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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1998
REGISTRATION NO. 333-40701
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
VORNADO OPERATING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
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PARK 80 WEST, PLAZA II,
SADDLE BROOK, NEW JERSEY 07663
TELEPHONE: (201) 587-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOSEPH MACNOW
EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION
VORNADO OPERATING INC.
PARK 80 WEST, PLAZA II
SADDLE BROOK, NEW JERSEY 07663
TELEPHONE: (201) 587-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
ALAN SINSHEIMER
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
TELEPHONE: (212) 558-4000
FACSIMILE: (212) 558-3588
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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 FEBRUARY 25, 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.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO THE OWNERSHIP OF COMMON STOCK.
On --, 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 --, 1998 (the "Record Date"), and Limited
Partners will receive one share of Common Stock for every 20 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 January 16, 1998, Vornado Sub will distribute
3,893,429 shares of Common Stock to its partners (i.e., Vornado and the Limited
Partners), and Vornado in turn will distribute 3,609,373 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.
34,312 shares of Common Stock to be distributed in the Distribution to
Interstate Properties, a New Jersey general partnership ("Interstate"), are
being offered and sold by Interstate (in the open market or otherwise). The
Company will not receive any of the proceeds from the sale of the shares being
sold by Interstate. See "The Distribution -- Interstate Transaction."
On January 26, 1998, Vornado entered into a definitive agreement to acquire
a substantial portion of the real estate portfolio of the Kennedy family.
Pursuant to such agreement, Vornado Sub agreed to issue approximately 301,193
Units to Merchandise Mart Enterprises, L.L.C., a Delaware limited liability
company ("MME"). Since the closing of such transaction is not expected to occur
until after the Record Date for the Distribution, MME will not receive Common
Stock in the Distribution. Accordingly, the Company has agreed to offer MME the
opportunity to purchase shares of Common Stock on the terms and conditions set
forth in the VOI Share Purchase Option Agreement, dated January 23, 1998,
between the Company and MME (the "MME Agreement"). Based on the number of Units
outstanding as of January 16, 1998, the Company will offer 15,060 shares of
Common Stock to MME at a purchase price per share of $6.42. See "The
Distribution -- MME Offering."
The Company's restated certificate of incorporation (the "Charter")
provides that no person may own more than 9.9% of the outstanding Common Stock.
Shares of Common Stock owned in excess of such limit will be deemed "Excess
Shares" pursuant to the Charter, in which case the holder will lose certain
ownership rights with respect to such shares and the Company will have the right
to purchase such Excess Shares from the holder. See "Description of Capital
Stock -- Certain Charter and By-laws Provisions -- Restrictions on Ownership."
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. The Registration Statement, including the exhibits
and schedules thereto, can be inspected and copied at the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such information can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates 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. The
Commission's address on the world wide web is "http://www.sec.gov".
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined and reported upon by
independent certified public accountants for each fiscal year.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Prospectus, including the discussion of
certain factors set forth under "Risk Factors." Unless the context requires
otherwise, all references to "Vornado" in this Prospectus shall be deemed to
refer to Vornado Realty Trust and its consolidated subsidiaries, including
Vornado Sub, and all references to the "Company" in this Prospectus shall be
deemed to refer to Vornado Operating Inc. and its consolidated subsidiaries,
including Vornado Operating L.P. ("Company Sub"). Unless otherwise indicated,
all information in this Prospectus in respect of the offering made hereby to MME
(the "MME Offering") assumes that MME purchases 15,060 shares of Common Stock at
a purchase price per share of $6.42. 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 January 16, 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................ -- , 1998.
Distribution Date.......... -- , 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 Transaction..... 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, 19.7% of the Common Stock as a result of
the Distribution (excluding shares underlying stock
appreciation rights ("SARs") held by Messrs. Roth
and Wight for this purpose). The beneficial
ownership by Interstate and its partners of 10% or
more of the Common Stock at a time when Interstate
and its partners beneficially own Vornado Common
Shares representing 10% or more of the total value
of Vornado's
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outstanding shares would cause rent Vornado
receives from the Company to fail to be treated as
qualifying rent for purposes of the REIT gross
income requirements. Consequently, Interstate and
the Company have agreed that (a) immediately after
completion of the Distribution, (i) Interstate will
exchange shares representing 9.9% of the Common
Stock that will be outstanding immediately after
giving effect to the Distribution for a 9.9%
undivided interest in 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"),
and (b) by no later than December 31, 1998,
Interstate will sell 34,312 additional shares of
Common Stock (in the open market or otherwise) (the
"Interstate Sale" and, together with the Interstate
Exchange, the "Interstate Transaction"). See "The
Distribution -- Interstate Transaction."
MME Offering............... On January 26, 1998, Vornado entered into a
definitive agreement to acquire a substantial
portion of the real estate portfolio of the Kennedy
family. Pursuant to such agreement, Vornado Sub
agreed to issue approximately 301,193 Units to MME.
Since the closing of such transaction is not
expected to occur until after the Record Date for
the Distribution, MME will not receive Common Stock
in the Distribution. Accordingly, the Company has
agreed to offer MME the opportunity to purchase
shares of Common Stock on the terms and conditions
set forth in the MME Agreement. Based on the number
of Units outstanding as of January 16, 1998, the
Company will offer 15,060 shares of Common Stock to
MME at a purchase price per share of $6.42. See
"The Distribution -- MME Offering."
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
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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. In
addition, the Company may pursue other
opportunities, although it currently expects that
those opportunities will relate in some manner to
Vornado and its real estate investments rather than
to unrelated businesses.
See "The Distribution -- Background of and Reasons
for the Distribution" and "Business -- General."
Intercompany Agreement and
Charter Purpose
Clauses.................. The Company and Vornado Sub 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 effect 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. See "The Distribution -- Background of and Reasons for the
Distribution." The Company was incorporated on October 30, 1997 and has had no
operations to date. The following sets forth unaudited summary data for the
Company as of January 23, 1998, adjusted to give pro forma effect to the
Distribution, the Interstate Transaction and the MME Offering 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....................................................................... $ 25,097
Minority interest of Interstate in Company Sub............................. $ 2,484
Stockholders' equity....................................................... $ 22,613
Number of shares of Common Stock outstanding............................... 3,521,549(1)
Stockholders' equity per share............................................. $ 6.42(1)
</TABLE>
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(1) Based on number of Vornado Common Shares and Units outstanding as of January
16, 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, 21.3% of the outstanding
Vornado Common Shares (excluding shares issuable on conversion of Units for this
purpose) and will, after giving effect to the Interstate Transaction,
beneficially own, in the aggregate, a 9.9% limited partnership interest in
Company Sub and 9.9% of the Common Stock (excluding shares underlying SARs held
by Messrs. Roth and Wight for this purpose). Because of the foregoing, Messrs.
Roth, Mandelbaum and Wight and Interstate (collectively, the "Interstate
Parties") will have substantial influence on the Company and Vornado and on the
outcome of any matters submitted to the Company's or Vornado's shareholders for
approval.
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 Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." Although
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<PAGE> 12
only interest and commitment fees will be payable under the Revolving Credit
Agreement until it expires on December 31, 2002, there can be no assurance that
the Company will be able to satisfy all of its obligations under the Revolving
Credit Agreement.
The Company expects that 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. Interstate has agreed to sell 34,312 shares of Common
Stock by December 31, 1998, and these sales could adversely affect the market
price of the Common Stock.
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> 13
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
12
<PAGE> 14
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> 15
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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<PAGE> 16
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 TRANSACTION
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, 19.7% of the Common Stock as a result of the
Distribution (ignoring SARs held by Messrs. Roth and Wight for this purpose).
Under applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Vornado will not continue to be treated as a REIT unless it
satisfies, among other things, requirements relating to the sources of its gross
income. See "Federal Income Tax Considerations -- Taxation of Vornado in
General." Rents received or accrued by Vornado from the Company will not be
treated as qualifying rent for purposes of these requirements if Vornado is
treated, either directly or under the applicable attribution rules, as owning
10% or more of the Common Stock of the Company. Vornado will be treated as
owning, under the applicable attribution rules, 10% or more of the Common Stock
at any time that Interstate and its partners own, directly or under the
applicable attribution rules, (a) Vornado shares with a value equal to 10% or
more of the total value of Vornado's outstanding shares and (b) 10% or more of
the Common Stock of the Company. Thus, in order to enable rents received or
accrued by Vornado from the Company to be treated as qualifying rent for
purposes of the REIT gross income requirements, Interstate and the Company have
agreed that (a) immediately after completion of the Distribution, (i) Interstate
will exchange shares representing 9.9% of the Common Stock that will be
outstanding after giving effect to the Distribution for a 9.9% undivided
interest in 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, and
(b) by no later than December 31, 1998, Interstate will sell 34,312 additional
shares of Common Stock (in the open market or otherwise). 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 originally
exchanged by Interstate as described in the preceding sentence or (b) for such
number of shares of Common Stock, in each case as selected by the Company and
subject to customary anti-dilution adjustments.
MME OFFERING
On January 26, 1998, Vornado entered into a definitive agreement to acquire
a substantial portion of the real estate portfolio of the Kennedy family.
Pursuant to such agreement, Vornado Sub agreed to issue approximately 301,193
Units to MME. Since the closing of such transaction is not expected to occur
until after the Record Date for the Distribution, MME will not receive Common
Stock in the Distribution. Accordingly, the Company has agreed to offer MME the
opportunity to purchase shares of Common Stock on the terms and conditions set
forth in the MME Agreement. Based on the number of Units outstanding as of
January 16, 1998, the Company will offer 15,060 shares of Common Stock to MME at
a purchase price per share of $6.42. The actual number of shares of Common Stock
offered to MME may vary based on the number of Units outstanding on the Record
Date. MME must provide the Company with an irrevocable written notice of its
commitment to purchase all or part of the shares that it is offered within three
business days from the date on which the Registration Statement becomes
effective. The closing of the MME Offering is expected to occur immediately
after the Distribution.
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<PAGE> 17
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 2,000 stockholders of record, based on
the number of record holders of Vornado Common Shares and Units on the Record
Date. The Transfer Agent and Registrar for the Common Stock will be First Union
National Bank, Charlotte, North Carolina.
Based on the number of Vornado Common Shares and Units outstanding as of
January 16, 1998 and after giving effect to the Distribution, the Interstate
Transaction and the MME Offering, 3,521,549 million shares of Common Stock will
be outstanding.These shares will be freely transferable, except for securities
received by persons who may be deemed to be "affiliates" of the Company under
the Securities Act of 1933, as amended (the "Securities Act"). Persons who may
be deemed to be affiliates of the Company after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with, the Company and may include certain officers and directors
of the Company as well as principal stockholders of the Company, if any. Persons
who are affiliates of the Company will be permitted to sell their shares of
Common Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Section 4(2) of the Securities
Act (relating to private sales) or by Rule 144 under the Securities Act.
Interstate has agreed to sell 34,312 shares of Common Stock following the
Distribution, and these sales have been registered under the Registration
Statement of which this Prospectus is a part. See "--Interstate Transaction."
Besides these shares, neither Vornado nor the Company is able to predict whether
substantial amounts of Common Stock will be sold in the open market following
the Distribution. Sale of substantial amounts of Common Stock in the public
market, or the perception that such sales might occur, could adversely affect
the market price of Common Stock.
FEDERAL INCOME TAX CONSIDERATIONS
The Distribution of shares of Common Stock by Vornado will 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.
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<PAGE> 18
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> 19
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Company is a new corporation which has been formed to own assets that
Vornado could not itself own and conduct activities that Vornado could not
itself conduct. See "The Distribution -- Background of and Reasons for the
Distribution." The Company was incorporated on October 30, 1997 and has had no
operations to date. The following sets forth unaudited selected data for the
Company as of January 23, 1998, adjusted to give pro forma effect to the
Distribution, the Interstate Transaction and the MME Offering 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....................................................................... $ 25,097
Minority interest of Interstate in Company Sub............................. $ 2,484
Stockholders' equity....................................................... $ 22,613
Number of shares of Common Stock outstanding............................... 3,521,549(1)
Stockholders' equity per share............................................. $ 6.42(1)
</TABLE>
- ---------------
(1) Based on number of Vornado Common Shares and Units outstanding as of January
16, 1998 and a Distribution ratio of one share of Common Stock for every 20
Vornado Common Shares or Units.
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<PAGE> 20
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. In addition, the Company may pursue other opportunities,
although it currently expects that those opportunities will relate in some
manner to Vornado and its real estate investments rather than to unrelated
businesses.
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.
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 on December 31,
2002. The Revolving Credit Agreement will prohibit the Company from incurring
indebtedness to third parties (other than certain purchase money debt and
certain other exceptions) and will prohibit the Company from paying dividends.
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> 21
BUSINESS
GENERAL
The Company was incorporated on October 30, 1997 and has had no operations
to date. The principal executive offices of the Company are located at Park 80
West, Plaza II, Saddle Brook, New Jersey 07663, and its telephone number at that
location is (201) 587-1000.
The Company has been formed to own assets that Vornado could not itself own
and conduct activities that Vornado itself could not conduct. The Company is
intended to function principally as an operating company, in contrast to
Vornado's principal focus on investment in real estate assets. See "The
Distribution -- Background of and Reasons for the Distribution."
The Company will seek to become the lessee and operator of certain real
estate assets owned now or in the future by Vornado, as contemplated by the
Intercompany Agreement referred to below. In addition, the Company may pursue
other opportunities, although it currently expects that those opportunities will
relate in some manner to Vornado and its real estate investments rather than to
unrelated businesses.
INTERCOMPANY AGREEMENT AND CHARTER PURPOSE CLAUSES
The Company and Vornado intend to enter into the Intercompany Agreement,
promptly after the Distribution, pursuant to which, among other things, (a)
Vornado will agree under certain circumstances to offer the Company an
opportunity to become the lessee of certain real property owned now or in the
future by Vornado (under mutually satisfactory lease terms) and (b) the Company
will agree not to make any real estate investment or other REIT-Qualified
Investment unless it first offers Vornado the opportunity to make such
investment and Vornado has rejected that opportunity.
More specifically, the Intercompany Agreement will require, subject to
certain terms, that Vornado provide the Company with an opportunity (a "Tenant
Opportunity") to become the lessee of any real property owned now or in the
future by Vornado if Vornado determines in its sole discretion that, consistent
with Vornado's status as a REIT, it is required to enter into a "master" lease
arrangement with respect to such property and that the Company is qualified to
act as lessee thereof. In general, a master lease arrangement is an arrangement
pursuant to which an entire property or project (or a group of related
properties or projects) are leased to a single lessee. Under the Intercompany
Agreement, the Company 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
20
<PAGE> 22
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, 2002. 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
21
<PAGE> 23
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 Limited ("Crescent") have a 40% interest acquired each of
Americold Corporation ("Americold") and URS Logistics, Inc. ("URS," and together
with Americold, the "Cold Storage Companies"). Vornado's investments in the
Vornado/Crescent Partnerships are currently held by corporations in which
Vornado owns all of the preferred stock and none of the common equity
("preferred stock affiliates"). Ownership of the preferred stock entitles
Vornado to substantially all of the economic benefits in the preferred stock
affiliates. The common 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 80 warehouse
facilities with an aggregate of approximately 367 million cubic feet of
refrigerated, frozen and dry storage space. The Cold Storage Companies currently
operate the warehouses pursuant to arrangements with national food suppliers
such as Tyson Foods, Kraft Foods, ConAgra and Pillsbury, and employ
approximately 3,900 employees. The management and operation of the Cold Storage
Companies includes, among other things, the management of the warehouse
facilities and the performance of certain logistics, transportation management,
accounting, marketing, engineering, data processing and operational functions.
Vornado 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, determining whether to seek one or more
private letter rulings from 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 partnership 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
22
<PAGE> 24
Companies if it enters into a "master" lease arrangement in respect of the Cold
Storage Companies' 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 Transaction and the MME Offering and
as otherwise contemplated herein, the Company does not expect 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 had no employees. The
Company expects that, when it acquires specific assets and business operations,
the subsidiaries of the Company making such acquisitions will have their own
employees.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or
which any of its properties are subject.
23
<PAGE> 25
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to those
persons who have agreed to serve as the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME CLASS AGE POSITION
- ----------------------------------- -------- --- ----------------------------------------
<S> <C> <C> <C>
Steven Roth(1)..................... III 56 Chairman of the Board and Chief
Executive Officer
Michael D. Fascitelli(1)........... III 40 President and Director
Russell B. Wight, Jr.(1)........... II 57 Director
[FIRST INDEPENDENT DIRECTOR](2).... II -- Director
Richard West....................... I 59 Director
[SECOND INDEPENDENT DIRECTOR](2)... I -- Director
Joseph Macnow...................... 52 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.
Mr. Fascitelli has been President and a trustee of Vornado, and a Director
of Alexander's, since December 2, 1996. From December 1992 to December 1996, Mr.
Fascitelli was a partner at Goldman, Sachs & Co. in charge of its real estate
practice.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight
became a director of Alexander's in March 1995 and is also a trustee or director
of Vornado and Insituform Technologies, Inc.
Mr. West is Dean Emeritus of the Leonard N. Stern School of Business, New
York University. He was a professor there from September 1984 until September
1995. He was also Dean from September 1984 until August 1993. From July 1976
through August 1984, he was a faculty member of the Amos Tuck School of Business
Administration of Dartmouth College. From July 1976 until 1983, Mr. West was
also Dean of the Amos Tuck School. Mr. West is also a director or a trustee of
Vornado, Alexander's, Smith-Corona, Inc., Bowne & Co., Inc., and various
investment companies managed by Merrill Lynch Asset Management, Inc., an
affiliate of Merrill Lynch & Co.
Mr. Macnow has been 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.
24
<PAGE> 26
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. -- and --. Mr.
- -- is the Chairman of the Audit Committee.
The Compensation Committee is responsible for establishing the terms of the
compensation of the executive officers and the granting of awards under the
Company's Omnibus Share Plan. The Committee consists of two members, Messrs. --
and -- . Mr. -- is the Chairman of the Compensation Committee.
STAGGERED BOARD OF DIRECTORS
The Board currently has six members. The Charter provides that the
directors of the Company will be divided into three classes, as nearly equal in
number as reasonably possible, as determined by the Board of Directors. The
initial term of office of Class I directors will expire at the first annual
meeting of stockholders, the initial term of office of Class II directors will
expire at the second annual meeting of stockholders and the initial term of
office of Class III directors will expire at the third annual meeting of
stockholders, with each class of directors to hold office until their successors
have been duly elected and qualified. At each annual meeting of stockholders,
directors elected to succeed the directors whose terms expire at such annual
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders in the third year following the year of their election
and until their successors have been duly elected and qualified.
COMPENSATION OF DIRECTORS
Each member of the Board who is not an employee of the Company will receive
from the Company compensation at a rate of $ -- per year for serving as a
director. 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 Transaction."
25
<PAGE> 27
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 February --, 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 Share 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% $6.42 1/31/2008 $807,837 $2,047,218
Michael D. Fascitelli............ 200,000 33.4% $6.42 1/31/2008 $807,837 $2,047,218
Joseph Macnow.................... 20,000 3.3% $6.42 1/31/2008 $ 80,750 $ 204,637
Irwin Goldberg................... 3,000 0.5% $6.42 1/31/2008 $ 12,118 $ 30,708
</TABLE>
- ---------------
(1) The exercise or base price per share is equal to the book value per share as
of February --, 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 Transaction). For
example, a 5% growth rate, compounded annually, results in a stock price of
$10.46 per share and a 10% growth rate, compounded annually, results in a
stock price of $16.66 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.
26
<PAGE> 28
OMNIBUS SHARE 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
4,000,000 shares authorized under the Omnibus Stock Plan, 3,401,007 shares were
available for issuance as of February --, 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
27
<PAGE> 29
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.
28
<PAGE> 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER THE
DISTRIBUTION, THE INTERSTATE TRANSACTION AND THE MME OFFERING
The following table sets forth the number of shares of Common Stock that
will be beneficially owned following the Distribution and the MME Offering 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 MME OFFERING
---------------------------------------------
AFTER THE
AFTER THE INTERSTATE
INTERSTATE EXCHANGE AND THE
EXCHANGE(1) INTERSTATE SALE(1)
------------------ ------------------
NAME OF BENEFICIAL OWNER NUMBER % NUMBER %
- ----------------------------------------------- ------- ---- ------- ----
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Steven Roth(2)(3).............................. 339,355 9.6 305,043 8.7
Michael D. Fascitelli(4)....................... 45,977 1.3 45,977 1.3
Russell B. Wight, Jr.(2)(5).................... 287,850 8.2 253,538 7.2
[First independent director](6)................ -- -- -- --
Richard West(7)................................ 1,050 * 1,050 *
[Second independent director](6)............... -- -- -- --
Joseph Macnow(8)............................... 3,750 * 3,750 *
Irwin Goldberg(9).............................. -- -- -- --
All executive officers and directors as a group
(8 persons)(10).............................. 417,772 11.9 383,460 10.9
OTHER BENEFICIAL OWNERS
David Mandelbaum(2)............................ 276,160 7.8 241,848 6.9
Interstate(2).................................. 260,210 7.4 225,898 6.4
Cohen & Steers Capital Management, Inc.(11).... 258,870 7.4 258,870 7.4
Frederick Zissu(12)............................ 183,262 5.2 183,262 5.2
</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 January 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 260,210 shares before the Interstate Sale
and 225,898 shares after the Interstate Sale 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 386,940 shares of Common Stock or (b) for 386,940
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
29
<PAGE> 31
redeemed were reflected in such numbers and percentages, the percentages to
be owned after the Distribution, the Interstate Exchange and the MME
Offering would increase to 18.6%, 17.3%, 17.0% and 16.6% for Messrs. Roth,
Wight and Mandelbaum and Interstate, respectively, and the percentages to
be owned after the Distribution, the Interstate Exchange, the Interstate
Sale and the MME Offering would increase to 17.7%, 16.4%, 16.1% and 15.7%
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 SARs with respect to
200,000 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 SARs
with respect to 15,000 shares.
(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
of these 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 SARs with respect to 200,000 shares and 15,000 shares held
by Messrs. Roth and Wight, respectively. 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. --,
West and --, in each case that are not exercisable within 60 days.
(11) Based on Schedule 13G dated February 11, 1997 in respect of Vornado, Cohen
& Steers Capital Management, Inc. will have the sole power to vote or to
direct the vote of 222,580 shares and will have the sole power to dispose
or to direct the disposition of 258,870 shares. The address of this
beneficial owner is 757 Third Avenue, New York, New York 10017.
(12) Based on Schedule 13D filed on May 14, 1993 by Frederick Zissu in respect
of Vornado, he will own 186,191 shares. According to Vornado's records, he
will own 183,261 shares. Does not include 2,338 shares to be owned by Mr.
Zissu's wife, as to which Mr. Zissu disclaims any beneficial interest. The
address of this person is 80 Hamilton Drive West, No. Caldwell, New Jersey
07006.
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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. For a discussion of the terms of the Intercompany Agreement, see
"Business -- Intercompany Agreement and Charter Purpose Clauses."
INTERSTATE TRANSACTION; MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a discussion of the Interstate Transaction and the beneficial ownership
by the Interstate Parties and Mr. Fascitelli of Vornado Common Shares, Common
Stock and interests in Company Sub, see "The Distribution -- Interstate
Transaction" and "Management -- Security Ownership of Certain Beneficial Owners
and Management After the Distribution and the Interstate Transaction."
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Charter authorizes the issuance of up to 30,000,000 shares, consisting
of 10,000,000 shares of Common Stock, par value $.01 per share, 5,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), and
15,000,000 excess shares, par value $.01 per share (the "Excess Shares"). Based
on the number of Vornado Common Shares and Units outstanding as of January 16,
1998, immediately following the Distribution (and after giving effect to the
Interstate Transaction and the MME Offering), approximately 3,521,549 shares of
Common Stock will be outstanding and held of record by approximately 2,000
stockholders. As of the date of this Prospectus, no shares of Preferred Stock or
Excess Shares were issued and outstanding. All of the shares of Common Stock
that will be outstanding immediately following the Distribution will be validly
issued, fully paid and nonassessable.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share
held of record on all matters voted on generally by stockholders, including
elections of directors, and, except as otherwise required by law or provided in
any resolution adopted by the Company's Board with respect to any series of
Preferred Stock, the holders of such shares will possess all voting power. The
Charter does not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of Preferred Stock
created by the Board from time to time, the holders of Common Stock will be
entitled to such dividends as may be declared from time to time by the Board
from funds available therefor, and upon liquidation will be entitled to receive
pro rata all assets of the Company available for distribution to such holders.
PREFERRED STOCK
The Charter provides that shares of Preferred Stock may be issued in one or
more series from time to time by the Board, and the Board is expressly
authorized to fix by resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of the shares of each series of Preferred Stock, including without
limitation the following: (a) the distinctive serial designation of such series
which shall distinguish it from other series; (b) the number of shares included
in such series; (c) the dividend rate (or method of determining such rate)
payable to the holders of the shares of such series, any conditions upon which
such dividends shall be paid and the date or dates upon which such dividends
shall be payable; (d) whether dividends on the shares of such series shall be
cumulative and, in the case of shares of any series having cumulative dividend
rights, the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative; (e) the amount or
amounts which shall be payable out of the assets of the Company to the holders
of the shares of such series upon voluntary or involuntary liquidation,
dissolution or winding up of the Company, and the relative rights of priority,
if any, of payment of the shares of such series; (f) the price or prices at
which, the period or periods within which and the terms and conditions upon
which the shares of such series may be redeemed, in whole or in part, at the
option of the Company or at the option of the holder or holders thereof or upon
the happening of a specified event or events; (g) the obligation, if any, of the
Company to purchase or redeem shares of such series pursuant to a sinking fund
or otherwise and the price or prices at which, the period or periods within
which and the terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation; (h)
whether or not the shares of such series shall be convertible or exchangeable,
at any time or times at the option of the holder or holders thereof or at the
option of the Company or upon the happening of a specified event or events, into
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Company, and the price or prices or rate
or rates of exchange or conversion and any adjustments
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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, that no person may own, either directly or under the
attribution rules set forth in Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code, more than 9.9% of the shares of any class of the
Company's stock (the "Ownership Limit").
The Charter provides that a transfer of Common Stock that would otherwise
result in ownership of Common Stock in excess of the Ownership Limit will be
void ab initio as to the Common Stock that would otherwise be owned in violation
of the Ownership Limit and the intended transferee will acquire no rights or
economic interest in such Common Stock. In addition, the Charter provides that
Common Stock that would otherwise be owned, whether as a result of a transfer or
otherwise, in violation of the Ownership Limit will automatically be designated
as Excess Shares that shall be transferred, by operation of law, to a special
trust for the benefit of a charitable organization designated by the Board of
Directors of the Company.
The trustee of the special trust shall have the authority to exercise any
voting rights associated with Excess Shares during the period that they are held
as Excess Shares. Except as described below, any distributions on Excess Shares
shall be paid to the trustee of the special trust for the benefit of the
charitable organization designated by the Board of Directors of the Company.
Excess Shares may be transferred only to a person designated by the Board of
Directors whose ownership of the Excess Shares will not result in a violation of
the Ownership Limit, in which case such Excess Shares cease to be held as Excess
Shares. In the event of a transfer of Excess Shares, the holder of the shares of
Common Stock that were automatically exchanged for Excess Shares shall be
entitled to receive, from the proceeds of the transfer of the Excess Shares, an
amount equal to the lesser of (a) the proceeds from the transfer of the Excess
Shares and (b) the amount paid by such holder if the automatic designation as
Excess Shares resulted from a transfer for value or, if the automatic
designation did not result from a transfer for value, the fair market value of
the shares of Common Stock on the date of their designation as Excess Shares. In
the event of a liquidation, dissolution or winding up of the Company while
shares are held as Excess Shares, the holder of the shares of Common Stock that
were automatically designated as Excess Shares will be entitled to receive, from
the proceeds of such liquidation, dissolution or winding-up, an amount equal to
the lesser of (a) the proceeds from the liquidation, dissolution or winding-up
which would have been applicable to such shares if they had remained shares of
Common Stock and (b) the amount paid by such holder if the automatic designation
as Excess Shares resulted from a transfer for value or, if the automatic
designation did not result from a transfer for value, the fair market value of
the shares of Common Stock on the date of their designation as Excess Shares.
Any excess proceeds from a transfer of the Excess Shares or on liquidation,
dissolution or winding-up shall be paid to the trustee of the special trust for
the benefit of the designated charitable organization.
The Company shall also have the right to purchase any Excess Shares at a
price equal to the lesser of (a) the fair market value of such shares on the
date that the Company or its designee exercises such right to purchase and (b)
the price per share in the transaction that resulted in designation of such
Excess Shares or, if the Excess Share designation resulted from an event other
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than a transfer for value, the fair market value of the Common Stock designated
as Excess Shares at the time of such designation.
The Charter provides that the Ownership Limit shall not apply to Vornado,
Vornado Sub, Interstate, the partners in Interstate or certain affiliates until
after December 31, 1998 or such earlier time as such person owns, directly and
under the applicable constructive ownership rules, 9.9% or less of the Company.
STAGGERED BOARD OF DIRECTORS
The Board currently has six members. The Charter provides that the
directors of the Company will be divided into three classes, as nearly equal in
number as reasonably possible, as determined by the Board. The initial term of
office of Class I directors will expire at the first annual meeting of
stockholders, the initial term of office of Class II directors will expire at
the second annual meeting of stockholders and the initial term of office of
Class III directors will expire at the third annual meeting of stockholders,
with each class of directors to hold office until their successors have been
duly elected and qualified. At each annual meeting of stockholders, directors
elected to succeed the directors whose terms expire at such annual meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders in the third year following the year of their election and until
their successors have been duly elected and qualified. The classification of the
Board will have the effect of making it more difficult for stockholders to
change the composition of the Board, because only a minority of the directors
are up for election at each annual meeting, and the Board may not be replaced by
vote of the stockholders at any one time.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Charter provides that the Board of Directors will consist of one or
more members, the number of which will be fixed from time to time pursuant to
the By-laws. The By-laws provide that the Board will consist of one or more
members, the number of which will be determined from time to time by the Board.
The Charter and By-laws provide that in the event of any increase or decrease in
the authorized number of directors, (a) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his earlier death, retirement,
resignation, or removal, and (b) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board among
the three classes of directors so as to maintain such classes as nearly equal in
number as reasonably possible. The Charter and By-laws provide that directors
may be removed only for cause. The By-laws provide that vacancies, whether
arising through death, retirement, resignation or removal of a director or
through an increase in the authorized number of directors of any class, may only
be filled by a majority vote of the remaining directors of the class in which
such vacancy occurs, or by the sole remaining director of that class if one such
director remains, or by the majority vote of the directors of the remaining
classes if no such director remains, or by stockholders at an annual meeting of
stockholders of the Company. A director elected to fill a vacancy shall serve
for the remainder of the then present term of office of the class to which he is
elected. These provisions would prevent any stockholder from enlarging the Board
and then filling the new directorships with such stockholder's own nominees.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Charter and By-laws provide that any action required or permitted to be
taken by the stockholders of the Company must be duly effected at a duly called
annual or special meeting of such holders and may not be taken by any consent in
writing by such holders. The Charter and By-laws provide that special meetings
of stockholders of the Company may be called only by the Chairman of the Board,
the Vice Chairman of the Board, the President or the Board pursuant to a
resolution stating the purpose or purposes thereof, and any power of
stockholders to call a special meeting is specifically denied. No business other
than that stated in the notice shall be transacted at any special meeting. These
provisions will have the effect of delaying consideration of a stockholder
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proposal until the next annual meeting unless a special meeting is called by the
Chairman, Vice Chairman, President or the Board for consideration of such
proposal.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS AND PROPOSALS OF NEW BUSINESS
The By-laws require notice of any proposal to be presented by any
stockholder or of the name of any person to be nominated by any stockholder for
election as a director of the Company at a meeting of stockholders to be
delivered to the Secretary of the Company not less than 60 nor more than 90 days
prior to the date of the meeting. Accordingly, failure by a stockholder to act
in compliance with the notice provisions will mean that the stockholder will not
be able to nominate directors or propose new business.
AMENDMENTS
The Charter provides that the affirmative vote of the holders of at least
80% of the stock entitled to vote generally in the election of directors, voting
together as a single class, or a majority of the Board is required to amend
provisions of the By-laws relating to stockholder action without a meeting; the
calling of special meetings; the number (or manner of determining the number),
election and term of the Company's directors; the filling of vacancies; and the
removal of directors.
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, By-laws and Rights
Agreement described above may make it more difficult for a third party to
acquire, or discourage acquisition bids for, the Company. Section 203 and these
provisions could have the effect of inhibiting attempts to change the membership
of the Company's Board of Directors.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION; INSURANCE
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
personal liability of its directors to the corporation and its stockholders for
monetary damages for breach of the directors' fiduciary duty of care. The duty
of care requires that, when acting on behalf of the corporation, directors
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
provision, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Although Section 102 of the DGCL does not change a
director's duty of care, it
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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 which are raised by the structure and currently anticipated
activities of the Company. 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 1997. Such increase in Vornado's current earnings and profits will
result in taxable income to Vornado's shareholders by increasing the portion of
Vornado's distributions that are treated as made out of current earnings and
profits for federal income tax purposes. Vornado's current earnings and profits
for 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
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eligible for the dividends received deduction. The portion of the Distribution
in excess of the current and accumulated earnings and profits allocated to the
Distribution will not be taxable to a shareholder to the extent that it does not
exceed the adjusted basis of the shareholder's Vornado Common Shares, but rather
will reduce the adjusted basis of such shares. To the extent that the portion of
the Distribution in excess of the current and accumulated earnings and profits
allocated to the Distribution exceeds the adjusted basis of a shareholder's
Vornado Common Shares, such excess will be included in income as capital gain
(and will be short-term capital gain if the shares have been held for one year
or less) assuming the shares are a capital asset in the hands of the
shareholder.
To the extent that Vornado designates a portion of the Distribution as a
capital gain dividend, such portion will be taxable to Vornado Shareholders as
gain from the sale or exchange of a capital asset held for more than one year,
without regard to the period for which the shareholder has held its Vornado
Common Shares. U.S. shareholders that are corporations may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary income.
TAXATION OF TAX-EXEMPT SHAREHOLDERS OF VORNADO AS A RESULT OF THE DISTRIBUTION
Most tax-exempt employees' pension trusts are not subject to federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). The Distribution should not
result in UBTI to a shareholder that is a tax-exempt entity, provided that the
tax-exempt entity has not financed the acquisition of its Vornado Common Shares
with "acquisition indebtedness" within the meaning of the Code and the Vornado
Common Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity. In addition, certain pension trusts that own more than 10% of
a "pension-held REIT" must report a portion of the dividends that they receive
from such a REIT as UBTI. Vornado has not been and does not expect to be treated
as a pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN STOCKHOLDERS OF VORNADO AS A RESULT OF THE DISTRIBUTION
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made in this Prospectus to provide more than a summary of such rules.
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local tax laws with regard to the Distribution,
including any reporting requirements. In general, as is the case with domestic
taxable Vornado Shareholders, the Distribution is treated as a distribution
whose amount equals the value of the Common Stock distributed plus any cash in
lieu of fractional shares, and Vornado Shareholders will receive a basis in the
Common Stock equal to the fair market value thereof at the time of the
Distribution.
The Distribution will be treated as an ordinary income dividend to the
extent that it is treated as made out of the current or accumulated earnings and
profits of Vornado (under the rules described above under the heading
"-- Taxation of Taxable Domestic Shareholders of Vornado as a Result of the
Distribution") and is not (i) designated by Vornado as a capital gain dividend
or (ii) attributable to gain recognized by Vornado in connection with the
disposition of a "United States real property interest". The Company does not
anticipate that a significant portion of the Distribution will be treated as
attributable to a disposition by Vornado of a "United States real property
interest". The portion of the Distribution that is treated as such an ordinary
income dividend ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of such portion, unless an applicable tax treaty reduces or
eliminates that tax. Vornado expects to withhold U.S. income tax at the rate of
30% on the gross amount of the Distribution made to a Non-U.S. Stockholder
unless (i) a lower 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
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profits allocated to the Distribution will be subject to a 10% withholding
requirement but will not be taxable to a shareholder to the extent that such
portion does not exceed the adjusted basis of the shareholder's Vornado Common
Shares, but rather will reduce the adjusted basis of such shares. To the extent
that the portion of the Distribution in excess of Vornado's current and
accumulated earnings and profits allocated to the Distribution exceeds the
adjusted basis of a Non-U.S. Stockholder's shares, such excess will give rise to
tax liability if the Non-U.S. Stockholder would otherwise be subject to tax on
any gain from the sale or disposition of the Vornado Common Shares. Any portion
of the Distribution which is treated as a capital gain dividend and is not
attributable to a disposition by Vornado of a United States real property
interest shall be subject to a similar rule. Provided that Vornado is a
"domestically controlled REIT" for federal income tax purposes, a Non-U.S.
Stockholder would be subject to taxation on gain from a sale or disposition of
Vornado Common Shares only if (i) the investment in the Vornado Common Shares
were treated as effectively connected with such Non-U.S. Stockholder's U.S.
trade or business, in which case the Non-U.S. Stockholder would be subject to
the same treatment as U.S. shareholders with respect to such gain or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year of the sale or
disposition and either the individual has a "tax home" in the United States or
the gain is attributable to an office or other fixed place of business
maintained by the individual in the United States, in which case the gain will
be subject to a 30% tax. The Company believes that Vornado is and will continue
to be a "domestically controlled REIT" for federal income tax purposes.
As Vornado will not be able to determine, at the time that the Distribution
is made, the portion of the Distribution, if any, that will be in excess of the
current and accumulated earnings and profits allocated to the Distribution, the
Distribution will be subject to withholding as though the entire Distribution
(apart from any portion designated as a capital gain dividend) were an ordinary
income dividend. However, a Non-U.S. Stockholder may seek a refund of such
amounts from the Service if it is subsequently determined that a portion of the
Distribution was, in fact, in excess of Vornado's current and accumulated
earnings and profits allocable to the Distribution.
The Company does not anticipate that a significant portion of the
Distribution will be treated as attributable to Vornado's disposition of a
United States real property interest. To the extent that a portion of the
Distribution were to be treated as attributable to the disposition of a United
States real property interest, a non-U.S. Stockholder would be subject to tax on
such portion as though it were gain that was effectively connected with a United
States trade or business of such Non-U.S. Stockholder. Thus, Non-U.S.
Stockholders would be taxed on such portion of the Distribution at the normal
capital gain rates applicable to U.S. shareholders. Vornado is required under
applicable Treasury Regulations to withhold 35% of any distribution to a
Non-U.S. Stockholder that could be designated by Vornado as a capital gain
dividend. The amount so withheld is creditable against the Non-U.S.
Stockholder's U.S. tax liability.
Amounts required to be withheld from payments to Non-U.S. Stockholders will
be collected by converting a portion of the Common Stock to be distributed into
cash.
TAXATION OF LIMITED PARTNERS OF VORNADO SUB AS A RESULT OF THE DISTRIBUTION
The Distribution of Common Stock to a Limited Partner will generally result
in the recognition of gain by such Limited Partner to the extent that the fair
market value of the Common Stock distributed exceeds such Limited Partner's
basis in his partnership interest. Limited Partners that have not contributed
appreciated property to Vornado Sub or that have contributed appreciated
property where the excess of the fair market value of such property over its
basis at the time of contribution (such excess, "Precontribution Gain") was less
than the excess of the fair market 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
39
<PAGE> 41
their share of the cash contributed to the Company over their basis in their
partnership interest and (ii) their share of any Precontribution Gain that would
be allocated to them if Vornado Sub were to dispose of all property that they
had contributed to Vornado Sub prior to the Distribution.
TAXATION OF THE COMPANY IN GENERAL
TAXATION OF THE COMPANY AS A REIT FOR 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 upon representations received from 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
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
40
<PAGE> 42
derived from such real property investments, dividends, interest, gain from the
sale or disposition of stock or securities or certain other sources. If the
entity fails to satisfy one or both of the 75% or 95% gross income tests, it may
nonetheless qualify as a REIT if it is entitled to relief under certain
provisions of the Code. These relief provisions will generally be available for
a given year if the entity's failure to satisfy such tests was due to reasonable
cause and not due to willful neglect, the entity attaches a schedule of the
sources of its income to its federal income tax return for such year and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible to state, however, whether in all circumstances an
entity would be entitled to the benefit of these relief provisions. Even if
these relief provisions applied, a 100% tax would be imposed on an 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
41
<PAGE> 43
than one year, without regard to the period for which a U.S. Holder held its
Common Stock. U.S. Holders that are corporations may, however, be required to
treat up to 20% of certain capital gain dividends as ordinary income. Third,
U.S. Holders holding Common Stock at the close of the Company's taxable year
will be required to include, in computing their long-term capital gains for the
taxable year in which the last day of the Company's taxable year falls, such
amount as the Company may designate in a written notice mailed to its
shareholders. The Company may not designate amounts in excess of the Company's
undistributed net capital gain for such year. Each U.S. Holder required to
include such a designated amount in determining its long-term capital gains will
be deemed to have paid, in the taxable year of the inclusion, the tax paid by
the Company in respect of 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.
42
<PAGE> 44
Dividends paid to a non-U.S. Holder will be subject to withholding of
United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business in the United
States (and are attributable to a United States permanent establishment of such
holder, if an applicable income tax treaty so requires as a condition for the
non-U.S. Holder to be subject to United States federal income tax on a net
income basis in respect of such dividends). Such "effectively connected"
dividends are subject to tax at rates applicable to United States citizens,
resident aliens and domestic corporations, and are generally not subject to
withholding. Any such effectively connected dividends received by a non-United
States corporation may also, under certain circumstances, be subject to an
additional "branch profits" tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current United States Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussion above and for purposes of determining the applicability
of a tax treaty rate. Under recently-issued United States Treasury Regulations
that are effective for payments made after December 31, 1998, however, a
non-U.S. Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification requirements.
In addition, under the recently-issued regulations, in the case of Common Stock
held by a foreign partnership, (x) the certification requirement would generally
be applied to the partners of the partnership and (y) the partnership would be
required to provide certain information, including a United States taxpayer
identification number. The regulations provide look-through rules for tiered
partnerships.
A non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the Service.
DISPOSITIONS OF COMMON STOCK. A U.S. Holder will generally recognize gain
or loss on a disposition of Common Stock in an amount equal to the difference
between the amount realized on the disposition and such holder's adjusted basis
in the Common Stock.
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock except
in the following circumstances: (i) the gain is effectively connected with a
trade or business conducted by the non-U.S. Holder in the United States (and is
attributable to a permanent establishment maintained in the United States by
such non-U.S. Holder if an applicable income tax treaty so requires as a
condition for such non-U.S. Holder to be subject to U.S. federal income taxation
on a net income basis in respect of gain from the sale or other disposition of
the Common Stock); (ii) in the case of a non-U.S. Holder who is an individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the sale and certain
conditions exist; or (iii) the Company is or has been a "United States real
property holding corporation" for federal income tax purposes and the non-U.S.
Holder held, directly or indirectly, at any time during the five-year period
ending on the date of disposition, more than 5% of the Common Stock (and is not
eligible for any treaty exemption). Effectively connected gains recognized by a
corporate non-U.S. Holder may also, under certain circumstances, be subject to
an additional "branch profits" tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
The Company is not, and does not expect to become, a "United States real
property holding corporation" for federal income tax purposes.
TAXATION OF VORNADO IN GENERAL
In the opinion of Sullivan & Cromwell, (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
43
<PAGE> 45
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 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 upon (i)
representations received from Vornado and the Company and (ii) an opinion of
Shearman & Sterling as to the qualification of Alexander's, Inc. ("Alexander's")
as a REIT. In providing its opinion to the effect that, commencing with
Alexander's taxable year ending December 31, 1995, Alexander's has been
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code, and Alexander's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, Shearman & Sterling is in turn relying upon
representations received from Alexander's. The qualification and taxation of
Vornado, 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 Inc. as of January 23, 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 give
upon their authority as experts in accounting and auditing.
VALIDITY OF COMMON STOCK
The validity of the Common Stock to be distributed in the Distribution will
be passed upon for the Company by Sullivan & Cromwell, New York, New York.
44
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheet as of January 23, 1998.................................................. F-3
Note to Balance Sheet................................................................. F-3
Pro Forma Consolidated Balance Sheet as of January 23, 1998 (Unaudited)............... F-4
Notes to Pro Forma Consolidated Balance Sheet......................................... F-5
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Vornado Operating Inc.
Saddle Brook, New Jersey
We have audited the accompanying balance sheet of Vornado Operating Inc. as
of January 23, 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 Inc. as of January 23,
1998, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 23, 1998
F-2
<PAGE> 48
VORNADO OPERATING INC.
BALANCE SHEET
JANUARY 23, 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 Inc., a Delaware corporation (the "Company"), was formed
on October 30, 1997 and has had no operations to date. The Company's only asset
is $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.
F-3
<PAGE> 49
VORNADO OPERATING INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 23, 1998
(Unaudited)
The following unaudited pro forma consolidated balance sheet sets forth the
Company's historical balance sheet as of January 23, 1998, adjusted to give pro
forma effect to the Distribution, the Interstate Transaction and the MME
Offering 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 January 23,
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 $ 97(1) $25,097
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Minority interest of Interstate in Company Sub.......... $ -- $ 2,484(2) $ 2,484
Stockholders' equity:
Common stock, par value $.01 per share (authorized and
outstanding 1,000 shares as of January 23, 1998;
10,000,000 shares authorized and 3,521,549 shares
outstanding after pro forma adjustments)........... -- 39(3) 35
(4)(2)
Additional paid in capital............................ 25,000 (2,480)(2) 22,578
(39)(3)
97(1)
------- ------ -------
Total stockholders' equity......................... 25,000 (2,387) 22,613
------- ------ -------
Total liabilities and stockholders' equity.... $ 25,000 $ 97 $25,097
======= ====== =======
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet
F-4
<PAGE> 50
VORNADO OPERATING INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
1. Reflects the issuance and sale of 15,060 shares of Common Stock in
connection with the MME Offering at a purchase price per share of
$6.42.
2. Reflects (a) the exchange by Interstate of 386,940 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.
3. Reflects the issuance of 3,893,429 shares of Common Stock, par value
$.01 per share, in connection with the Distribution.
F-5
<PAGE> 51
======================================================
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........................ 9
The Distribution.................... 14
Dividend Policy..................... 17
Selected Pro Forma Consolidated
Financial Data.................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 19
Business............................ 20
Management.......................... 24
Certain Transactions................ 31
Description of Capital Stock........ 32
Federal Income Tax Considerations... 37
Experts............................. 44
Validity of Common Stock............ 44
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> 52
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> 53
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 January 23, 1998
Pro Forma Consolidated Balance Sheet of Vornado Operating Inc. as of
January 23, 1998
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------- -------------------------------------------------------------------------
<S> <C>
3.1 -- Form of Certificate of Incorporation*
3.2 -- Form of 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 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 Stock Omnibus 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 opinion filed as Exhibit
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.
** To be filed by amendment.
II-2
<PAGE> 54
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> 55
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 February 25,
1998.
VORNADO OPERATING, INC.
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 February 25, 1998
- ---------------------------------- (Principal Executive Officer) and
Steven Roth Director
* President and Director February 25, 1998
- ----------------------------------
Michael D. Fascitelli
/s/ Irwin Goldberg Vice President -- Chief Financial February 25, 1998
- ---------------------------------- Officer (Principal Financial and
Irwin Goldberg Accounting Officer)
* Director February 25, 1998
- ----------------------------------
Russell B. Wight, Jr.
* Director February 25, 1998
- ----------------------------------
Richard West
*By: /s/ Joseph Macnow
- ----------------------------------
Joseph Macnow
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 56
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------- ----
<S> <C> <C>
3.1 Form of Certificate of Incorporation*..........................................
3.2 Form of 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 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 Stock Omnibus 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 Exhibit
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.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF SULLIVAN & CROMWELL]
February 17, 1998
Vornado Realty Trust,
Park 80 West, Plaza II,
Saddle Brook, New Jersey 07663.
Vornado Realty L.P.,
Park 80 West, Plaza II,
Saddle Brook, New Jersey 07663.
Vornado Operating Inc.,
Park 80 West, Plaza II,
Saddle Brook, New Jersey 07663.
Dear Sirs:
We have acted as your counsel in connection with the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of (i) a maximum
aggregate amount of $25,000,000 in common shares of beneficial interest, par
value $.01 per share, of Vornado Operating Inc. (the "Company").
In rendering this opinion, we have reviewed such documents as we
have considered necessary or appropriate. In addition, in rendering this
opinion, we have relied upon (i) the statements and representations contained in
(x) the certificates provided to us by the Company and Vornado Realty Trust
("Vornado") each dated February 17, 1998 (the "Vornado
<PAGE> 2
Vornado Realty Trust
Vornado Realty L.P.
Vornado Operating Inc. -2-
Certificates"), and (y) the certificate provided to us by Alexander's, Inc.
("Alexander's") dated February 17, 1998 (together with the Vornado Certificates,
the "Certificates"), and (ii) the opinion of Shearman & Sterling, dated February
17, 1998, concerning the qualification of Alexander's as a REIT, a copy of which
is attached as Exhibit A (the "Shearman & Sterling Opinion"). We understand
that, in providing the Vornado Certificates, Vornado is relying upon
certificates, dated February 17, 1998, provided to it by David R. Greenbaum.
In rendering this opinion we have also assumed, with your approval,
that (I) the statements and representations made in the Certificates are true
and correct, (II) the Certificates have been executed by appropriate and
authorized officers of Vornado and Alexander's, and (III) the assumptions and
conditions underlying the Shearman & Sterling Opinion are true and correct.
Based on the foregoing and reliance thereon and subject thereto and
on an analysis of the Code, Treasury Regulations thereunder, judicial authority
and current administrative rulings and such other laws and facts as we have
deemed relevant and necessary, we hereby confirm (i) our opinion that,
commencing with its taxable year ending December 31, 1993, Vornado has been
organized in conformity with the requirements for qualification as a REIT under
the Code, and its proposed method of operation will enable it to satisfy the
requirements for qualification and taxation as a REIT and (ii) our opinion that,
provided that Vornado Realty L.P. shall not have waived the Company's obligation
to seek to qualify as a REIT for its taxable year ending December 31, 1998, the
Company will be organized in conformity with the requirements for qualification
as a REIT under the Code and
<PAGE> 3
Vornado Realty Trust
Vornado Realty L.P.
Vornado Operating Inc. -3-
its proposed method of operation will enable it to satisfy the requirements for
qualification and taxation as a REIT for its taxable year ending December 31,
1998.
Vornado's qualification as a REIT will depend upon the continuing
satisfaction by Vornado and its subsidiaries and, given Vornado's current
ownership interest in Alexander's and Two Penn Plaza REIT, Inc., by Alexander's
and Two Penn Plaza REIT, Inc. and their subsidiaries (collectively with Vornado,
the "Vornado Company") of requirements of the Code relating to qualification for
REIT status, which requirements include those that are dependent upon actual
operating results, distribution levels, diversity of stock ownership, asset
composition, source of income and recordkeeping. In addition, Vornado's
qualification as a REIT may depend upon the Company's ability to qualify as a
REIT for the Company's taxable year ending December 31, 1998. We do not
undertake to monitor whether the Vornado Company actually has satisfied or will
satisfy the various qualification tests, and we express no opinion concerning
whether the Vornado Company actually has satisfied or will satisfy these various
qualifications tests.
The Company's qualification as a REIT will depend upon the
continuing satisfaction by the Company and its subsidiaries of requirements of
the Code relating to qualification for REIT status, which requirements include
those that are dependent upon actual operating results, distribution levels,
diversity of stock ownership, asset composition, source of income and
recordkeeping. We do not undertake to monitor whether the Company actually has
satisfied or will satisfy the various qualification tests, and
<PAGE> 4
Vornado Realty Trust
Vornado Realty L.P.
Vornado Operating Inc. -4-
we express no opinion concerning whether the Company actually has satisfied or
will satisfy these various qualifications tests.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Prospectus Supplement and the
reference to us therein under the caption "Federal Income Tax Considerations".
In giving such consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 5
Alexander's, Inc.
Park 80 West, Plaza II
Saddle Brook, NJ 07663
February 17, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Alexander's, Inc. (the "Company") hereby
certifies on behalf of the Company that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. The Company acknowledges and understands that Shearman
& Sterling will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding the election made by the
Company to be treated for federal income tax purposes as a real estate
investment trust (a "REIT") within the meaning of Section 856(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) allowing the
Shearman & Sterling name and opinion to be included by reference in the
Preliminary Prospectus of Vornado Operating Inc. included in the Registration
Statement on Form S-11(No. 333-40701) filed by Vornado Operating Inc. with the
Securities and Exchange Commission of the United States. In certain of these
representations, the Company is relying on representations concerning Kings
Plaza Shopping Center and Marina ("KPSC") furnished to it by Centercorp and on
representations furnished to it by Vornado Realty Trust.
1. The Company has operated, and will continue to operate, in
accordance with (i) its organizational document and (ii) the laws of the
jurisdiction in which it is organized.
2. The Company has been, and will continue to be, managed by a
board of directors.
3. Since January 1, 1995, the taxable year of the Company has been
the calendar year.
4. The Company has made a valid election to be taxed as a REIT for
its taxable year ended December 31, 1995, which election has not been, and will
not be, revoked or terminated.
<PAGE> 6
2
5. For its taxable year ended December 31, 1995, the Company had a
deficit in earnings and profits (as defined in the Code) in excess of its
accumulated earnings and profits (if any) as of the close of its taxable year
ended December 31, 1994.
6. For each taxable year of the Company commencing with the
Company's taxable year ended December 31, 1995, at least 75 percent of the
Company's annual gross income has consisted, and will continue to consist, of
(i) "rents from real property" within the meaning of Section 856(d) of the
Code, (ii) interest on obligations secured by mortgages on real property or on
interests in real property, (iii) gain from the sale or other disposition of
real property (including interests in real property and interests in mortgages
on real property) which is not described in Section 1221(1) of the Code, or
(iv) amounts described in Sections 856(c)(3)(D) through 856(c)(3)(I) of the
Code.*
7. For each taxable year of the Company commencing with the
Company's taxable year ended December 31, 1995, at least 95 percent of the
Company's annual gross income has consisted, and will continue to consist, of
(i) the items of income described in paragraph 6 hereof (other than those
described in Section 856(c)(3)(I) of the Code), (ii) gain realized from the
sale or other disposition of stock or securities which are not property
described in Section 1221(1) of the Code, (iii) interest, (iv) dividends and (v)
income derived from payments to the Company on interest rate swap or cap
agreements, options, futures contracts, forward rate agreements and other
similar financial instruments entered into to reduce the interest rate risks
with respect to any indebtedness incurred or to be incurred to acquire or carry
real estate assets, or gain from the sale or other disposition of such an
investment.
8. Since January 1, 1995, the Company has received or accrued, and
will not receive or accrue, any amount (herein "service consideration"),
directly or indirectly, with respect to any real or personal property in any
case in which the Company or any wholly-owned subsidiary of the Company or any
partnership or tenancy-in-common in which the Company has an interest (or any
agent of any of the foregoing) furnishes or renders services to the tenants of
such property, or manages or operates such property other than (i) through an
"independent contractor" with respect to the Company (within the
________________________
* For purposes of these representations (i) all assets, liabilities and
items of income, deduction and credit of a "qualified REIT subsidiary" (as
such term is defined in Section 856(i) of the Code) of the Company are
treated as assets, liabilities and such items of the Company and (ii) the
Company is deemed to own its proportionate share (determined in accordance
with Treasury Regulations Section 1.856-3(g)) of each of the assets of each
partnership or tenancy-in-common in which it holds an interest (including
as a result of the operation of clause (i)) and is deemed to be entitled to
the income of the partnership or tenancy-in-common attributable to such
share.
<PAGE> 7
3
meaning of Section 856(d)(3) of the Code) from whom or which the Company or
such subsidiary, partnership or tenancy-in-common, as the case may be, does not
derive or receive any income; (ii) services usually or customarily rendered in
connection with the rental of space for occupancy only within the meaning of
Treasury Regulations Section 1.512(b)-1(c)(5), or not rendered primarily for
the convenience of the occupant of the real property, within the meaning of
Treasury Regulations Section 1.512(b)-1(c)(5); or (iii) actions carried out by
or on behalf of the directors of the Company as a part of performing their
fiduciary duty to manage the Company, which need not be delegated or contracted
out to independent contractors, pursuant to Treasury Regulations Section
1.856-4(b)(5)(ii), except that the Company may receive or accrue a de minimis
amount of service consideration which does not (a) cause any amount included in
the Company's gross income, other than such service consideration, to fail to
qualify as "rents from real property" under Section 856(d) of the Code or (b)
materially adversely affect the Company's ability to satisfy the standards
relating to 75 percent and 95 percent of its gross income as set forth in
paragraphs 6 and 7 hereof.
9. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, rent attributable to personal property except
with respect to a lease of real property where the average of the adjusted
bases of the personal property at the beginning and at the end of the taxable
year does not exceed 15 percent of the average of the aggregate adjusted bases
of the real property and the personal property leased under such lease at the
beginning and at the end of such taxable year within the meaning of Section
856(d)(1) of the Code.
10. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, directly or indirectly, any rent or interest,
where the determination of amount of rent or interest depends, in the case of
rent, on the income or profits of any person from the property, and, in the
case of interest, upon the income or profits of any person, except where
interest or rent is based on a fixed percentage or percentages of receipts or
sales within the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of
the Code, and except that the Company may receive or accrue a de minimis amount
of such rent or interest, provided that such amount does not materially
adversely affect the Company's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 6 and 7
hereof.
11. The Company will not receive or accrue (and since January 1,
1995, has not received or accrued) any amount from (i) any corporation in which
it owns (or since July 1, 1994, has owned) 10 percent or more of the total
combined voting power of all shares of stock entitled to vote or 10 percent or
more of the total number of shares of all classes of stock of such corporation,
or (ii) any unincorporated entity in which it owns (or since July 1, 1994, has
owned) an interest of 10 percent or more in the assets or net profits of such
person. For purposes of this assumption, ownership is determined in accordance
with section 856(d)(5) of the Code. Since January 1, 1995, the Company has
complied, and
<PAGE> 8
4
will continue to comply, with the recordkeeping and filing requirements of
Treasury Regulations Section 1.856-4(b)(4).
12. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, at least 75 percent of the Company's total assets (as
determined in accordance with Treasury Regulations Section 1.856-2(d)) has
consisted, and will continue to consist, of real estate assets within the
meaning of Sections 856(c)(4) and 856(c)(5)(B) of the Code, cash and cash items
(including receivables which arise in the ordinary course of the Company's
operations, but not including receivables purchased from another person), and
Government securities.
13. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, the Company has not beneficially owned, and will not
beneficially own, securities in any one issuer (except for any securities
qualifying as "real estate assets" within the meaning of section 856(c)(5)(B)
of the Code) having an aggregate value in excess of 5 percent of the Company's
total assets, as determined in accordance with Treasury Regulations Section
1.856-2(d).
14. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, the Company has not beneficially owned, and will not
beneficially own, securities of any issuer (except for any securities
qualifying as "real estate assets" within the meaning of section 856(c)(5)(B)
of the Code) representing more than 10 percent of the outstanding voting
securities of such issuer.
15. The Company has requested and maintained, and will continue to
request and maintain, records concerning ownership of its outstanding shares in
accordance with section 857(f)(1) of the Code and Treasury Regulations
promulgated thereunder and predecessor requirements.
16. The Company has made, and will make, distributions to its
stockholders sufficient to meet the 95 percent distribution requirements of
section 857(a)(1) of the Code for the taxable year for which the REIT election
was made and every subsequent taxable year. In this connection, the Company has
complied with and will continue to comply with the distribution requirements
imposed by Notice 88-19 in respect of "built-in gains" recognized by the
Company.
17. Each distribution by the Company that is treated as a dividend
within the meaning of Section 316 of the Code will qualify for the deduction
for dividends paid under Section 561 of the Code, and without limiting the
foregoing, the Company will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
<PAGE> 9
5
18. At all times, the Company has beneficially held, and will
continue to beneficially hold, all of its assets for investment purposes and
not as (i) stock in trade or other property of a kind which would properly be
includible in inventory at hand at the close of a taxable year or (ii) property
held primarily for sale to customers in the ordinary course of the Company's
trade or business.
19. The Company has not held, and will not hold, a partnership
interest, unless such partnership is treated at all times for federal income
tax purposes as a partnership and not as an association taxable as a
corporation (including a publicly traded partnership that is treated as a
corporation under Section 7704 of the Code).
20. Since January 1, 1995, the outstanding shares of the Company
have been held by at least 100 or more persons, and such shares will continue
to be held by 100 or more persons.
21. Not more than 50 percent in value of the outstanding shares of
the Company have been or will be owned directly or indirectly, actually or
constructively (within the meaning of section 542(a)(2) of the Code, as
modified by section 856(h) of the Code), by five or fewer individuals (or
entities treated as individuals for purposes of section 856(h) of the Code)
during the second half of every taxable year following the taxable year ended
December 31, 1995.
22. In addition to those representations set forth in this officer's
certificate relating to the qualification of the Company as a REIT, the Company
has complied, and will continue to comply, with all other requirements under
the Code (including, without limitation, Sections 856 through 860 of the Code)
in order to qualify as a REIT for each of the Company's taxable years since
January 1, 1995.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this
officers certificate as of this 17th day of February, 1998.
ALEXANDER'S INC.
By: /s/ Joseph Macnow
------------------------------
Name: Joseph Macnow
Title: Chief Financial Officer
<PAGE> 10
Alexander's, Inc.
Park 80 West, Plaza II
Saddle Brook, NJ 07663
February 17, 1998
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Ladies and Gentlemen:
The undersigned officer of Alexander's, Inc. (the "Company") hereby
certifies on behalf of the Company that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. The Company acknowledges and understands that Shearman
& Sterling will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding the election made by the
Company to be treated for federal income tax purposes as a real estate
investment trust (a "REIT") within the meaning of Section 856(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) allowing the
Shearman & Sterling name and opinion to be included by reference in the
Preliminary Prospectus of Vornado Operating Inc. included in the Registration
Statement on Form S-11 (No. 333-40701) filed by Vornado Operating Inc. with the
Securities and Exchange Commission of the United States. In certain of these
representations, the Company is relying on representations concerning Kings
Plaza Shopping Center and Marina ("KPSC") furnished to it by Centercorp and on
representations furnished to it by Vornado Realty Trust.
1. The Company has operated, and will continue to operate, in
accordance with (i) its organizational document and (ii) the laws of the
jurisdiction in which it is organized.
2. The Company has been, and will continue to be, managed by a
board of directors.
3. Since January 1, 1995, the taxable year of the Company has been
the calendar year.
4. The Company has made a valid election to be taxed as a REIT for
its taxable year ended December 31, 1995, which election has not been, and will
not be, revoked or terminated.
<PAGE> 11
2
5. For its taxable year ended December 31, 1995, the Company had a
deficit in earnings and profits (as defined in the Code) in excess of its
accumulated earnings and profits (if any) as of the close of its taxable year
ended December 31, 1994.
6. For each taxable year of the Company commencing with the Company's
taxable year ended December 31, 1995, at least 75 percent of the Company's
annual gross income has consisted, and will continue to consist, of (i) "rents
from real property" within the meaning of Section 856(d) of the Code, (ii)
interest on obligations secured by mortgages on real property or on interests
in real property, (iii) gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on real
property) which is not described in Section 1221(1) of the Code, or (iv) amounts
described in Sections 856(c)(3)(D) through 856(c)(3)(I) of the Code.*
7. For each taxable year of the Company commencing with the Company's
taxable year ended December 31, 1995, at least 95 percent of the Company's
annual gross income has consisted, and will continue to consist, of (i) the
items of income described in paragraph 6 hereof (other than those described in
Section 856(c)(3)(I) of the Code), (ii) gain realized from the sale or other
disposition of stock or securities which are not property described in Section
1221(1) of the Code, (iii) interest, (iv) dividends and (v) income derived from
payments to the Company on interest rate swap or cap agreements, options,
futures contracts, forward rate agreements and other similar financial
instruments entered into to reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred to acquire or carry real estate assets,
or gain from the sale or other disposition of such an investment.
8. Since January 1, 1995, the Company has not received or accrued, and
will not receive or accrue, any amount (herein "service consideration"),
directly or indirectly, with respect to any real or personal property in any
case in which the Company or any wholly-owned subsidiary of the Company or any
partnership or tenancy-in-common in which the Company has an interest (or any
agent of any of the foregoing) furnishes or renders services to the tenants of
such property, or manages or operates such property other than (i) through an
"independent contractor" with respect to the Company (within the
- ----------------
* For purposes of these representations (i) all assets, liabilities
and items of income, deduction and credit of a "qualified REIT
subsidiary" (as such term is defined in Section 856(i) of the Code) of
the Company are treated as assets, liabilities and such items of the
Company and (ii) the Company is deemed to own its proportionate share
(determined in accordance with Treasury Regulations Section 1.856-3(g))
of each of the assets of each partnership or tenancy-in-common in which
it holds an interest (including as a result of the operation of clause (i))
and is deemed to be entitled to the income of the partnership or
tenancy-in-common attributable to such share.
<PAGE> 12
3
meaning of Section 856(d)(3) of the Code) from whom or which the Company or such
subsidiary, partnership or tenancy-in-common, as the case may be, does not
derive or receive any income; (ii) services usually or customarily rendered in
connection with the rental of space for occupancy only within the meaning of
Treasury Regulations Section 1.512(b)-1(c)(5), or not rendered primarily for
the convenience of the occupant of the real property, within the meaning of
Treasury Regulations Section 1.512(b)-1(c)(5); or (iii) actions carried out by
or on behalf of the directors of the Company as a part of performing their
fiduciary duty to manage the Company, which need not be delegated or contracted
out to independent contractors, pursuant to Treasury Regulations Section
1.856-4(b)(5)(ii), except that the Company may receive or accrue a de minimis
amount of service consideration which does not (a) cause any amount included in
the Company's gross income, other than such service consideration, to fail to
qualify as "rents from real property" under Section 856(d) of the Code or (b)
materially adversely affect the Company's ability to satisfy the standards
relating to 75 percent and 95 percent of its gross income as set forth in
paragraphs 6 and 7 hereof.
9. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, rent attributable to personal property except
with respect to a lease of real property where the average of the adjusted
bases of the personal property at the beginning and at the end of the taxable
year does not exceed 15 percent of the average of the aggregate adjusted bases
of the real property and the personal property leased under such lease at the
beginning and at the end of such taxable year within the meaning of Section
856(d)(1) of the Code.
10. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, directly or indirectly, any rent or interest,
where the determination of amount of rent or interest depends, in the case of
rent, on the income or profits of any person from the property, and, in the case
of interest, upon the income or profits of any person, except where interest or
rent is based on a fixed percentage or percentages of receipts or sales within
the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and
except that the Company may receive or accrue a de minimis amount of such rent
or interest, provided that such amount does not materially adversely affect the
Company's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 6 and 7 hereof.
11. The Company will not receive or accrue (and since January 1,
1995, has not received or accrued) any amount from (i) any corporation in which
it owns (or since July 1, 1994, has owned) 10 percent or more of the total
combined voting power of all shares of stock entitled to vote or 10 percent or
more of the total number of shares of all classes of stock of such corporation,
or (ii) any unincorporated entity in which it owns (or since July 1, 1994, has
owned) an interest of 10 percent or more in the assets or net profits of such
person. For purposes of this assumption, ownership is determined in accordance
with Section 856(d)(5) of the Code. Since January 1, 1995, the Company has
complied, and
<PAGE> 13
4
will continue to comply, with the recordkeeping and filing requirements of
Treasury Regulations Section 1.856-4(b)(4).
12. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, at least 75 percent of the value of the Company's total
assets (as determined in accordance with Treasury Regulations Section
1.856-2(d) has consisted, and will continue to consist, of real estate assets
within the meaning of Sections 856(c)(4) and 856(c)(5)(B) of the Code, cash and
cash items (including receivables which arise in the ordinary course of the
Company's operations, but not including receivables purchased from another
person), and Government securities.
13. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, the Company has not beneficially owned, and will not
beneficially own, securities in any one issuer (except for any securities
qualifying as "real estate assets" within the meaning of section 856(c)(5)(B)
of the Code) having an aggregate value in excess of 5 percent of the Company's
total assets, as determined in accordance with Treasury Regulations Section
1.856-2(d).
14. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, the Company has not beneficially owned, and will not
beneficially own, securities of any issuer (except for any securities
qualifying as "real estate assets" within the meaning of section 856(c)(5)(B)
of the Code) representing more than 10 percent of the outstanding voting
securities of such issuer.
15. The Company has requested and maintained, and will continue to
request and maintain, records concerning ownership of its outstanding shares in
accordance with section 857(f)(1) of the Code and Treasury Regulations
promulgated thereunder and predecessor requirements.
16. The Company has made, and will make, distributions to its
stockholders sufficient to meet the 95 percent distribution requirements of
section 857(a)(1) of the Code for the taxable year for which the REIT election
was made and every subsequent taxable year. In this connection, the Company has
complied with and will continue to comply with the distribution requirements
imposed by Notice 88-19 in respect of "built-in gains" recognized by the
Company.
17. Each distribution by the Company that is treated as a dividend
within the meaning of Section 316 of the Code will qualify for the deduction
for dividends paid under Section 561 of the Code, and without limiting the
foregoing, the Company will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
<PAGE> 14
5
18. At all times, the Company has beneficially held, and will continue
to beneficially hold, all of its assets for investment purposes and not as (i)
stock in trade or other property of a kind which would properly be includible
in inventory at hand at the close of a taxable year or (ii) property held
primarily for sale to customers in the ordinary course of the Company's trade
or business.
19. The Company has not held, and will not hold, a partnership
interest, unless such partnership is treated at all times for federal income
tax purposes as a partnership and not as an association taxable as a
corporation (including a publicly traded partnership that is treated as a
corporation under Section 7704 of the Code).
20. Since January 1, 1995, the outstanding shares of the Company have
been held by at least 100 or more persons, and such shares will continue to be
held by 100 or more persons.
21. Not more than 50 percent in value of the outstanding shares of the
Company have been or will be owned directly or indirectly, actually or
constructively (within the meaning of section 542(a)(2) of the Code, as
modified by section 856(h) of the Code), by five or fewer individuals (or
entities treated as individuals for purposes of section 856(h) of the Code)
during the second half of every taxable year following the taxable year ended
December 31, 1995.
22. In addition to those representations set forth in this officer's
certificate relating to the qualification of the Company as a REIT, the Company
has complied, and will continue to comply, with all other requirements under
the Code (including, without limitation, Sections 856 through 860 of the Code)
in order to qualify as a REIT for each of the Company's taxable years since
January 1, 1995.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this
officers certificate as of this 17th day of February, 1998.
ALEXANDER'S INC.
By: /s/ Joseph Macnow
------------------------
Name: Joseph Macnow
Title: Chief Financial Officer
<PAGE> 15
Alexander's, Inc.
Park 80 West, Plaza II
Saddle Brook, NJ 07663
February 17, 1998
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, NJ 07663
Ladies and Gentlemen:
The undersigned officer of Alexander's, Inc. (the "Company") hereby
certifies on behalf of the Company that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. The Company acknowledges and understands that Shearman
& Sterling will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding the election made by the
Company to be treated for federal income tax purposes as a real estate
investment trust (a "REIT") within the meaning of Section 856(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) allowing the
Shearman & Sterling name and opinion to be included by reference in the
Preliminary Prospectus of Vornado Operating Inc. included in the Registration
Statement on Form S-11 (No. 333-40701) filed by Vornado Operating Inc. with the
Securities and Exchange Commission of the United States. In certain of these
representations, the Company is relying on representations concerning Kings
Plaza Shopping Center and Marina ("KPSC") furnished to it by Centercorp and on
representations furnished to it by Vornado Realty Trust.
1. The Company has operated, and will continue to operate, in accordance
with (i) its organizational document and (ii) the laws of the jurisdiction in
which it is organized.
2. The Company has been, and will continue to be, managed by a board of
directors.
3. Since January 1, 1995, the taxable year of the Company has been the
calendar year.
4. The Company has made a valid election to be taxed as a REIT for its
taxable year ended December 31, 1995, which election has not been, and will not
be, revoked or terminated.
<PAGE> 16
2
5. For its taxable year ended December 31, 1995, the Company had a
deficit in earnings and profits (as defined in the Code) in excess of its
accumulated earnings and profits (if any) as of the close of its taxable year
ended December 31, 1994.
6. For each taxable year of the Company commencing with the Company's
taxable year ended December 31, 1995, at least 75 percent of the Company's
annual gross income has consisted, and will continue to consist, of (i) "rents
from real property" within the meaning of Section 856(d) of the Code, (ii)
interest on obligations secured by mortgages on real property or on interests
in real property, (iii) gain from the sale or other disposition of real
property (including interests in real property and interests in mortgages on
real property) which is not described in Section 1221(1) of the Code, or (iv)
amounts described in Sections 856(c)(3)(D) through 856(c)(3)(I) of the Code.*
7. For each taxable year of the Company commencing with the Company's
taxable year ended December 31, 1995, at least 95 percent of the Company's
annual gross income has consisted, and will continue to consist, of (i) the
items of income described in paragraph 6 hereof (other than those described in
Section 856(c)(3)(I) of the Code), (ii) gain realized from the sale or other
disposition of stock or securities which are not property described in Section
1221(1) of the Code, (iii) interest, (iv) dividends and (v) income derived from
payments to the Company on interest rate swap or cap agreements, options,
futures contracts, forward rate agreements and other similar financial
instruments entered into to reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred to acquire or carry real estate assets,
or gain from the sale or other disposition of such an investment.
8. Since January 1, 1995, the Company has not received or accrued, and
will not receive or accrue, any amount (herein "service consideration"),
directly or indirectly, with respect to any real or personal property in any
case in which the Company or any wholly-owned subsidiary of the Company or any
partnership or tenancy-in-common in which the Company has an interest (or any
agent of any of the foregoing) furnishes or renders services to the tenants of
such property, or manages or operates such property other than (i) through an
"independent contractor" with respect to the Company (within the
- -------------------
* For purposes of these representations (i) all assets, liabilities and items
of income deduction and credit of a "qualified REIT subsidiary" (as such
term is defined in Section 856(i) of the Code) of the Company are treated
as assets, liabilities and such items of the Company and (ii) the Company
is deemed to own its proportionate share (determined in accordance with
Treasury Regulations Section 1.856-3(g)) of each of the assets of each
partnership or tenancy-in-common in which it holds an interest (including
as a result of the operation of clause (i)) and is deemed to be entitled to
the income of the partnership or tenancy-in-common attributable to such
share.
<PAGE> 17
3
meaning of Section 856(d)(3) of the Code) from whom or which the Company or
such subsidiary, partnership or tenancy-in-common, as the case may be, does not
derive or receive any income; (ii) services usually or customarily rendered in
connection with the rental of space for occupancy only within the meaning of
Treasury Regulations Section 1.512(b)-1(c)(5), or not rendered primarily for
the convenience of the occupant of the real property, within the meaning of
Treasury Regulations Section 1.512(b)-1(c)(5); or (iii) actions carried out by
or on behalf of the directors of the Company as a part of performing their
fiduciary duty to manage the Company, which need not be delegated or contracted
out to independent contractors, pursuant to Treasury Regulations Section
1.856-4(b)(5)(ii), except that the Company may receive or accrue a de minimis
amount of service consideration which does not (a) cause any amount included in
the Company's gross income, other than such service consideration, to fail to
qualify as "rents from real property" under Section 856(d) of the Code or (b)
materially adversely affect the Company's ability to satisfy the standards
relating to 75 percent and 95 percent of its gross income as set forth in
paragraphs 6 and 7 hereof.
9. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, rent attributable to personal property except
with respect to a lease of real property where the average of the adjusted
bases of the personal property at the beginning and at the end of the taxable
year does not exceed 15 percent of the average of the aggregate adjusted bases
of the real property and the personal property leased under such lease at the
beginning and at the end of such taxable year within the meaning of Section
856(d)(1) of the Code.
10. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, directly or indirectly, any rent or interest,
where the determination of amount of rent or interest depends, in the case of
rent, on the income or profits of any person from the property, and, in the
case of interest, upon the income or profits of any person, except where
interest or rent is based on a fixed percentage or percentages of receipts or
sales within the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the
Code, and except that the Company may receive or accrue a de minimis amount of
such rent or interest, provided that such amount does not materially adversely
affect the Company's ability to satisfy the standards relating to 75 percent
and 95 percent of its gross income as set forth in paragraphs 6 and 7 hereof.
11. The Company will not receive or accrue (and since January 1,
1995, has not received or accrued) any amounts from (i) any corporation in
which it owns (or since July 1, 1994, has owned) 10 percent or more of the
total combined voting power of all shares of stock entitled to vote or 10
percent or more of the total number of shares of all classes of stock of such
corporation, or (ii) any unincorporated entity in which it owns (or since July
1, 1994, has owned) an interest of 10 percent or more in the assets or net
profits of such person. For purposes of this assumption, ownership is
determined in accordance with Section 856(d)(5) of the Code. Since January 1,
1995, the Company has complied, and
<PAGE> 18
4
will continue to comply, with the recordkeeping and filing requirements of
Treasury Regulations Section 1.856-4(b)(4).
12. Since January 1, 1995, at the close of each quarter of the Company's
taxable year, at least 75 percent of the value of the Company's total assets
(as determined in accordance with Treasury Regulations Section 1.856-2(d)) has
consisted, and will continue to consist, of real estate assets within the
meaning of Sections 856(c)(4) and 856(c)(5)(B) of the Code, cash and cash items
(including receivables which arise in the ordinary course of the Company's
operations, but not including receivables purchased from another person), and
Government securities.
13. Since January 1,1995, at the close of each quarter of the Company's
taxable year, the Company has not beneficially owned, and will not beneficially
own, securities in any one issuer (except for any securities qualifying as
"real estate assets" within the meaning of section 856(c)(5)(B) of the Code)
having an aggregate value in excess of 5 percent of the Company's total assets,
as determined in accordance with Treasury Regulations Section 1.856-2(d).
14. Since January 1, 1995, at the close of each quarter of the Company's
taxable year, the Company has not beneficially owned, and will not beneficially
own, securities of any issuer (except for any securities qualifying as "real
estate assets" within the meaning of section 856(c)(5)(B) of the Code)
representing more than 10 percent of the outstanding voting securities of such
issuer.
15. The Company has requested and maintained, and will continue to
request and maintain, records concerning ownership of its outstanding shares in
accordance with section 857(f)(1) of the Code and Treasury Regulations
promulgated thereunder and predecessor requirements.
16. The Company has made, and will make, distributions to its
stockholders sufficient to meet the 95 percent distribution requirements of
section 857(a)(1) of the Code for the taxable year for which the REIT election
was made and every subsequent taxable year. In this connection, the Company has
complied with and will continue to comply with the distribution requirements
imposed by Notice 88-19 in respect of "built-in gains" recognized by the
Company.
17. Each distribution by the Company that is treated as a dividend within
the meaning of Section 316 of the Code will qualify for the deduction for
dividends paid under Section 561 of the Code, and without limiting the
foregoing, the Company will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
<PAGE> 19
5
18. At all times, the Company has beneficially held, and will continue to
beneficially hold, all of its assets for investment purposes and not as (i)
stock in trade or other property of a kind which would properly be includible
in inventory at hand at the close of a taxable year or (ii) property held
primarily for sale to customers in the ordinary course of the Company's trade
or business.
19. The Company has not held, and will not hold, a partnership interest,
unless such partnership is treated at all times for federal income tax purposes
as a partnership and not as an association taxable as a corporation (including
a publicly traded partnership that is treated as a corporation under Section
7704 of the Code).
20. Since January 1, 1995, the outstanding shares of the Company have
been held by at least 100 or more persons, and such shares will continue to be
held by 100 or more persons.
21. Not more than 50 percent in value of the outstanding shares of the
Company have been or will be owned directly or indirectly, actually or
constructively (within the meaning of section 542(a)(2) of the Code, as
modified by section 856(h) of the Code), by five or fewer individuals (or
entities treated as individuals for purposes of section 856(h) of the Code)
during the second half of every taxable year following the taxable year ended
December 31, 1995.
22. In addition to those representations set forth in this officer's
certificate relating to the qualification of the Company as a REIT, the Company
has complied, and will continue to comply, with all other requirements under
the Code (including, without limitation, Sections 856 through 860 of the Code)
in order to qualify as a REIT for each of the Company's taxable years since
January 1, 1995.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this officers
certificate as of this 17th day of February, 1998.
ALEXANDER'S INC.
By: /s/ Joseph Macnow
-------------------------------
Name: Joseph Macnow
Title: Chief Financial Officer
<PAGE> 20
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
February 17, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Vornado Realty Trust ("Vornado") hereby
certifies on behalf of Vornado that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. Vornado acknowledges and understands that Sullivan &
Cromwell will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding Vornado's qualification
for federal income tax purposes as a real estate investment trust (a "REIT") and
(ii) preparing the discussion set forth under the heading "Federal Income Tax
Considerations" in the Preliminary Prospectus of Vornado Operating Inc. included
in the Registration Statement on Form S-11 (No. 333-40701) filed by Vornado
Operating Inc. with the Securities and Exchange Commission of the United States.
In providing this certificate the undersigned officer is relying upon a
certificate, dated February 17, 1998 received from David R.
Greenbaum.
1. Each of Vornado, its wholly-owned subsidiaries and Vornado Reality L.P.
have operated and will operate in accordance with (i) its organizational
document and (ii) the laws of the jurisdiction in which it is organized.
2. Vornado is and will continue to be managed by one or more trustees.
3. Vornado uses and will continue to use the calendar year as its
accounting period for federal income tax purposes.
<PAGE> 21
Sullivan & Cromwell -2-
4. Vornado has made a timely election, pursuant to Section 856(c)(1) of
the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed as a
REIT commencing with its taxable year ending December 31, 1993 and such election
has not been terminated or revoked.
5. As of December 31, 1993, Vornado had distributed all "earnings and
profits" (as determined for federal income tax purposes) which had been
accumulated in taxable periods prior to 1993. Vornado has had and will have, as
of the close of each taxable year subsequent to the taxable year ending December
31, 1993, no undistributed earnings and profits accumulated in any non-REIT
year.
6. For at least 335 days of its 1993 taxable year and for each taxable
year thereafter, 100 or more persons have beneficially owned shares of
beneficial interest in Vornado ("Shares").
7. At no time during the last half of 1994, 1995, 1996 and 1997 was more
than 50 percent (as determined by reference to value) of Vornado's outstanding
Shares, owned, directly or constructively, by five or fewer individuals (as
defined in Section 542(a)(2), as modified by Section 856(h) of the Code, to
include certain entities). This ownership restriction will continue to be
satisfied in taxable years after 1997. Constructive ownership for purposes of
this representation is determined by reference to the attribution rules of
Section 544 of the Code, as modified by Section 856(h) of the Code.
8. The beneficial ownership of Vornado is evidenced by transferable
shares. Vornado will not impose, and is not aware of, any transfer restrictions
on the Shares other than those currently set forth in Vornado's Amended and
Restated Declaration of Trust.
9. For Vornado's 1993 taxable year and for each of Vornado's taxable years
thereafter, at least 75 percent of Vornado's gross income has consisted of and
will continue to consist of (i) "rents from real property" within the meaning of
Section 856(d) of the Code, (ii) interest on obligations secured by mortgages on
real property or on interests in real property, (iii) gain from the sale or
other disposition of real property (including interests in real property and
interests in mortgages on real property) which is not described in Section
1221(1) of the Code, (iv) dividends or
<PAGE> 22
Sullivan & Cromwell -3-
other distributions on, and gain (other than gain from "prohibited
transactions") from the sale or other disposition of transferable shares in
other qualifying REITs, or (v) amounts described in Sections 856(c)(3)(E)
through 856 (c)(3)(I) of the Code.*
10. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, at least 95 percent of Vornado's gross income has consisted of
and will consist of (i) the items of income described in paragraph 9 hereof
(other than those described in Section 856(c)(3)(I) of the Code), (ii) gain
realized from the sale or other disposition of stock or securities which are not
property described in Section 1221(1) of the Code, (iii) interest, (iv)
dividends and (v) (x) for taxable years beginning on or before August 5, 1997,
income derived from payments to Vornado or a wholly-owned subsidiary of Vornado
on a bona fide interest rate swap or cap agreement entered into to hedge any
variable rate indebtedness of Vornado or such a subsidiary incurred or to be
incurred to acquire or carry real estate assets, or gain from the sale or other
disposition of such an agreement (an "Interest Rate Agreement") and (y) for
taxable years beginning after August 5, 1997, income derived from payments to
Vornado or a wholly-owned subsidiary of Vornado on interest rate swap or cap
agreements, options, futures contracts, forward rate agreements and other
similar financial instruments entered into to reduce the interest rate risks
with respect to any indebtedness incurred or to be incurred to acquire or carry
real estate assets, or gain from the sale or other disposition of such an
investment.
11. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter other than taxable years
- ----------
* For purposes of these representations (i) all assets, liabilities and
items of income, deduction and credit of a "qualified REIT subsidiary" (as
such term is defined in Section 856(i) of the Code) of Vornado are treated
as assets, liabilities and such items of Vornado and (ii) Vornado is
deemed to own its proportionate share (determined in accordance with
Treasury Regulations Section 1.856-3(g)) of each of the assets of each
partnership in which it holds an interest (including as a result of the
operation of clause (i)) and is deemed to be entitled to the income of the
partnership attributable to such share.
<PAGE> 23
Sullivan & Cromwell -4-
beginning after August 5, 1997, less than 30 percent of Vornado's gross income
has been derived from the sale or other disposition of (i) stock or securities
(including Interest Rate Agreements) held for less than one year, (ii) property
in a transaction which is a "prohibited transaction" (as defined in Section
857(b)(6)(B) of the Code), and (iii) real property (including interests in real
property and interests in mortgages on real property) held for less than four
years other than property compulsorily or involuntarily converted within the
meaning of Section 1033 of the Code, and property which is foreclosure property
as defined in Section 856(e) of the Code.
12. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will not receive or
accrue any amount (herein "service consideration"), directly or indirectly, with
respect to any real or personal property in any case in which Vornado or any
wholly-owned subsidiary of Vornado or any partnership in which Vornado has an
interest (or any agent of any of the foregoing) furnishes or renders services to
the tenants of such property, or manages or operates such property, either (i)
other than through an "independent contractor" with respect to Vornado (within
the meaning of Section 856(d)(3) of the Code) from whom or which Vornado or such
subsidiary or partnership, as the case may be, does not derive or receive any
income or (ii) other than services usually or customarily rendered in connection
with the rental of space for occupancy only within the meaning of Treasury
Regulations Section 1.512(b)-1(c)(5), or not rendered primarily for the
convenience of the occupant of the real property, within the meaning of Treasury
Regulations Section 1.512(b)-1(c)(5), except that for taxable years beginning
after August 5, 1997, Vornado may receive or accrue a de minimis amount of
service consideration which does not (a) cause any amount included in Vornado's
gross income, other than such service consideration, to fail to qualify as
"rents from real property" under Section 856(d) of the Code and (b) materially
adversely affect Vornado's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 9 and 10
hereof.
13. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will continue not to
receive or accrue rent attributable to personal property except with respect to
a
<PAGE> 24
Sullivan & Cromwell -5-
lease of real property where the average of the adjusted bases of the personal
property at the beginning and at the end of the taxable year does not exceed 15
percent of the average of the aggregate adjusted bases of the real property and
the personal property leased under such lease at the beginning and at the end of
such taxable year within the meaning of Section 856(d)(1) of the Code.
14. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will continue not to
receive or accrue, directly or indirectly, any rent or interest, where the
determination of the amount of rent or interest depends, in the case of rent, on
the income or profits of any person from the property, and, in the case of
interest, upon the income or profits of any person, except where interest or
rent is based on a fixed percentage or percentages of receipts or sales within
the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and
except that Vornado may receive or accrue a de minimis amount of such rent or
interest, provided that such amount does not materially adversely affect
Vornado's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 9 and 10 hereof.
15. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will not receive or
accrue, directly or indirectly, rent or any other consideration under a lease
from any person in which Vornado owns, directly or indirectly (a) in the case of
a corporation, 10 percent or more of the total combined voting power of all
classes of stock entitled to vote, or 10 percent or more of the total number of
shares of all classes of stock, or (b) in the case of an entity other than a
corporation, an interest of 10 percent or more in the assets or net profits of
such entity, except that Vornado may receive or accrue a de minimis amount of
such rent or other consideration provided that such amount does not materially
adversely affect Vornado's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 9 and 10
hereof. For purposes of this paragraph ownership will be determined by taking
into account the constructive ownership rules of Section 318(a) of the Code (as
modified by Section 856(d)(5) of the Code). For Vornado's 1993 taxable year and
for each of its taxable years thereafter, Vornado has complied and will comply
with the recordkeeping
<PAGE> 25
Sullivan & Cromwell -6-
and filing requirements of Treasury Regulations Section 1.856-4(b)(4).
16. At the close of each quarter of Vornado's 1993 taxable year and of
each quarter of each of Vornado's taxable years thereafter, at least 75 percent
of the value of Vornado's total assets (as determined in accordance with
Treasury Regulations Section 1.856-2(d)) has consisted of and will continue to
consist of real estate assets within the meaning of Sections 856(c)(4) and
856(c)(5)(B) of the Code, cash and cash items (including receivables which arise
in the ordinary course of Vornado's operations, but not including receivables
purchased from another person), and Government securities.
17. At the close of each quarter of Vornado's 1993 taxable year and,
assuming that Alexander's qualified as a REIT commencing with its taxable year
beginning January 1, 1995 and will so qualify for subsequent periods, at the
close of each quarter of each of Vornado's taxable years thereafter, Vornado has
not beneficially owned and will continue not to beneficially own securities in
any one issuer (except for any securities qualifying as "real estate assets"
within the meaning of section 856(c)(5)(B) of the Code) having an aggregate
value in excess of 5 percent of Vornado's total assets, as determined in
accordance with Treasury Regulations Section 1.856-2(d).
18. At the close of each quarter of Vornado's 1993 taxable year and,
assuming that Alexander's qualified as a REIT commencing with its taxable year
beginning January 1, 1995 and will so qualify for subsequent periods, at the
close of each quarter of each of Vornado's taxable years thereafter, Vornado has
not beneficially owned and will continue not to beneficially own securities of
any issuer (except for any securities qualifying as "real estate assets" within
the meaning of Section 856(c)(5)(B) of the Code) representing more than 10
percent of the outstanding voting securities of such issuer.
19. At no time since January 1, 1993 has Vornado or a direct or indirect
wholly-owned subsidiary of Vornado owned and Vornado will not in the future own,
more than 10 percent of the outstanding voting securities of any issuer other
than (i) since March 2, 1995, Alexander's, Inc., (ii) an issuer in which Vornado
or, for periods after January 1, 1993, a direct or indirect wholly-owned
subsidiary of
<PAGE> 26
Sullivan & Cromwell -7-
Vornado, has held all of the outstanding shares at all times since the formation
of such issuer and (iii) Two Penn Plaza REIT, Inc. Notwithstanding the
foregoing, for taxable years beginning after August 5, 1997, Vornado may have
wholly-owned subsidiaries whose shares it has not held at all times; provided
that in connection with those subsidiaries Vornado complies with the
requirements of Section 856(i) of the Code.
20. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has complied with and will continue to comply with the
shareholder solicitation and the record-keeping requirements prescribed by
Section 857(a)(2) of the Code and by Treasury Regulations Section 1.857-8.
21. For Vornado's 1993 taxable year and each taxable year thereafter
Vornado has distributed and will continue to distribute to its shareholders
amounts equal in the aggregate to at least 95 percent of Vornado's "real estate
investment trust taxable income" (determined without regard to the deduction for
dividends paid (as defined in section 561 of the Code)) and by excluding any net
capital gain (within the meaning of Section 857(a)(1)(A) of the Code), plus at
least 95 percent of the excess of any "net income from foreclosure property"
over the tax imposed by Section 857(b)(4)(A) of the Code on such net income, if
any, as such terms in quotations are defined in Sections 857(b)(2) and
857(b)(4)(B), respectively, of the Code, during the taxable year involved or
during the period thereafter as prescribed by Section 858 of the Code.
Similarly, Vornado has complied with and will continue to comply with the
distribution requirements imposed by Notice 88-19 in respect of "built-in gains"
recognized by Vornado.
22. Each distribution by Vornado that is treated as a dividend within the
meaning of Section 316 of the Code will qualify for the deduction for dividends
paid under Section 561 of the Code, and without limiting the foregoing, Vornado
will not make any distribution that constitutes a preferential dividend as
described in Section 562(c) of the Code.
23. Vornado will at all times beneficially hold all of its assets for
investment purposes and not as (i) stock in trade or other property of a kind
which would properly be includible in inventory at hand at the close of a
taxable
<PAGE> 27
Sullivan & Cromwell -8-
year or (ii) property held primarily for sale to customers in the ordinary
course of Vornado's trade or business.
24. Vornado does not own and has not owned since January 1, 1993 any REMIC
residual interests.
25. Vornado has not, since January 1, 1993, and will not hold a
partnership interest, unless such partnership is treated at all times for
federal income tax purposes as a partnership and not as an association taxable
as a corporation (including a publicly-traded partnership that is treated as a
corporation under Section 7704 of the Code).*
26. Vornado is a "domestically-controlled REIT" within the meaning of
Section 897(h)(4)(B) of the Code (that is, at all times during the last five
years less than 50 percent (as determined by reference to value) of the
outstanding interests in Vornado, or the predecessor of Vornado, have been held,
directly or indirectly, by foreign persons).
27. Vornado is not a "pension-held REIT" within the meaning of Section
856(h)(3)(D) of the Code (that is, either (i) it is not the case that Vornado
fails to be closely-held (within the meaning of Section 856(h) of the Code
solely as a result of Section 856(h)(3) of the Code or (ii) certain other
conditions are met).
28. Vornado has made a timely election, pursuant to Notice 88-19, to be
subject to rules similar to the rules of Section 1374 of the Code with respect
to built-in gains recognized during the ten-year period following its initial
qualification as a REIT.
29. Vornado has at all times dealt, and will continue to deal, with
Vornado Management Corp., The Mendik Management Company, Inc. and Vornado RR,
Inc. on an arm's length basis. Furthermore, Vornado will deal on an arm's length
basis with any corporation in which Vornado owns, directly or indirectly,
non-voting shares, which is not a wholly-owned subsidiary of Vornado.
30. In addition to those representations set forth in this officer's
certificate relating to the qualification of
- ----------
* For these purposes we are disregarding a partnership between two
wholly-owned subsidiaries of Vornado.
<PAGE> 28
Sullivan & Cromwell -9-
Vornado as a REIT, Vornado will comply with all other requirements under the
Code (including, without limitation, Sections 856 through 860 of the Code) in
order to maintain its qualification as a REIT.
31. Vornado believes, based upon an opinion received from Shearman &
Sterling and upon representations received by it from Alexander's, that
Alexander's qualified as a REIT for its taxable year beginning January 1, 1995
and will so qualify for subsequent periods.
32. Neither Vornado nor any of its subsidiaries (including for this
purpose any entity at least 95% of the nonvoting stock of which is owned by
Vornado) have performed, or will perform, any services for Alexander's or Two
Penn Plaza REIT, Inc., any of their subsidiaries or any partnership or other
unincorporated entity in which Alexander's or Two Penn Plaza REIT, Inc. holds
(directly or indirectly) an interest, that would cause any income realized by
Alexander's or Two Penn Plaza REIT, Inc. (or any such subsidiary, partnership or
other entity) from and after July 1, 1994, to fail to be described in Section
856(c)(2) of the Code.
IN WITNESS WHEREOF, I have, on behalf of Vornado, signed this officers
certificate as of this 17th day of February, 1998.
VORNADO REALTY TRUST
By: /s/ Joseph Macnow
--------------------------------
Name: Joseph Macnow
Title: Executive Vice President
<PAGE> 29
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
February 17, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Vornado Realty Trust ("Vornado") hereby
certifies on behalf of Vornado that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. Vornado acknowledges and understands that Sullivan &
Cromwell will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding Vornado's qualification
for federal income tax purposes as a real estate investment trust and (ii)
preparing the discussion set forth under the heading "Federal Income Tax
Considerations" in the Preliminary Prospectus of Vornado Operating Inc. included
in the Registration Statement on Form S-11 (No. 333-40701) filed by Vornado
Operating Inc. with the Securities and Exchange Commission of the United States.
In providing this certificate the undersigned officer is relying upon a
certificate, dated February 17, 1998 received by David R.
Greenbaum.
1. Two Penn Plaza REIT, Inc. (the "REIT") and each of its wholly-owned
subsidiaries has operated and will operate in accordance with (i) its
organizational document and (ii) the laws of the jurisdiction in which it is
organized.
2. The REIT has been and will be managed by one or more trustees or
directors.
3. The REIT has used and will use the calendar year as its accounting
period for federal income tax purposes.
4. The REIT will make a timely election, pursuant to Section 856(c)(1) of
the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed as a
real estate investment trust for commencing with its first taxable year.
<PAGE> 30
Sullivan & Cromwell -2-
5. As of the close of its first taxable year and each taxable year
thereafter, the REIT will have no undistributed earnings and profits accumulated
in any non-REIT year.
6. For at least 335 days of each taxable year following its first taxable
year, 100 or more persons will beneficially own shares of beneficial interest in
the REIT ("Shares").
7. At no time during the last half of any taxable year following its first
taxable year will more than 50 percent (as determined by reference to value) of
the REIT's outstanding Shares, owned, directly or constructively, by five or
fewer individuals (as defined in Section 542(a)(2), as modified by Section
856(h) of the Code, to include certain entities). Constructive ownership for
purposes of this representation is determined by reference to the attribution
rules of Section 544 of the Code, as modified by Section 856(h) of the Code.
8. The beneficial ownership of the REIT will be evidenced by transferable
shares. The REIT will not impose any transfer restrictions on the Shares other
than those designed to enable the REIT to qualify as a real estate investment
trust for federal income tax purposes.
9. For each of the REIT's taxable years, at least 75 percent of the REIT's
gross income will consist of (i) "rents from real property" within the meaning
of Section 856(d) of the Code, (ii) interest on obligations secured by mortgages
on real property or on interests in real property, (iii) gain from the sale or
other disposition of real property (including interests in real property and
interests in mortgages on real property) which is not described in Section
1221(1) of the Code, (iv) dividends or other distributions on, and gain (other
than gain from "prohibited transactions") from the sale or other disposition of
transferable shares in other qualifying real estate investment trusts, or (v)
amounts described in Sections 856(c)(3)(E) through 856 (c)(3)(I) of the Code.*
- ----------
* For purposes of these representations (i) all assets, liabilities and
items of income, deduction and credit of a "qualified REIT subsidiary" (as
such term is defined in Section 856(i) of the Code) of the REIT will be
treated as assets, liabilities and such items of the
<PAGE> 31
Sullivan & Cromwell -3-
10. For each of the REIT's taxable years, at least 95% of the REIT's gross
income will consist of (i) the items of income described in paragraph 9 hereof
(other than those described in Section 856(c)(3)(I) of the Code), (ii) gain
realized from the sale or other disposition of stock or securities which are not
property described in Section 1221(1) of the Code, (iii) interest, (iv)
dividends and (v) (x) for taxable years beginning on or before August 5, 1997,
income derived from payments to the REIT or a wholly-owned subsidiary of the
REIT on a bona fide interest rate swap or cap agreement entered into to hedge
any variable rate indebtedness of the REIT or such a subsidiary incurred or to
be incurred to acquire or carry real estate assets or gain from the sale or
other disposition of such an agreement (an "Interest Rate Agreement") and (y)
for taxable years beginning after August 5, 1997, income derived from payments
to the REIT or a wholly-owned subsidiary of the REIT on interest rate swap or
cap agreements, options, futures contracts, forward rate agreements and other
similar financial instruments entered into to reduce the interest rate risks
with respect to any indebtedness incurred or to be incurred to acquire or carry
real estate assets, or gain from the sale or other disposition of such an
investment.
11. For each of the REIT's taxable years other than taxable years
beginning after August 5, 1997, less than 30 percent of the REIT's gross income
was derived from the sale or other disposition of (i) stock or securities
(including Interest Rate Agreements) held for less than one year, (ii) property
in a transaction which is a "prohibited transaction" (as defined in Section
857(b)(6)(B) of the Code), and (iii) real property (including interests in real
property and interests in mortgages on real property) held for less than four
years other than property compulsorily or involuntarily converted within the
meaning of Section 1033 of the Code, and property which is foreclosure property
as defined in Section 856(e) of the Code.
- ----------
REIT and (ii) the REIT will be deemed to own its proportionate share
(determined in accordance with Treasury Regulations Section 1.856-3(g)) of
each of the assets of each partnership in which it holds an interest
(including as a result of the operation of clause (i)) and deemed to be
entitled to the income of the partnership attributable to such share.
<PAGE> 32
Sullivan & Cromwell -4-
12. For each of the REIT's taxable years, the REIT has not received or
accrued and will not receive or accrue any amount (herein "service
consideration"), directly or indirectly, with respect to any real or personal
property in any case in which the REIT or any wholly-owned subsidiary of the
REIT or any partnership in which the REIT has an interest (or any agent of any
of the foregoing) furnishes or renders services to the tenants of such property,
or manages or operates such property, either (i) other than through an
"independent contractor" with respect to the REIT (within the meaning of Section
856(d)(3) of the Code) from whom or which the REIT or such subsidiary or
partnership, as the case may be, does not derive or receive any income or (ii)
other than services usually or customarily rendered in connection with the
rental of space for occupancy only within the meaning of Treasury Regulations
Section 1.512(b)-1(c)(5), or not rendered primarily for the convenience of the
occupant of the real property, within the meaning of Treasury Regulations
Section 1.512(b)-1(c)(5), except that for taxable years beginning after August
5, 1997, the REIT may receive or accrue a de minimis amount of service
consideration which does not (a) cause any amount included in the REIT's gross
income, other than such service consideration, to fail to qualify as "rents from
real property" under Section 856(d) of the Code and (b) materially adversely
affect the REIT's ability to satisfy the standards relating to 75 percent and 95
percent of its gross income as set forth in paragraphs 9 and 10 hereof.
13. For each of the REIT's taxable years, the REIT will not receive or
accrue rent attributable to personal property except with respect to a lease of
real property where the average of the adjusted bases of the personal property
at the beginning and at the end of the taxable year does not exceed 15 percent
of the average of the aggregate adjusted bases of the real property and the
personal property leased under such lease at the beginning and at the end of
such taxable year within the meaning of Section 856(d)(1) of the Code.
14. For each of the REIT's taxable years, the REIT will not receive or
accrue, directly or indirectly, any rent or interest, where the determination of
the amount of rent or interest depends, in the case of rent, on the income or
profits of any person from the property, and, in the case of interest, upon the
income or profits of any person, except
<PAGE> 33
Sullivan & Cromwell -5-
where interest or rent is based on a fixed percentage or percentages of receipts
or sales within the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of
the Code, and except that the REIT may receive or accrue a de minimis amount of
such rent or interest, provided that such amount does not materially adversely
affect the REIT's ability to satisfy the standards relating to 75 percent and 95
percent of its gross income as set forth in paragraphs 9 and 10 hereof.
15. For each of the REIT's taxable years, the REIT will not receive or
accrue, directly or indirectly, rent or any other consideration under a lease
from any person in which the REIT owns, directly or indirectly (a) in the case
of a corporation, 10 percent or more of the total combined voting power of all
classes of stock entitled to vote, or 10 percent or more of the total number of
shares of all classes of stock, or (b) in the case of an entity other than a
corporation, an interest of 10 percent or more in the assets or net profits of
such entity, except that the REIT may receive or accrue a de minimis amount of
such rent or other consideration provided that such amount does not materially
adversely affect the REIT's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 9 and 10
hereof. For purposes of this paragraph ownership will be determined by taking
into account the constructive ownership rules of Section 318(a) of the Code (as
modified by Section 856(d)(5) of the Code). For each of the REIT's taxable
years, the REIT has complied and will comply with the recordkeeping and filing
requirements of Treasury Regulations Section 1.856-4(b)(4).
16. At the close of each quarter of each of the REIT's taxable years, at
least 75 percent of the value of the REIT's total assets (as determined in
accordance with Treasury Regulations Section 1.856-2(d)) has consisted of and
will continue to consist of real estate assets within the meaning of Sections
856(c)(4) and 856(c)(5)(B) of the Code, cash and cash items (including
receivables which arise in the ordinary course of the REIT's operations, but not
including receivables purchased from another person), and Government securities.
17. At the close of each quarter of each of the REIT's taxable years, the
REIT will not beneficially own securities in any one issuer (except for any
securities qualifying as "real estate assets" within the meaning of section
<PAGE> 34
Sullivan & Cromwell -6-
856(c)(5)(B) of the Code) having an aggregate value in excess of 5 percent of
the REIT's total assets, as determined in accordance with Treasury Regulations
Section 1.856-2(d).
18. At the close of each quarter of each taxable year of the REIT, the
REIT will not beneficially own securities of any issuer (except for any
securities qualifying as "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code) representing more than 10 percent of the outstanding
voting securities of such issuer.
19. For each of the REIT's taxable years, the REIT has complied with and
will continue to comply with the shareholder solicitation and the record-keeping
requirements prescribed by Section 857(a)(2) of the Code and by Treasury
Regulations Section 1.857-8.
20. For each of the REIT's taxable years, the REIT will distribute to its
shareholders amounts equal in the aggregate to at least 95 percent of the REIT's
"real estate investment trust taxable income" (determined without regard to the
deduction for dividends paid (as defined in section 561 of the Code)) and by
excluding any net capital gain (within the meaning of Section 857(a)(1)(A) of
the Code), plus at least 95 percent of the excess of any "net income from
foreclosure property" over the tax imposed by Section 857(b)(4)(A) of the Code
on such net income, if any, as such terms in quotations are defined in Sections
857(b)(2) and 857(b)(4)(B), respectively, of the Code, during the taxable year
involved or during the period thereafter as prescribed by Section 858 of the
Code.
21. Each distribution by the REIT that is treated as a dividend within the
meaning of Section 316 of the Code will qualify for the deduction for dividends
paid under Section 561 of the Code, and without limiting the foregoing, the REIT
will not make any distribution that constitutes a preferential dividend as
described in Section 562(c) of the Code.
22. The REIT will at all times beneficially hold all of its assets for
investment purposes and not as (i) stock in trade or other property of a kind
which would properly be includible in inventory at hand at the close of a
taxable year or (ii) property held primarily for sale to customers in the
ordinary course of the REIT's trade or business.
<PAGE> 35
Sullivan & Cromwell -7-
23. The REIT will not own any REMIC residual interests.
24. The REIT will not hold a partnership interest unless such partnership
is treated at all times for federal income tax purposes as a partnership and not
as an association taxable as a corporation (including a publicly-traded
partnership that is treated as a corporation under Section 7704 of the Code).
25. In addition to those representations set forth in this officer's
certificate relating to the qualification of the REIT as a real estate
investment trust for federal income tax purposes, the REIT will comply with all
other requirements under the Code (including, without limitation, Sections 856
through 860 of the Code) in order to maintain its qualification as a REIT.
IN WITNESS WHEREOF, I have, on behalf of Vornado, signed this officers
certificate as of this 17th day of February, 1998.
VORNADO REALTY TRUST
By: /s/ Joseph Macnow
--------------------------------
Name: Joseph Macnow
Title: Executive Vice President
<PAGE> 36
Vornado Operating Inc.
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
February 17, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Vornado Operating Inc. (the "Company") hereby
certifies on behalf of The Company that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. The Company acknowledges and understands that Sullivan
& Cromwell will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding the Company's
qualification for federal income tax purposes as a real estate investment trust
(a "REIT") for its taxable year ending December 31, 1998 and (ii) preparing the
discussion set forth under the heading "Federal Income Tax Considerations" in
the Preliminary Prospectus of the Company included in the Registration Statement
on Form S-11 (No.333-40701) filed by the Company with the Securities and
Exchange Commission of the United States. These representations are based upon
the assumption that Vornado Realty L.P. will not waive the Company's obligation
to seek to qualify as a REIT for the Company's taxable year ending December 31,
1998. In providing this certificate the undersigned officer is relying upon a
certificate, dated February 17, 1998 received from David R. Greenbaum.
1. The Company will operate in accordance with (i) its organizational
document and (ii) the laws of the jurisdiction in which it is organized.
2. The Company will be managed by a board of directors.
3. The Company will elect to use the calendar year as
<PAGE> 37
Sullivan & Cromwell -2-
its accounting period for federal income tax purposes. The Company's initial
taxable year will end on December 31, 1998.
4. The Company will make a timely election, pursuant to Section 856(c)(1)
of the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed as a
REIT for its taxable year ending December 31, 1998 and such election will not be
terminated or revoked.
5. The Company will have, as of the close of its taxable year ending
December 31, 1998, no undistributed earnings and profits accumulated in any
non-REIT year.
6. The beneficial ownership of the Company will be evidenced by
transferable shares. The Company will not impose, and is not aware of, any
transfer restrictions on the Shares other than those currently set forth in the
Company's Amended and Restated Certificate of Incorporation.
7. For the Company's taxable year ending December 31, 1998, at least 75
percent of the Company's gross income will consist of (i) "rents from real
property" within the meaning of Section 856(d) of the Code, (ii) interest on
obligations secured by mortgages on real property or on interests in real
property, (iii) gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on real
property) which is not described in Section 1221(1) of the Code, (iv) dividends
or other distributions on, and gain (other than gain from "prohibited
transactions") from the sale or other disposition of transferable shares in
other qualifying REITs, or (v) amounts described in Sections 856(c)(3)(E)
through 856 (c)(3)(I) of the Code.*
- ----------
* For purposes of these representations (i) all assets, liabilities and
items of income, deduction and credit of a "qualified REIT subsidiary" (as
such term is defined in Section 856(i) of the Code) of the Company are
treated as assets, liabilities and such items of the Company and (ii) the
Company is deemed to own its proportionate share (determined in accordance
with Treasury Regulations Section 1.856-3(g)) of each of the assets of
each partnership in which it holds an interest (including as a result of
the operation of clause (i)) and is deemed to be entitled to the income
<PAGE> 38
Sullivan & Cromwell -3-
8. For the Company's taxable year ending December 31, 1998, at least 95
percent of the Company's gross income will consist of (i) the items of income
described in paragraph 9 hereof (other than those described in Section
856(c)(3)(I) of the Code), (ii) gain realized from the sale or other disposition
of stock or securities which are not property described in Section 1221(1) of
the Code, (iii) interest, (iv) dividends and (v) income derived from payments to
the Company on interest rate swap or cap agreements, options, futures contracts,
forward rate agreements and other similar financial instruments entered into to
reduce the interest rate risks with respect to any indebtedness incurred or to
be incurred to acquire or carry real estate assets, or gain from the sale or
other disposition of such an investment.
9. For the Company's taxable year ending December 31, 1998, the Company
will not receive or accrue any amount (herein "service consideration"), directly
or indirectly, with respect to any real or personal property in any case in
which the Company or any wholly-owned subsidiary of the Company or any
partnership in which the Company has an interest (or any agent of any of the
foregoing) furnishes or renders services to the tenants of such property, or
manages or operates such property, either (i) other than through an "independent
contractor" with respect to the Company (within the meaning of Section 856(d)(3)
of the Code) from whom or which the Company or such subsidiary or partnership,
as the case may be, does not derive or receive any income or (ii) other than
services usually or customarily rendered in connection with the rental of space
for occupancy only within the meaning of Treasury Regulations Section 1.512(b)-
1(c)(5), or not rendered primarily for the convenience of the occupant of the
real property, within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), except that the Company may receive or accrue a de minimis
amount of service consideration which does not (a) cause any amount included in
the Company's gross income, other than such service consideration, to fail to
qualify as "rents from real property" under Section 856(d) of the Code and (b)
materially adversely affect the Company's ability to satisfy the standards
relating to 75 percent and 95 percent of its gross income as set forth in
paragraphs 7 and 8 hereof.
- ----------
of the partnership attributable to such share.
<PAGE> 39
Sullivan & Cromwell -4-
10. For the Company's taxable year ending December 31, 1998, the Company
will not receive or accrue rent attributable to personal property except with
respect to a lease of real property where the average of the adjusted bases of
the personal property at the beginning and at the end of the taxable year does
not exceed 15 percent of the average of the aggregate adjusted bases of the real
property and the personal property leased under such lease at the beginning and
at the end of such taxable year within the meaning of Section 856(d)(1) of the
Code.
11. For the Company's taxable year ending December 31, 1998, the Company
will not receive or accrue, directly or indirectly, any rent or interest, where
the determination of the amount of rent or interest depends, in the case of
rent, on the income or profits of any person from the property, and, in the case
of interest, upon the income or profits of any person, except where interest or
rent is based on a fixed percentage or percentages of receipts or sales within
the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and
except that the Company may receive or accrue a de minimis amount of such rent
or interest, provided that such amount does not materially adversely affect the
Company's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 7 and 8 hereof.
12. For the Company's taxable year ending December 31, 1998, the Company
will not receive or accrue, directly or indirectly, rent or any other
consideration under a lease from any person in which the Company owns, directly
or indirectly (a) in the case of a corporation, 10 percent or more of the total
combined voting power of all classes of stock entitled to vote, or 10 percent or
more of the total number of shares of all classes of stock, or (b) in the case
of an entity other than a corporation, an interest of 10 percent or more in the
assets or net profits of such entity, except that the Company may receive or
accrue a de minimis amount of such rent or other consideration provided that
such amount does not materially adversely affect the Company's ability to
satisfy the standards relating to 75 percent and 95 percent of its gross income
as set forth in paragraphs 7 and 8 hereof. For purposes of this paragraph
ownership will be determined by taking into account the constructive ownership
rules of Section 318(a) of the Code (as modified by Section 856(d)(5) of the
Code). For the Company's taxable year ending December 31, 1998, the Company
<PAGE> 40
Sullivan & Cromwell -5-
will comply with the recordkeeping and filing requirements of Treasury
Regulations Section 1.856-4(b)(4).
13. At the close of each quarter of the Company's taxable year ending
December 31, 1998, at least 75 percent of the value of the Company's total
assets (as determined in accordance with Treasury Regulations Section
1.856-2(d)) will consist of real estate assets within the meaning of Sections
856(c)(4) and 856(c)(5)(B) of the Code, cash and cash items (including
receivables which arise in the ordinary course of the Company's operations, but
not including receivables purchased from another person), and Government
securities.
14. At the close of each quarter of the Company's taxable year ending
December 31, 1998, the Company will not beneficially own securities in any one
issuer (except for any securities qualifying as "real estate assets" within the
meaning of section 856(c)(5)(B) of the Code) having an aggregate value in excess
of 5 percent of the Company's total assets, as determined in accordance with
Treasury Regulations Section 1.856-2(d).
15. At the close of each quarter of the Company's taxable year ending
December 31, 1998, the Company will not beneficially own securities of any
issuer (except for any securities qualifying as "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code) representing more than 10 percent
of the outstanding voting securities of such issuer.
16. For the Company's taxable year ending December 31, 1998, the Company
will comply with the shareholder solicitation and the record-keeping
requirements prescribed by Section 857(a)(2) of the Code and by Treasury
Regulations Section 1.857-8.
17. For the Company's taxable year ending December 31, 1998, the Company
will distribute to its shareholders amounts equal in the aggregate to at least
95 percent of the Company's "real estate investment trust taxable income"
(determined without regard to the deduction for dividends paid (as defined in
section 561 of the Code)) and by excluding any net capital gain (within the
meaning of Section 857(a)(1)(A) of the Code), plus at least 95 percent of the
excess of any "net income from foreclosure property" over the tax imposed by
Section 857(b)(4)(A) of the Code on
<PAGE> 41
Sullivan & Cromwell -6-
such net income, if any, as such terms in quotations are defined in Sections
857(b)(2) and 857(b)(4)(B), respectively, of the Code, during the taxable year
involved or during the period thereafter as prescribed by Section 858 of the
Code. Similarly, the Company has complied with and will continue to comply with
the distribution requirements imposed by Notice 88-19 in respect of "built-in
gains" recognized by the Company.
18. Each distribution by the Company that is treated as a dividend within
the meaning of Section 316 of the Code will qualify for the deduction for
dividends paid under Section 561 of the Code, and without limiting the
foregoing, the Company will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
19. The Company will at all times beneficially hold all of its assets for
investment purposes and not as (i) stock in trade or other property of a kind
which would properly be includible in inventory at hand at the close of a
taxable year or (ii) property held primarily for sale to customers in the
ordinary course of the Company's trade or business.
20. The Company will not own any REMIC residual interests.
21. The Company will not hold a partnership interest, unless such
partnership is treated at all times for federal income tax purposes as a
partnership and not as an association taxable as a corporation (including a
publicly-traded partnership that is treated as a corporation under Section 7704
of the Code).
22. For its taxable year ending December 31, 1998, the Company will be a
"domestically-controlled REIT" within the meaning of Section 897(h)(4)(B) of the
Code.
23. For its taxable year ending December 31, 1998, the Company will not be
a "pension-held REIT" within the meaning of Section 856(h)(3)(D) of the Code.
24. In addition to those representations set forth in this officer's
certificate relating to the qualification of the Company as a REIT, the Company
will comply with all other requirements under the Code (including, without
<PAGE> 42
Sullivan & Cromwell -7-
limitation, Sections 856 through 860 of the Code) in order to qualify as a REIT
for its taxable year ending December 31, 1998.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this officers
certificate as of this 17th day of February, 1998.
VORNADO OPERATING INC.
By: /s/ Joseph Macnow
--------------------------------
Name: Joseph Macnow
Title: Executive Vice President
<PAGE> 1
EXHIBIT 8.2
[Shearman & Sterling Letterhead]
February 17, 1998
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, NJ 07663
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Alexander's REIT Election
-------------------------
Dear Sirs:
In connection with a certain registration statement on Form S-11 of
Vornado Operating Inc. and referred to below ("Registration Statement"), you
have requested our opinion with regard to the election by Alexander's, Inc.
("Alexander's") to be treated for Federal income tax purposes as a real estate
investment trust (a "REIT"), within the meaning of section 856(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). We understand that
Alexander's has elected to be treated as a REIT initially for its taxable year
ended December 31, 1995, and intends to continue to be so treated for
subsequent taxable years.
In rendering this opinion, we have relied upon statements and
information contained in Alexander's letter to us, dated the date hereof and
delivered in connection with the opinion, and in the Exhibits to such letter
(such letter and Exhibits hereinafter referred to as the "Representation
Letter"). We have assumed that the statements made in the Representation Letter
are true and correct and that the Representation Letter has been executed by
appropriate and authorized officers of Alexander's.
<PAGE> 2
In rendering this opinion, with your permission we have also made the
following assumptions, which are based on factual representations made by
Alexander's and certified to us:
(a) Alexander's has made a valid election to be taxed as a
REIT for its taxable year ended December 31, 1995, which election has not been,
and will not be, revoked or terminated.
(b) Since January 1, 1995, the outstanding shares of
Alexander's have been held by at least 100 or more persons, and such shares
will continue to be held by 100 or more persons.
(c) Not more than 50 percent in value of the outstanding
shares of Alexander's have been or will be owned directly or indirectly,
actually or constructively (within the meaning of section 542(a)(2) of the
Code, as modified by section 856(h) of the Code), by five or fewer individuals
(or entities treated as individuals for purposes of section 856(h) of the Code)
during the second half of every taxable year following the taxable year ended
December 31, 1995.
(d) Alexander's will not receive or accrue (and since
January 1, 1995, has not received or accrued) any amount from (i)any
corporation in which it owns (or since July 1, 1994, has owned) 10 percent or
more of the total combined voting power of all shares of stock entitled to vote
or 10 percent or more of the total number of shares of all classes of stock of
such corporation, or (ii) any unincorporated entity in which it owns (or since
July 1, 1994, has owned) an interest of 10 percent or more in the assets or net
profits of such person. For purposes of this assumption, ownership is
determined in accordance with section 856(d)(5) of the Code.
(e) Alexander's has requested and maintained, and will
continue to request and maintain, records concerning ownership of its
outstanding shares in accordance with section 857(f)(1) of the Code and
Treasury Regulations promulgated thereunder and predecessor requirements.
(f) Alexander's has made and will make distributions to its
stockholders sufficient to meet the 95 percent distribution requirements of
section 857(a)(1) of the Code for the taxable year for which the REIT election
was made and every subsequent taxable year.
(g) For its taxable year ended December 31, 1995,
Alexander's had a deficit in earnings and profits (as defined in the Code) in
excess of its accumulated earnings and profits (if any) as of the close of its
taxable year ended December 31, 1994.
<PAGE> 3
3
Based on the foregoing and in reliance thereon and subject thereto and on
an analysis of the Code, Treasury Regulations thereunder, judicial authority
and current administrative rulings and such other laws and facts as we have
deemed relevant and necessary, we are of the opinion that commencing with its
taxable year ended 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 its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT
under the Code.
Qualification of Alexander's as a REIT will depend upon the satisfaction
by Alexander's and its subsidiaries (the "Company"), through actual operating
results, distribution levels, diversity of stock ownership and otherwise, of
the applicable asset composition, source of income, shareholder
diversification, distribution, recordkeeping and other requirements of the Code
necessary for a corporation to qualify as a REIT. No assurance can be given
that the actual results of the Company's operations for any one taxable year
will satisfy all such requirements. We do not undertake to monitor whether the
Company actually has satisfied or actually will satisfy the various
qualification tests, and we express no opinion whether the Company actually has
satisfied or actually will satisfy these various qualification tests.
This opinion is based on current Federal income tax law, and we do not
undertake to advise you as to future changes in Federal income tax law that may
affect this opinion unless we are specifically engaged to do so. This opinion
relates solely to Federal income tax law, and we do not undertake to render any
opinion as to the taxation of the Company under any state or local corporate
franchise or income tax law.
We hereby consent to (i) the use of our name and the making of statements
with respect to us as set forth in the Registration Statement No. 333-40701,
(ii) the incorporation by reference of this opinion into the Registration
Statement No. 333-40701, and (iii) the inclusion of this opinion as an exhibit
in the Registration Statement No. 333-40701. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Shearman & Sterling
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 3 to the Registration
Statement of Vornado Operating Inc. on Form S-11 (File No. 333-40701) of our
report dated January 23, 1998 on the balance sheet of Vornado Operating Inc. as
of January 23, 1998 and to the reference to us under the heading "Experts" in
the Prospectus which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 25, 1998
