the shareholder on December
31 of such year; provided that such distribution is actually paid by Vornado
during January of the following taxable year.
Any gain recognized by Vornado in connection with the Distribution will
generally increase the portion of the distributions made or deemed made by
Vornado in 1997 that can be designated by Vornado as capital gain dividends.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS OF VORNADO AS A RESULT OF THE
DISTRIBUTION
The Distribution will be treated as a distribution whose amount equals the
fair market value of the Common Stock distributed plus any cash distributed in
lieu of fractional shares, and Vornado Shareholders will receive a basis in the
Common Stock equal to the fair market value thereof at the time of the
Distribution. A Shareholder's holding period in the shares of Common Stock
distributed by Vornado will not include any period during which such shares (or
the assets contributed to the
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Company) were held by Vornado or Vornado Sub. As long as Vornado qualifies as a
REIT, the portion of the Distribution made to Vornado's taxable U.S.
shareholders out of Vornado's current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by such
U.S. shareholders as ordinary income and, for corporate shareholders, will not
be eligible for the dividends received deduction. The portion of the
Distribution in excess of the current and accumulated earnings and profits
allocated to the Distribution will not be taxable to a shareholder to the extent
that it does not exceed the adjusted basis of the shareholder's Vornado Common
Shares, but rather will reduce the adjusted basis of such shares. To the extent
that the portion of the Distribution in excess of the current and accumulated
earnings and profits allocated to the Distribution exceeds the adjusted basis of
a shareholder's Vornado Common Shares, such excess will be included in income as
capital gain (and will be short-term capital gain if the shares have been held
for one year or less) assuming the shares are a capital asset in the hands of
the shareholder.
To the extent that Vornado designates a portion of the Distribution as a
capital gain dividend, such portion will be taxable to Vornado Shareholders as
gain from the sale or exchange of a capital asset held for more than one year,
without regard to the period for which the shareholder has held its Vornado
Common Shares. U.S. shareholders that are corporations may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary income.
TAXATION OF TAX-EXEMPT SHAREHOLDERS OF VORNADO AS A RESULT OF THE DISTRIBUTION
Most tax-exempt employees' pension trusts are not subject to federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). The Distribution should not
result in UBTI to a shareholder that is a tax-exempt entity, provided that the
tax-exempt entity has not financed the acquisition of its Vornado Common Shares
with "acquisition indebtedness" within the meaning of the Code and the Vornado
Common Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity. In addition, certain pension trusts that own more than 10% of
a "pension-held REIT" must report a portion of the dividends that they receive
from such a REIT as UBTI. Vornado has not been and does not expect to be treated
as a pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN STOCKHOLDERS OF VORNADO AS A RESULT OF THE DISTRIBUTION
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made in this Prospectus to provide more than a summary of such rules.
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local tax laws with regard to the Distribution,
including any reporting requirements. In general, as is the case with domestic
taxable Vornado Shareholders, the Distribution is treated as a distribution
whose amount equals the value of the Common Stock distributed plus any cash in
lieu of fractional shares, and Vornado Shareholders will receive a basis in the
Common Stock equal to the fair market value thereof at the time of the
Distribution.
The Distribution will be treated as an ordinary income dividend to the
extent that it is treated as made out of the current or accumulated earnings and
profits of Vornado (under the rules described above under the heading
"-- Taxation of Taxable Domestic Shareholders of Vornado as a Result of the
Distribution") and is not (i) designated by Vornado as a capital gain dividend
or (ii) attributable to gain recognized by Vornado in connection with the
disposition of a "United States real property interest". The Company does not
anticipate that a significant portion of the Distribution will be treated as
attributable to a disposition by Vornado of a "United States real property
interest". The portion of the Distribution that is treated as such an ordinary
income dividend ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of such portion, unless an applicable tax treaty reduces or
eliminates that tax. Vornado expects to withhold U.S. income tax at the rate of
30% on the gross amount of the Distribution made to a Non-U.S. Stockholder
unless (i) a lower
37
<PAGE> 39
treaty rate applies and the Non-U.S. Stockholder has filed the required IRS Form
1001 with Vornado or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with
Vornado claiming that the distribution is effectively connected with the
Non-U.S. Stockholder's conduct of a U.S. trade or business. The portion of the
Distribution that is in excess of Vornado's current and accumulated earnings and
profits allocated to the Distribution will be subject to a 10% withholding
requirement but will not be taxable to a shareholder to the extent that such
portion does not exceed the adjusted basis of the shareholder's Vornado Common
Shares, but rather will reduce the adjusted basis of such shares. To the extent
that the portion of the Distribution in excess of Vornado's current and
accumulated earnings and profits allocated to the Distribution exceeds the
adjusted basis of a Non-U.S. Stockholder's shares, such excess will give rise to
tax liability if the Non-U.S. Stockholder would otherwise be subject to tax on
any gain from the sale or disposition of the Vornado Common Shares. Any portion
of the Distribution which is treated as a capital gain dividend and is not
attributable to a disposition by Vornado of a United States real property
interest shall be subject to a similar rule. Provided that Vornado is a
"domestically controlled REIT" for federal income tax purposes, a Non-U.S.
Stockholder would be subject to taxation on gain from a sale or disposition of
Vornado Common Shares only if (i) the investment in the Vornado Common Shares
were treated as effectively connected with such Non-U.S. Stockholder's U.S.
trade or business, in which case the Non-U.S. Stockholder would be subject to
the same treatment as U.S. shareholders with respect to such gain or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year of the sale or
disposition and either the individual has a "tax home" in the United States or
the gain is attributable to an office or other fixed place of business
maintained by the individual in the United States, in which case the gain will
be subject to a 30% tax. The Company believes that Vornado is and will continue
to be a "domestically controlled REIT" for federal income tax purposes.
As Vornado will not be able to determine, at the time that the Distribution
is made, the portion of the Distribution, if any, that will be in excess of the
current and accumulated earnings and profits allocated to the Distribution, the
Distribution will be subject to withholding as though the entire Distribution
(apart from any portion designated as a capital gain dividend) were an ordinary
income dividend. However, a Non-U.S. Stockholder may seek a refund of such
amounts from the Service if it is subsequently determined that a portion of the
Distribution was, in fact, in excess of Vornado's current and accumulated
earnings and profits allocable to the Distribution.
The Company does not anticipate that a significant portion of the
Distribution will be treated as attributable to Vornado's disposition of a
United States real property interest. To the extent that a portion of the
Distribution were to be treated as attributable to the disposition of a United
States real property interest, a non-U.S. Stockholder would be subject to tax on
such portion as though it were gain that was effectively connected with a United
States trade or business of such Non-U.S. Stockholder. Thus, Non-U.S.
Stockholders would be taxed on such portion of the Distribution at the normal
capital gain rates applicable to U.S. shareholders. Vornado is required under
applicable Treasury Regulations to withhold 35% of any distribution to a
Non-U.S. Stockholder that could be designated by Vornado as a capital gain
dividend. The amount so withheld is creditable against the Non-U.S.
Stockholder's U.S. tax liability.
Amounts required to be withheld from payments to Non-U.S. Stockholders will
be collected by converting a portion of the Common Stock to be distributed into
cash.
TAXATION OF LIMITED PARTNERS OF VORNADO SUB AS A RESULT OF THE DISTRIBUTION
The Distribution of Common Stock to a Limited Partner will generally result
in the recognition of gain by such Limited Partner to the extent that the fair
market value of the Common Stock distributed exceeds such Limited Partner's
basis in his partnership interest. Limited Partners that have not contributed
appreciated property to Vornado Sub or that have contributed appreciated
property where the excess of the fair market value of such property over its
basis at the time of contribution (such excess, "Precontribution Gain") was less
than the excess of the fair market
38
<PAGE> 40
value of the Common Stock distributed over such Limited Partner's share of
Vornado Sub's aggregate basis in the property contributed to the Company, will
not recognize gain on the distribution of Common Stock in the full amount
described in the preceding sentence. Such Limited Partners will generally
recognize gain in an amount not greater than the sum of (i) the excess of their
share of Vornado Sub's aggregate basis in the property contributed to the
Company over their basis in their partnership interest and (ii) their share of
any Precontribution Gain that would be allocated to them if Vornado Sub were to
dispose of all property that they had contributed to Vornado Sub prior to the
Distribution.
TAXATION OF THE COMPANY IN GENERAL
TAXATION OF THE COMPANY AS A REIT FOR 1997 (BUT NOT THEREAFTER)
The Company will seek to qualify as a REIT for federal income tax purposes
for its taxable year ending December 31, 1997, but not for subsequent years. The
Company's qualification as a REIT for its taxable year ending December 31, 1997
would help to ensure that the Distribution will not adversely effect Vornado's
REIT status. As a REIT for 1997, the Company generally will not be subject to
federal corporate income taxes on its net income for 1997 that is currently
distributed to its stockholders.
In order to qualify as a REIT for a taxable year, an entity is required to
satisfy a number of requirements relating to its organization, share ownership,
gross income, assets and stockholder distributions for such year. In applying
the gross income and asset tests, (i) the entity will be deemed to own its
proportionate share of the assets of any partnership in which it holds an
interest and will be deemed to be entitled to the income of such partnership
attributable to such share and (ii) certain wholly-owned subsidiaries of the
entity will be disregarded as entities separate from the parent entity.
ORGANIZATIONAL REQUIREMENTS. The Code requires that an entity that is to
be treated as a REIT (i) be managed by one or more trustees or directors, (ii)
have transferable beneficial ownership interests, (iii) be taxable as a domestic
corporation but for the REIT provisions of the Code and (iv) be neither a
financial institution nor an insurance company subject to certain provisions of
the Code. The Company believes that it will satisfy each of the foregoing
requirements throughout its taxable year ending December 31, 1997.
SHARE OWNERSHIP REQUIREMENTS. In order for an entity to be eligible to
qualify as a REIT, its shares must be beneficially owned by at least 100 persons
for at least 335 days of a taxable year of 12 months (or during a proportionate
part of a taxable year of less than 12 months) and at no time during the last
half of a taxable year may more than 50% in value of its outstanding shares be
owned, directly or under the applicable constructive ownership rules, by five or
fewer individuals (as defined in the Code to include certain entities). Neither
of these requirements applies to an entity's initial REIT year, and thus the
Company should not be required to satisfy these requirements for its taxable
year ending December 31, 1997.
INCOME TESTS. At least 75% of the entity's gross income must be derived,
directly or indirectly, from investments relating to real property or mortgages
in real property, certain types of temporary investments or certain other
sources. In addition, at least 95% of the entity's gross income must be derived
from such real property investments, dividends, interest, gain from the sale or
disposition of stock or securities or certain other sources. If the entity fails
to satisfy one or both of the 75% or 95% gross income tests, it may nonetheless
qualify as a REIT if it is entitled to relief under certain provisions of the
Code. These relief provisions will generally be available for a given year if
the entity's failure to satisfy such tests was due to reasonable cause and not
due to willful neglect, the entity attaches a schedule of the sources of its
income to its federal income tax return for such year and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible to state, however, whether in all circumstances an entity would be
entitled to the benefit of these relief provisions. Even if these relief
provisions applied, a 100% tax would be imposed on an
39
<PAGE> 41
amount equal to (x) the amount of gross income by which the entity failed to
satisfy the 75% or the 95% test (whichever amount is greater), multiplied by (y)
a fraction designed to reflect the entity's profitability.
ASSET TESTS. The entity must also satisfy a number of tests related to its
assets in order to qualify as a REIT for a taxable year. These tests must be
satisfied as of the close of each quarter of the entity's taxable year. First,
at least 75% of the value of the entity's total assets must be represented by
real estate assets, cash, cash items and government securities. Second, not more
than 25% of the entity's total assets may be represented by securities other
than those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by the entity may
not exceed 5% of the value of the entity's total assets. Finally, the entity may
not own more than 10% of the outstanding voting securities of any non-REIT
issuer.
DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT for a taxable
year, the entity will also be required to distribute dividends to its
stockholders in an amount at least equal to (A) the sum of (i) 95% of the
entity's real estate investment trust taxable income (computed without regard to
the dividends paid deduction and the entity's net capital gain) and (ii) 95% of
the net income (after tax), if any, from foreclosure property minus (B) the sum
of certain items of non-cash income. Such distributions generally must be paid
(or deemed paid) during the taxable year for which REIT status is being
determined . To the extent that the entity does not distribute all of its net
capital gain or distributes at least 95%, but less than 100% of its "real estate
investment trust taxable income", the entity will be subject to tax thereon at
the regular corporate tax rates. Furthermore, if the entity should fail to
distribute at least the sum of (i) 85% of its ordinary income for the relevant
taxable year and (ii) 95% of its capital gain net income for such year, the
entity would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
TAXATION OF THE COMPANY AS A REGULAR C CORPORATION
The Company will not seek to qualify as a REIT for taxable years after
1997. Thus, the Company will be subject to federal income tax as a regular
corporation in such years.
TAXATION OF SHAREHOLDERS OF THE COMPANY
DURING 1997
DIVIDENDS. If the Company qualifies as a REIT for its taxable year ending
December 31, 1997, distributions by the Company on the Common Stock during such
year to a holder of Common Stock that is (i) an individual that is a citizen or
resident of the United States, (ii) a domestic corporation or (iii) an estate or
trust that is subject to federal income tax on a net income basis in respect of
income from the Common Stock (a "U.S. Holder") will be treated in the manner
described below under the heading "-- During Periods When the Company is Taxed
as a Regular C Corporation (i.e., After 1997) -- Dividends" except as described
below. First, such distributions will not be eligible for the dividends received
deduction in the case of U.S. Holders that are corporations. Second, the Company
may designate a portion of such distributions (not in excess of the Company's
net capital gain) as capital gain distributions. Distributions made by the
Company that are properly designated as capital gain dividends will be taxable
to U.S. Holders as gain from the sale of a capital asset held for more than one
year, without regard to the period for which a U.S. Holder held its Common
Stock. U.S. Holders that are corporations may, however, be required to treat up
to 20% of certain capital gain dividends as ordinary income. Third, U.S. Holders
holding Common Stock at the close of the Company's taxable year will be required
to include, in computing their long-term capital gains for the taxable year in
which the last day of the Company's taxable year falls, such amount as the
Company may designate in a written notice mailed to its shareholders. The
Company may not designate amounts in excess of the Company's undistributed net
capital gain for such year. Each U.S. Holder required to include such a
designated amount in determining its long-term capital gains will be deemed to
have paid, in the taxable year of the inclusion, the tax paid by the Company in
respect of
40
<PAGE> 42
such undistributed net capital gains. U.S. Holders subject to these rules will
be allowed a credit or a refund, as they case may be, for the tax deemed to have
been paid by such shareholders. A U.S. Holder will increase its basis in its
Common Stock by the difference between the amount of the includible gains and
the tax deemed paid by the shareholder in respect of such gains. Fourth,
distributions to a holder of Common Stock other than a U.S. Holder (a "non-U.S.
Holder") that are attributable to dispositions by the Company of United State
real property interests or which could be designated by the Company as capital
gain dividends will be subject to the rules described above under the heading
"The Distribution -- Taxation of Foreign Stockholders of Vornado as a Result of
the Distribution", substituting "the Company" for "Vornado". Finally,
distributions to a non-U.S. Holder that are to be made out of the Company's
earnings and profits, are not attributable to a disposition by the Company of a
United States real property interest and are not designated as capital gain
dividends will be treated in a manner similar to the manner in which the
analogous portion of the Distribution made to non-U.S. Stockholders will be
treated, as described above under the heading "The Distribution -- Taxation of
Foreign Stockholders of Vornado as a Result of the Distribution."
DISPOSITIONS OF COMMON STOCK. Sales or dispositions of Common Stock while
the Company is taxable as a REIT will be treated in the manner described below
under the heading "-- During Periods When the Company is Taxed as a Regular C
Corporation (i.e., After 1997) -- Dispositions of Common Stock" except as
described below. First, any loss recognized by a U.S. Holder upon a sale or
disposition of shares of Common Stock that have been held for six months or less
will be treated as a long-term capital loss, to the extent of distributions
received by such U.S. Holder from the Company that were required to be treated
as gain from the sale of a capital asset held for more than one year. Second,
gain recognized by a non-U.S. Holder upon a sale or exchange of Common Stock
will be subject to U.S. taxation only if (i) the Company fails to be a
"domestically controlled REIT", (ii) the non-U.S. Holder's investment in the
Common Stock is treated as effectively connected with a U.S. trade or business
of the non-U.S. Holder, in which case the Non-U.S. Holder will be subject to the
same treatment as U.S. Holders in respect of such gain or (iii) the non-U.S.
Holder is a nonresident alien individual who is present in the United States for
183 days or more during the taxable year and either has a "tax home" in the
United States or maintains an office or a fixed place of business in the United
States to which the gain is attributable, in which case the gain will be subject
to a 30% tax.
DURING PERIODS WHEN THE COMPANY IS TAXED AS A REGULAR C CORPORATION (I.E.,
AFTER 1997)
DIVIDENDS. Distributions by the Company on the Common Stock during taxable
years when the Company is treated as a regular C corporation to a U.S. Holder
will be treated as ordinary income dividends to the extent attributable to the
current or accumulated earnings and profits of the Company and thereafter as a
return of basis to the extent thereof, with any excess being treated as gain
from a deemed disposition of the Common Stock. Dividends paid on the Common
Stock during such taxable years to a domestic corporation will generally be
eligible for the dividends received deduction, subject to the standard
limitations provided for in the Code with respect to the dividends received
deduction.
Dividends paid to a non-U.S. Holder will be subject to withholding of
United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business in the United
States (and are attributable to a United States permanent establishment of such
holder, if an applicable income tax treaty so requires as a condition for the
non-U.S. Holder to be subject to United States federal income tax on a net
income basis in respect of such dividends). Such "effectively connected"
dividends are subject to tax at rates applicable to United States citizens,
resident aliens and domestic corporations, and are generally not subject to
withholding. Any such effectively connected dividends received by a non-United
States corporation may also, under certain
41
<PAGE> 43
circumstances, be subject to an additional "branch profits" tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
Under current United States Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussion above and for purposes of determining the applicability
of a tax treaty rate. Under recently-issued United States Treasury Regulations
that are effective for payments made after December 31, 1998, however, a
non-U.S. Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification requirements.
In addition, under the recently-issued regulations, in the case of Common Stock
held by a foreign partnership, (x) the certification requirement would generally
be applied to the partners of the partnership and (y) the partnership would be
required to provide certain information, including a United States taxpayer
identification number. The regulations provide look-through rules for tiered
partnerships.
A non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the Service.
DISPOSITIONS OF COMMON STOCK. A U.S. Holder will generally recognize gain
or loss on a disposition of Common Stock in an amount equal to the difference
between the amount realized on the disposition and such holder's adjusted basis
in the Common Stock.
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock except
in the following circumstances: (i) the gain is effectively connected with a
trade or business conducted by the non-U.S. Holder in the United States (and is
attributable to a permanent establishment maintained in the United States by
such non-U.S. Holder if an applicable income tax treaty so requires as a
condition for such non-U.S. Holder to be subject to U.S. federal income taxation
on a net income basis in respect of gain from the sale or other disposition of
the Common Stock); (ii) in the case of a non-U.S. Holder who is an individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the sale and certain
conditions exist; or (iii) the Company is or has been a "United States real
property holding corporation" for federal income tax purposes and the non-U.S.
Holder held, directly or indirectly, at any time during the five-year period
ending on the date of disposition, more than 5% of the Common Stock (and is not
eligible for any treaty exemption). Effectively connected gains recognized by a
corporate non-U.S. Holder may also, under certain circumstances, be subject to
an additional "branch profits" tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
The Company is not, and does not expect to become, a "United States real
property holding corporation" for federal income tax purposes.
TAXATION OF VORNADO IN GENERAL
In the opinion of Sullivan & Cromwell, commencing with Vornado's taxable
year ending December 31, 1993, Vornado has been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under
the Code and Vornado's proposed method of operation, including the completion of
the Distribution, will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. The requirements for
taxation as a REIT under the Code are generally summarized above under the
heading "-- Taxation of the Company in General -- Taxation of the Company as a
REIT for 1997 (But Not Thereafter)", except that for its taxable year ending
December 31, 1997, Vornado must also satisfy a requirement that less than 30% of
its gross income be derived from sales or dispositions of (i) stock or
securities held for less than one year, (ii) certain dealer property and (iii)
real property, including real estate mortgages, held for less than four years,
other than foreclosure property or property that is involuntarily converted.
Opinions of counsel, however, are not binding upon the Service or any court.
42
<PAGE> 44
In providing its opinion Sullivan & Cromwell is assuming that the Company will
qualify as a REIT for its taxable year ending December 31, 1997 and relying upon
(i) representations received from Vornado and (ii) an opinion of Shearman &
Sterling as to the qualification of Alexander's, Inc. ("Alexander's") as a REIT.
The Company intends to qualify as a REIT for its taxable year ending December
31, 1997. In providing its opinion to the effect that, commencing with
Alexander's taxable year ending December 31, 1995, Alexander's has been
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code, and Alexander's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, Shearman & Sterling is in turn relying upon
representations received from Alexander's. The qualification and taxation of
Vornado and Alexander's as REITs depends upon their ability to meet (and, in the
case of Vornado, upon the ability of Two Penn Plaza REIT Inc. ("Two Penn REIT")
to meet), through actual annual operating results, distribution levels, stock
ownership requirements and the various qualification tests imposed under the
Code. Accordingly, while Vornado intends to continue to qualify to be taxed as a
REIT, no assurance can be given that the actual results of Vornado's,
Alexander's or Two Penn REIT's operations for any particular year will satisfy
such requirements. Neither Sullivan & Cromwell nor Shearman & Sterling will
monitor the compliance of Vornado, Alexander's or Two Penn REIT with the
requirements for REIT qualification on an ongoing basis.
EXPERTS
The balance sheet of Vornado Operating Inc. as of November 6, 1997 included
in this Prospectus and elsewhere in the Registration Statement has been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report with
respect thereto, and is included herein in reliance upon the report of such firm
give upon their authority as experts in accounting and auditing.
VALIDITY OF COMMON STOCK
The validity of the Common Stock to be distributed in the Distribution will
be passed upon for the Company by Sullivan & Cromwell, New York, New York.
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheet as of November 6, 1997.................................................. F-3
Note to Balance Sheet................................................................. F-3
Pro Forma Consolidated Balance Sheet as of November 6, 1997........................... F-4
Notes to Pro Forma Consolidated Balance Sheet......................................... F-5
</TABLE>
F-1
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Vornado Operating Inc.
Saddle Brook, New Jersey
We have audited the accompanying balance sheet of Vornado Operating Inc. as
of November 6, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Vornado Operating Inc. as of November 6,
1997, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 7, 1997
F-2
<PAGE> 47
VORNADO OPERATING INC.
BALANCE SHEET
NOVEMBER 6, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................ $ 1,000
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity................................................ $ 1,000
======
</TABLE>
NOTE TO BALANCE SHEET
Vornado Operating Inc., a Delaware corporation (the "Company"), was formed
on October 30, 1997 and has had no operations to date. The Company's only asset
is its initial capitalization of $1,000. The Company was formed to own assets
that Vornado Realty Trust, a Maryland real estate investment trust ("Vornado"),
could not itself own and conduct activities that Vornado could not itself
conduct. The Company is intended to function principally as an operating
company. The Company and Vornado expect to enter into an agreement pursuant to
which, among other things, (a) Vornado will agree under certain circumstances to
offer the Company the opportunity to become lessee of certain real property
owned now or in the future by Vornado (under mutually satisfactory lease terms)
and (b) the Company will agree not to make any real estate investment or other
REIT-Qualified Investment (as defined) unless it first offers Vornado the
opportunity to make such investment and Vornado has rejected that opportunity.
F-3
<PAGE> 48
VORNADO OPERATING INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
NOVEMBER 6, 1997
(Unaudited)
The following unaudited pro forma consolidated balance sheet sets forth the
Company's historical balance sheet as of November 6, 1997, adjusted to give pro
forma effect to the contribution of the Initial Assets to the Company, the
Distribution and the Interstate Transaction as if such transactions had occurred
as of such date. It should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Balance
Sheet and Note thereto included elsewhere in this Prospectus. In management's
opinion, all adjustments necessary to reflect the foregoing transactions as if
they had occurred on such date have been made.
This unaudited pro forma consolidated balance sheet is not necessarily
indicative of what the actual financial position would have been at November 6,
1997 had the foregoing transactions occurred on such date, nor does it purport
to represent the future financial position of the Company.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COMPANY ADJUSTMENTS COMPANY
------------ ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash...................................... $ 1 $ -- $ 1
Marketable equity securities.............. -- 11,082(1) 11,082
--- ------- -------
Total assets.................... $ 1 $ 11,082 $ 11,083
=== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Minority interest of Interstate in Company
Sub..................................... $ -- $ 1,097(2) $ 1,097
Stockholders' equity:
Common stock and additional paid in
capital.............................. 1 9,714(3) 9,715
Unrealized gain on securities available
for sale............................. -- 271(4) 271
--- ------- -------
Total stockholders' equity........... 1 9,985 9,986
--- ------- -------
Total liabilities and
stockholders' equity.......... $ 1 $ 11,082 $ 11,083
=== ======= =======
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet
F-4
<PAGE> 49
VORNADO OPERATING INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
1. Reflects the contribution of the Initial Assets to the Company. These
assets will be carried at market value as "securities available for
sale;" unrealized gains and losses with respect thereto will be shown
as a separate component of stockholders' equity but will not impact
reported income until realized. The amounts shown reflect market value
as of November 6, 1997. Market value of these assets as of December --,
1997 was $ -- . For further information about these assets, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
2. Reflects (a) the exchange by Interstate of shares representing 9.9% of
the Common Stock that will be outstanding immediately after giving
effect to the Distribution for a 9.9% undivided interest in the
Company's assets and (b) the joint contribution of such assets by
Interstate and the Company to Company Sub (a Delaware limited
partnership through which the Company will hold its assets and conduct
its business) in return for which Interstate will receive a 9.9%
limited partnership interest and the Company will receive a 90.1%
partnership interest therein.
3. Reflects equity contribution referred to in (1) above, net of the
minority interest referred to in (2) above and the unrealized gains and
losses referred to in (4) below.
4. Reflects unrealized gains and losses (as of November 6, 1997) on the
securities available for sale referred to in (1) above.
F-5
<PAGE> 50
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............... 2
Prospectus Summary.................. 3
Risk Factors........................ 8
The Distribution.................... 12
Dividend Policy..................... 14
Selected Pro Forma Consolidated
Financial Data.................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 16
Business............................ 17
Management.......................... 21
Certain Transactions................ 27
Description of Capital Stock........ 28
Federal Income Tax Considerations... 36
Experts............................. 43
Validity of Common Stock............ 43
Index to Financial Statements....... F-1
</TABLE>
THROUGH AND INCLUDING JANUARY --, 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
VORNADO OPERATING
COMPANY
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------
PROSPECTUS
------------
======================================================
<PAGE> 51
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee and the Nasdaq listing fee:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.......... $3,359
Nasdaq Listing Fee.............................................. *
Legal Fees and Expenses (other than Blue Sky)................... *
Accounting Fees and Expenses.................................... *
Blue Sky Fees and Expenses, including Legal Fees................ *
Printing, including Registration Statement, Prospectus, etc..... *
Transfer Agent and Registrar Fees............................... *
Miscellaneous Expenses.......................................... *
------
Total................................................. $ *
======
</TABLE>
------------------------
* To be completed by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the formation of the Registrant, an affiliate of the
Company has been issued a total of 1,000 shares of Common Stock for total
consideration of $1,000 in cash. Such issuance was exempt from registration
under Section 4(2) of the Securities Act.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL makes provision for the indemnification of officers
and directors in terms sufficiently broad to indemnify officers and directors of
Company under certain circumstances from liabilities (including reimbursement
for expenses incurred) arising under the Securities Act. The Charter and By-laws
of the Company provide, in effect, that, to the fullest extent and under the
circumstances permitted by Section 145 of the DGCL, the Company will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another corporation or
enterprise. The Charter and By-laws of the Company relieve its directors from
monetary damages for breach of such director's fiduciary duty as directors to
the fullest extent permitted by the DGCL. Consequently, a director or officer
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of their fiduciary duty as directors except (i) for a
breach of the duty of loyalty, (ii) for failure to act in good faith, (iii) for
intentional misconduct or knowing violation of law, (iv) for willful or
negligent violation of certain provisions in the DGCL imposing certain
requirements with respect to stock repurchases, redemption and dividends, or (v)
for any transactions from which the director derived an improper personal
benefit. Depending upon the character of the proceeding, under Delaware law, the
Company may indemnify against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any
II-1
<PAGE> 52
action, suit or proceeding if the person indemnified acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. To the
extent that a present or former director or officer of the Company has been
successful in the defense of any action, suit or proceeding referred to above,
or in defense of any claim, issue or matter therein, the Company will be
obligated to indemnify him or her against expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith.
The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim made against them by reason of
being or having been such officers or directors. In addition, Vornado Realty
L.P. has entered into indemnification agreements with all of the Company's
directors and officers providing, subject to the terms therein, that Vornado
Realty L.P. will indemnify such individuals to the full extent authorized or
permitted by law for damages suffered by reason of the fact that any such
individual is or was a director or officer of the Company or is or was serving
at the request of the Company as a director or officer of another corporation or
enterprise.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements, all of which are included in the Prospectus:
Balance Sheet of Vornado Operating Inc. as of November 6, 1997
Pro Forma Consolidated Balance Sheet of Vornado Operating Inc. as of
November 6, 1997
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------- -------------------------------------------------------------------------
<S> <C>
3.1 -- Certificate of Incorporation*
3.2 -- By-laws*
4.1 -- Specimen stock certificate*
4.2 -- Form of Stockholder Protection Rights Agreement, dated as of December 15,
1997, between Vornado Operating Company and First Union National Bank, as
Rights Agent, including as Exhibit A the forms of Rights Certificate and
of Election to Exercise and as Exhibit B the form of Certificate of
Designation and Terms of the Participating Preferred Stock of Vornado
Operating Company*
5 -- Opinion of Sullivan & Cromwell*
8.1 -- Opinion of Sullivan & Cromwell*
8.2 -- Opinion of Shearman & Sterling*
10.1 -- Form of Intercompany Agreement between Vornado and the Company*
10.2 -- Form of Revolving Credit Agreement between Vornado Sub and the Company,
together with related form of Line of Credit Note*
10.3 -- 1997 Share Omnibus Plan of Vornado Operating Company*
10.4 -- Form of Agreement of Limited Partnership of Vornado Operating L.P.*
21 -- List of subsidiaries of the Company.*
</TABLE>
II-2
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------- -------------------------------------------------------------------------
<S> <C>
23.1 -- Consent of Sullivan & Cromwell (included in its opinions filed as
Exhibits 5 and 8.1)*
23.2 -- Consent of Deloitte & Touche LLP
23.3 -- Consent of Shearman & Sterling (included in its opinion filed as Exhibit
8.2)*
24 -- Power of Attorney**
</TABLE>
- ---------------
* To be filed by amendment.
** Set forth on page II-4 of the Registration Statement.
ITEM 37. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Saddle Brook, State of New Jersey, on November 20,
1997.
VORNADO OPERATING, INC.
a Delaware corporation
By: /s/ STEVEN ROTH
------------------------------------
Steven Roth
Chairman of the Board of Directors
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael D. Fascitelli and Joseph Macnow, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capabilities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- -------------------------------------- -----------------
<C> <S> <C>
/s/ Steven Roth Chairman of the Board of Directors November 20, 1997
- ---------------------------------- (Principal Executive Officer) and
Steven Roth Director
/s/ Michael D. Fascitelli President and Director November 20, 1997
- ----------------------------------
Michael D. Fascitelli
/s/ Joseph Macnow Vice President -- Chief Financial November 20, 1997
- ---------------------------------- Officer and Controller (Principal
Joseph Macnow Financial and Accounting Officer)
/s/ Russell B. Wight, Jr. Director November 20, 1997
- ----------------------------------
Russell B. Wight, Jr.
/s/ Richard West Director November 20, 1997
- ----------------------------------
Richard West
</TABLE>
II-4
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement of Vornado
Operating Inc. on Form S-11 of our report dated November 7, 1997 on the balance
sheet of Vornado Operating Inc. as of November 6, 1997 and to the reference to
us under the heading "Experts" in the Prospectus which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 20, 1997
II-5
