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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-40701
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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AMENDMENT NO. 7
TO
FORM S-11
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
VORNADO OPERATING COMPANY
(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
EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION
VORNADO OPERATING COMPANY
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. [ ]
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 OCTOBER 13, 1998
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. 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.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO THE OWNERSHIP OF COMMON STOCK.
On October 16, 1998 (the "Distribution Date"), Vornado Shareholders will
receive one share of Common Stock for every 20 common shares of beneficial
interest, par value $.04 per share, of Vornado (each, a "Vornado Common Share")
held of record as of the close of business on October 9, 1998 (the "Record
Date"), and Limited Partners will receive one share of Common Stock for every 20
Class A, Class C or Class D units of limited partnership interest (each, a
"Unit") in Vornado Sub held of record as of the close of business on the Record
Date. Based on the number of Vornado Common Shares and Units outstanding as of
the Record Date, Vornado Sub will distribute 4,515,327 shares of Common Stock to
its partners (i.e., Vornado and the Limited Partners), and Vornado in turn will
distribute 4,211,105 shares of Common Stock to the Vornado Shareholders. 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.
The Company's restated certificate of incorporation (the "Charter")
provides, with certain exceptions, that no person may own more than 4.9% 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."
The Common Stock is a new issue of securities with no established trading
market. Application has been made to list the Common Stock on the American Stock
Exchange under the symbol "VOO."
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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 --, 1998.
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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. Copies of the Registration Statement, including the
exhibits and schedules thereto, can be obtained from the Public Reference Room
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates and from a web site maintained by the Commission 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. Information on the operation of the Commission's
Public Reference Room can be obtained by calling the Commission at
1-800-SEC-0330. 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 Company 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. All share
and per share amounts in this Prospectus are based on the number of Vornado
Common Shares and Units outstanding as of October 9, 1998.
THE DISTRIBUTION
Distributing Companies..... Vornado Sub and Vornado.
Distribution Ratio......... One share of Common Stock for every 20 Vornado
Common Shares or Units.
Record Date................ October 9, 1998.
Distribution Date.......... October 16, 1998.
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 1998.
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 Exchange........ Interstate and its three 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, 17.0% of the Common Stock as a result of
the Distribution (excluding shares underlying stock
appreciation rights ("SARs") and options 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
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purposes of the REIT gross income requirements.
Consequently, Interstate and the Company have
agreed that 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 all
of the Company's assets, and (ii) Interstate and
the Company will contribute all of their interests
in 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"). See "The
Distribution -- Interstate Exchange."
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 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 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 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 share of the cash contributed to
the Company. Such gain will give rise to additional
taxable income for Vornado Shareholders as such
gain will result in an increase in Vornado's
current earnings and profits for 1998. 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. 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.
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 has capitalized the Company with an equity
contribution of $25 million of cash. In addition,
the Company intends, promptly after the Company is
no longer obligated under the Intercompany
Agreement to seek to qualify as a REIT for federal
income tax purposes, to enter into a $75 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 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
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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. Moreover,
unless Vornado waives the Company's obligation
under the Intercompany Agreement to seek to qualify
as a REIT for federal income tax purposes for its
taxable year ending December 31, 1998 (see "Federal
Income Tax Considerations -- Taxation of the
Company in General"), the Company does not expect
to do so until after December 31, 1998. In the
interim, the Company expects to invest its
available funds primarily in government securities
and equity securities of publicly traded REITs.
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, 1998.
See "Federal Income Tax Considerations -- Taxation
of the Company in General -- Taxation of the
Company as a REIT for 1998 (But Not Thereafter)."
REIT for 1998
(But Not Thereafter)..... The Company will agree in the Intercompany
Agreement to seek to qualify as a REIT for federal
income tax purposes for its taxable year ending
December 31, 1998, but not for subsequent years.
The Company's qualification as a REIT for its
taxable year ending December 31, 1998 may be
necessary in order to ensure that the Distribution
will not adversely affect Vornado's REIT status. If
Vornado determines in its sole discretion that such
qualification is not necessary, Vornado may waive
such obligation. In any event, the Company will be
subject to federal income tax as a regular
corporation in taxable years after 1998. 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. 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. 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 summary data for the Company as of September 15, 1998,
adjusted to give pro forma effect to the Distribution and the Interstate
Exchange 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>
Cash........................................................ $ 25,000
Minority interest of Interstate in Company Sub.............. $ 2,475
Stockholders' equity........................................ $ 22,525
Number of shares of Common Stock outstanding................ 4,068,310(1)
Stockholders' equity per share.............................. $ 5.54(1)
</TABLE>
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(1) Based on number of Vornado Common Shares and Units outstanding as of October
9, 1998 and a Distribution ratio of one share of Common Stock for every 20
Vornado Common Shares or Units.
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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.
NO LEASES OR OPERATING ASSETS EXPECTED IN 1998
The Company will agree in the Intercompany Agreement to seek to qualify as
a REIT for federal income tax purposes for its taxable year ending December 31,
1998, but not for subsequent years. The Company's qualification as a REIT for
its taxable year ending December 31, 1998 may be necessary in order to ensure
that the Distribution will not adversely affect Vornado's REIT status. Unless
Vornado waives the Company's obligation to seek to qualify as a REIT for federal
income tax purposes for its taxable year ending December 31, 1998, the Company
does not expect to lease or purchase operating assets until after December 31,
1998. In the interim, the Company expects to invest its available funds
primarily in government securities and equity securities of publicly traded
REITs.
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."
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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; CONFLICTS OF INTEREST
Interstate and its three 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, 18.3% of the outstanding
Vornado Common Shares (excluding shares issuable on conversion of Units for this
purpose) and will, after giving effect to the Interstate Exchange, beneficially
own, in the aggregate, a 9.9% limited partnership interest in Company Sub and
7.8% of the Common Stock (excluding shares underlying SARs and options 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.
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.
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.
OBLIGATIONS UNDER REVOLVING CREDIT FACILITY; LIMITED FINANCIAL RESOURCES
The Company intends, promptly after the Company is no longer obligated
under the Intercompany Agreement to seek to qualify as a REIT for federal income
tax purposes, to enter into a $75 million Revolving Credit Agreement with
Vornado Sub. See "Management's Discussion and Analy-
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sis 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, 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 its initial equity contribution of $25 million of
cash and borrowings under the Revolving Credit Agreement will be used to support
future acquisitions of assets by the Company and other cash 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
circumstances 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. Application has
been made to list the Common Stock on the American Stock Exchange under the
symbol "VOO." 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, 1998. See "Federal Income Tax Considerations -- Taxation of the Company in
General -- Taxation of the Company as a REIT for 1998 (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.
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<PAGE> 12
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.
POTENTIAL ANTITAKEOVER EFFECTS OF CHARTER DOCUMENTS AND APPLICABLE LAW
The Charter and By-laws 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."
DEPENDENCE ON DIVIDENDS AND DISTRIBUTIONS OF SUBSIDIARIES
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.
POTENTIAL COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
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 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 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 recognize
11
<PAGE> 13
gain in connection with the Distribution to the extent that the fair market
value of the Common Stock distributed by Vornado exceeds Vornado's share of the
cash contributed to the Company. Such gain will give rise to additional taxable
income for Vornado Shareholders as such gain will result in an increase in
Vornado's current earnings and profits for 1998. 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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<PAGE> 14
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 1998. 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 (in a so-called "paper-clip" structure)
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 operate in a "paper-clip" structure. 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.
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 20 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 20 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.
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, Atten-
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tion: 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 EXCHANGE
Interstate, a New Jersey general partnership, and its three
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, 17.0% of the Common Stock as a result of the
Distribution (excluding shares underlying SARs and options 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 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 all of the Company's assets and (ii) Interstate and the Company will
contribute all of their interests in 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. At
any time after the first anniversary of the Interstate Exchange, 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 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. Application has
been made to list the Common Stock on the American Stock Exchange under the
symbol "VOO." 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 2,100 stockholders of record, based on
the number of record holders of Vornado Common Shares and Units as of October 9,
1998. The Transfer Agent and Registrar for the Common Stock will be First Union
National Bank, Charlotte, North Carolina.
Based on the number of Vornado Common Shares and Units outstanding as of
October 9, 1998 and after giving effect to the Distribution and the Interstate
Exchange, 4,068,310 shares of Common Stock will be outstanding. These shares
will be freely transferable, except for shares 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 after the
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<PAGE> 16
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. 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 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 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 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 share of the cash contributed to the Company. Such
gain will give rise to additional taxable income for Vornado's shareholders as
such gain will result in an increase in Vornado's current earnings and profits
for 1998. 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, 1998. See "Federal Income Tax Considerations -- Taxation of the Company in
General -- Taxation of the Company as a REIT for 1998 (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.
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<PAGE> 17
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. 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. 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 selected data for the Company as of September 15, 1998,
adjusted to give pro forma effect to the Distribution and the Interstate
Exchange 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>
Cash........................................................ $ 25,000
Minority interest of Interstate in Company Sub.............. $ 2,475
Stockholders' equity........................................ $ 22,525
Number of shares of Common Stock outstanding................ 4,068,310(1)
Stockholders' equity per share.............................. $ 5.54(1)
</TABLE>
- ---------------
(1) Based on number of Vornado Common Shares and Units outstanding as of October
9, 1998 and a Distribution ratio of one share of Common Stock for every 20
Vornado Common Shares or Units.
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<PAGE> 18
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
sheet and note 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. 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.
The Company will agree in the Intercompany Agreement to seek to qualify as
a REIT for federal income tax purposes for its taxable year ending December 31,
1998, but not for subsequent years. The Company's qualification as a REIT for
its taxable year ending December 31, 1998 may be necessary in order to ensure
that the Distribution will not adversely affect Vornado's REIT status. Unless
Vornado waives the Company's obligation to seek to qualify as a REIT for federal
income tax purposes for its taxable year ending December 31, 1998, the Company
does not expect to lease or purchase operating assets until after December 31,
1998. In the interim, the Company expects to invest its available funds
primarily in government securities and equity securities of publicly traded
REITs.
YEAR 2000 ISSUES
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems may be unable to properly interpret dates beyond
the year 1999, which could lead to business disruptions in the United States and
internationally (the "Year 2000" issue). The potential costs and uncertainties
associated with the Year 2000 issue will depend on a number of factors,
including software, hardware and the nature of the industry in which a company
operates. Additionally, companies must coordinate with other entities with which
they electronically interact, such as customers, creditors and borrowers. The
Company is dependent upon Vornado for management and administrative services.
Year 2000 compliance programs and information systems modifications were
initiated by Vornado in early 1998 in an attempt to ensure that these systems
and key processes will remain functional. This objective is expected to be
achieved either by modifying present systems using existing internal and
external programming resources or by installing new systems, and by monitoring
supplier and other third-party interfaces. Review of the systems affecting
Vornado and the Company is progressing. The costs of Vornado's Year 2000 program
to date have not been material, and Vornado does not anticipate that the costs
of any required modifications to its information technology or embedded
technology systems will have a material adverse effect on its financial
position, results of operations or liquidity.
In the event that Vornado or material third parties fail to complete their
Year 2000 compliance programs successfully and on time, Vornado's ability to
operate its properties or to bill or collect its revenues in a timely manner
could be adversely affected. Management does not expect that any such failure
would have a material adverse effect on the financial position, results of
operations or liquidity of Vornado. Vornado has day-to-day operational
contingency plans, and management is in the process of updating these plans for
possible Year-2000 specific operational requirements.
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LIQUIDITY AND CAPITAL RESOURCES
Vornado has capitalized the Company with an equity contribution of $25
million of cash. The Company intends, promptly after it is no longer obligated
under the Intercompany Agreement to seek to qualify as a REIT for federal income
tax purposes, to obtain a $75 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 $75 million). Only interest and commitment fees will
be payable under the Revolving Credit Agreement until it expires. 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. 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.
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<PAGE> 20
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. 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.
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 and Vornado will negotiate with each other on an
exclusive basis for 30 days regarding the terms and conditions of the lease in
respect of each Tenant Opportunity. If a mutually satisfactory agreement cannot
be reached within the 30-day period, Vornado may for a period of one year
thereafter enter into a binding agreement with respect to such Tenant
Opportunity with any third party on terms no more favorable to the third party
than the terms last offered to the Company. If Vornado does not enter into a
binding agreement with respect to such Tenant Opportunity within such one-year
period, Vornado must again offer the Tenant Opportunity to the Company in
accordance with the procedures specified above prior to offering such Tenant
Opportunity to any other party.
In addition, the Intercompany Agreement will prohibit the Company from
making (i) any investment in real estate (including 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, at least 95% of the gross
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)(4) of the Code (or could be structured not to cause
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<PAGE> 21
Vornado to violate the section 856(c)(4) limitations); provided, however, that
"REIT-Qualified Investment" does not include an investment in government
securities, cash or cash items (as defined for purposes of section 856(c)(4) of
the Code), money market funds, certificates of deposit, commercial paper having
a maturity of not more than 90 days, bankers' acceptances or the property
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 administrative, corporate, accounting, financial, insurance, legal,
tax, data processing, human resources and operational services. For these
services, the Company will compensate Vornado in an amount determined in good
faith by Vornado as the amount an unaffiliated third party would charge the
Company for comparable services and will reimburse Vornado for certain costs
incurred and paid to third parties on behalf of the Company.
Under the Intercompany Agreement, the Company will agree that it will seek
to qualify as a REIT for its taxable year ending December 31, 1998. The
Company's qualification as a REIT for its taxable year ending December 31, 1998
may be necessary to ensure that Vornado's status as a REIT will not be adversely
affected by the Distribution. If Vornado concludes in its sole discretion that
such qualification is not necessary, Vornado may waive such obligation. See
"Federal Income Tax Considerations -- Taxation of the Company in
General -- Taxation of the Company as a REIT for 1998 (But Not Thereafter)."
Vornado and the Company each have the right to terminate the Intercompany
Agreement if the other party is in material default of the Intercompany
Agreement or upon 90 days written notice to the other party at any time after
December 31, 2003. In addition, Vornado has the right to terminate the
Intercompany Agreement upon a change in control of the Company.
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 has capitalized the Company with an equity contribution of $25
million of cash. In addition, the Company intends, promptly after it is no
longer obligated under the Intercompany Agreement to seek to qualify as a REIT
for federal income tax purposes, to enter into a $75 million Revolving Credit
Agreement with Vornado Sub.
The Company has not yet identified specific operating assets or operations
that it will acquire. Although 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, there is no particular transaction that is probable at this
time. Moreover, unless Vornado waives the Company's obligation under the
Intercompany Agreement to seek to qualify as a REIT for federal income tax
purposes for its taxable year ending December 31, 1998 (see "Federal Income Tax
Considerations -- Taxation of the Company in General"), the
20
<PAGE> 22
Company does not expect to do so until after December 31, 1998. In the interim,
the Company expects to invest its available funds primarily in government
securities and equity securities of publicly traded REITs.
On October 31, 1997, partnerships (the "Vornado/Crescent Partnerships") in
which affiliates of Vornado have a 60% interest and affiliates of Crescent Real
Estate Equities Company ("Crescent") have a 40% interest acquired each of
Americold Corporation ("Americold") and URS Logistics, Inc. ("URS," and together
with Americold, the "Cold Storage Companies"). Vornado's investments in the
Vornado/Crescent Partnerships are currently held by corporations in which
Vornado owns all of the non-voting stock and none of the voting equity
("preferred stock affiliates"). Ownership of the non-voting stock entitles
Vornado to substantially all of the economic benefits in the preferred stock
affiliates. The voting stock of the preferred stock affiliates is owned by
officers and/or trustees of Vornado. Accordingly, Vornado is not able to elect
the boards of directors of the preferred stock affiliates, and does not have the
authority to control the management and operations of such affiliates.
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.
The Cold Storage Companies collectively own and operate 104 warehouse
facilities with an aggregate of approximately 486 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 5,400 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 is currently considering a number of alternatives in respect of its
investments in the Cold Storage Companies, and has not yet finalized its plans
in respect of such investments. One such alternative involves Vornado offering
the Company the opportunity 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. However, significant tax and
structuring considerations must be resolved before Vornado finalizes its plans
in respect of the Cold Storage Companies, including determining whether to
provide the Company with such an opportunity. These tax and structuring
considerations include, among others, whether the Internal Revenue Service will
issue a favorable private letter ruling in respect of certain issues that have
been submitted to the Internal Revenue Service; identifying the nature and value
of individual assets currently owned by the Cold Storage Companies; division of
the assets that will be owned by the Vornado/Crescent Partnerships and any
assets that such partnerships may wish to sell; and obtaining the necessary
consent from Crescent for certain transactions involving the Cold Storage
Companies. In addition, because Vornado holds its investments in the
Vornado/Crescent Partnerships through preferred stock affiliates, Vornado does
not have the authority to control when or if the Company is offered an
opportunity to become a 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. Accordingly, no assurance can be given that Vornado will
provide the Company with such an opportunity or that Vornado and the Company
will be able to agree on the terms and conditions of any lease or purchase of
assets.
Vornado, Crescent and the Company have not previously engaged in the cold
storage business. The Company expects to retain many of the existing officers
and employees of the Cold Storage Companies if it enters into a "master" lease
arrangement in respect of the Cold Storage Compa-
21
<PAGE> 23
nies' businesses. However, there can be no assurance that the Company will be
able to successfully manage such businesses. The businesses of the Cold Storage
Companies may 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
Until the Company is no longer obligated under the Intercompany Agreement
to seek to qualify as a REIT for federal income tax purposes and except as
required in connection with the Interstate Exchange and as otherwise
contemplated herein, the Company has no current intention to (a) issue senior
securities, (b) borrow money, (c) make loans to other persons, (d) invest in the
securities of other issuers for the purpose of exercising control, (e)
underwrite securities of other issuers, (f) engage in the purchase and sale (or
turnover) of investments, (g) offer securities in exchange for property, (h)
repurchase or otherwise reacquire its shares or other securities, (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. 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 in an amount determined in good faith by Vornado as the
amount an unaffiliated third party would charge the Company for comparable
space. The Company believes that such facilities will be adequate to meet its
expected requirements for the coming year.
EMPLOYEES
As of the date of this Prospectus, the Company has 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
to which any of its properties are subject.
22
<PAGE> 24
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 42 President and Director
Russell B. Wight, Jr.(1).................. II 57 Director
Martin N. Rosen(2)........................ II 57 Director
Richard West.............................. I 59 Director
Douglas H. Dittrick(2).................... I 65 Director
Joseph Macnow............................. 53 Executive Vice President of Finance and
Administration
Irwin Goldberg............................ 53 Vice President and Chief Financial
Officer
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Audit Committee and Compensation 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 and of Capital Trust.
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. Rosen has been the President of United Yarn Products Co., Inc. (a
manufacturer of synthetic fiber) since 1970. Mr. Rosen is a former director of
First National Bank of North Jersey, and a former director of First Fidelity
North, N.A. Mr. Rosen is a board member and past president of the YM-YWHA of
North Jersey, a board member of the Daughters of Miriam Home for the Aged
Foundation, and is Chairman of the Counsel for the Arts at Massachusetts
Institute of Technology.
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. Dittrick has been the President and Chief Executive Officer of Douglas
Communications Corporation II (cable television) since July 1986. Prior to July
1986, Mr. Dittrick was the President and Chief Executive Officer of Tribune
Cable Communications, a cable television subsidiary of Tribune Company which was
sold in 1986. Mr. Dittrick is Vice Chair of the Board of Trustees of Ohio
23
<PAGE> 25
Wesleyan University, President of Phi Gamma Delta, an international college
fraternity, President of the New Jersey State Service Counsel of the American
Red Cross and the Chairman of the Board of Trustees of Valley Hospital. Mr.
Dittrick is also a director of Fleet Bank, N.A. and Zeta Consumer Products Corp.
Mr. Macnow has been Executive Vice President of Finance and Administration
of Vornado since January 1998. From 1985 until 1998, Mr. Macnow was Vice
President and Chief Financial Officer of Vornado and from 1982 until 1998 he was
Controller of Vornado.
Mr. Goldberg has been Vice President and Chief Financial Officer of Vornado
since January 1998. From 1978 to January 1998, Mr. Goldberg was a partner at
Deloitte & Touche LLP.
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.
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. Because of their other time
commitments and because the Company does not yet own any operating assets, Mr.
Roth and the other members of management anticipate that they will initially not
be devoting a significant amount of time to the activities of the Company. Once
the Company acquires material operating assets, Mr. Roth and the other members
of management anticipate that they will devote such time and efforts as they
deem reasonably necessary to conduct the operations of the Company while
continuing to devote a material amount of their time and efforts to the
management and properties of Vornado.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Executive Committee, an Audit Committee and a Compensation
Committee. The Executive Committee possesses and may exercise all the authority
and powers of the Board in the management of the business and affairs of the
Company, except those reserved to the Board by the DGCL. The Executive Committee
consists of three members, Messrs. Roth, Fascitelli and Wight. Mr. Roth is
Chairman of the Executive 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 internal controls and the results of its
operations. The Audit Committee consists of two members, Messrs. West and
Dittrick. Mr. West 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 Stock Plan. The Committee consists of two members, Messrs.
West and Rosen. Mr. West 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 term
of office of Class I directors will expire at the annual meeting of stockholders
in 1999, the term of office of Class II directors will expire at the annual
meeting of stockholders in 2000 and the term of office of Class III directors
will expire at the annual meeting of stockholders in 2001, 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
24
<PAGE> 26
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
Messrs. Roth, Fascitelli and Wight will each receive from the Company
compensation at a rate of $25,000 per year for serving as a director of the
Company and Messrs. West, Dittrick and Rosen will each receive from the Company
compensation at a rate of $50,000 per year for serving as a director of the
Company. In addition, each member of the Board has been granted either SARs or
options to purchase shares of Common Stock. See "-- Security Ownership of
Certain Beneficial Owners and Management After the Distribution and the
Interstate Exchange."
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 October 13, 1998 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 1998. The Company has not, to date, granted any performance shares or
restricted stock under the Omnibus Stock Plan referred to below.
OPTION/SAR GRANTS IN FISCAL 1998
<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 1998 SHARE(1) DATE OPTION/SAR TERM(2)
---- ------------ ------------ --------- ---------- --------------------
5% 10%
-------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven Roth...................... 200,000 33.4% $5.54 10/9/2008 $692,672 $1,755,667
Michael D. Fascitelli............ 200,000 33.4% $5.54 10/9/2008 $692,672 $1,755,667
Joseph Macnow.................... 20,000 3.3% $5.54 10/9/2008 $ 69,267 $ 175,537
Irwin Goldberg................... 3,000 0.5% $5.54 10/9/2008 $ 10,390 $ 26,330
</TABLE>
- ---------------
(1) The exercise or base price per share is equal to the book value per share as
of October 9, 1998 (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 Exchange). For
example, a 5% growth rate, compounded annually, results in a stock price of
$8.97 per share and a 10% growth rate, compounded annually, results in a
stock price of $14.28 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.
25
<PAGE> 27
OMNIBUS STOCK PLAN
The 1998 Omnibus Stock Plan of Vornado Operating Company (the "Omnibus
Stock 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
1,000,000 shares authorized under the Omnibus Stock Plan, 364,878 shares were
available for issuance as of October 13, 1998.
The purpose of the Omnibus Stock Plan is to promote the financial interests
of the Company and its subsidiaries by encouraging their officers, directors,
employees and consultants to acquire an ownership position in the Company,
enhancing its ability to attract and retain officers, directors, employees and
consultants of outstanding ability and providing such individuals with a way to
acquire or increase their proprietary interest in the Company's success.
The following summary of the Omnibus Stock Plan is qualified by the full
text of the Omnibus Stock Plan, a copy of which is an Exhibit to the
Registration Statement of which this Prospectus is a part.
Under the Omnibus Stock 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 Stock 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 are selected by the
Compensation Committee, are eligible to receive awards under the Omnibus Stock
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
Except as provided below, 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 the optionee at the time of disposition,
and the Company will be entitled to a corresponding
26
<PAGE> 28
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.
Notwithstanding the foregoing, upon the effective date of the Distribution,
each employee of Vornado, whether or not such employee becomes an employee of
the Company, may be granted stock options to purchase such number of shares of
Common Stock of the Company and under such terms and conditions as set by the
Compensation Committee on the date of grant. Such stock options may be granted
with an option price at or below the fair market value of the Common Stock on
the date of grant.
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 of stock 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 STOCK
Performance stock awards consist of a grant of actual shares of stock or
stock 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 stock awards consisting of actual shares of stock 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 stock awards may provide the holder with
dividends and voting rights prior to vesting. Performance stock awards
consisting of stock units entitle the holder to receive the value of such units
in cash, shares of stock 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 stock awards may provide the
holder with dividend equivalents prior to vesting.
RESTRICTED STOCK
Restricted stock awards consist of a grant of actual shares of stock or
stock units having a value equal to an identical number of shares of stock of
the Company. Restricted stock awards consisting of actual shares of stock
entitle the holder to receive shares of stock of the Company. Such restricted
stock awards may provide the holder with dividends and voting rights prior to
vesting. Restricted stock awards consisting of stock units entitle the holder to
receive the value of such units in cash, shares of stock 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.
27
<PAGE> 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER THE
DISTRIBUTION AND THE INTERSTATE EXCHANGE
The following table sets forth the number of shares of Common Stock that
will be beneficially owned following the Distribution and the Interstate
Exchange 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
AND THE INTERSTATE
EXCHANGE(1)
-----------------------
NAME OF BENEFICIAL OWNER NUMBER %
------------------------ ------ -
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Steven Roth(2)(3)........................................... 279,278 6.9
Michael D. Fascitelli(4).................................... 45,977 1.1
Russell B. Wight, Jr.(2)(5)................................. 227,623 5.6
Douglas H. Dittrick(6)...................................... -- --
Richard West(7)............................................. 1,050 *
Martin N. Rosen(6).......................................... -- --
Joseph Macnow(8)............................................ 7,500 *
Irwin Goldberg(9)........................................... 100 *
All executive officers and directors as a group (8
persons)(10).............................................. 361,395 8.9
OTHER BENEFICIAL OWNERS
David Mandelbaum(2)......................................... 216,082 5.3
Interstate(2)............................................... 200,133 4.9
Cohen & Steers Capital Management, Inc.(11)................. 352,145 8.7
FMR Corp.(12)............................................... 234,991 5.8
</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 October 9, 1998 and a
Distribution ratio of one share of Common Stock for every 20 Vornado Common
Shares or Units.
(2) Interstate, a partnership of which Messrs. Roth, Wight and Mandelbaum are
the general partners, will own 200,133 shares after the Interstate Exchange
and will also own a 9.9% limited partnership interest in Company Sub. At
any time after the first anniversary of the Interstate Exchange, 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 447,017 shares of Common Stock
or (b) for 447,017 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
28
<PAGE> 30
Interstate Exchange would increase to 17.9%, 16.6%, 16.3% and 15.9% for Messrs.
Roth, Wight and Mandelbaum and Interstate, respectively.
(3) Includes 1,720 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 1,800 shares to be owned by Mr. Roth's wife, as to which Mr. Roth
disclaims any beneficial interest. Does not include options to purchase
75,000 shares that will not be exercisable within 60 days and SARs with
respect to 125,000 shares.
(4) Does not include options to purchase 200,000 shares that will not be
exercisable within 60 days.
(5) Includes 4,690 shares to be owned by the Wight Foundation, over which Mr.
Wight holds sole voting power and investment power. Does not include
options to purchase 15,000 shares that will not be exercisable within 60
days.
(6) Does not include options to purchase 15,000 shares that will not be
exercisable within 60 days.
(7) Mr. West and his wife will own 150 shares jointly. Mr. West will hold 900
shares in self-directed Keogh accounts. Does not include options to
purchase 15,000 shares that will not be exercisable within 60 days.
(8) Does not include options to purchase 20,000 shares that will not be
exercisable within 60 days.
(9) Does not include options to purchase 3,000 shares that will not be
exercisable within 60 days.
(10) Does not include options to purchase 75,000 shares that will not be
exercisable within 60 days and SARs with respect to 125,000 shares held by
Mr. Roth. Does not include options to purchase 200,000 shares held by Mr.
Fascitelli, options to purchase 20,000 shares held by Mr. Macnow, options
to purchase 3,000 shares held by Mr. Goldberg and options to purchase
15,000 shares held by each of Messrs. Wight, Dittrick, West and Rosen, in
each case that are not exercisable within 60 days.
(11) Based on Schedule 13G dated February 11, 1998 in respect of Vornado, Cohen
& Steers Capital Management, Inc. will have the sole power to vote or to
direct the vote of 306,695 shares and will have the sole power to dispose
or to direct the disposition of 352,145 shares. The address of this
beneficial owner is 757 Third Avenue, New York, New York 10017.
(12) Based on Schedule 13G dated February 14, 1998 in respect of Vornado, FMR
Corp. will have the sole power to vote or to direct the vote of 2,934
shares and will have the sole power to dispose or to direct the disposition
of 232,056 shares. The address of this beneficial owner is 82 Devonshire
Street, Boston, Massachusetts 02109.
29
<PAGE> 31
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 it is no longer obligated under the
Intercompany Agreement to seek to qualify as a REIT for federal income tax
purposes, to enter into a $75 million Revolving Credit Agreement with Vornado
Sub. The Company believes that the terms of the Revolving Credit Agreement will
be at least as favorable to the Company as those terms that could be currently
obtained by the Company from an unaffiliated third party. For a discussion of
such terms, 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. The Intercompany Agreement was not subject to arms'-length negotiation
because the Company is currently a subsidiary of Vornado. Accordingly, there can
be no assurance that the terms of the Intercompany Agreement will be as
favorable to the Company as those terms that could be obtained by the Company
from an unaffiliated third party. For a discussion of the terms of the
Intercompany Agreement, see "Business -- Intercompany Agreement and Charter
Purpose Clauses."
INTERSTATE EXCHANGE; MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a discussion of the Interstate Exchange 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 Exchange" and
"Management -- Security Ownership of Certain Beneficial Owners and Management
After the Distribution and the Interstate Exchange."
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Charter authorizes the issuance of up to 100,000,000 shares, consisting
of 40,000,000 shares of Common Stock, par value $.01 per share, 10,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"), and
50,000,000 excess shares, par value $.01 per share (the "Excess Shares"). Based
on the number of Vornado Common Shares and Units outstanding as of October 9,
1998, immediately following the Distribution (and after giving effect to the
Interstate Exchange), approximately 4,068,310 shares of Common Stock will be
outstanding and held of record by approximately 2,100 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
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applicable thereto; and (i) whether or not the holders of the shares of such
series shall have voting 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 (including an exception for persons owning, directly or
under the attribution rules, more than 4.9% of the shares of the Company
immediately following the distribution by Vornado of shares of the Company,
which persons are subject to either a 6.7% limit or a 9.9% limit, depending upon
their particular circumstances), 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 4.9% 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.
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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
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
Interstate, the partners in Interstate or certain affiliates, including Vornado
and Vornado Sub, until after December 31, 1998.
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 term of office of
Class I directors will expire at the annual meeting of stockholders in 1999, the
term of office of Class II directors will expire at the annual meeting of
stockholders in 2000 and the term of office of Class III directors will expire
at the annual meeting of stockholders in 2001, 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
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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 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.
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 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 and By-laws
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
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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 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 is a summary of material federal income tax considerations
associated with the Distribution and the ownership of Common Stock. 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). Accordingly,
this summary is not tax advice. 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 its
opinions with respect to the qualification of Vornado (and, for 1998, the
Company) as a REIT. As used in this summary, the term "Vornado" refers to
Vornado Realty Trust.
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 cash contributed to the Company. The amount of
such gain, if any, will generally increase Vornado's current earnings and
profits for 1998. 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 1998 will generally be allocated, for purposes of determining which portions
of Vornado's distributions made or deemed made in 1998, including the
Distribution, were attributable to Vornado's earnings and profits, first to
distributions made or deemed made in 1998 on Vornado's preferred shares of
beneficial interest and thereafter to distributions, including the Distribution,
made or deemed made by Vornado in 1998 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.
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 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
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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 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
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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 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 the cash contributed to the Company over
their basis in their partnership interest and
38
<PAGE> 40
(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 1998 (BUT NOT THEREAFTER)
The Company has agreed in the Intercompany Agreement to seek to qualify as
a REIT for federal income tax purposes for its taxable year ending December 31,
1998, but not for subsequent years. The Company's qualification as a REIT for
its taxable year ending December 31, 1998 may be necessary in order to ensure
that the Distribution will not adversely affect Vornado's REIT status. If
Vornado Sub concludes in its sole discretion that such qualification is not
necessary, Vornado Sub may waive such obligation. As a REIT for 1998, the
Company generally would not be subject to federal corporate income taxes on its
net income for 1998 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. In the
opinion of Sullivan & Cromwell, provided that Vornado Sub shall not have waived
the Company's obligation under the Intercompany Agreement to seek to qualify as
a REIT for the taxable year ending December 31, 1998, the Company's proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Code for its taxable year ending December 31,
1998. Sullivan & Cromwell's opinion 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. In providing its opinion Sullivan &
Cromwell is relying as to certain factual matters upon the statements and
representations contained in a certificate provided to it by the Company. The
qualification and taxation of the Company as a REIT depends upon its ability to
meet, through actual operating results, distribution levels and the various
qualification tests imposed under the Code. No assurance can be given that the
actual results of the Company's operations for its taxable year ending December
31, 1998 will satisfy such requirements. Sullivan & Cromwell will not monitor
the compliance of the Company with the requirements for REIT qualification on an
ongoing basis.
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, 1998.
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, 1998.
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
39
<PAGE> 41
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 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
1998. Thus, the Company will be subject to federal income tax as a regular
corporation in such years.
TAXATION OF SHAREHOLDERS OF THE COMPANY
DURING 1998
DIVIDENDS. If the Company qualifies as a REIT for its taxable year ending
December 31, 1998, 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 1998) -- 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.
40
<PAGE> 42
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 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 1998) -- 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 1998)
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,
41
<PAGE> 43
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
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, 1999, 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, (i) 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 and (ii),
provided that
42
<PAGE> 44
Vornado Sub shall not have waived the Company's obligation under the
Intercompany Agreement to seek to qualify as a REIT for its taxable year ending
December 31, 1998, the Company's proposed method of operation will enable it to
meet the requirements for qualification and taxation as a REIT under the Code
for its taxable year ending December 31, 1998. 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
1998 (But Not Thereafter)." Opinions of counsel, however, are not binding upon
the Service or any court. Sullivan & Cromwell's opinion 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. In providing its opinion
Sullivan & Cromwell is relying (i) as to certain factual matters upon the
statements and representations contained in certificates provided to Sullivan &
Cromwell by the Company and Vornado, (ii) without independent investigation, as
to certain factual matters upon the statements and representations contained in
the certificate provided to Sullivan & Cromwell by Alexander's, Inc.
("Alexander's") and (iii) without independent investigation upon an opinion of
Shearman & Sterling concerning the qualification of Alexander's as a REIT for
federal income tax purposes. 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 as to certain factual matters upon the statements and
representations contained in a certificate provided to Shearman & Sterling by
Alexander's. The qualification and taxation of Vornado, Two Penn Plaza REIT Inc.
("Two Penn REIT"), the Company and Alexander's as REITs depends upon their
ability to meet, through actual annual operating results, distribution levels,
stock ownership requirements and the various qualification tests imposed under
the Code. In addition, Vornado's qualification as a REIT will depend upon the
ability of Two Penn REIT and Alexander's and may depend upon the ability of the
Company, to qualify as a REIT. 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, the Company'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, the
Company or Two Penn REIT with the requirements for REIT qualification on an
ongoing basis.
EXPERTS
The balance sheet of Vornado Operating Company as of September 15, 1998
included in this Prospectus and elsewhere in the Registration Statement has been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and is included in reliance upon the report of such
firm given 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 September 15, 1998...................... F-3
Note to Balance Sheet....................................... F-3
Pro Forma Consolidated Balance Sheet as of September 15,
1998 (Unaudited).......................................... 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 Company
Saddle Brook, New Jersey
We have audited the accompanying balance sheet of Vornado Operating Company
(formerly known as Vornado Operating, Inc.) as of September 15, 1998. 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 Company as of September
15, 1998, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
September 24, 1998
F-2
<PAGE> 47
VORNADO OPERATING COMPANY
BALANCE SHEET
SEPTEMBER 15, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $25,000,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, par value $.01 per share (authorized,
issued and outstanding 1,000 shares)................. $ 10
Additional paid in capital............................. 24,999,990
-----------
Total stockholders' equity........................ $25,000,000
-----------
Total liabilities and stockholders' equity... $25,000,000
===========
</TABLE>
NOTE TO BALANCE SHEET
Vornado Operating Company, a Delaware corporation formerly known as Vornado
Operating, Inc. (the "Company"), was formed on October 30, 1997 and has had no
operations to date. The Company's only asset is $25,000,000 of cash. 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.
The 1998 Omnibus Stock Plan of Vornado Operating Company (the "Omnibus
Stock 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
1,000,000 shares authorized under the Omnibus Stock Plan, 364,878 shares were
available for issuance as of September 21, 1998.
F-3
<PAGE> 48
VORNADO OPERATING COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 15, 1998
(Unaudited)
The following unaudited pro forma consolidated balance sheet sets forth the
Company's historical balance sheet as of September 15, 1998, adjusted to give
pro forma effect to the Distribution and the Interstate Exchange 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 September
15, 1998 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.................................................... $25,000 $ -- $25,000
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Minority interest of Interstate in Company Sub.......... $ -- $2,475(1) $ 2,475
Stockholders' equity:
Common stock, par value $.01 per share (authorized and
outstanding 1,000 shares as of September 15, 1998;
40,000,000 shares authorized and 4,068,310 shares
outstanding after pro forma adjustments)........... -- 45(2) 40
(5)(1)
Additional paid in capital............................ 25,000 (2,470)(1) 22,485
(45)(2)
------- ------ -------
Total stockholders' equity......................... 25,000 (2,475) 22,525
------- ------ -------
Total liabilities and stockholders' equity.... $25,000 $ -- $25,000
======= ====== =======
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet
F-4
<PAGE> 49
VORNADO OPERATING COMPANY
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
1. Reflects (a) the exchange by Interstate of 447,017 shares of Common
Stock for a 9.9% undivided interest in all of 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.
2. Reflects the issuance of 4,514,327 shares of Common Stock, par value
$.01 per share, in connection with the Distribution.
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.................... 13
Dividend Policy..................... 15
Selected Pro Forma Consolidated
Financial Data.................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 17
Business............................ 19
Management.......................... 23
Certain Transactions................ 30
Description of Capital Stock........ 31
Federal Income Tax Considerations... 36
Experts............................. 43
Validity of Common Stock............ 43
Index to Financial Statements....... F-1
</TABLE>
THROUGH AND INCLUDING --, 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 30. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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 American Stock Exchange listing
fee:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission........ $ 7,576
American Stock Exchange Listing Fee........................... 20,000
Legal Fees and Expenses (other than Blue Sky)................. 700,000
Accounting Fees and Expenses.................................. 40,000
Blue Sky Fees and Expenses, including Legal Fees.............. 14,000
Printing, including Registration Statement, Prospectus,
etc......................................................... 40,000
Transfer Agent and Registrar Fees............................. 25,000
Miscellaneous Expenses........................................ 25,000
------
Total............................................... $871,576
======
</TABLE>
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 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
II-1
<PAGE> 52
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 September 15, 1998
Pro Forma Consolidated Balance Sheet of Vornado Operating Inc. as of
September 15, 1998
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.1 -- Restated Certificate of Incorporation*
3.2 -- By-laws
4.1 -- Specimen stock certificate*
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 Sub 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 -- Form of 1998 Omnibus Stock Plan of Vornado Operating
Company*
10.4 -- Form of Agreement of Limited Partnership of Vornado
Operating L.P.*
10.5 -- VOI Share Purchase Option Agreement, dated as of January 23,
1998, between Vornado Operating Inc. and Merchandise Mart
Enterprises, L.L.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>
- ---------------
* Previously filed.
II-2
<PAGE> 53
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 October 13,
1998.
VORNADO OPERATING COMPANY
a Delaware corporation
By: /s/ STEVEN ROTH
------------------------------------
Steven Roth
Chairman of the Board of Directors
(Principal Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Steven Roth Chairman of the Board of Directors October 13, 1998
- ------------------------------------ (Principal Executive Officer) and
Steven Roth Director
/s/ Michael D. Fascitelli President and Director October 13, 1998
- ------------------------------------
Michael D. Fascitelli
/s/ Irwin Goldberg Vice President -- Chief Financial October 13, 1998
- ------------------------------------ Officer (Principal Financial and
Irwin Goldberg Accounting Officer)
* Director October 13, 1998
- ------------------------------------
Russell B. Wight, Jr.
* Director October 13, 1998
- ------------------------------------
Douglas H. Dittrick
* Director October 13, 1998
- ------------------------------------
Richard West
* Director October 13, 1998
- ------------------------------------
Martin N. Rosen
*By: /s/ Joseph Macnow
- ------------------------------------
Joseph Macnow
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 55
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- ----------- ----
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation*......................
3.2 -- By-laws.....................................................
4.1 -- Specimen stock certificate*.................................
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 Sub 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 -- Form of 1998 Omnibus Stock Plan of Vornado Operating
Company*....................................................
10.4 -- Form of Agreement of Limited Partnership of Vornado
Operating L.P.*.............................................
10.5 -- VOI Share Purchase Option Agreement, dated as of January 23,
1998, between Vornado Operating Inc. and Merchandise Mart
Enterprises, L.L.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>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
VORNADO OPERATING COMPANY
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place either within or
without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the Chief Executive Officer, the President or the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof, to
be held at such date, time and place either within or without the State of
Delaware as may be stated in the notice of the meeting. Any power of
stockholders to call a special meeting is specifically denied.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. QUORUM. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be considered a single
class if the holders thereof are entitled to vote together as a single class at
the meeting. In the absence of a quorum of the holders of any class of stock
entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 1.4 of these by-laws until a quorum of
such class shall be so present or represented. Shares of its own capital stock
belonging on the record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the
<PAGE> 2
foregoing shall not limit the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the Chief Executive Officer, or in the absence of
the Chief Executive Officer by the President, or in the absence of the President
by a Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof and the opening
and closing of the voting polls.
Section 1.7. INSPECTORS. Prior to any meeting of stockholders, the Board
of Directors, the Chief Executive Officer or the President shall appoint one or
more inspectors to act at such meeting and make a written report thereof and may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at the meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented at
the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots. The inspectors may appoint or retain
other persons to assist them in the performance of their duties. The date and
time of the opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxy or vote, nor any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited to
an examination of the proxies, any envelopes submitted therewith, any
information provided by a stockholder who submits a proxy by telegram, cablegram
or other electronic transmission from which it can be determined that the proxy
was authorized by the stockholder, ballots and the regular books and records of
the corporation, and they may also consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes than the stockholder holds of record. If the inspectors consider other
reliable information for such purpose, they shall, at the time they make their
certification, specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the information
was obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
Section 1.8. VOTING; PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to
<PAGE> 3
corporate action in writing without a meeting may authorize another person or
persons to act for such stockholder by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power, regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. A stockholder may revoke any proxy which
is not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of
stockholders need not be by written ballot unless the holders of a majority of
the outstanding shares of all classes of stock entitled to vote thereon present
in person or represented by proxy at such meeting shall so determine. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In all other matters, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class or classes, except as otherwise provided by law or by the
certificate of incorporation or these by-laws.
Section 1.9. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 1.10. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
<PAGE> 4
Section 1.11 CONSENT OF STOCKHOLDERS NOT PERMITTED. Any action required
or permitted to be taken by the stockholders of the Corporation must be taken at
a duly called annual or special meeting of such holders and may not be taken by
any consent in writing by such holders.
Section 1.12. ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. At any annual or
special meeting of stockholders, proposals by stockholders and persons nominated
for election as directors by stockholders shall be considered only if advance
notice thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
certificate of incorporation and by-laws of the Corporation. 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 Corporation at
any meeting of stockholders shall be delivered to the Secretary of the
Corporation at its principal executive office not less than 60 nor more than 90
days prior to the date of the meeting; provided, however, that if the date of
the meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than 70 days prior to the date of the meeting, such advance
notice shall be given not more than ten days after such date is first so
announced or disclosed. Public notice shall be deemed to have been given more
than 70 days in advance of the annual meeting if the Corporation shall have
previously disclosed, in these by-laws or otherwise, that the annual meeting in
each year is to be held on a determinable date, unless and until the Board
determines to hold the meeting on a different date. Any stockholder who gives
notice of any such proposal shall deliver therewith the text of the proposal to
be presented and a brief written statement of the reasons why such stockholder
favors the proposal and setting forth such stockholder's name and address, the
number and class of all shares of each class of stock of the Corporation
beneficially owned by such stockholder and any material interest of such
stockholder in the proposal (other than as a stockholder). Any stockholder
desiring to nominate any person for election as a director of the Corporation
shall deliver with such notice a statement in writing setting forth the name of
the person to be nominated, the number and class of all shares of each class of
stock of the Corporation beneficially owned by such person, the information
regarding such person required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the Securities and Exchange Commission (or the
corresponding provisions of any regulation subsequently adopted by the
Securities and Exchange Commission applicable to the Corporation), such person's
signed consent to serve as a director of the Corporation if elected, such
stockholder's name and address and the number and class of all shares of each
class of stock of the Corporation beneficially owned by such stockholder. As
used herein, shares "beneficially owned" shall mean all shares as to which such
person, together with such person's affiliates and associates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, as well as all shares as to which such person, together with such
person's affiliates and associates, has the right to become the beneficial owner
pursuant to any agreement or understanding, or upon the exercise of warrants,
options or rights to convert or exchange (whether such rights are exercisable
immediately or only after the passage of time or the occurrence of conditions).
The person presiding at the meeting, in addition to making any other
determinations that may be appropriate to the conduct of the meeting, shall
determine whether such notice has been duly given and shall direct that
proposals and nominees not be considered if such notice has not been given.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. POWERS; NUMBER; QUALIFICATIONS. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by the Board. Directors need
not be stockholders.
<PAGE> 5
Section 2.2. ELECTION; TERM OF OFFICE; RESIGNATION; REMOVAL;
VACANCIES. The directors of the Corporation shall be divided into three
classes, as nearly equal in number as reasonably possible, as determined by the
Board of Directors, with the initial term of office of the first class of such
directors to expire at the annual meeting of stockholders in 1999, the initial
term of office of the class of such directors to expire at the second annual
meeting of stockholders in 2000 and the initial term of office of the class of
such directors to expire at the third annual meeting of stockholders in 2001,
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 or until his or her
earlier resignation or removal.
Any director may resign at any time upon written notice to the Board of
Directors or to the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. No director may be removed except for cause.
In the event of any increase or decrease in the authorized number of
directors, (a) each director then serving as such shall nonetheless 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 of Directors among the three classes
of directors so as to maintain such classes as nearly equal in number as
reasonably possible. Unless otherwise provided in the certificate of
incorporation or these by-laws, 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
Corporation. Any director elected or appointed to fill a vacancy shall hold
office until the next election of the class of directors of the director which
such director replaced, and until and his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board may from time to time determine, and if so determined notice
thereof need not be given.
Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, if any, by the Vice Chairman of
the Board, if any, by the Chief Executive Officer by the President or by any two
directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
Section 2.5. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors one-third of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
<PAGE> 6
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall be present.
Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board by the Chief Executive
Officer, or in the absence of the Chief Executive Officer if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence
by a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the certificate of incorporation or these by-laws, the Board of Directors shall
have the authority to fix the compensation of directors.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in these by-laws, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by law
to be submitted to stockholders for approval, (ii) adopting, amending or
repealing these by-laws or (iii) removing or indemnifying directors.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE IV
OFFICERS
Section 4.1. OFFICERS; ELECTION. As soon as practicable after the annual
meeting of stockholders in each year, the Board of Directors shall elect a Chief
Executive Officer, a President and a
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Secretary, and it may, if it so determines, elect from among its members a
Chairman of the Board and a Vice Chairman of the Board. The Board may also elect
one or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such
other officers as the Board may deem desirable or appropriate and may give any
of them such further designations or alternate titles as it considers desirable.
Any number of offices may be held by the same person unless the certificate of
incorporation or these by-laws otherwise provide.
Section 4.2. TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. The Board may remove any
officer with or without cause at any time. Any such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties in the management of the Corporation as shall be
stated in these by-laws or in a resolution of the Board of Directors which is
not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Secretary shall have the duty to record the proceedings of the
meetings of the stockholders, the Board of Directors and any committees in a
book to be kept for that purpose. The Board may require any officer, agent or
employee to give security for the faithful performance of his or her duties.
ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the Corporation, representing the
number of shares of stock in the Corporation owned by such holder. If such
certificate is manually signed by one officer or manually countersigned by a
transfer agent or by a registrar, any other signature on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
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Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
MISCELLANEOUS
Section 6.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. SEAL. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 6.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES;
INSURANCE. The Corporation shall 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 Corporation or serves or served at the
request of the Corporation any other enterprise as a director, officer or
employee. Expenses, including attorneys' fees, incurred by any such person in
defending any such action, suit or proceeding shall be paid or reimbursed by the
Corporation 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 Corporation. The rights provided to any person
by this by-law shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon it in serving or continuing to serve as a
director, officer or employee as provided above. No amendment of this by-law
shall impair the rights of any person arising at any time with respect to events
occurring prior to such amendment. For purposes of this by-law, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, trust or employee benefit
plan; service "at the request of the Corporation" shall include service as a
director, officer or employee of the Corporation which imposes duties on, or
involves services by, such director, officer or employee with respect to an
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan shall be deemed to
be indemnifiable expenses; and action by a person with respect to an employee
benefit plan which such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be action not
opposed to the best interests of the Corporation.
<PAGE> 9
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6.5. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 6.7. AMENDMENT OF BY-LAWS. The by-laws of the Corporation may be
altered or repealed and new by-laws may be adopted (i) at any annual or special
meeting of stockholders, by the affirmative vote of the holders of not less than
a majority of the voting power of all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for purposes hereof as a single class, provided, however, that any proposed
alteration or repeal of, or the adoption of any by-law inconsistent with,
Sections 1.2, 1.11 and 1.12 of Article I of the by-laws, Sections 2.1 and 2.2 of
Article II of the by-laws, or this sentence, by the stockholders shall require
the affirmative vote of the holders of not less than eighty percent (80%) of the
voting power of all outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, considered for purposes
hereof as a single class, or (ii) by the affirmative vote of a majority of the
board of directors.
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EXHIBIT 5
[LETTERHEAD OF SULLIVAN & CROMWELL]
October 13, 1998
Vornado Operating Company,
Park 80 West, Plaza II,
Saddle Brook, New Jersey 07663.
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the
"Act") of shares (the "Securities") of Common Stock, par value $.01 per share,
of Vornado Operating Company, a Delaware corporation (the "Company"), we, as
your counsel, have examined such corporate records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion. Upon the basis of such
examination, we advise you that, in our opinion, when the registration statement
relating to the Securities (the "Registration Statement") has become effective
under the Act and the Securities have been duly issued and delivered as
contemplated by the Registration Statement, the Securities will be validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Law of the State of Delaware, and we are expressing
no opinion as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public
officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
Common Stock" in the Prospectus. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
