<PAGE> 1
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-40787;
333-29013
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 11, 1998
10,000,000 SHARES
[VORNADO LOGO]
COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $.04 PER SHARE)
----------------------
The last reported sale price of the Common Shares, which are quoted under
the symbol "VNO", on the New York Stock Exchange on April 8, 1998 was $43.375
per share. See "Price Range of the Common Shares and Distributions".
In order to maintain Vornado's qualification as a real estate investment
trust ("REIT") for federal income tax purposes, Vornado's Declaration of Trust
provides that no person may own more than 6.7% of the outstanding Common Shares.
Shares owned in excess of such limit shall be deemed "Excess Shares" pursuant to
Vornado's Declaration of Trust, in which case the holder will lose certain
ownership rights with respect to such shares and Vornado will have the right to
purchase such Excess Shares from the holder. See "Description of Shares of
Beneficial Interest -- Description of Common Shares -- Restrictions on
Ownership" in the accompanying Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES.
----------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
Goldman, Sachs & Co. has agreed to purchase from Vornado the Common Shares
offered hereby for an aggregate purchase price of $401,250,000. Vornado has
granted Goldman, Sachs & Co. an option for 30 days to purchase up to 1,500,000
additional Common Shares, solely to cover over-allotments. If such option is
exercised in full, the total proceeds to Vornado will be $461,437,500, before
deducting expenses payable by Vornado, estimated to be approximately $700,000.
Goldman, Sachs & Co. propose to offer the Common Shares offered hereby from
time to time for sale in one or more transactions on the New York Stock
Exchange, in the over-the-counter market or otherwise, at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices, subject to prior sale when, as and if delivered to and
accepted by Goldman, Sachs & Co. See "Underwriting".
Vornado and the Operating Partnership have agreed to indemnify Goldman,
Sachs & Co. against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
----------------------
The shares are offered by Goldman, Sachs & Co., as specified herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that the certificates for the
shares will be ready for delivery in New York, New York on or about April 15,
1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
----------------------
The date of this Prospectus Supplement is April 9, 1998.
<PAGE> 2
Certain statements contained herein or incorporated by reference herein
constitute forward-looking statements as such term is defined in Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Certain
factors, as discussed herein or in the Company's Exchange Act filings made with
the Securities and Exchange Commission (the "Commission") incorporated by
reference herein, could cause actual results to differ materially from those in
the forward-looking statements. Factors that might cause such a material
difference include, but are not limited to, (a) changes in the general economic
climate, (b) local conditions such as an oversupply of space or a reduction in
demand for real estate in the area, (c) conditions of tenants, (d) competition
from other available space, (e) increased operating costs and interest expense,
(f) the timing of and costs associated with property improvements, (g) changes
in taxation or zoning laws, (h) government regulations, (i) failure of Vornado
to continue to qualify as a REIT, (j) availability of financing on acceptable
terms, (k) potential liability under environmental or other laws or regulations
and (l) general competitive factors. See "Risk Factors" in the accompanying
Prospectus.
Except as otherwise specified herein, the information in this Prospectus
Supplement and the accompanying Prospectus assumes no exercise of Goldman, Sachs
& Co.'s over-allotment option and all share and per share information in this
Prospectus Supplement has been restated to reflect a share split effected by
means of a 100% share dividend payable on October 20, 1997 to record holders of
the common shares of beneficial interest, par value $.04 per share, of Vornado
("Common Shares") as of the close of business on October 15, 1997. All
references to "Vornado" in this Prospectus Supplement shall be deemed to refer
to Vornado Realty Trust; all references to the "Operating Partnership" in this
Prospectus Supplement shall be deemed to refer to Vornado Realty L.P.; and all
references to the "Company" in this Prospectus Supplement shall be deemed to
include Vornado and its consolidated subsidiaries, including the Operating
Partnership.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES, INCLUDING
EXERCISING THE OVER-ALLOTMENT OPTION, EFFECTING SHORT-COVERING TRANSACTIONS AND
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
S-2
<PAGE> 3
THE COMPANY
Vornado is a fully-integrated real estate investment trust organized under
the laws of the State of Maryland. In April 1997, Vornado transferred
substantially all of its assets to the Operating Partnership, a Delaware limited
partnership. As a result, Vornado now conducts its business through, and
substantially all of its interests in properties are held by, the Operating
Partnership. Vornado is the sole general partner of and owns an approximately
89.9% limited partnership interest in the Operating Partnership as of April 8,
1998. The Operating Partnership currently owns: (i) 59 shopping center
properties in seven states and Puerto Rico containing 12.4 million square feet,
including 1.4 million square feet built by tenants on land leased from the
Company; (ii) all or portions of 14 office building properties in the New York
City metropolitan area (primarily Manhattan) containing 8.4 million square feet;
(iii) eight warehouse/industrial properties in New Jersey containing 2.0 million
square feet; (iv) approximately 29.3% of the outstanding common stock of
Alexander's, Inc., which has nine properties in the New York City metropolitan
area; (v) a 60% interest in partnerships that own Americold Corporation and URS
Logistics, Inc., which collectively own and operate 80 warehouse facilities with
an aggregate of approximately 394 million cubic feet of refrigerated, frozen and
dry storage space; (vi) a 40% interest in a hotel containing 800,000 square feet
of space with 1,700 rooms and 400,000 square feet of retail and office space;
(vii) a 15% limited partnership interest in Charles E. Smith Commercial Realty,
L.P., a limited partnership which owns interests in and manages approximately
7.2 million square feet of office properties in Crystal City, Arlington,
Virginia, a suburb of Washington, D.C., and manages an additional 14 million
square feet of office and other commercial properties in the Washington, D.C.
area; (viii) the Merchandise Mart and the Apparel Center in Chicago and the
Washington Design Center and the Washington Office Center in Washington, D.C.
which contain approximately 5.3 million square feet and a company that manages
such properties and trade shows; and (ix) other real estate and investments in
mortgages collateralized by various office, restaurant and other retail
properties.
The following table sets forth the percentage of the Company's earnings
before interest expense, taxes, depreciation and amortization ("EBITDA"),
represented by property type on a historical and pro forma basis for the year
ended December 31, 1997. The pro forma column gives effect to the acquisitions
or investments completed by the Company after January 1, 1997 or which the
Company is in contract to acquire as if they had occurred on January 1, 1997.
See "Recent Developments".
<TABLE>
<CAPTION>
PERCENTAGE OF EBITDA
-----------------------
PROPERTY TYPE HISTORICAL PRO FORMA
------------- ---------- ---------
<S> <C> <C>
Shopping centers............................................ 46% 25%
Office buildings............................................ 30% 35%
Cold storage................................................ 6% 15%
Kennedy properties.......................................... --% 16%
Industrial.................................................. 3% 1%
Investment in Alexander's, Inc.............................. 6% 3%
Other....................................................... 9% 5%
--- ---
100% 100%
=== ===
</TABLE>
The percentage of the Company's EBITDA generated by properties located in
the Greater Metropolitan New York area was approximately 65% on a historical
basis and approximately 56% on a pro forma basis for the year ended December 31,
1997.
S-3
<PAGE> 4
RECENT DEVELOPMENTS
Since January 1, 1997, the Company completed approximately $3.2 billion of
real estate acquisitions or investments. In addition, approximately $282 million
of acquisitions are currently pending; however, there can be no assurance that
such acquisitions will ultimately be completed. The following table lists in
chronological order the acquisitions or investments:
<TABLE>
<CAPTION>
INVESTMENT
TRANSACTION PROPERTY TYPE DESCRIPTION (IN MILLIONS)
----------- ------------- ----------- -------------
<S> <C> <C> <C>
COMPLETED:
The Mendik Transaction Office Interest in all or a portion of seven $ 656
Manhattan office buildings containing
approximately 4 million square feet
Montehiedra Town Center Shopping Center 525,000 square foot center in San Juan, 74
Puerto Rico
90 Park Avenue Office Manhattan office building containing 875,000 185
square feet
Riese Transactions Restaurants 4 Manhattan properties, and a mortgage loan 67
receivable cross-collateralized by another 10
Manhattan properties
Hotel Pennsylvania Hotel 40% interest in hotel containing 800,000 64
square feet of hotel space (1,700 rooms), and
400,000 square feet of retail and office
space
20 Broad Street Mortgage Office Mortgage loan on property of which 53% is 27
leased to the New York Stock Exchange
Charles E. Smith Office 15% limited partnership interest 60
Commercial Realty
Investments
Cold Storage Cold storage 60% interest in two cold storage and 600
logistics warehouse companies
Arbor Property Trust Shopping Center Super-regional enclosed mall containing 1.7 225
(Green Acres Mall) million square feet
640 Fifth Avenue Office Manhattan office building containing 250,000 64
square feet
One Penn Plaza Office Manhattan office building containing 410
2,350,000 square feet
150 East 58th Street Office Manhattan office building containing 550,000 118
square feet
Kennedy Properties Office, Retail Merchandise Mart and Apparel Center in 630
and Showroom Chicago and Washington Design Center and
Washington Office Center in Washington D.C.
containing 5,300,000 square feet
Other 30
------
Total Completed
Acquisitions $3,210
------
PENDING:
YMCA Development Residential Condominium units to be constructed 64
overlooking Central Park, Manhattan
Las Catalinas Mall Shopping Center 50% interest in center in Caguas, Puerto Rico 68
Hotel Pennsylvania -- Hotel Increase of interest in Hotel Pennsylvania 70
additional investment from 40% to 80%
Cold Storage -- Cold storage 60% interest in cold storage and logistics 80
Freezer Services, Inc. warehouse company
------
Total Pending
Acquisitions $ 282
------
Total
Acquisitions $3,492
======
</TABLE>
S-4
<PAGE> 5
PROPOSED SPIN-OFF OF OPERATING COMPANY
In order to maintain its status as a REIT for federal income tax purposes,
the Company is required to focus principally on investment in certain real
estate assets. See "Federal Income Tax Considerations -- Taxation of the Company
as a REIT" in the accompanying Prospectus. Accordingly, the Company cannot
directly own certain assets and conduct certain activities that would be
inconsistent with its status as a REIT.
The Company has formed Vornado Operating, Inc. ("Vornado Operating") to own
assets that Vornado could not itself own and conduct activities that Vornado
could not itself conduct. Vornado Operating will be able to do so because it
will be taxable as a regular corporation rather than a REIT for taxable years
after 1998. Vornado Operating has filed a registration statement with the
Commission with respect to its proposed spin-off from the Company. If the
spin-off takes place, the Operating Partnership will distribute pro rata to its
partners, including Vornado, the shares of Vornado Operating, and Vornado will
distribute pro rata to holders of its Common Shares the shares it receives. No
holder of Common Shares will be required to make any payment, exchange any
Common Shares or take any other action in order to receive Vornado Operating's
common stock in the spin-off. A record date has not yet been set for the
spin-off. No assurance can be given concerning the timing of the spin-off, or
whether the spin-off will occur.
If the spin-off takes place, the Company and Vornado Operating intend to
enter into an Intercompany Agreement pursuant to which, among other things, (a)
the Company will agree under certain circumstances to offer Vornado Operating an
opportunity to become the lessee of certain real property owned now or in the
future by the Company (under mutually satisfactory lease terms) and (b) Vornado
Operating will agree not to make any real estate investment or other REIT-
qualified investments unless it first offers the Company the opportunity to make
such investment and the Company has rejected that opportunity. The Company
expects to capitalize Vornado Operating with an equity contribution of $25
million of cash, and intends to extend to Vornado Operating a $75 million
unsecured five-year revolving line of credit.
S-5
<PAGE> 6
THE OFFERING(1)
<TABLE>
<S> <C>
Common Shares offered hereby................................ 10,000,000 shares
Common Shares to be outstanding after the Offering.......... 82,185,535 shares(2)
New York Stock Exchange Symbol.............................. VNO
</TABLE>
- ----------------------
(1) Assumes that Goldman, Sachs & Co.'s over-allotment option is not exercised.
See "Underwriting".
(2) Excludes 8,345,286, 8,104,514, and 7,957,761 Common Shares, respectively,
reserved for issuance (i) upon the exercise of outstanding options, (ii)
upon the conversion of 5,681,124, 2,415,071 and 8,319 outstanding units in
the Operating Partnership issued in connection with the Mendik Transaction,
the Kennedy Transaction and certain other transactions, respectively (see
"Recent Developments"), and (iii) upon the conversion of outstanding shares
of Vornado's $3.25 Series A Convertible Preferred Shares of Beneficial
Interest, liquidation preference $50.00 per share ("Series A Convertible
Preferred Shares").
USE OF PROCEEDS
The net proceeds to Vornado from the sale of the Common Shares offered
hereby (after deduction of expenses payable by Vornado) are estimated to be
approximately $400,550,000 ($460,737,500 if Goldman, Sachs & Co.'s
over-allotment option is exercised in full).
Vornado intends to contribute the net proceeds to the Operating Partnership
in exchange for a number of Class A units in the Operating Partnership to
reflect the Common Shares offered and sold hereby. The Operating Partnership
will use the proceeds to reduce outstanding borrowings under its $1 billion line
of credit. As of April 8, 1998, approximately $656,000,000 was outstanding under
the line of credit, which loan bears interest at a floating rate currently equal
to 6.54% per annum (LIBOR plus .88%). Pending such use, the net proceeds may be
invested in short-term income-producing investments.
The sale of the Common Shares offered hereby is not subject to the
consummation of any of the acquisitions or investments described in this
Prospectus Supplement, nor are any of such acquisitions or investments subject
to the prior sale of such Common Shares.
S-6
<PAGE> 7
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997: (i) on a historical basis; (ii) as adjusted to
give pro forma effect to the Company's acquisitions of One Penn Plaza, 150 East
58th Street and the Kennedy properties and financings attributable thereto (the
"Acquisitions"); and (iii) as adjusted to give pro forma effect to the
Acquisitions and the issuance of the Common Shares offered hereby and the
application of the estimated net proceeds of the offering as described under
"Use of Proceeds" in this Prospectus Supplement. See "Recent Developments" and
"Use of Proceeds" in this Prospectus Supplement and the Consolidated Financial
Statements and the notes thereto in Vornado's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and the Company's Current Reports on Form
8-K incorporated herein by reference.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
AS ADJUSTED FOR
AS ADJUSTED FOR THE ACQUISITIONS
ACTUAL THE ACQUISITIONS AND THE OFFERING
---------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt(1):
Notes and mortgages payable............... $ 956,654 $1,693,654 $1,293,104
---------- ---------- ----------
Minority interest.............................. 178,567 294,567 294,567
---------- ---------- ----------
Shareholders' equity:
Preferred shares of beneficial interest:
no par value per share; authorized
20,000,000 shares; Series A Convertible
Preferred Shares, liquidation preference
$50 per share; issued 5,789,315
shares.................................. 279,884 279,884 279,884
Common shares of beneficial interest: $.04
par value per share; authorized
100,000,000 shares; issued 72,164,654,
72,164,654 and 82,164,654 shares(2)..... 2,887 2,887 3,287
Additional capital............................. 1,146,385 1,146,385 1,546,535
Accumulated deficit............................ (109,561) (109,561) (109,561)
Unrealized loss on securities available
for sale..................................... (840) (840) (840)
Due from officers for purchase of common shares
of beneficial interest....................... (4,993) (4,993) (4,993)
---------- ---------- ----------
Total shareholders' equity..................... 1,313,762 1,313,762 1,714,312
---------- ---------- ----------
Total capitalization........................... $2,448,983 $3,301,983 $3,301,983
========== ========== ==========
</TABLE>
- ----------------------
(1) All issuances of debt are at the Operating Partnership level.
(2) Excludes 8,345,286, 8,104,514 and 7,957,761 Common Shares, respectively,
reserved for issuance (i) upon the exercise of outstanding options, (ii)
upon the conversion of 5,681,124, 2,415,071 and 8,319 outstanding units in
the Operating Partnership issued in connection with the Mendik Transaction,
the Kennedy Transaction and certain other transactions, respectively (such
underlying Common Shares are reflected under "Minority Interest" in the
Capitalization table), and (iii) upon the conversion of outstanding Series A
Convertible Preferred Shares.
S-7
<PAGE> 8
PRICE RANGE OF THE COMMON SHARES AND DISTRIBUTIONS
The Common Shares are listed on the New York Stock Exchange under the
symbol "VNO". The following table sets forth, for the periods indicated, the
high and low closing sale prices of the Common Shares as reported by the New
York Stock Exchange, and the cash dividends paid per share in such periods.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1995
1st Quarter............................................... $18.13 $16.94 $.280
2nd Quarter............................................... 18.00 16.32 .280
3rd Quarter............................................... 19.50 17.38 .280
4th Quarter............................................... 18.94 17.19 .280
1996
1st Quarter............................................... $19.19 $17.82 $.305
2nd Quarter............................................... 20.75 18.57 .305
3rd Quarter............................................... 21.07 20.25 .305
4th Quarter............................................... 26.44 20.25 .305
1997
1st Quarter............................................... $34.75 $25.56 $.320
2nd Quarter............................................... 36.81 30.69 .320
3rd Quarter............................................... 43.44 32.78 .320
4th Quarter............................................... 46.94 40.75 .400
1998
1st Quarter............................................... $49.75 $39.19 $.400
2nd Quarter (through April 8, 1998)....................... 43.69 43.25
</TABLE>
The current annualized dividend rate is $1.60 per Common Share. Future
dividends by Vornado will be at the discretion of the Board of Trustees and will
depend on the actual cash flow of Vornado, its earnings, financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
such other factors as the Board of Trustees deems relevant. A principal factor
in the determination of dividends is the requirement of the Code that a REIT
distribute at least 95% of its REIT taxable income as determined under the Code.
See "Certain Federal Income Tax Considerations -- Taxation of Vornado as a REIT"
in the accompanying Prospectus.
Distributions by Vornado to the extent of its current earnings and profits
for federal income tax purposes are taxable to shareholders as ordinary dividend
income. Distributions in excess of earnings and profits generally are treated as
a non-taxable return of capital to the extent of a shareholder's basis in the
Common Shares. A return of capital distribution generally has the effect of
deferring taxation until a shareholder's sale of Common Shares. Vornado has
determined that 100% of the dividends paid in 1997 represented ordinary dividend
income to shareholders.
The registrar and transfer agent for the Common Shares is First Union
National Bank.
The approximate number of shareholders of record at December 31, 1997 was
2,000.
S-8
<PAGE> 9
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the related Pricing Agreement (collectively, the "Underwriting Agreement"),
Vornado has agreed to sell to Goldman, Sachs & Co., and Goldman, Sachs & Co.
have agreed to purchase from Vornado, 10,000,000 Common Shares.
Under the terms and conditions of the Underwriting Agreement, Goldman,
Sachs & Co. is committed to take and pay for all of the Common Shares offered
hereby, if any are taken.
Goldman, Sachs & Co. propose to offer the Common Shares offered hereby from
time to time for sale in one or more transactions on the New York Stock Exchange
or otherwise, at market prices prevailing at the time of sale, at prices related
to prevailing market prices or at negotiated prices, subject to prior sale when,
as and if delivered to and accepted by Goldman, Sachs & Co. In connection with
the sale of the Common Shares offered hereby, Goldman, Sachs & Co. may be deemed
to have received compensation from the Company in the form of underwriting
discounts. Goldman, Sachs & Co. may effect such transactions by selling Common
Shares to or through dealers, and such dealers may receive compensation in the
form of discounts, concessions or commissions from Goldman, Sachs & Co. and/or
the purchasers of such Common Shares for whom they may act as agents or to whom
they sell as principal.
Vornado has granted Goldman, Sachs & Co. an option, exercisable for 30 days
after the date of this Prospectus Supplement, to purchase up to 1,500,000
additional Common Shares solely to cover over-allotments, if any.
Subject to certain exceptions, the Company, Steven Roth, Michael Fascitelli
and Interstate Properties have agreed that, during the period beginning from the
date of this Prospectus Supplement and continuing to and including the date 30
days after the date of this Prospectus Supplement, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus Supplement) which are substantially similar to the Common Shares
or which are convertible or exchangeable into Common Shares or securities which
are substantially similar to Common Shares, without the prior written consent of
Goldman, Sachs & Co., except for the Common Shares offered in connection with
this offering, any Common Shares (or securities convertible into or exercisable
or exchangeable for Common Shares) issued by the Company in connection with
acquisitions and up to 1,100,000 additional newly issued Common Shares.
Vornado and the Operating Partnership have agreed to indemnify Goldman,
Sachs & Co. against certain liabilities including liabilities under the
Securities Act of 1933.
In connection with the offering, Goldman, Sachs & Co. may purchase and sell
the Common Shares in the open market. These transactions may include
over-allotment and purchases to cover short positions created by Goldman, Sachs
& Co. in connection with the offering. Short positions created by Goldman, Sachs
& Co. involve the sale by Goldman, Sachs & Co. of a greater number of securities
than they are required to purchase from the Company in the offering. Goldman,
Sachs & Co. also may impose a penalty bid, whereby selling concessions allowed
to other broker-dealers in respect of the securities sold in the offering for
their account may be reclaimed by Goldman, Sachs & Co. if such Common Shares are
repurchased by Goldman, Sachs & Co. in covering transactions. These activities
may maintain or otherwise affect the market price of the Common Shares, which
may be higher than the price that might otherwise prevail in the open market;
and these activities, if commenced, may be discontinued at any time. These
transactions may be effected on the New York Stock Exchange, the
over-the-counter market or otherwise.
Goldman, Sachs & Co. provides investment banking, lending and other
services to the Company and Alexander's. Mr. Fascitelli, the President and a
trustee of Vornado, was formerly a partner of Goldman, Sachs & Co.
S-9
<PAGE> 10
VALIDITY OF THE COMMON SHARES
The validity of the Common Shares offered hereby will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland, and for
Goldman, Sachs & Co. by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. In addition, certain legal matters will be passed upon for Vornado by
Sullivan & Cromwell, New York, New York. Skadden, Arps, Slate, Meagher & Flom
LLP and Sullivan & Cromwell will rely upon the opinion of Ballard Spahr Andrews
& Ingersoll, LLP with respect to certain matters of Maryland law.
S-10
<PAGE> 11
PROSPECTUS
$2,000,000,000
VORNADO REALTY TRUST
PREFERRED SHARES, DEPOSITARY SHARES AND
COMMON SHARES
$1,000,000,000
VORNADO REALTY L.P.
DEBT SECURITIES
------------------------
Vornado Realty Trust ("Vornado") may offer from time to time, together or
separately, in one or more series (i) preferred shares of beneficial interest of
Vornado, no par value ("Preferred Shares"), (ii) depositary shares representing
entitlement to all rights and preferences of a fraction of a Preferred Share of
a specified series and represented by depositary receipts ("Depositary Shares")
and (iii) common shares of beneficial interest of Vornado, par value $0.04 per
share ("Common Shares"), having an aggregate initial offering price not to
exceed U.S. $2,000,000,000. Vornado Realty L.P. (the "Operating Partnership")
may offer from time to time, together or separately, in one or more series debt
securities ("Debt Securities"), which may be either (i) senior debt securities
(the "Senior Debt Securities") or (ii) subordinated debt securities (the
"Subordinated Debt Securities"), having an aggregate initial offering price not
to exceed U.S. $1,000,000,000. The Preferred Shares, Depositary Shares, Common
Shares and Debt Securities offered hereby (collectively, the "Securities") may
be offered separately or together, in separate series, in amounts, at prices and
on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The accompanying Prospectus Supplement will set forth with regard to the
particular Securities in respect of which this Prospectus is being delivered (i)
in the case of Debt Securities, the title, aggregate principal amount,
denominations (which may be in United States dollars, or in any other currency,
currencies or currency unit, including the European Currency Unit), maturity,
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Operating Partnership or the holder, any terms for sinking fund payments, rank,
any exchange rights, any listing on a securities exchange, and the initial
public offering price and any other terms in connection with the offering and
sale of such Debt Securities, (ii) in the case of Preferred Shares, the specific
title, the aggregate amount and the stated value, any dividend (including the
method of calculating the payment of dividend), liquidation, redemption,
conversion, voting or other rights and the initial offering price and (iii) in
the case of Common Shares, the number of Common Shares, the initial offering
price and the terms of the offering thereof. The Prospectus Supplement will also
contain, as applicable, a discussion of the material United States Federal
income tax considerations relating to the Securities in respect of which this
Prospectus is being delivered to the extent not contained herein.
Vornado's Common Shares are listed on the New York Stock Exchange ("NYSE")
under the symbol "VNO". Vornado's $3.25 Series A Convertible Preferred Shares of
Beneficial Interest, liquidation preference $50.00 per share (the "Series A
Preferred Shares"), are listed on the NYSE under the symbol "VNO Pr A". The
Prospectus Supplement will also contain information, where applicable, as to any
listing on a securities exchange of the Securities covered by such Prospectus
Supplement.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SECURITIES.
------------------------
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.
------------------------
Vornado and the Operating Partnership may sell Securities to or through
underwriters, and also may sell Securities directly to other purchasers or
through agents. The accompanying Prospectus Supplement will set forth the names
of any underwriters or agents involved in the sale of the Securities in respect
of which this Prospectus is being delivered, the amounts of Securities, if any,
to be purchased by underwriters and the compensation, if any, of such
underwriters or agents. See "Plan of Distribution" herein.
The date of this Prospectus is February 11, 1998.
<PAGE> 12
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING PARTNERSHIP OR ANY
UNDERWRITERS, AGENTS OR DEALERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES OR THE OPERATING PARTNERSHIP SINCE
THE DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
All references to "Vornado" in this prospectus shall be deemed to refer to
Vornado Realty Trust; all references to the "Operating Partnership" in this
prospectus shall be deemed to refer to Vornado Realty L.P.; and all references
to the "Company" in this prospectus shall be deemed to include Vornado and its
consolidated subsidiaries, including the Operating Partnership.
AVAILABLE INFORMATION
Vornado and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith Vornado and the Operating Partnership file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by Vornado and the Operating Partnership with the Commission
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 Vornado and the Operating Partnership,
that must file such material with the Commission electronically. The
Commission's address on the world wide web is "http://www.sec.gov". Vornado's
Common Shares and Series A Preferred Shares are listed on the NYSE and similar
information can be inspected and copied at the NYSE, 20 Broad Street, 17th
Floor, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(the "Registration Statement") filed by Vornado and the Operating Partnership
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). As permitted by the rules and regulations of the Commission,
this Prospectus omits certain of the information contained in the Registration
Statement and reference is hereby made to the Registration Statement and related
exhibits for further information with respect to Vornado, the Operating
Partnership and the Securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company and the Operating Partnership
with the Commission pursuant to the Exchange Act are hereby incorporated by
reference into this Prospectus:
(1) Vornado's Annual Report on Form 10-K (File No. 001-11954) for the
fiscal year ended December 31, 1996, as amended by the Form 10-K/A
Amendment No. 1, Form 10-K/A Amendment No. 2 and Form 10K/A Amendment No. 3
for the fiscal year ended December 31, 1996 filed with the Commission on
July 18, 1997, August 7, 1997 and September 10, 1997, respectively;
(2) Vornado's Quarterly Reports on Form 10-Q (File No. 001-11954) for
the periods ended March 31, 1997, June 30, 1997 and September 30, 1997;
(3) Vornado's Current Report on Form 8-K (File No. 001-11954), dated
March 12, 1997, as amended by Form 8-K/A, dated March 12, 1997 and filed
with the Commission on April 1, 1997, Vornado's Current Reports on Form 8-K
(File No. 001-11954), dated April 3, 1997, April 15, 1997, May 7, 1997 and
June 27, 1997, Vornado's Current Report on Form 8-K (File No. 001-11954),
dated August 21, 1997, as amended by Form 8-K/A, dated August 21, 1997 and
filed with the Commission on September 11, 1997, Vornado's Current Report
on Form 8-K (File No. 001-11954), dated September 22, 1997 and filed with
the Commission on October 8, 1997, Vornado's Current Report on Form 8-K
(File No. 001-11954), dated October 14, 1997 and filed with the Commission
on October 24, 1997, Vornado's Current Report on Form 8-K (File No.
001-11954), dated October 21, 1997 and filed with the Commission on October
24, 1997, Vornado's Current Report on Form 8-K (File No. 001-11954), dated
November 18, 1997 and filed with the Commission on December 2, 1997 and
Vornado's Current Report on Form 8-K (File No. 001-11954), dated December
16, 1997, as amended by Form 8-K/A, dated November 18, 1997 and filed with
the Commission on February 3, 1998, Vornado's Current Report on Form 8-K
(File No. 001-11954), dated January 26, 1998, as amended by Form 8-K/A,
dated January 26, 1998 and filed with the Commission on February 9, 1998
and Vornado's Current Report on Form 8-K (File No. 001-11954), dated
January 29, 1998 and filed with the Commission on January 30, 1998;
(4) the description of Vornado's Series A Preferred Shares contained
in Vornado's Registration Statement on Form 8-A (File No. 001-11954), filed
with the Commission on April 3, 1997;
(5) the Operating Partnership's Registration Statement on Form 10
(File No. 000-22685), filed with the Commission on June 12, 1997, as
amended by the Form 10/A Amendment No. 1, Form 10/A Amendment No. 2 and
Form 10/A Amendment No. 3 filed with the Commission on July 18, 1997,
August 7, 1997 and September 10, 1997, respectively;
(6) the Operating Partnership's Current Report on Form 8-K (File No.
000-22685), dated June 27, 1997, the Operating Partnership's Current Report
on Form 8-K (File No. 000-22685), dated August 21, 1997, as amended by Form
8-K/A, dated August 21, 1997 and filed with the Commission on September 11,
1997, the Operating Partnership's Current Report on Form 8-K (File No.
000-22685), dated September 22, 1997 and filed with the Commission on
October 8, 1997, the Operating Partnership's Current Report on Form 8-K
(File No. 000-22685), dated November 18, 1997 and filed with the Commission
on December 2, 1997 and the Operating Partnership's Current Report on Form
8-K (File No. 000-22685), dated December 16, 1997, as amended by Form
8-K/A, dated November 18, 1997 and filed with the Commission on February 3,
1998, the Operating Partnership's Current Report on Form 8-K (File No. 000-
22685), dated January 26, 1998, as amended by Form 8-K/A, dated January 26,
1998 and filed with the Commission on February 9, 1998 and the Operating
Partnership's Current Report on
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Form 8-K (File No. 000-22685), dated January 29, 1998 and filed with the
Commission on January 30, 1998; and
(7) the Operating Partnership's Quarterly Report on Form 10-Q (File
No. 000-22685) for the periods ended June 30, 1997 and September 30, 1997.
All other documents and reports filed with the Commission by Vornado or the
Operating Partnership pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act from the date of this Prospectus and prior to the termination of
the offering of the Securities shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of the filing of
such reports and documents (provided, however, that the information referred to
in item 402(a)(8) of Regulation S-K of the Commission shall not be deemed
specifically incorporated by reference herein).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Vornado and the Operating Partnership will provide without charge to each
person to whom a copy of this Prospectus is delivered, on written or oral
request of such person, a copy of any or all documents which are incorporated
herein by reference (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in the document which this
Prospectus incorporates). Requests should be directed to the Secretary of
Vornado, Park 80 West, Plaza II, Saddle Brook, New Jersey 07663, telephone
number (201) 587-1000.
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RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL
Real property investments are subject to varying degrees of risk. Real
estate values are affected by changes in the general economic climate, local
conditions such as an oversupply of or a reduction in demand for real estate in
the area, the attractiveness of the Company's properties to tenants, the
quality, philosophy and performance of management, competition from comparable
properties, inability to collect rent from tenants, the effects of any
bankruptcies of major tenants, changes in market rental rates, the need to
periodically repair, renovate and rent space and to pay the costs thereof
(including, without limitation, substantial tenant improvement and leasing costs
of re-leasing office space), and increases in operating costs due to inflation
and other factors (including increased real estate taxes), which increases may
not necessarily be passed through fully to tenants. Real estate values are also
affected by such factors as government regulations and changes in zoning or tax
laws, interest rate levels, the availability of financing and potential
liability under environmental and other laws. Changes in any of the foregoing
factors could result in a decline in rents obtained and/or occupancy levels at
the Company's properties. A decline in rental revenues could result in a lower
level of funds available for distribution to Vornado's shareholders.
DEPENDENCE ON TENANTS
The Company's results of operations will depend on its ability to continue
to lease space in its real estate properties on economically favorable terms. In
addition, as substantially all of the Company's income is derived from rentals
of real property, the Company's income and funds available for distribution to
Vornado's shareholders would be adversely affected if a significant number of
the Company's lessees were unable to meet their obligations to the Company. In
the event of default by a lessee, the Company may experience delays in enforcing
its rights as lessor and may incur substantial costs in protecting its
investment. Currently only one of the Company's tenants, Bradlees, Inc.
("Bradlees"), represents more than 3% of the Company's pro forma revenues.
Bradlees accounted for approximately 10.5% of pro forma property rentals for the
year ended December 31, 1996.
BANKRUPTCY OF TENANTS
There have been a number of recent bankruptcies in the retail industry,
including certain tenants of the Company. The bankruptcy or insolvency of a
major tenant may have a material adverse effect on the shopping centers affected
and the income produced by such properties and may make it substantially more
difficult to lease the remainder of the affected shopping center. The Company's
leases generally do not contain restrictions designed to ensure the
creditworthiness of the tenant. As a result, the bankruptcy or insolvency of a
major tenant could result in a lower level of funds from operations available
for distribution to Vornado's shareholders.
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Company currently leases 16 locations in shopping centers
to Bradlees. Of these locations, 14 are fully guaranteed by Stop & Shop
Companies, Inc. ("Stop & Shop"), a wholly-owned subsidiary of Royal Ahold NV, a
leading international food retailer, and one is guaranteed as to 70% of the
rent. During 1996, Bradlees rejected three leases and assigned one lease to
Kohl's Department Stores, Inc. These four leases are fully guaranteed by Stop &
Shop. Each of the three locations rejected by Bradlees are currently vacant. The
balance of the space in two of the affected shopping centers is substantially
leased and occupied. The remaining shopping center was previously 100% occupied
by Bradlees and such space remains vacant. The bankruptcy of Bradlees may have a
negative effect on the Company's ability to lease the shopping centers affected.
Montgomery Ward & Co., Inc. (a previous lessee currently operating under Chapter
11 of the U.S. Bankruptcy Code) remains liable
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on eight of the leases guaranteed by Stop & Shop, including the rent it was
obligated to pay -- approximately 70% of current rent. The failure of Stop &
Shop to perform its obligations with respect to these leases could result in a
decline in the level of the Company's rental revenues and, as a result, in a
lower level of funds from operations being available for distribution to
Vornado's shareholders.
ACQUISITION AND DEVELOPMENT RISKS
The Company may acquire or develop properties or acquire other real estate
companies when it believes that an acquisition or development is consistent with
its business strategies. In addition, the Company anticipates that, in certain
circumstances, it may use Operating Partnership units ("Units") as consideration
for acquisitions from tax-sensitive sellers and, in connection with such
acquisitions, it may agree to certain restrictions on the Company's ability to
sell, or reduce the mortgage indebtedness on, such acquired assets, including
agreeing not to sell properties for significant periods of time. These
transactions also may increase the Operating Partnership's indebtedness as a
percentage of the Company's asset value or market capitalization, which may
impair the ability of the Company to take actions that would otherwise be in the
best interests of Vornado and its shareholders. A significant increase in the
level of the Company's indebtedness could affect the Operating Partnership's
ability to make required principal and interest payments with respect to
indebtedness, including the Debt Securities. See also "-- Leverage."
ILLIQUIDITY OF ASSETS; RESTRICTIONS ON DISPOSITIONS OF MORTGAGED PROPERTIES
Equity real estate investments are relatively illiquid and therefore tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, certain significant
expenditures associated with each equity investment (such as mortgage payments,
real estate taxes and maintenance costs) are generally not reduced when
circumstances cause a reduction in income from the investment. Should such
events occur, the Company's income and funds available for distribution to
Vornado's shareholders would be adversely affected. A portion of the Company's
properties are mortgaged to secure payment of indebtedness, and if the Company
were unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the properties by the mortgagee. In addition, if it becomes
necessary or desirable for the Company to dispose of one or more of the
mortgaged properties, the Company might not be able to obtain release of the
lien on such mortgaged property. The foreclosure of a mortgage on a property or
inability to sell a property could affect the level of funds available for
distribution to Vornado shareholders. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and the Notes to the Consolidated Financial Statements contained in
the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1996, incorporated in this Prospectus by reference for information
regarding the terms of the mortgages encumbering the Company's properties.
SUBSTANTIAL INFLUENCE OF CONTROLLING SHAREHOLDER; POSSIBLE CONFLICTS OF
INTEREST; RELATED PARTY TRANSACTIONS
As of November 15, 1997, Interstate Properties, a New Jersey general
partnership ("Interstate"), owns 17.3% of the outstanding Common Shares of the
Company (assuming conversion of all Operating Partnership Units) and Units of
the Operating Partnership. Steven Roth, Chairman of the Board and Chief
Executive Officer of the Company, is the managing general partner of Interstate.
Mr. Roth, David Mandelbaum and Russell B. Wight, Jr. are the three partners of
Interstate. Messrs. Roth, Mandelbaum and Wight and Interstate owned, in the
aggregate, 20.6% of the outstanding Common Shares of the Company and Units of
the Operating Partnership as of November 15, 1997.
As of November 15, 1997, the Company owned 29.3% of the outstanding common
stock of Alexander's Inc. ("Alexander's"), a Delaware corporation. Alexander's
is a real estate investment
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trust engaged in leasing, managing, developing and redeveloping properties,
focusing primarily on the locations where its department stores (which ceased
operations in 1992) formerly operated. Alexander's has nine properties which are
located in the New York City region. Interstate owns an additional 27.1% of the
outstanding common stock of Alexander's as of such date. Mr. Roth, the Company's
Chief Executive Officer, and Michael D. Fascitelli, the Company's President, are
directors of Alexander's. Messrs. Mandelbaum, Richard R. West and Wight, members
of the Company's Board of Trustees, are also members of the Board of Directors
of Alexander's.
The Company is contemplating the establishment of a new taxable operating
company to be known as Vornado Operating Company ("Vornado Operating") to
conduct certain activities that would not be permitted to be conducted by the
Company as a REIT and has filed a registration statement with the Commission
with respect thereto. If such action takes place, the Operating Partnership
would spin off pro rata to its partners, including Vornado, the shares of
Vornado Operating, and Vornado would distribute pro rata to holders of its
Common Shares the shares it receives. In addition, the Company expects to enter
into an Intercompany Agreement with Vornado Operating pursuant to which, among
other things, (a) the Company will agree under certain circumstances to offer
Vornado Operating 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) Vornado Operating will agree not to make any real estate investment or
other REIT-qualified investments unless it first offers the Company the
opportunity to make such investment and the Company has rejected that
opportunity. The Company expects that four members of the Company's Board of
Trustees (including Messrs. Roth and Fascitelli) will be members of Vornado
Operating's Board of Directors, and each member of senior management of Vornado
Operating will hold a corresponding position with the Company. Members of the
Company's Board of Trustees and Vornado Operating's Board of Directors and
senior management may have different percentage equity interests in the Company
and Vornado Operating. No assurance can be given concerning the timing of any
such transactions, or whether such transactions will occur.
Because of the foregoing, Mr. Roth and Interstate may have substantial
influence on the Company, Alexander's and Vornado Operating and on the outcome
of any matters submitted to the Company's, Alexander's or Vornado Operating's
stockholders for approval. In addition, certain decisions concerning the
operations or financial structure of the Company may present conflicts of
interest among Messrs. Roth, Mandelbaum and Wight and Interstate and the
Company's other shareholders. In addition, Mr. Roth and Interstate engage in a
wide variety of activities in the real estate business which may result in
conflicts of interest with respect to certain matters affecting the Company,
Alexander's or Vornado Operating, 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) demands on the time of Mr. Roth and
certain of the executive officers of the Company and changes of existing
arrangements between Mr. Roth, the Company, Interstate and Vornado Operating,
potential competition between business activities conducted, or sought to be
conducted, by the Company, Interstate, Alexander's and Vornado Operating
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions) and other strategic decisions affecting the
future of such parties.
Bernard Mendik, the Company's co-chairman, owns direct and indirect
managing general partner interests in two properties (Two Park Avenue and 330
Madison Avenue) in which the Company owns a partial interest, direct and
indirect interests in numerous additional office properties and other real
estate assets, and interests in certain property services businesses, including
in businesses which provide cleaning and related services, security services and
facilities management services, which interests may give rise to certain
conflicts of interest concerning the fulfillment of Mr. Mendik's responsibility
as a trustee of the Company.
The Mendik Group (the "Mendik Group", as used herein, Bernard H. Mendik,
David R. Greenbaum and certain entities controlled by them) owns an entity which
provides cleaning and
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related services and security services to office properties. The Company has
entered into contracts with the Mendik Group to provide such services to the
certain office properties in which the Company owns a 100% interest. Although
the terms and conditions of the contracts pursuant to which these services will
be provided were not negotiated at arms' length, the Company believes based upon
comparable fees charged to other real estate companies, that the terms and
conditions of such contracts are fair to the Company, although there can be no
assurance to this effect.
ALEXANDER'S MANAGEMENT AND DEVELOPMENT AGREEMENT
Pursuant to a Management and Development Agreement (the "Management
Agreement") between the Company and Alexander's, the Company has agreed to
manage Alexander's business affairs and manage and develop Alexander's
properties for an annual fee. The Management Agreement was assigned by the
Company to Vornado Management Corp. ("VMC"), a New Jersey corporation. The
Company owns 100% of the outstanding shares of non-voting preferred stock of VMC
(which entitles the Company to 95% of the economic benefits of VMC through
distributions), and Messrs. Roth and West own 100% of the outstanding shares of
common stock of VMC. The Company also acts as a leasing agent for Alexander's
properties on a fee basis under a leasing agreement. In addition, the Company
lent Alexander's $45 million, the subordinated tranche of a $75 million secured
financing, the balance of which was funded by a bank. None of Mr. Roth,
Interstate or Vornado is obligated to present to Alexander's any particular
investment opportunity which comes to his or its attention, even if such
opportunity is of a character which might be suitable for investment by
Alexander's.
LEASING SERVICES PROVIDED TO OTHER PROPERTIES
The Mendik Management Company Inc. (the "Management Corporation") (which is
controlled by Messrs. Mendik, Greenbaum and Fascitelli and not by the Company)
provides management and leasing services to properties in which the Company owns
less than a 100% interest as well as to other office properties (including
several properties in which the Mendik Group has an interest). Certain conflicts
of interest may result from the Management Corporation providing leasing
services both to properties in which the Company has an interest and other
properties in which the Mendik Group has an interest.
DEPENDENCE ON DIVIDENDS AND DISTRIBUTIONS OF SUBSIDIARIES
Vornado is a real estate investment trust formed under Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland ("Title
8"). Substantially all of Vornado's assets consist of its partnership interests
in the Operating Partnership, of which Vornado is the general partner.
Substantially all of the Operating Partnership's properties and assets are held
through subsidiaries. Any right of Vornado's shareholders to participate in any
distribution of the assets of any of the Company's indirect subsidiaries 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 stockholders, if any, of the Operating Partnership and
such subsidiary, except to the extent the Company has a 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. See
also "-- Potential Anti-takeover Effects of Charter Documents and Applicable
Law" and "-- Leverage".
LEVERAGE
As of November 15, 1997, the Company had aggregate indebtedness outstanding
of approximately $463 million, all of which is secured by Company properties.
The Operating Partnership's ability to make required principal and interest
payments with respect to indebtedness, including any
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Debt Securities, depends on the earnings of its subsidiaries and on its ability
to receive funds from such subsidiaries through dividends or other payments
since the Debt Securities are obligations of the Operating Partnership only and
its subsidiaries are not obligated or required to pay any amounts due pursuant
to the Debt Securities or to make funds available therefor in the form of
dividends or advances to the Operating Partnership. Of the approximately $463
million of outstanding indebtedness, Vornado Finance L.P., a Delaware limited
partnership and subsidiary of the Operating Partnership ("Vornado Finance"), has
outstanding an aggregate of $227,000,000 of 6.36% Collateralized Notes Due
December 1, 2000 (the "Collateralized Notes"), secured by a mortgage note,
mortgage and various other instruments, documents and agreements executed in
connection therewith by other subsidiaries of the Operating Partnership owning,
in the aggregate, the interests in 44 of the Company's properties.
The indenture relating to the Collateralized Notes of Vornado Finance
provides that all cash flows from the 44 Company properties which are collateral
for the Collateralized Notes will be deposited in a segregated trust account. So
long as no event of default under the indenture has occurred and is continuing,
Vornado Finance may withdraw funds from such trust account to the extent that
the amounts in such account exceed a certain minimum reserve level. Such minimum
reserve level equals the sum of (i) the amount of current or past due operating
expenses of Vornado Finance and its subsidiaries, (ii) indebtedness of Vornado
Finance and its subsidiaries due prior to such withdrawal and (iii) accrued and
unpaid interest on the Collateralized Notes; provided that (a) if the debt
service coverage ratio (as defined in the indenture relating to the
Collateralized Notes) is less than 2.0 and greater than or equal to 1.8, the
amount in (iii) above is increased by an amount equal to six months interest on
the Collateralized Notes and (b) if the debt service coverage ratio is less than
1.8, the amount in (iii) above is increased by an amount equal to 18 months
interest on the Collateralized Notes. As a result of these limitations on cash
flows relating to such properties, which cash flows represented approximately
83% of cash flows from properties of the Operating Partnership and its
consolidated subsidiaries in 1996, the Operating Partnership's ability to pay
interest and principal on its Debt Securities may be adversely affected.
The Indentures do not contain provisions that limit the Operating
Partnership's ability to incur indebtedness. Vornado has historically maintained
a relatively low level of debt to market capitalization of between 15% and 35%.
As of November 15, 1997, the level of debt to market capitalization was 13%. In
the future, in connection with its strategy for growth, this percentage may
increase. This policy may be reviewed and modified from time to time by the
Company without the vote of shareholders.
GEOGRAPHIC CONCENTRATION
For the year ended December 31, 1996, 78% of the Company's revenues were
derived from properties located in New York City and New Jersey. In addition,
the Company may concentrate a significant portion of its future acquisitions in
New York City and New Jersey. Like other real estate markets, the real estate
market in New York City and New Jersey experienced economic downturns in the
past, including most recently in the late 1980s and early 1990s. Future declines
in the economy or the real estate markets in New York City and New Jersey could
adversely affect the Company's financial performance. The Operating
Partnership's financial performance and its ability to make distributions to its
partners, including Vornado, are dependent on conditions in the economy and the
real estate markets in New York City and New Jersey, which may be affected by a
number of factors, including the economic climate in New York City and New
Jersey (which may be adversely affected by business layoffs or downsizing,
industry slowdowns, relocations of businesses, changing demographics, increased
telecommuting, infrastructure quality in New York City and New Jersey and other
factors) and conditions in the real estate markets in New York City and New
Jersey (such as oversupply of or reduced demand for real estate). There can be
no assurance as to the continued strength of the economy, or the continued
strength of the real estate markets, in New York City and New Jersey.
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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 may be required to
investigate and clean up certain hazardous substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with the contamination. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. Other Federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in the
event of demolition or certain renovations or remodeling and also govern
emissions of and exposure to asbestos fibers in the air. The operation and
subsequent removal of certain underground storage tanks are also regulated by
Federal and state laws. In connection with the ownership, operation and
management of its properties, the Company could be held liable for the costs of
remedial action with respect to such regulated substances or tanks or related
claims.
Each of the Company's properties has been subjected to varying degrees of
environmental assessment, which generally did not include soil sampling or
subsurface investigations, at various times. The environmental assessments did
not reveal any environmental condition or liability that the Company believes
will have a material adverse effect on the Company's business, assets or results
of operations. However, there can be no assurance that the identification of new
areas of contamination, change in the extent or known scope of contamination,
the discovery of additional sites or changes in cleanup requirements would not
result in significant costs to the Company.
COMPETITION
The leasing of real estate is highly competitive. The principal means of
competition are rent charged, location, services provided and the nature and
condition of the facility to be leased. The Company directly competes with all
lessors and developers of similar space in the areas in which its properties are
located. Demand for retail space has been impacted by the recent bankruptcy of a
number of retail companies and a general trend toward consolidation in the
retail industry which could adversely affect the ability of the Company to
attract and retain tenants.
The Company's shopping center properties are generally located on major
regional highways in mature, densely populated areas. These shopping center
properties compete with, among others, free standing stores, neighborhood
centers and stores leased on the periphery of regional malls. Further, the
general economic climate (such as household disposable income) and the
conditions of shopping center markets (such as oversupply of or reduced demand
for retail space) in the places where the shopping center properties are located
could adversely affect the Company's financial condition.
The Company's office building properties are concentrated in highly
developed areas of midtown Manhattan. Manhattan is the largest office market in
the United States. The number of competitive office properties in Manhattan
could have a material adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able to
charge. These competing properties may be newer or better located. In addition,
the Company may compete with other property owners (including other REITs that
currently invest in markets other than Manhattan) that are willing to acquire
properties in transactions which are more highly leveraged than the Company is
willing to undertake.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of Steven Roth, the Chairman and
Chief Executive Officer of Vornado, and Michael D. Fascitelli, the President of
Vornado. While the Company believes
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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.
CONSEQUENCES OF THE FAILURE TO QUALIFY OR REMAIN QUALIFIED AS A REIT
Although Vornado's management believes that Vornado will remain organized
and will continue to operate so as to qualify as a real estate investment trust
("REIT") for Federal income tax purposes, no assurance can be given that it will
remain so qualified. Qualification as a REIT for Federal income tax purposes
involves the application of highly technical and complex provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), for which there are only
limited judicial or administrative interpretations, and the determination of
various factual matters and circumstances not entirely within the control of
Vornado may impact its ability to maintain its qualification as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the requirements for qualification as a REIT or the
Federal income tax consequences of such qualification. Vornado, however, is not
aware of any proposal to amend the tax laws that would significantly and
adversely affect its ability to operate in such a manner as to maintain its
qualification as a REIT.
If, with respect to any taxable year, Vornado fails to maintain its
qualification as a REIT, it would not be allowed a deduction for distributions
to shareholders in computing its taxable income and would be subject to Federal
income tax (including any applicable alterative minimum tax) on its taxable
income at regular corporate rates. As a result, the amount available for
distribution to shareholders would be reduced for the year or years involved,
and distributions would no longer be required to be made. In addition, unless
entitled to relief under certain statutory provisions, Vornado would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. Notwithstanding that Vornado currently
intends to operate in a manner designed to allow it to qualify as a REIT, future
economic, market, legal, tax or other considerations may cause it to determine
that it is in the best interest of Vornado and its shareholders to revoke the
REIT election.
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER DOCUMENTS AND APPLICABLE LAW
Generally, for Vornado to maintain its qualification as a REIT under the
Code, not more than 50% in value of the outstanding shares of beneficial
interest of Vornado may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of Vornado's taxable year (other than the first taxable
year for which the election to be treated as a REIT has been made). The
Declaration of Trust, subject to certain exceptions, provides that no person may
own more than 6.7% of the outstanding Common Shares or 9.9% of the outstanding
Preferred Shares. These restrictions on transferability and ownership may delay,
defer or prevent a transaction or a change in control of Vornado that might
involve a premium price or otherwise be in the best interest of the
shareholders. See "Description of Shares of Beneficial Interest -- Description
of Preferred Shares -- Restrictions on Ownership" and "Description of Shares of
Beneficial Interest -- Description of Common Shares -- Restrictions on
Ownership".
Vornado's Board of Trustees is divided into three classes of trustees.
Trustees of each class are chosen for three-year staggered terms. Staggered
terms of trustees may reduce the possibility of a tender offer or an attempt to
change control of Vornado, even though a tender offer or change in control might
be in the best interest of the shareholders. Vornado's Declaration of Trust
authorizes the Board of Trustees to cause Vornado to issue additional authorized
but unissued shares of Common Shares or Preferred Shares and to classify or
reclassify, in one or more series, any unissued Preferred Shares and to set the
preferences, rights and other terms of such classified or unclassified shares.
Although the Board of Trustees has no such intention at the present time, it
could establish a series of Preferred Shares that could, depending on the terms
of such series, delay, defer or prevent a transaction or a change in control of
Vornado that might involve a premium
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<PAGE> 22
price or otherwise be in the best interest of the shareholders. The Declaration
of Trust and Vornado's Bylaws contain other provisions that may delay, deter or
prevent a change in control of Vornado or other transaction that might involve a
premium price or otherwise be in the best interest of the shareholders.
Under the Maryland General Corporation Law, as amended ("MGCL"), as
applicable to real estate investment trusts, certain "business combinations"
(including certain mergers, consolidations, share exchanges and asset transfers
and certain issuances and reclassifications of equity securities) between a
Maryland real estate investment trust and any person who beneficially owns ten
percent or more of the voting power of the trust's shares or an affiliate of the
trust who, at any time within the two-year period prior to the date in question,
was the beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of beneficial interest of the trust (an "Interested
Shareholder") or an affiliate of the Interested Shareholder are prohibited for
five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of beneficial interest of the trust and (b) two-thirds of
the votes entitled to be cast by holders of voting shares of the trust other
than shares held by the Interested Shareholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Shareholder for its common
shares. The provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of trustees of the trust
prior to the time that the Interested Shareholder becomes an Interested
Shareholder. The Board of Trustees has adopted a resolution exempting any
business combination between any trustee or officer of Vornado (or their
affiliates) and Vornado. As a result, the trustees and officers of Vornado and
their affiliates may be able to enter business combinations with Vornado which
may not be in the best interest of shareholders and, with respect to business
combinations with other persons, the business combination provisions of the MGCL
may have the effect of delaying, deferring or preventing a transaction or a
change in the control of Vornado that might involve a premium price or otherwise
be in the best interest of the shareholders.
VORNADO AND THE OPERATING PARTNERSHIP
Vornado is a fully-integrated real estate investment trust organized under
the laws of the state of Maryland. In April 1997, Vornado transferred
substantially all of its assets to the Operating Partnership, a Delaware limited
partnership. As a result, Vornado now conducts its business through, and
substantially all of its interests in properties are held by, the Operating
Partnership, in which it is the sole general partner and in which it owns an
approximately 90% limited partnership interest as of November 15, 1997. The
Operating Partnership currently owns: (i) 58 shopping center properties in seven
states and Puerto Rico containing 10.5 million square feet, including 1.2
million square feet built by tenants on land leased from the Company; (ii) all
or portions of 10 office building properties in the New York City metropolitan
area (primarily Manhattan) containing 5.0 million square feet; (iii) eight
warehouse/industrial properties in New Jersey containing 2.0 million square
feet; (iv) approximately 29.3% of the outstanding common stock of Alexander's,
Inc., which has nine properties in the New York City metropolitan area; (v) a
40% interest in a hotel containing 800,000 square feet of space with 1,700 rooms
and 400,000 square feet of retail and office space; (vi) mortgages on various
office, restaurant and other retail properties; (vii) a 60% interest in a
partnership that owns Americold Corporation and URS Logistics, Inc., which
collectively own and operate 80 warehouse facilities with an aggregate of
approximately 367 million cubic feet of refrigerated, frozen and dry storage
space; (viii) a 15% limited partnership interest in Charles E. Smith Commercial
Realty, which owns interests in and manages approximately 7.2 million square
feet of office properties in Crystal City, Arlington, Virginia, a suburb of
Washington D.C., and
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manages an additional 14 million square feet of office and other commercial
properties in the Washington, D.C. area; and (ix) other owned retail properties.
As of November 15, 1997, the Company's total consolidated outstanding debt
was approximately $463 million all of which is secured by Company properties,
and its total consolidated debt plus its proportionate share of total
unconsolidated debt were approximately $992 million which is secured by Company
properties.
The executive offices of Vornado and the Operating Partnership are located
at Park 80 West, Plaza II, Saddle Brook, N.J. 07663; telephone (201) 587-1000.
USE OF PROCEEDS
Vornado is required by the terms of the partnership agreement of the
Operating Partnership to invest the net proceeds of any sale of Common Shares,
Preferred Shares or Depositary Shares in the Operating Partnership in exchange
for additional Units or preferred Units, as the case may be. As will be more
fully described in the applicable Prospectus Supplement, Vornado and the
Operating Partnership intend to use the net proceeds from the sale of Securities
for general corporate purposes or such other uses as may be set forth in a
Prospectus Supplement. Such other uses may include, among others, the funding of
an acquisition or the repayment of indebtedness.
CONSOLIDATED RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDEND REQUIREMENTS
For purposes of calculating the following ratios, (i) earnings represent
income from continuing operations before income taxes, plus fixed charges, and
(ii) fixed charges represent interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals).
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
and Preferred Share Dividend
Requirements.............................. 1.70 4.56 4.06 3.54 1.80 1.07
</TABLE>
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<PAGE> 24
DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered by any Prospectus
Supplement or Prospectus Supplements will be described therein. The Senior Debt
Securities are to be issued under an Indenture (the "Senior Indenture") between
the Operating Partnership and The Bank of New York, as trustee (the "Senior
Trustee"), a copy of the form of which Senior Indenture is filed as an exhibit
to the Registration Statement. The Subordinated Debt Securities are to be issued
under a separate Indenture (the "Subordinated Indenture") between the Operating
Partnership and The Bank of New York, as trustee (the "Subordinated Trustee"), a
copy of the form of which Subordinated Indenture is filed as an exhibit to the
Registration Statement. The Senior Indenture and the Subordinated Indenture are
sometimes referred to collectively as the "Indentures" and the Senior Trustee
and Subordinated Trustee are sometimes referred to collectively as the
"Trustees."
The following summaries of the material provisions of the Senior Debt
Securities, the Subordinated Debt Securities, the Senior Indenture and the
Subordinated Indenture are brief summaries thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture applicable to a particular series of
Debt Securities. Wherever particular Sections, Articles or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections,
Articles or defined terms are incorporated herein or therein by reference.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be general unsecured obligations of the Operating
Partnership. The Indentures do not limit the aggregate amount of Debt Securities
which may be issued thereunder, and Debt Securities may be issued thereunder
from time to time in separate series up to the aggregate amount from time to
time authorized by the Operating Partnership for each series. Unless otherwise
specified in the Prospectus Supplement, the Senior Debt Securities when issued
will be unsubordinated obligations of the Operating Partnership and will rank
equally and ratably with all other unsecured and unsubordinated indebtedness of
the Operating Partnership. The Subordinated Debt Securities when issued will be
subordinated in right of payment to the prior payment in full of all Senior Debt
(as defined in the Subordinated Indenture) of the Operating Partnership as
described below under "-- Subordination of Subordinated Debt Securities" and in
the Prospectus Supplement applicable to an offering of Subordinated Debt
Securities.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the series of Debt Securities in respect of
which this Prospectus is being delivered: (1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt Securities; (3) the
person to whom any interest on any Debt Security of the series shall be payable
if other than the person in whose name the Debt Security is registered on the
regular record date; (4) the date or dates on which such Debt Securities will
mature; (5) the rate or rates of interest, if any, or the method of calculation
thereof, which such Debt Securities will bear, the date or dates from which any
such interest will accrue, the interest payment dates on which any such interest
on such Debt Securities will be payable and the regular record date for any
interest payable on any interest payment date; (6) the place or places where the
principal of, premium, if any, and interest on such Debt Securities will be
payable; (7) the period or periods within which, the events upon the occurrence
of which, and the price or prices at which, such Debt Securities may, pursuant
to any optional or mandatory provisions, be redeemed or purchased, in whole or
in part, by the Operating Partnership and any terms and conditions relevant
thereto; (8) the obligations of the Operating Partnership, if any, to redeem or
repurchase such Debt Securities at the option of the Holders; (9) the
denominations in which any such Debt Securities will be issuable, if other than
denominations of $1,000 and any integral multiple thereof; (10) any index or
formula used to determine the amount of payments of principal of and any premium
and interest on such Debt Securities; (11) the
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<PAGE> 25
currency, currencies or currency unit or units of payment of principal of and
any premium and interest on such Debt Securities if other than U.S. dollars;
(12) if the principal of, or premium, if any, or interest, if any, on such Debt
Securities is to be payable, at the election of the Operating Partnership or a
holder thereof, in one or more currencies or currency units other than that or
those in which such Debt Securities are stated to be payable, the currency,
currencies or currency units in which payment of the principal of and any
premium and interest on Debt Securities of such series as to which such election
is made shall be payable, and the periods within which and the terms and
conditions upon which such election is to be made; (13) if other than the
principal amount thereof, the portion of the principal amount of such Debt
Securities of the series which will be payable upon acceleration of the maturity
thereof; (14) if the principal amount of any Debt Securities which will be
payable at the maturity thereof will not be determinable as of any date prior to
such maturity, the amount which will be deemed to be the outstanding principal
amount of such Debt Securities; (15) the applicability of any provisions
described under "-- Defeasance"; (16) whether any of such Debt Securities are to
be issuable in permanent global form ("Global Security") and, if so, the terms
and conditions, if any, upon which interests in such Debt Securities in global
form may be exchanged, in whole or in part, for the individual Debt Securities
represented thereby; (17) the applicability of any provisions described under
"-- Events of Default" and any additional Event of Default applicable thereto;
(18) any covenants applicable to such Debt Securities; (19) the terms and
conditions, if any, pursuant to which the Debt Securities are exchangeable into
Common Shares of the Company; and (20) any other terms of such Debt Securities
not inconsistent with the provisions of the Indentures. (Section 301)
Debt Securities may be issued at a discount from their principal amount.
United States Federal income tax considerations and other special considerations
applicable to any such original issue discount Securities will be described in
the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general Federal income tax considerations, specific
terms and other information with respect to such issue of Debt Securities will
be set forth in the applicable Prospectus Supplement.
The Indentures do not contain any provisions that limit the Operating
Partnership's ability to incur indebtedness. Except as may be indicated in the
applicable Prospectus Supplement with respect to a particular series of Debt
Securities, Holders of Debt Securities will not have the benefit of any specific
covenants or provisions in the applicable Indenture or Debt Securities that
would protect them in the event the Operating Partnership engages in or becomes
the subject of a highly leveraged transaction and the limitations on mergers,
consolidations and transfers of substantially all of the Operating Partnership's
properties and assets as an entirety to any person as described below under
"-- Consolidation, Merger and Sale of Assets." Such covenants may not be waived
or modified by the Operating Partnership, although Holders of Debt Securities
could waive or modify such covenants as more fully described below under
"-- Modification and Waiver."
The applicable Prospectus Supplement with respect to any particular series
of Debt Securities that provide for the optional redemption or prepayment of
such Debt Securities upon the occurrence of certain events (i.e., a change of
control) will describe the following: (1) the effects that such provisions may
have in deterring certain mergers, tender offers or other takeover attempts, as
well as that there may be possible adverse effects on the market price of the
Operating Partnership's securities or ability to obtain financing; (2) that the
Operating Partnership will comply with the requirements of applicable securities
laws, including Rules 14e-1 and 13e-4 under the Exchange Act, in connection with
such provisions and any related offers by the Operating Partnership; (3) whether
the occurrence of the specified events may give rise to cross-defaults on other
indebtedness such that payment on the offered Debt Securities may be effectively
subordinated; (4) limitations on the Operating Partnership's financial or legal
ability to repurchase the offered
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<PAGE> 26
Debt Securities upon the triggering of an event risk provision requiring such a
repurchase or offer to repurchase; (5) the impact, if any, under the governing
instrument of the failure to repurchase, including whether such failure to make
any required repurchases in the event of a change of control will create an
event of default with respect to the offered Debt Securities or will become an
event of default only after the continuation of such failure for a specified
period of time after written notice is given to the Operating Partnership by the
Trustee or to the Operating Partnership and the Trustee by the holders of a
specified percentage in aggregate principal amount of the debt outstanding; (6)
that there can be no assurance that sufficient funds will be available at the
time of the triggering of an event risk provision to make any required
repurchases; (7) if such offered Debt Securities are to be subordinated to other
obligations of the Operating Partnership or its subsidiaries that would be
accelerated upon the triggering of a change in control or similar event, the
material effect thereof on such acceleration provision and such offered Debt
Securities; and (8) to the extent that there is a definition of "change of
control" in a supplemental indenture relating to such offered Debt Securities
that includes the concept of "all or substantially all," the established meaning
of such phrase under New York law.
EXCHANGE OF DEBT SECURITIES
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, such series will be exchangeable into
Common Shares of Vornado on the terms and conditions set forth therein. Such
terms may include provisions pursuant to which the number of Common Shares of
Vornado to be received by the holders of Debt Securities would be calculated
according to the market price of Common Shares of Vornado as of a time stated in
the Prospectus Supplement. The applicable Prospectus Supplement will indicate
certain restrictions on ownership which may apply in the event of an exchange.
See "Description of Preferred Shares -- Restrictions on Ownership" and
"Description of Common Shares -- Restrictions on Ownership."
FORM, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof. (Section 302) Unless otherwise indicated
in the applicable Prospectus Supplement, payment of principal, premium, if any,
and interest on the Debt Securities will be payable, and the exchange and
transfer of Debt Securities will be registerable, at the office or agency of the
Operating Partnership maintained for such purposes and at any other office or
agency maintained for such purpose. (Sections 301, 305 and 1002) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Operating Partnership may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith. (Section 305)
All monies paid by the Operating Partnership to a Paying Agent for the
payment of principal of and any premium or interest on any Debt Security which
remain unclaimed for two years after such principal, premium or interest has
become due and payable may be repaid to the Operating Partnership and thereafter
the Holder of such Debt Security may look only to the Operating Partnership for
payment thereof. (Section 1003)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Global Depositary") or its nominee identified in the
applicable Prospectus Supplement. In such a case, one or more Global Securities
will be issued in a denomination or aggregate denomination equal to the portion
of the aggregate principal amount of Outstanding Debt Securities of the series
to be represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer except as a whole
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<PAGE> 27
by the Global Depositary for such Global Security to a nominee of such Global
Depositary or by a nominee of such Global Depositary to such Global Depositary
or another nominee of such Global Depositary or by such Global Depositary or any
nominee to a successor Global Depositary or a nominee of such successor Global
Depositary and except in the circumstances described in the applicable
Prospectus Supplement. (Sections 204 and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Operating
Partnership expects that the following provisions will apply to depositary
arrangements although no assurance can be given that such will be the case.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Global Depositary will be represented by a Global Security
registered in the name of such Global Depositary or its nominee. Upon the
issuance of such Global Security, and the deposit of such Global Security with
or on behalf of the Global Depositary for such Global Security, the Global
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of institutions that have accounts with such Global
Depositary or its nominee ("participants"). The accounts to be credited will be
designated by the underwriters or agents of such Debt Securities or by the
Operating Partnership, if such Debt Securities are offered and sold directly by
the Operating Partnership. Ownership of beneficial interest in such Global
Security will be limited to participants or Persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Global Depositary or
its nominee for such Global Security. Ownership of beneficial interests in such
Global Security by Persons that hold through participants will be shown on, and
the transfer of such ownership interests within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Global Depositary for a Global Security, or its nominee, is
the registered owner of such Global Security, such Global Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as set forth below, unless otherwise specified in
the applicable Prospectus Supplement, owners of beneficial interests in such
Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
certificated form and will not be considered the holders thereof for any
purposes under the applicable Indenture. (Sections 204 and 305) Accordingly,
each Person owning a beneficial interest in such Global Security must rely on
the procedures of the Global Depositary and, if such Person is not a
participant, on the procedures of the participant through which such Person owns
its interest, to exercise any rights of a holder under the applicable Indenture.
The Operating Partnership understands that under existing industry practices, if
the Operating Partnership requests any action of holders or an owner of a
beneficial interest in such Global Security desires to give any notice or take
any action a holder is entitled to give or take under the applicable Indenture,
the Global Depositary would authorize the participants to give such notice or
take such action, and participants would authorize beneficial owners owning
through such participants to give such notice or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
If the Global Depositary for Debt Securities of a series is at any time
unwilling, unable or ineligible to continue as Global Depositary and a successor
Global Depositary is not appointed by the Operating Partnership within 90 days
or an Event of Default under the applicable Indenture has occurred and is
continuing, the Operating Partnership will issue Debt Securities of such series
in definitive form in exchange for the Global Security or Securities
representing the Debt Securities of
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<PAGE> 28
such series. In addition, the Operating Partnership may at any time and in its
sole discretion, subject to any limitations described in the applicable
Prospectus Supplement, determine not to have any Debt Securities of a series
represented by one or more Global Securities and, in such event, will issue Debt
Securities of such series in definitive form in exchange for the Global Security
or Securities representing such Debt Securities. Further, if the Operating
Partnership so specifies with respect to the Debt Securities of a series, an
owner of a beneficial interest in a Global Security representing Debt Securities
of such series may, on terms acceptable to the Operating Partnership and the
Global Depositary for such Global Security, receive Debt Securities of such
series in definitive form in exchange for such beneficial interests, subject to
any limitations described in the applicable Prospectus Supplement relating to
such Debt Securities. In any such instance, an owner of a beneficial interest in
a Global Security will be entitled to physical delivery in definitive form of
Debt Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name (if the Debt Securities of such series are issuable as
registered securities).
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE OPERATING PARTNERSHIP
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, the Operating Partnership will be subject
to the covenants described therein. In addition, the Operating Partnership will
be subject to the following covenants.
EXISTENCE
Except as permitted under "-- Consolidation, Merger and Sale of Assets,"
the Operating Partnership will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities. (Section 1005)
MAINTENANCE OF PROPERTIES
The Operating Partnership will be required to cause all properties used or
useful in the conduct of its business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and to cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Operating Partnership may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that the Operating Partnership shall not be
prevented from discontinuing the operation or maintenance of any of its
properties if such discontinuance is, in the judgment of the Operating
Partnership, desirable in the conduct of its business or the business of any
subsidiary and not disadvantageous in any material respect to the Holders.
(Section 1006)
PAYMENT OF TAXES AND OTHER CLAIMS
The Operating Partnership will be required to pay or discharge or cause to
be paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon the Operating
Partnership or any subsidiary or upon the income, profits or property of the
Operating Partnership or any subsidiary, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any subsidiary; provided, however, that
the Operating Partnership shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge
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or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings. (Section 1007)
INSURANCE
The Operating Partnership will be required to, and to cause each of its
subsidiaries to, keep all of its insurable properties insured against loss or
damage with insurers of recognized responsibility in commercially reasonable
amounts and types. (Section 1008)
PROVISION OF FINANCIAL INFORMATION
Whether or not the Operating Partnership is subject to Section 13 or
Section 15(d) of the Exchange Act and for so long as any Debt Securities are
outstanding, the Operating Partnership will, to the extent permitted under the
Exchange Act, file with the Commission the annual reports, quarterly reports and
other documents which the Operating Partnership would have been required to file
with the Commission pursuant to Section 13 or Section 15(d) (the "Financial
Statements") if the Operating Partnership were so subject, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Operating Partnership would have been required so to
file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities
whose names appear in the security register for such Debt Securities, as their
names and addresses appear in the security register for such Debt Securities,
without cost to such Holders, copies of the annual reports and quarterly reports
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (ii) file with any
Trustee copies of the annual reports, quarterly reports and other documents
which the Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (y) if filing such
documents by the Operating Partnership with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder. (Section 1009)
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay principal of or premium, if
any, on any Debt Security of that series when due; (b) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(c) failure in the deposit of any sinking fund payment in respect of any Debt
Security of that series; (d) failure to perform any other covenant of the
Operating Partnership in the Indentures (other than a covenant included in the
applicable Indenture solely for the benefit of a series of Debt Securities other
than that series), continued for 60 days after written notice to the Operating
Partnership as provided in the applicable Indenture; (e) the acceleration of, or
failure to pay at maturity (including any applicable grace period), any
indebtedness for money borrowed by the Operating Partnership with at least
$50,000,000 in principal amount outstanding, which acceleration or failure to
pay is not rescinded or annulled or such indebtedness paid, in each case within
10 days after the date on which written notice thereof shall have first been
given to the Operating Partnership as provided in the applicable Indenture; (f)
certain events of bankruptcy, insolvency or reorganization; and (g) any other
Event of Default provided with respect to Debt Securities of that series.
(Section 501)
If an Event of Default with respect to Outstanding Debt Securities of any
series shall occur and be continuing, either the applicable Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of that series by notice as provided in the Indentures may declare
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the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all Debt Securities of that series to
be due and payable immediately. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
that series may, under certain circumstances, rescind and annul such
acceleration. (Section 502) For information as to waiver or defaults, see "--
Modification and Waiver" below.
The Indentures provide that, subject to the duty of the Trustees thereunder
during an Event of Default to act with the required standard of care, such
Trustees will be under no obligation to exercise any of its rights or powers
under the Indentures at the request or direction of any of the Holders, unless
such Holders shall have offered to such Trustees reasonable security or
indemnity. (Sections 601 and 603) Subject to certain provisions, including those
requiring security or indemnification of the Trustees, the Holders of a majority
in principal amount of the Outstanding Debt Securities of any series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustees, or exercising any trust or power conferred
on such Trustees, with respect to the Debt Securities of that series. (Section
512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures or for any remedy thereunder,
unless (i) such Holder shall have previously given to the applicable Trustee
written notice of a continuing Event of Default (as defined) with respect to
Debt Securities of that series; (ii) the Holders of not less than 25% in
aggregate principal amount of the Outstanding Debt Securities of the same series
shall have made written request, and offered reasonable indemnity, to the
applicable Trustee to institute proceedings in respect of such Event of Default
in its own name as trustee under the Indenture; (iii) the Trustee shall have
failed to institute such proceedings within 60 days; and (iv) the Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of the same series a direction inconsistent
with such request (Section 507); provided, however, that such limitations do not
apply to a suit instituted by a Holder of a Debt Security for enforcement of
payment of the principal of and any premium and interest on such Debt Security
on or after the respective due dates expressed in such Debt Security. (Section
508)
The Operating Partnership will be required to furnish to the Trustees
annually a statement as to the performance by the Operating Partnership of its
obligations under the Indentures and as to any default in such performance.
(Section 1004)
MODIFICATION AND WAIVER
Without the consent of any Holder of Outstanding Debt Securities, the
Operating Partnership and the applicable Trustee may amend or supplement the
applicable Indenture or the Debt Securities to cure any ambiguity, defect or
inconsistency, or to make any change that does not materially adversely affect
the rights of any Holder of Debt Securities. (Section 901) Other modifications
and amendments of the Indentures may be made by the Operating Partnership and
the applicable Trustee only with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series affected thereby; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby: (a) change the Stated Maturity of the principal of,
or any installment of principal of, or interest on, any Debt Security; (b)
reduce the principal amount of, the rate of interest on, or the premium, if any,
payable upon the redemption of, any Debt Security; (c) reduce the amount of
principal of an Original Issue Discount Security payable upon acceleration of
the Maturity thereof; (d) change the place or currency of payment of principal
of, or premium, if any, or interest on any Debt Security; (e) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Debt Security on or after the Stated Maturity or Redemption Date thereof; (f)
modify the subordination provisions applicable to any series of Debt Securities
in a
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manner adverse to the holders thereof; or (g) reduce the percentage in principal
amount of Outstanding Debt Securities of any series, the consent of the Holders
of which is required for modification or amendment of the Indentures or for
waiver of compliance with certain provisions of the applicable Indenture or for
waiver of certain defaults. (Section 902)
Unless otherwise indicated in the applicable Prospectus Supplement, the
Holders of at least a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Operating Partnership with certain covenants of the Indentures. (Section
1008) Unless otherwise indicated in the applicable Prospectus Supplement, the
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of any series may, on behalf of the Holders of all Debt Securities of
that series, waive any past default under the applicable Indenture with respect
to that series, except a default in the payment of the principal of, or premium,
if any, or interest on, any Debt Security of that series or in respect of a
provision which under such applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership, without the consent of any Holders of outstanding Debt
Securities, may consolidate with or merge into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate with or merge into, or transfer or lease its assets substantially as
an entirety to, the Operating Partnership, provided that (a) the Person (if
other than the Operating Partnership) formed by such consolidation or into which
the Operating Partnership is merged or which acquires or leases the assets of
the Operating Partnership substantially as an entirety assumes the Operating
Partnership's obligations on the Debt Securities and under the Indenture
relating thereto and (b) after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing. (Article Eight) A
Prospectus Supplement may set forth any additional provisions regarding a
consolidation with, merger into, or transfer or lease of its assets
substantially as an entirety to, any Person (or of such Person with, into or to
the Operating Partnership).
DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Operating Partnership, at its option (i) will
be discharged from any and all obligations in respect of the Debt Securities of
such series (except for certain obligations to register the transfer or exchange
of Debt Securities of such series, to replace destroyed, stolen, lost or
mutilated Debt Securities of such series, and to maintain an office or agency in
respect of the Debt Securities and hold monies for payment in trust) or (ii)
will be released from its obligations to comply with any covenants that may be
specified in the applicable Prospectus Supplement with respect to the Debt
Securities of such series, and the occurrence of an event described in clause
(d) under "-- Events of Default" above with respect to any defeased covenants
shall no longer be an Event of Default, if in either case the Operating
Partnership irrevocably deposits with the applicable Trustee, in trust, money or
U.S. Government Obligations that through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay all of the principal of and premium, if any, and any interest
on the Debt Securities of such series on the dates such payments are due (which
may include one or more redemption dates designated by the Operating
Partnership) in accordance with the terms of such Debt Securities. Such a trust
may only be established if, among other things, (a) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the applicable Indenture shall have occurred and be continuing
on the date of such deposit, (b) no Event of Default described under clause (e)
under "-- Events of Default" above or event which with the giving of
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notice or lapse of time, or both, would become an Event of Default described
under such clause (e) shall have occurred and be continuing at any time during
the period ending on the 91st day following such date of deposit and (c) the
Operating Partnership shall have delivered an Opinion of Counsel to the effect
that the Holders of the Debt Securities will not recognize gain or loss for
United States Federal income tax purposes as a result of such deposit or
defeasance and will be subject to United States Federal income tax in the same
manner as if such deposit and defeasance had not occurred, which Opinion of
Counsel, in the case of a deposit and defeasance of such Indenture with respect
to the Debt Securities of any series as described under clause (i) above, shall
be based on either (A) a ruling to such effect that the Operating Partnership
has received from, or that has been published by, the Internal Revenue Service
or (B) a change in the applicable Federal income tax law, occurring after the
date of the applicable Indenture, to such effect. In the event the Operating
Partnership omits to comply with its remaining obligations under such Indenture
after a defeasance of such Indenture with respect to the Debt Securities of any
series as described under clause (ii) above and the Debt Securities of such
series are declared due and payable because of the occurrence of any undefeased
Event of Default, the amount of money and U.S. Government Obligations on deposit
with the applicable Trustee may be insufficient to pay amounts due on the Debt
Securities of such series at the time of the acceleration resulting from such
Event of Default. However, the Operating Partnership will remain liable in
respect to such payments. (Article Thirteen)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt, including the Senior Debt Securities. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Operating Partnership, the holders of Senior Debt
will first be entitled to receive payment in full of principal of (and premium,
if any) and interest, if any, on such Senior Debt before the holders of the
Subordinated Debt Securities will be entitled to receive or retain any payment
in respect of the principal of (and premium, if any) or interest, if any, on the
Subordinated Debt Securities. (Article Fifteen of the Subordinated Indenture)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Operating Partnership who are not holders of Senior Debt or
Subordinated Debt Securities may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the holders of the Subordinated Debt
Securities.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Subordinated Debt Securities will be
entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Subordinated Debt Securities.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Debt, or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
Unless otherwise indicated in the applicable Prospectus Supplement, "Senior
Debt" means the principal of (and premium, if any) and interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Operating Partnership to the extent
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such claim for post-petition interest is allowed in such proceeding) on all
indebtedness of the Operating Partnership (including indebtedness of others
guaranteed by the Operating Partnership), other than the Subordinated Debt
Securities whether outstanding on the date of the Subordinated Indenture or
thereafter created, incurred or assumed, which is: (i) for money borrowed, (ii)
evidenced by a note or similar instrument given in connection with the
acquisition of any businesses, properties or assets of any kind or (iii)
obligations of the Operating Partnership as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles or leases of property or assets made as part of any sale
and lease-back transaction to which the Operating Partnership is a party,
including amendments, renewals, extensions, modifications and refundings of any
such indebtedness or obligation, unless in any case in the instrument creating
or evidencing any such indebtedness or obligation or pursuant to which the same
is outstanding it is provided that such indebtedness or obligation is not
superior in right of payment to the Subordinated Debt Securities.
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to other obligations of the
Operating Partnership. The Senior Debt Securities, when issued, will constitute
Senior Debt.
The Prospectus Supplement will set forth the aggregate amount of
outstanding indebtedness as of the most recent practicable date that by the
terms of such indebtedness and the terms of the offered Subordinated Debt
Securities would rank senior to or pari passu with such Subordinated Debt
Securities and any limitation on the issuance of additional senior or pari passu
indebtedness. The Prospectus Supplement may further describe the provisions, if
any, applicable to the subordination of the Subordinated Debt Securities of a
particular series.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York. (Section 112)
REGARDING THE TRUSTEES
The Operating Partnership and certain of its subsidiaries in the ordinary
course of business maintain general banking relations with The Bank of New York.
Pursuant to the provisions of the Trust Indenture Act of 1939, upon a default
under either the Senior Indenture or the Subordinated Indenture, The Bank of New
York may be deemed to have a conflicting interest by virtue of its acting as
both the Senior Trustee and the Subordinated Trustee requiring it to resign and
be replaced by a successor trustee in one of such positions.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following descriptions of the material terms of the shares of
beneficial interest of Vornado do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the more complete descriptions
thereof set forth in the following documents: (i) Vornado's Amended and Restated
Declaration of Trust, as amended, including the articles supplementary for the
Series A Preferred Shares (the "Declaration of Trust"), and (ii) its Bylaws,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part.
For Vornado to maintain its qualification as a REIT under the Code, not
more than 50% of the value of its outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) at any time during the last half of a
taxable year and the shares of beneficial interest must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a
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shorter taxable year). Accordingly, the Declaration of Trust contains provisions
that restrict the ownership and transfer of shares of beneficial interest.
The Declaration of Trust authorizes the issuance of up to 240,000,000
shares, consisting of 100,000,000 Common Shares, 20,000,000 preferred shares of
beneficial interest, no par value per share ("Preferred Shares"), and
120,000,000 excess shares of beneficial interest, $.04 par value per share
("Excess Shares"). See "-- Description of Preferred Shares -- Restrictions on
Ownership" and "-- Description of Common Shares -- Restrictions on Ownership"
for a discussion of the possible issuance of Excess Shares.
DESCRIPTION OF PREFERRED SHARES
The following is a description of the material terms and provisions of the
Preferred Shares. The particular terms of any series of Preferred Shares will be
described in the applicable Prospectus Supplement, which will supplement the
information set forth below.
The summary of the material terms of Vornado's Preferred Shares contained
in this Prospectus does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Declaration of Trust, which
includes the articles supplementary relating to each series of the Preferred
Shares (the "Articles Supplementary"), which will be filed as an exhibit to or
incorporated by reference in the Registration Statement of which this Prospectus
is a part at or prior to the time of issuance of such series of the Preferred
Shares.
As of the date hereof, the Declaration of Trust authorizes the issuance of
20,000,000 Preferred Shares. As of November 15, 1997, 5,750,000 Series A
Preferred Shares were outstanding. The Series A Preferred Shares are listed on
the NYSE under the symbol "VNO Pr A". A description of Vornado's Series A
Preferred Shares is set forth in Vornado's Registration Statement on Form 8-A,
filed with the Commission on April 3, 1997, and incorporated herein by
reference. The Preferred Shares authorized by the Declaration of Trust may be
issued from time to time in one or more series in such amounts and with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as may be fixed by the Board of Trustees. Under certain
circumstances, the issuance of Preferred Shares could have the effect of
delaying, deferring or preventing a change of control of Vornado and may
adversely affect the voting and other rights of the holders of Common Shares.
The Declaration of Trust authorizes the Board of Trustees to classify or
reclassify, in one or more series, any unissued Preferred Shares and to
reclassify any unissued shares of any series of Preferred Shares of any series
by setting or changing the number of Preferred Shares constituting such series
and the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemption of such Preferred Shares.
The Preferred Shares shall have the dividend, liquidation, redemption and
voting rights described below as such description may be supplemented in a
Prospectus Supplement relating to a particular series of the Preferred Shares.
The applicable Prospectus Supplement will describe the following terms of the
series of Preferred Shares in respect of which this Prospectus is being
delivered: (1) the title of such Preferred Shares and the number of shares
offered; (2) the amount of liquidation preference per share; (3) the initial
public offering price at which such Preferred Shares will be issued; (4) the
dividend rate (or method of calculation), the dates on which dividends shall be
payable and the dates from which dividends shall commence to cumulate, if any;
(5) any redemption or sinking fund provisions; (6) any conversion or exchange
rights; (7) any additional voting, dividend, liquidation, redemption, sinking
fund and other rights, preferences, limitations and restrictions; (8) any
listing of such Preferred Shares on any securities exchange; (9) the relative
ranking and preferences of such Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of Vornado;
(10) any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such series of Preferred Shares as to dividend
rights and rights upon liquidation, dissolution or winding up of the
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affairs of Vornado; and (11) any limitations on direct, beneficial or
constructive ownership and restrictions on transfer, in each case as may be
appropriate to preserve the status of Vornado as a REIT. The applicable
Prospectus Supplement will also include a discussion of Federal income tax
considerations applicable to such Preferred Shares.
GENERAL
The Preferred Shares offered hereby will be issued in one or more series.
The Preferred Shares, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The liquidation preference is
not indicative of the price at which the Preferred Shares will actually trade on
or after the date of issuance.
RANK
The Preferred Shares shall, with respect to dividend rights and rights upon
liquidation, dissolution and winding up of Vornado, rank prior to the Common
Shares and Excess Shares (other than certain Excess Shares resulting from the
conversion of Preferred Shares) and to all other classes and series of equity
securities of Vornado now or hereafter authorized, issued or outstanding (the
Common Shares and such other classes and series of equity securities
collectively may be referred to herein as the "Junior Stock"), other than any
classes or series of equity securities of Vornado which by their terms
specifically provide for a ranking on a parity with (the "Parity Stock") or
senior to (the "Senior Stock") the Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of Vornado. The Preferred
Shares shall be junior to all outstanding debt of Vornado. The Preferred Shares
shall be subject to creation of Senior Stock, Parity Stock and Junior Stock to
the extent not expressly prohibited by the Declaration of Trust.
DIVIDENDS
Holders of Preferred Shares shall be entitled to receive, when, as and if
authorized by the Board of Trustees out of assets of Vornado legally available
for payment, dividends, or distributions in cash, property or other assets of
Vornado or in Securities of Vornado or from any other source as the Board of
Trustees in its discretion shall determine and at such dates and at such rates
per share per annum as described in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each authorized dividend shall be payable
to holders of record as they appear at the close of business on the books of
Vornado on such record dates, not more than 90 calendar days preceding the
payment dates therefor, as are determined by the Board of Trustees (each of such
dates, a "Record Date").
Such dividends may be cumulative or noncumulative, as described in the
applicable Prospectus Supplement. If dividends on a series of Preferred Shares
are noncumulative and if the Board of Trustees fails to authorize a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Shares will have no right to receive a dividend in respect of such
dividend period, and Vornado will have no obligation to pay the dividend for
such period, whether or not dividends are authorized payable on any future
dividend payment dates. If dividends of a series of Preferred Shares are
cumulative, the dividends on such shares will accrue from and after the date set
forth in the applicable Prospectus Supplement.
No full dividends shall be authorized or paid or set apart for payment on
Preferred Shares of any series ranking, as to dividends, on a parity with or
junior to the series of Preferred Shares offered by the applicable Prospectus
Supplement for any period unless full dividends for the immediately preceding
dividend period on such Preferred Shares (including any accumulation in respect
of unpaid dividends for prior dividend periods, if dividends on such Preferred
Shares are cumulative) have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof is set apart for such
payment. When dividends are not so paid in full (or a sum sufficient for such
full payment is not so set apart) upon such Preferred Shares and
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any other Preferred Shares of Vornado ranking on a parity as to dividends with
the Preferred Shares, dividends upon such Preferred Shares and dividends on such
other Preferred Shares ranking on a parity with the Preferred Shares shall be
authorized pro rata so that the amount of dividends authorized per share on such
Preferred Shares and such other Preferred Shares ranking on a parity with the
Preferred Shares shall in all cases bear to each other the same ratio that
accrued dividends for the then-current dividend period per share on such
Preferred Shares (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such Preferred Shares are cumulative)
and accrued dividends, including required or permitted accumulations, if any, on
shares of such other Preferred Shares, bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment(s) on Preferred Shares which may be in arrears. Unless full dividends on
the series of Preferred Shares offered by the applicable Prospectus Supplement
have been authorized and paid or set apart for payment for the immediately
preceding dividend period (including any accumulation in respect of unpaid
dividends for prior dividend periods, if dividends on such Preferred Shares are
cumulative), (a) no cash dividend or distribution (other than in shares of
Junior Stock) may be authorized, set aside or paid on the Junior Stock, (b)
Vornado may not, directly or indirectly, repurchase, redeem or otherwise acquire
any shares of its Junior Stock (or pay any monies into a sinking fund for the
redemption of any shares) except by conversion into or exchange for Junior
Stock, and (c) Vornado may not, directly or indirectly, repurchase, redeem or
otherwise acquire any Preferred Shares or Parity Stock (or pay any monies into a
sinking fund for the redemption of any shares of any such stock) otherwise than
pursuant to pro rata offers to purchase or a concurrent redemption of all, or a
pro rata portion, of the outstanding Preferred Shares and shares of Parity Stock
(except by conversion into or exchange for Junior Stock).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series.
REDEMPTION
The terms, if any, on which Preferred Shares of any series may be redeemed
will be set forth in the applicable Prospectus Supplement.
LIQUIDATION
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Vornado, the holders of a series of Preferred
Shares will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Shares, Excess Shares (other
than certain Excess Shares resulting from the conversion of Preferred Shares) or
any Junior Stock on liquidation, dissolution or winding up of Vornado, to
receive a liquidating distribution in the amount of the liquidation preference
per share as set forth in the applicable Prospectus Supplement plus accrued and
unpaid dividends for the then-current dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such series of Preferred Shares are cumulative). If the amounts
available for distribution with respect to the Preferred Shares and all other
outstanding Parity Stock are not sufficient to satisfy the full liquidation
rights of all the outstanding Preferred Shares and Parity Stock, then the
holders of each series of such stock will share ratably in any such distribution
of assets in proportion to the full respective preferential amount (which in the
case of Preferred Shares may include accumulated dividends) to which they are
entitled. After payment of the full amount of the liquidation distribution, the
holders of Preferred Shares will not be entitled to any further participation in
any distribution of assets by Vornado.
Title 8 does not contain any specific provisions on the power of a Maryland
real estate investment trust, such as the Company, to make distributions,
including dividends, to its shareholders. It is possible that a Maryland court
may look to the Maryland General Corporation Law ("MGCL") for guidance on
matters, such as the making of distributions to shareholders, not covered by
Title 8. The MGCL requires that, after giving effect to a distribution, (1) the
corporation
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must be able to pay its debts as they become due in the usual course of business
and (2) the corporation's total assets must at least equal the sum of its total
liabilities plus the preferential rights on dissolution of stockholders whose
rights on dissolution are superior to those stockholders receiving the
distribution. However, the MGCL also provides that the charter of the
corporation may provide that senior dissolution preferences shall not be
included with liabilities for purposes of determining amounts available for
distribution. The applicable articles supplementary may include such a
provision.
VOTING
The Preferred Shares of a series will not be entitled to vote, except as
described below or in the applicable Prospectus Supplement. Without the
affirmative vote of a majority of the Preferred Shares then outstanding (voting
separately as a class together with any Parity Stock), Vornado may not (i)
increase or decrease the aggregate number of authorized shares of such class or
any security ranking prior to the Preferred Shares, (ii) increase or decrease
the par value of the shares of holders of such class or (iii) alter or change
the voting or other powers, preferences or special rights of such class so as to
affect them adversely. An amendment which increases the number of authorized
shares of or authorizes the creation or issuance of other classes or series of
Junior Stock or Parity Stock, or substitutes the surviving entity in a merger,
consolidation, reorganization or other business combination for Vornado, shall
not be considered to be such an adverse change.
NO OTHER RIGHTS
The shares of a series of Preferred Shares will not have any preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications, and terms and conditions of
redemption except as set forth above or in the applicable Prospectus Supplement,
the Declaration of Trust and in the applicable Articles Supplementary or as
otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Shares will be described in
the related Prospectus Supplement.
RESTRICTIONS ON OWNERSHIP
As discussed below, for Vornado to maintain its qualification as a REIT
under the Code, not more than 50% in value of its outstanding shares of
beneficial interest may be owned, directly or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of a taxable year, and the shares of beneficial interest
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (or during a proportionate part of a shorter taxable
year). Therefore, the Declaration of Trust contains, and the Articles
Supplementary for each series of Preferred Shares may contain, provisions
restricting the ownership and transfer of the Preferred Shares.
The Declaration of Trust contains a limitation that restricts shareholders
from owning, under the applicable attribution rules of the Code, more than 9.9%
of the outstanding Preferred Shares of any series (the "Preferred Shares
Beneficial Ownership Limit"). The attribution rules which apply for purposes of
the Common Shares Beneficial Ownership Limit (as defined below) also apply for
purposes of the Preferred Shares Beneficial Ownership Limit. See "-- Description
of Common Shares -- Restrictions on Ownership". Shareholders should be aware
that events other than a purchase or other transfer of Preferred Shares may
result in ownership, under the applicable attribution rules of the Code, of
Preferred Shares in excess of the Preferred Shares Beneficial Ownership Limit.
Shareholders are urged to consult their own tax advisors concerning the
application of the attribution rules of the Code in their particular
circumstances.
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Holders of Preferred Shares are also subject to the Constructive Ownership
Limit (as defined below in "-- Description of Common Shares -- Restrictions on
Ownership"), which restricts them from owning, under the applicable attribution
rules of the Code, more than 9.9% of the outstanding Preferred Shares of any
series. The attribution rules which apply for purposes of the Constructive
Ownership Limit differ from those that apply for purposes of the Preferred
Shares Beneficial Ownership Limit. See "-- Description of Common
Shares -- Restrictions on Ownership". Shareholders should be aware that events
other than a purchase or other transfer of Preferred Shares may result in
ownership, under the applicable attribution rules of the Code, of Preferred
Shares in excess of the Constructive Ownership Limit. Shareholders are urged to
consult their own tax advisors concerning the application of the attribution
rules of the Code in their particular circumstances.
The Declaration of Trust provides that a transfer of Preferred Shares that
would otherwise result in ownership, under the applicable attribution rules of
the Code, of Preferred Shares in excess of the Preferred Shares Beneficial
Ownership Limit or the Constructive Ownership Limit, or which would cause the
shares of beneficial interest of Vornado to be beneficially owned by fewer than
100 persons, will be null and void and the purported transferee will acquire no
rights or economic interest in such Preferred Shares. In addition, Preferred
Shares that would otherwise be owned, under the applicable attribution rules of
the Code, in excess of the Preferred Shares Beneficial Ownership Limit or the
Constructive Ownership Limit will be automatically exchanged for Excess Shares
that will be transferred, by operation of law, to Vornado as trustee of a trust
for the exclusive benefit of a beneficiary designated by the purported
transferee or purported holder. While so held in trust, Excess Shares are not
entitled to vote and are not entitled to participate in any dividends or
distributions made by Vornado. Any dividends or distributions received by the
purported transferee or other purported holder of such Excess Shares prior to
the discovery by Vornado of the automatic exchange for Excess Shares shall be
repaid to Vornado upon demand.
If the purported transferee or purported holder elects to designate a
beneficiary of an interest in the trust with respect to such Excess Shares, only
a person whose ownership of the shares will not violate the Preferred Shares
Beneficial Ownership Limit or the Constructive Ownership Limit may be
designated, at which time the Excess Shares will be automatically exchanged for
Preferred Shares of the same class as the Preferred Shares which were originally
exchanged for such Excess Shares. The Declaration of Trust contains provisions
designed to ensure that the purported transferee or other purported holder of
the Excess Shares may not receive in return for such a transfer an amount that
reflects any appreciation in the Preferred Shares for which such Excess Shares
were exchanged during the period that such Excess Shares were outstanding but
will bear the burden of any decline in value during such period. Any amount
received by a purported transferee or other purported holder for designating a
beneficiary in excess of the amount permitted to be received must be turned over
to Vornado. The Declaration of Trust provides that Vornado may purchase any
Excess Shares that have been automatically exchanged for Preferred Shares as a
result of a purported transfer or other event. The price at which Vornado may
purchase such Excess Shares shall be equal to the lesser of (i) in the case of
Excess Shares resulting from a purported transfer for value, the price per share
in the purported transfer that resulted in the automatic exchange for Excess
Shares or, in the case of Excess Shares resulting from some other event, the
market price of the Preferred Shares exchanged on the date of the automatic
exchange for Excess Shares and (ii) the market price of the Preferred Shares
exchanged for such Excess Shares on the date that the Company accepts the deemed
offer to sell such Excess Shares. Vornado's purchase right with respect to
Excess Shares shall exist for 90 days, beginning on the date that the automatic
exchange for Excess Shares occurred or, if Vornado did not receive a notice
concerning the purported transfer that resulted in the automatic exchange for
Excess Shares, the date that the Board of Trustees determines in good faith that
an exchange for Excess Shares has occurred.
The Board of Trustees may exempt certain persons from the Preferred Shares
Beneficial Ownership Limit or the Constructive Ownership Limit if evidence
satisfactory to the trustees is
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presented showing that such exemption will not jeopardize Vornado's status as a
REIT under the Code. As a condition of such exemption, the Board of Trustees may
require a ruling from the Internal Revenue Service (the "IRS") and/or an opinion
of counsel satisfactory to it and/or representations and undertakings from the
applicant with respect to preserving the REIT status of Vornado.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of Vornado to attempt to qualify, or to continue to qualify, as a REIT.
All certificates evidencing Preferred Shares will bear a legend referring
to the restrictions described above.
All persons who own, directly or by virtue of the applicable attribution
rules of the Code, more than 2% of the outstanding Preferred Shares of any
series must give a written notice to Vornado containing the information
specified in the Declaration of Trust by January 31 of each year. In addition,
each shareholder shall upon demand be required to disclose to Vornado such
information as Vornado may request, in good faith, in order to determine
Vornado's status as a REIT or to comply with Treasury Regulations promulgated
under the REIT provisions of the Code.
DEPOSITARY SHARES
Vornado may, at its option, elect to offer receipts for fractional
interests ("Depositary Shares") in Preferred Shares, rather than full Preferred
Shares. In such event, receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fraction (to be set forth in the Prospectus
Supplement relating to a particular series of Preferred Shares) of a share of a
particular series of Preferred Shares, will be issued as described below.
The description set forth below of the material provisions of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts (each as defined
below) does not purport to be complete and is subject to and qualified in its
entirety by reference to the forms of Deposit Agreement and Depositary Receipts
relating to each series of the Preferred Shares which have been or will be filed
with the Commission at or prior to the time of the offering of such series of
the Preferred Shares. The particular terms of Depositary Shares representing
fractional interests in any particular series of Preferred Shares will be
described in the applicable Prospectus Supplement, which will supplement the
information set forth herein.
GENERAL
The shares of any series of Preferred Shares represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between Vornado and the depositary (the "Depositary"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a Preferred Share represented by such
Depositary Share, to all the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of the Preferred Shares
represented thereby.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Shares to the record holders
of Depositary Shares relating to such Preferred Shares in proportion to the
numbers of such Depositary Shares owned by such holders.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares in
an equitable manner, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may sell such property and
distribute the net proceeds from such sale to such holders.
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WITHDRAWAL OF PREFERRED SHARES
Upon surrender of Depositary Receipts at the corporate trust office of the
Depositary (unless the related Depositary Shares have previously been called for
redemption or converted into Excess Shares or otherwise), the holders thereof
will be entitled to delivery at such office, to or upon such holder's order, of
the number of whole or fractional shares of the class or series of Preferred
Shares and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related class or series of
Preferred Shares on the basis of the proportion of Preferred Shares represented
by each Depositary Share as specified in the applicable Prospectus Supplement,
but holders of such Preferred Shares will not thereafter be entitled to receive
Depositary Shares thereof. If the Depositary Receipts delivered by the holder
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of shares of Preferred Shares to be withdrawn,
the Depositary will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of Preferred Shares represented by Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds received
by the Depositary resulting from the redemption, in whole or in part, of such
series of Preferred Shares held by the Depositary. The redemption price per
Depositary Share will be equal to the applicable fraction of the redemption
price per share payable with respect to such series of the Preferred Shares.
Whenever Vornado redeems Preferred Shares held by the Depositary, the Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing Preferred Shares so redeemed. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be selected
by lot, pro rata or by any other equitable method as may be determined by the
Depositary.
VOTING THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Depositary will mail the information contained
in such notices of meeting to the record holders of the Depositary Shares
relating to such Preferred Shares. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Shares) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the amount of the Preferred Shares
represented by such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the amount of the Preferred Shares represented
by such Depositary Shares in accordance with such instructions, and Vornado will
agree to take all reasonable action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting the Preferred Shares to the extent it does not receive
specific instructions from the holder of Depositary Shares representing such
Preferred Shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between Vornado and the Depositary. However, any amendment which materially and
adversely alters the rights of the holders of Depositary Shares will not be
effective unless such amendment has been approved by the holders of at least a
majority of the Depositary Shares then outstanding. The Deposit Agreement will
only terminate if (i) all outstanding Depositary Shares have been redeemed or
(ii) there has been a final distribution in respect of the Preferred Shares in
connection with any liquidation, dissolution or winding up of Vornado and such
distribution has been distributed to the holders of the related Depositary
Shares.
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CHARGES OF DEPOSITARY
Vornado will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Vornado will
pay charges of the Depositary in connection with the initial deposit of the
Preferred Shares and issuance of Depositary Receipts, all withdrawals of
Preferred Shares by owners of Depositary Shares and any redemption of the
Preferred Shares. Holders of Depositary Receipts will pay other transfer and
other taxes and governmental charges and such other charges as are expressly
provided in the Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to Vornado notice of
its election to do so, and Vornado may at any time remove the Depositary, any
such resignation or removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
RESTRICTIONS ON OWNERSHIP
In order to safeguard Vornado against an inadvertent loss of REIT status,
the Deposit Agreement or the Declaration of Trust will contain provisions
restricting the ownership and transfer of Depositary Shares. Such restrictions
will be described in the applicable Prospectus Supplement.
MISCELLANEOUS
The Depositary will forward all reports and communications from Vornado
which are delivered to the Depositary and which Vornado is required or otherwise
determines to furnish to the holders of the Preferred Shares.
Neither the Depositary nor Vornado will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of Vornado and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Shares unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Shares for deposit, holders of Depositary Shares or other persons
believed to be competent and on documents believed to be genuine.
DESCRIPTION OF COMMON SHARES
As of November 15, 1997, 69,229,079 Common Shares were issued and
outstanding and no Excess Shares were issued and outstanding. The Common Shares
of Vornado are listed on the NYSE under the symbol "VNO".
The holders of Common Shares are entitled to receive dividends when, if and
as authorized by the Board of Trustees of Vornado out of assets legally
available therefor, provided that if any Preferred Shares are at the time
outstanding, the payment of dividends on Common Shares or other distributions
(including purchases of Common Shares) may be subject to the declaration and
payment of full cumulative dividends, and the absence of arrearages in any
mandatory sinking fund, on outstanding Preferred Shares.
The holders of Common Shares are entitled to one vote for each share on all
matters voted on by shareholders, including elections of trustees. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election. The holders of Common Shares do not have any
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conversion, redemption or preemptive rights to subscribe to any securities of
the Company. In the event of the dissolution, liquidation or winding up of
Vornado, holders of Common Shares are entitled to share ratably in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holders of the Company's indebtedness, and the aggregate liquidation
preference of any Preferred Shares then outstanding.
The Common Shares have equal dividend, distribution, liquidation and other
rights, and shall have no preference, appraisal or exchange rights. All
outstanding shares of Common Shares are, and any Common Shares offered by a
Prospectus Supplement, upon issuance, will be, fully paid and non-assessable.
The transfer agent for the Common Shares is First Union National Bank,
Charlotte, North Carolina.
RESTRICTIONS ON OWNERSHIP
The Declaration of Trust contains a number of provisions which restrict the
ownership and transfer of shares and which are designed to safeguard Vornado
against an inadvertent loss of its REIT status. The Declaration of Trust
contains a limitation that restricts, with certain exceptions, shareholders from
owning, under the applicable attribution rules of the Code, more than a
specified percentage of the outstanding Common Shares (the "Common Shares
Beneficial Ownership Limit"). The Common Shares Beneficial Ownership Limit was
initially set at 2.0% of the outstanding Common Shares. The Board of Trustees
subsequently adopted a resolution raising the Common Shares Beneficial Ownership
Limit from 2.0% to 6.7% of the outstanding Common Shares. The shareholders who
owned, under the applicable attribution rules of the Code, more than 6.7% of the
Common Shares immediately after the merger of Vornado, Inc. into Vornado in May
1993 (the "Merger") may continue to do so and may acquire additional Common
Shares through stock option and similar plans or from other shareholders who
owned, under the applicable attribution rules of the Code, more than 6.7% of the
Common Shares immediately after the Merger, subject to the restriction that
Common Shares cannot be transferred if, as a result, more than 50% in value of
the outstanding shares of Vornado would be owned by five or fewer individuals.
While such shareholders are not generally permitted to acquire additional Common
Shares from any other source, such shareholders may acquire additional Common
Shares from any source in the event that additional Common Shares are issued by
Vornado, up to the percentage held by them immediately prior to such issuance.
Shareholders should be aware that events other than a purchase or other
transfer of Common Shares can result in ownership, under the applicable
attribution rules of the Code, of Common Shares in excess of the Common Shares
Beneficial Ownership Limit. For instance, if two shareholders, each of whom
owns, under the applicable attribution rules of the Code, 3.5% of the
outstanding Common Shares, were to marry, then after their marriage both
shareholders would own, under the applicable attribution rules of the Code, 7.0%
of the outstanding Common Shares, which is in excess of the Common Shares
Beneficial Ownership Limit. Similarly, if a shareholder who owns, under the
applicable attribution rules of the Code, 4.9% of the outstanding Common Shares
were to purchase a 50% interest in a corporation which owns 4.8% of the
outstanding Common Shares, then the shareholder would own, under the applicable
attribution rules of the Code, 7.3% of the outstanding Common Shares.
Shareholders are urged to consult their own tax advisors concerning the
application of the attribution rules of the Code in their particular
circumstances.
Under the Code, rental income received by a REIT from persons in which the
REIT is treated, under the applicable attribution rules of the Code, as owning a
10% or greater interest does not constitute qualifying income for purposes of
the income requirements that REITs must satisfy. For these purposes, a REIT is
treated as owning any stock owned, under the applicable attribution rules of the
Code, by a person that owns 10% or more of the value of the outstanding shares
of the REIT. Therefore, in order to ensure that rental income of the Company
will not be treated as nonqualifying
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income under the rule described above, and thus to ensure that there will not be
an inadvertent loss of REIT status as a result of the ownership of shares of a
tenant, or a person that holds an interest in a tenant, the Declaration of Trust
also contains an ownership limit that restricts, with certain exceptions,
shareholders from owning, under the applicable attribution rules of the Code
(which are different from those applicable with respect to the Common Shares
Beneficial Ownership Limit), more than 9.9% of the outstanding shares of any
class (the "Constructive Ownership Limit"). The shareholders who owned, under
the applicable attribution rules of the Code, shares in excess of the
Constructive Ownership Limit immediately after the Merger generally are not
subject to the Constructive Ownership Limit. Subject to an exception for tenants
and subtenants from whom the REIT receives, directly or indirectly, rental
income that is not in excess of a specified threshold, the Declaration of Trust
also contains restrictions that are designed to ensure that the shareholders who
owned, under the applicable attribution rules of the Code, shares in excess of
the Constructive Ownership Limit immediately after the Merger will not, in the
aggregate, own an interest in a tenant or subtenant of the REIT of sufficient
magnitude to cause rental income received, directly or indirectly, by the REIT
from such tenant or subtenant to be treated as nonqualifying income for purposes
of the income requirements that REITs must satisfy.
Shareholders should be aware that events other than a purchase or other
transfer of shares can result in ownership, under the applicable attribution
rules of the Code, of shares in excess of the Constructive Ownership Limit. As
the attribution rules that apply with respect to the Constructive Ownership
Limit differ from those that apply with respect to the Common Shares Beneficial
Ownership Limit, the events other than a purchase or other transfer of shares
which can result in share ownership in excess of the Constructive Ownership
Limit can differ from those which can result in share ownership in excess of the
Common Shares Beneficial Ownership Limit. Shareholders are urged to consult
their own tax advisors concerning the application of the attribution rules of
the Code in their particular circumstances.
The Declaration of Trust provides that a transfer of Common Shares that
would otherwise result in ownership, under the applicable attribution rules of
the Code, of Common Shares in excess of the Common Shares Beneficial Ownership
Limit or the Constructive Ownership Limit, or which would cause the shares of
beneficial interest of the Company to be beneficially owned by fewer than 100
persons, will be null and void and the purported transferee will acquire no
rights or economic interest in such Common Shares. In addition, the Declaration
of Trust provides that Common Shares that would otherwise be owned, under the
applicable attribution rules of the Code, in excess of the Common Shares
Beneficial Ownership Limit or the Constructive Ownership Limit will be
automatically exchanged for Excess Shares that will be transferred, by operation
of law, to Vornado as trustee of a trust for the exclusive benefit of a
beneficiary designated by the purported transferee or purported holder. While so
held in trust, Excess Shares are not entitled to vote and are not entitled to
participate in any dividends or distributions made by Vornado. Any dividends or
distributions received by the purported transferee or other purported holder of
such Excess Shares prior to the discovery by Vornado of the automatic exchange
for Excess Shares shall be repaid to Vornado upon demand.
If the purported transferee or purported holder elects to designate a
beneficiary of an interest in the trust with respect to such Excess Shares, only
a person whose ownership of the shares will not violate the Common Shares
Beneficial Ownership Limit or the Constructive Ownership Limit may be
designated, at which time the Excess Shares will be automatically exchanged for
Common Shares. The Declaration of Trust contains provisions designed to ensure
that the purported transferee or other purported holder of the Excess Shares may
not receive in return for such a transfer an amount that reflects any
appreciation in the Common Shares for which such Excess Shares were exchanged
during the period that such Excess Shares were outstanding but will bear the
burden of any decline in value during such period. Any amount received by a
purported transferee or other purported holder for designating a beneficiary in
excess of the amount permitted to be received must be turned over to Vornado.
The Declaration of Trust provides that Vornado, or its designee,
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may purchase any Excess Shares that have been automatically exchanged for Common
Shares as a result of a purported transfer or other event. The price at which
Vornado, or its designee, may purchase such Excess Shares shall be equal to the
lesser of (i) in the case of Excess Shares resulting from a purported transfer
for value, the price per share in the purported transfer that resulted in the
automatic exchange for Excess Shares or, in the case of Excess Shares resulting
from some other event, the market price of the Common Shares exchanged on the
date of the automatic exchange for Excess Shares and (ii) the market price of
the Common Shares exchanged for such Excess Shares on the date that Vornado
accepts the deemed offer to sell such Excess Shares. Vornado's purchase right
with respect to Excess Shares shall exist for 90 days, beginning on the date
that the automatic exchange for Excess Shares occurred or, if Vornado did not
receive a notice concerning the purported transfer that resulted in the
automatic exchange for Excess Shares, the date that the Board of Trustees
determines in good faith that an exchange for Excess Shares has occurred.
The Board of Trustees of Vornado may exempt certain persons from the Common
Shares Beneficial Ownership Limit or the Constructive Ownership Limit, including
the limitations applicable to holders who owned in excess of 6.7% of the Common
Shares immediately after the Merger, if evidence satisfactory to the Board of
Trustees is presented showing that such exemption will not jeopardize Vornado's
status as a REIT under the Code. As a condition of such exemption, the Board of
Trustees may require a ruling from the IRS and/or an opinion of counsel
satisfactory to it and/or representations and undertakings from the applicant
with respect to preserving the REIT status of Vornado.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of Vornado to attempt to qualify, or to continue to qualify, as a REIT.
All persons who own, directly or by virtue of the applicable attribution
rules of the Code, more than 2.0% of the outstanding Common Shares must give a
written notice to Vornado containing the information specified in the
Declaration of Trust by January 31 of each year. In addition, each shareholder
shall upon demand be required to disclose to the Company such information as
Vornado may request, in good faith, in order to determine Vornado's status as a
REIT or to comply with Treasury Regulations promulgated under the REIT
provisions of the Code.
The ownership restrictions described above may have the effect of
precluding acquisition of control of Vornado unless the Board of Trustees
determines that maintenance of REIT status is no longer in the best interests of
Vornado.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the taxation of Vornado and the material Federal
income tax consequences to holders of the Securities is for general information
only, and is not tax advice. The tax treatment of a holder of Securities will
vary depending upon the holder's particular situation, and this discussion
addresses only holders that hold Securities as capital assets and does not
purport to deal with all aspects of taxation that may be relevant to particular
holders in light of their personal investment or tax circumstances, or to
certain types of holders (including dealers in securities or currencies, traders
in securities that elect to mark-to-market, banks, tax-exempt organizations,
life insurance companies, persons that hold Securities that are a hedge or that
are hedged against currency risks or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar)
subject to special treatment under the Federal income tax laws. 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.
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INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SUCH
ACQUISITION, OWNERSHIP AND SALE IN THEIR PARTICULAR CIRCUMSTANCES AND POTENTIAL
CHANGES IN APPLICABLE LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL
In the opinion of Sullivan & Cromwell, commencing with its taxable year
ended December 31, 1993, Vornado has been organized and operated in conformity
with the requirements for qualification and taxation as a REIT under the Code,
and Vornado's proposed method of operation will enable it to continue to meet
the requirements for qualification and taxation as a REIT under the Code.
Investors should be aware, however, that opinions of counsel are not binding
upon the Internal Revenue Service or any court. In providing its opinion,
Sullivan & Cromwell is relying upon (i) representations received from Vornado
and (ii) an opinion of Shearman & Sterling as to the qualification of
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 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.
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 or Alexander's
operations for any particular year will satisfy such requirements. Neither
Sullivan & Cromwell nor Shearman & Sterling will monitor the compliance of the
Company or Alexander's with the requirements for REIT qualification on an
ongoing basis.
The sections of the Code applicable to REITs are highly technical and
complex. The material aspects thereof are summarized below.
As a REIT, Vornado generally will not be subject to Federal corporate
income taxes on its net income that is currently distributed to shareholders.
This treatment substantially eliminates the "double taxation" (at the corporate
and shareholder levels) that generally results from investment in a regular
corporation. However, Vornado will be subject to federal income tax as follows.
First, Vornado will be taxed at regular corporate rates on any undistributed
real estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, Vornado may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if Vornado has
(i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income. Fourth, if Vornado
has net income from "prohibited transactions" (which are, in general, certain
sales or other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax. Fifth, if Vornado should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount equal
to (a) the gross income attributable to the greater of the amount by which
Vornado fails the 75% or 95% test, multiplied by (b) a fraction intended to
reflect Vornado's profitability. Sixth, if Vornado should fail to distribute
during each calendar year at least the sum of (i) 85% of its real estate
investment trust ordinary income for such year, (ii) 95% of its real estate
investment trust capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, Vornado would be subject
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to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if during the 10-year period (the "Recognition
Period") beginning on the first day of the first taxable year for which Vornado
qualified as a REIT, Vornado recognizes gain on the disposition of any asset
held by Vornado as of the beginning of the Recognition Period, then, to the
extent of the excess of (a) fair market value of such asset as of the beginning
of the Recognition Period over (b) Vornado's adjusted basis in such asset as of
the beginning of the Recognition Period (the "Built-in Gain"), such gain will be
subject to tax at the highest regular corporate rate pursuant to Treasury
regulations that have not been promulgated; provided, however, that Vornado
shall not be subject to tax on recognized Built-in Gain with respect to assets
held as of the first day of the Recognition Period to the extent that the
aggregate amount of such recognized Built-in Gain exceeds the net aggregate
amount of Vornado's unrealized Built-in Gain as of the first day of the
Recognition Period. Eighth, if Vornado acquires any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in certain
transactions in which the basis of the asset in the hands of Vornado is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation, and Vornado recognizes gain on the disposition of
such asset during the Recognition Period beginning on the date on which such
asset was acquired by Vornado, then, pursuant to the Treasury regulations that
have not yet been issued and to the extent of the Built-in Gain, such gain will
be subject to tax at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest, (3) which would otherwise be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code, (4) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code, (5) the beneficial ownership of which is held by 100 or more
persons, (6) during the last half of each taxable year, not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4) must be
met during the entire taxable year and that condition (5) must be met during 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.
Vornado has satisfied conditions (1) through (5) and believes that it has
also satisfied condition (6). In addition, Vornado's Declaration of Trust
provides for restrictions regarding the ownership and transfer of Vornado's
shares of beneficial interest, which restrictions are intended to assist Vornado
in continuing to satisfy the share ownership requirements described in (5) and
(6) above. The ownership and transfer restrictions pertaining to the Preferred
Shares and the Common Shares are described above under the headings "Description
of Shares of Beneficial Interest -- Description of Preferred
Shares -- Restrictions on Ownership" and "Description of Shares of Beneficial
Interest -- Description of Common Shares -- Restrictions on Ownership."
Vornado owns a number of wholly-owned subsidiaries. Code Section 856(i)
provides that a corporation which is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, Vornado's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of income,
deduction, and credit of such subsidiaries will be treated as assets,
liabilities and such items (as the case may be) of Vornado. Vornado believes
that all of its wholly-owned subsidiaries are "qualified REIT subsidiaries."
In the case of a REIT that is a partner in a partnership, Treasury
regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the
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character of the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests. Thus, Vornado's
proportionate share of the assets, liabilities and items of income of any
partnership in which Vornado is a partner, including the Operating Partnership,
will be treated as assets, liabilities and items of income of Vornado for
purposes of applying the requirements described herein. Thus, actions taken by
partnerships in which Vornado owns an interest either directly or through one or
more tiers of partnerships or qualified REIT subsidiaries, can affect Vornado's
ability to satisfy the REIT income and assets tests and the determination of
whether Vornado has net income from "prohibited transactions".
INCOME TESTS. In order to maintain its qualification as a REIT, Vornado
annually must satisfy three gross income requirements. First, at least 75% of
Vornado's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" -- which term generally includes expenses of Vornado that are
paid or reimbursed by tenants) or from certain types of temporary investments.
Second, at least 95% of Vornado's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments, dividends, interest and gain from the sale or disposition
of stock or securities (or from any combination of the foregoing). Third, for
its taxable years before 1998, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of Vornado's gross income (including gross income from
prohibited transactions) for each such taxable year.
Rents received by Vornado will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, directly or under the applicable attribution rules,
owns a 10% or greater interest in such tenant (a "Related Party Tenant"). Third,
if rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property". Finally, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an independent contractor from whom the REIT derives no revenue;
provided, however, that Vornado may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only or are not considered "rendered to the occupant" of the property.
Vornado does not derive significant rents from Related Party Tenants, and
Vornado does not and will not derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease). Vornado directly performs services for certain of its tenants.
Vornado does not believe that the provision of such services will cause its
gross income attributable to such tenants to fail to be treated as "rents from
real property." For taxable years of Vornado beginning after August 5, 1997, if
Vornado provides services to a tenant that are other than those usually or
customarily provided in connection with the rental of space for occupancy only,
amounts received or accrued by Vornado for any such services will not be treated
as "rents from real property" for purposes of the REIT gross income tests but
will not cause other amounts received with respect to the property to fail to be
treated as "rents from real property" unless the amounts received in respect of
such services, together with amounts received for certain management services,
exceeds 1% of all amounts received or accrued by Vornado during the taxable year
with respect to such
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property. Under the literal wording of Section 856 of the Code, if the 1%
threshold is exceeded, then all amounts received or accrued by Vornado with
respect to the property will not qualify as "rents from real property", even if
the impermissible services are provided to some, but not all, of the tenants of
the property.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If Vornado fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if Vornado's failure to meet such tests
was due to reasonable cause and not due to willful neglect, Vornado attaches a
schedule of the sources of its income to its Federal income tax return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances Vornado
would be entitled to the benefit of these relief provisions. As discussed above
under "-- General," even if these relief provisions apply, a tax would be
imposed with respect to the excess income.
ASSET TESTS. Vornado, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of Vornado's total assets must be represented by real
estate assets (including (i) real estate assets held by Vornado's qualified REIT
subsidiaries and Vornado's allocable share of real estate assets held by
partnerships in which Vornado owns an interest, (ii) for a period of one year
from the date of Vornado's receipt of proceeds of an offering of its shares of
beneficial interest or long-term (at least five years) debt, stock or debt
instruments purchased with such proceeds and (iii) stock issued by another
REIT), cash, cash items and government securities. Second, not more than 25% of
Vornado'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 (other than securities issued by another
REIT) owned by Vornado may not exceed 5% of the value of Vornado's total assets
and Vornado may not own more than 10% of any one issuer's outstanding voting
securities.
Since March 2, 1995, Vornado has owned more than 10% of the voting
securities of Alexander's. Since April of 1997, Vornado's ownership of
Alexander's has been through the Operating Partnership rather than direct.
Vornado's ownership interest in Alexander's will not cause Vornado to fail to
satisfy the asset tests for REIT status so long as Alexander's qualified as a
REIT for each of taxable years beginning with its taxable year ending December
31, 1995 and continues to so qualify. In the opinion of Shearman & Sterling,
commencing with Alexander's 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. In providing its opinion, Shearman &
Sterling is relying upon representations received from Alexander's.
Since April of 1997 Vornado has also owned, through the Operating
Partnership, more than 10% of the voting securities of Two Penn Plaza REIT, Inc.
("Two Penn REIT"). Vornado's indirect ownership interest in Two Penn REIT will
not cause Vornado to fail to satisfy the asset tests for REIT status so long as
Two Penn REIT qualifies as a REIT for its first taxable year and each taxable
year thereafter. Vornado believes that Two Penn REIT will also qualify.
In order to ensure compliance with the 95% gross income test described
above, Vornado transferred certain contract rights and obligations to VMC, a New
Jersey corporation, in return for all of VMC's nonvoting preferred stock (the
"Nonvoting Stock"). Since April of 1997, the Nonvoting Stock has been held by
the Operating Partnership. The Nonvoting Stock entitles the holder thereof
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to 95% of the dividends paid by VMC. Vornado does not believe that its indirect
ownership of the Nonvoting Stock will adversely affect its ability to satisfy
the asset tests described above.
Vornado also owns, through the Operating Partnership, nonvoting shares in a
number of corporations. Vornado does not believe that the characteristics or
value of such shares will cause Vornado to fail to satisfy the REIT asset tests
described above.
ANNUAL DISTRIBUTION REQUIREMENTS. Vornado, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (A) the sum of (i) 95% of Vornado's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and Vornado'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. In addition, if Vornado disposes of any asset
during its Recognition Period, Vornado will be required, pursuant to Treasury
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before Vornado timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that Vornado 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," as adjusted, it will be subject
to tax thereon at regular ordinary and capital gain corporate tax rates.
Furthermore, if Vornado should fail to distribute during each calendar year at
least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, Vornado would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Vornado intends to satisfy the annual distribution requirements.
It is possible that Vornado, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of Vornado. In the event that such
timing differences occur, in order to meet the 95% distribution requirement,
Vornado may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, Vornado may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in Vornado's deduction for
dividends paid for the earlier year. Thus, Vornado may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, Vornado will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
FAILURE TO QUALIFY
If Vornado fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, Vornado will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which Vornado
fails to qualify will not be deductible by Vornado nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, Vornado will also be disqualified from taxation
as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
Vornado would be entitled to such statutory relief.
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TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation, (iii) an estate, the income
of which is subject to United States federal income tax without regard to its
source or (iv) a Trust if a court within the United States is able to exercise
primary supervision over the administration of the Trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust and "U.S. Alien Holder" means a holder of a Debt Security who (for United
States Federal income tax purposes) is (i) a nonresident alien individual or
(ii) a foreign corporation, partnership or estate or trust, in either case not
subject to United States Federal income tax on a net income basis in respect of
income or gain from the Debt Security.
U.S. HOLDERS
PAYMENTS OF INTEREST. Interest on a Debt Security will be taxable to a
U.S. Holder as ordinary income at the time it is received or accrued, depending
on the U.S. Holder's method of accounting for tax purposes.
PURCHASE, SALE AND RETIREMENT OF THE DEBT SECURITIES. A U.S. Holder's tax
basis in a Debt Security will generally be its U.S. dollar cost.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss, will be long-term capital gain or loss if the Debt Security was
held for more than one year and may be eligible for a reduced rate of tax if the
Debt Security was held for more than 18 months and in certain other
circumstances.
U.S. ALIEN HOLDERS
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest by the
Operating Partnership or any of its paying agents to any holder of a Debt
Security that is a U.S. Alien Holder will not be subject to United States
Federal withholding tax if, in the case of interest (a) the beneficial
owner of the Debt Security does not actually or constructively own 10% or
more of the capital or profits interest in the Operating Partnership, (b)
the beneficial owner of the Debt Security is not a controlled foreign
corporation that is related to the Operating Partnership through stock
ownership, and (c) either (A) the beneficial owner of the Debt Security
certifies to the Operating Partnership or its agent, under penalties of
perjury, that it is not a U.S. person and provides its name and address or
(B) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the Debt Security certifies
to the Operating Partnership or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
(ii) a U.S. Alien Holder of a Debt Security will not be subject to
United States Federal withholding tax on any gain realized on the sale or
exchange of a Debt Security; and
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(iii) a Debt Security held by an individual who at death is not a
citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the United States Federal estate
tax as a result of the individual's death if (a) the individual did not
actually or constructively own 10% or more of the capital or profits
interest in the Operating Partnerships and (b) the income on the Debt
Security would not have been effectively connected with a United States
trade or business of the individual at the time of the individual's death.
The Internal Revenue Service has adopted regulations (the "Withholding
Regulations") that provide alternative methods for satisfying the certification
requirement described in clause (i)(c) above. The Withholding Regulations also
require, in the case of Debt Securities held by a foreign partnership, that (x)
the certification described in clause (i)(c) above be provided by the partners
rather than the partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
applies in the case of tiered partnerships. The Withholding Regulations are
effective for payments made after December 31, 1998.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS. In general, information reporting requirements will apply to
payments of principal, any premium and interest on a Debt Security and the
proceeds of the sale of a Debt Security before maturity within the United States
to non-corporate U.S. Holders, and "backup withholding" at a rate of 31% will
apply to such payments if the U.S. Holder fails to provide an accurate taxpayer
identification number or is notified by the Internal Revenue Service that it has
failed to report all interest and dividends required to be shown on its federal
income tax returns.
U.S. ALIEN HOLDERS. Information reporting and backup withholding will not
apply to payments of principal, premium (if any) and interest made by the
Operating Partnership or a paying agent to a U.S. Alien Holder on a Debt
Security if the certification described in clause (i)(c) under "U.S. Alien
Holders" above is received, provided that the payor does not have actual
knowledge that the holder is a U.S. person. See the discussion of Withholding
Regulations under "U.S. Alien Holders" above. The Operating Partnership or a
paying agent, however, may report (on Internal Revenue Form 1042-S) payments of
interest on the Debt Securities.
Payments of the proceeds from the sale by a U.S. Alien Holder of a Debt
Security made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for United States Federal income tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Debt Security to or through the United States office
of a broker is subject to information reporting and backup withholding unless
the holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
The applicable Prospectus Supplement will contain a discussion of any
special United States Federal income tax rules with respect to Debt Securities
that are issued at a discount or premium or as a unit with other Securities,
have a maturity of one year or less, provide for conversion rights, contingent
payments, early redemption or payments that are denominated in or determined by
reference to a currency other than the U.S. dollar or otherwise subject to
special United States Federal income tax rules.
TAXATION OF HOLDERS OF COMMON SHARES OR PREFERRED SHARES
U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
or Preferred Shares ("Shares") who (for United States Federal income tax
purposes) is (i) a citizen or resident of the United States, (ii) a corporation
organized under the laws of the United States or any State,
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or (iii) an estate the income of which is subject to United States Federal
income taxation regardless of its source or (iv) a trust if a United States
court is able to exercise primary supervision over administration of the trust
and one or more United States persons have authority to control all substantial
decisions of the trust.
As long as Vornado qualifies as a REIT, distributions made by Vornado out
of its current or accumulated earnings and profits (and not designated as
capital gain dividends) will constitute dividends taxable to its taxable U.S.
Shareholders as ordinary income. Such distributions will not be eligible for the
dividends-received deduction in the case of U.S. Shareholders that are
corporations. Distributions made by Vornado that are properly designated by
Vornado as capital gain dividends will be taxable to U.S. Shareholders as gain
from the sale of a capital asset held for more than one year (to the extent that
they do not exceed Vornado's actual net capital gain for the taxable year)
without regard to the period for which a U.S. Shareholder has held his shares.
Thus, subject to certain limitations, capital gains dividends received by an
individual U.S. Shareholder may be eligible for 20%, 25%, or 28% capital gains
rates of taxation. U.S. Shareholders that are corporations may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
To the extent that Vornado makes distributions (not designated as capital
gain dividends) in excess of its current and accumulated earnings and profits,
such distributions will be treated first as a tax-free return of capital to each
U.S. Shareholder, reducing the adjusted basis which such U.S. Shareholder has in
his Shares for tax purposes by the amount of such distribution (but not below
zero), with distributions in excess of a U.S. Shareholder's adjusted basis in
his shares taxable as capital gains (provided that the Shares have been held as
a capital asset). For purposes of determining the portion of distributions on
separate classes of Shares that will be treated as dividends for Federal income
tax purposes, current and accumulated earnings and profits will be allocated to
distributions resulting from priority rights of Preferred Shares before being
allocated to other distributions. Dividends authorized by Vornado in October,
November, or December of any year and 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 the
dividend is actually paid by Vornado on or before January 31 of the following
calendar year. Shareholders may not include in their own income tax returns any
net operating losses or capital losses of Vornado.
For taxable years of the Company beginning after August 5, 1997, U.S.
Shareholders holding Shares at the close of Vornado'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 Vornado's taxable year falls, such amount as
Vornado may designate in a written notice mailed to its shareholders. Vornado
may not designate amounts in excess of Vornado's undistributed net capital gain
for the taxable year. Each U.S. Shareholder required to include such a
designated amount in determining such shareholder's long-term capital gains will
be deemed to have paid, in the taxable year of the inclusion, the tax paid by
Vornado in respect of such undistributed net capital gains. U.S. Shareholders
subject to these rules will be allowed a credit or a refund, as the case may be,
for the tax deemed to have paid by such shareholders. U.S. Shareholders will
increase their basis in their Shares by the difference between the amount of
such includible gains and the tax deemed paid by the shareholder in respect of
such gains.
Distributions made by Vornado and gain arising from the sale or exchange by
a U.S. Shareholder of Shares will not be treated as passive activity income,
and, as a result, U.S. Shareholders generally will not be able to apply any
"passive losses" against such income or gain.
Upon any sale or other disposition of Shares, a U.S. Shareholder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the Shares for tax purposes. Such gain or loss will be capital
gain or loss if the Shares have been held by the U.S. Shareholder as a capital
asset, will be long-term gain or
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loss if such Shares have been held for more than one year Long-term capital gain
of an individual U.S. Shareholder is generally subject to a maximum tax rate of
28% in respect of property held for more than one year and a maximum tax rate of
20% in respect of property held in excess of 18 months. In general, any loss
recognized by a U.S. Shareholder upon the sale or other disposition of shares of
Vornado that have been held for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the extent
of distributions received by such U.S. Shareholder from Vornado which were
required to be treated as long-term capital gains.
BACKUP WITHHOLDING. Vornado will report to its U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Shareholder that does not provide Vornado with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, Vornado may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to Vornado.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, provided that a tax-exempt shareholder (except certain tax-exempt
shareholders described below) has not held its Shares as "debt financed
property" within the meaning of the Code and such Shares are not otherwise used
in a trade or business, the dividend income from Shares will not be UBTI to a
tax-exempt shareholder. Similarly, income from the sale of Shares will not
constitute UBTI unless such tax-exempt shareholder has held such Shares as "debt
financed property" within the meaning of the Code or has used the Shares in a
trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from Federal income taxation under Sections
501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from
an investment in Vornado's Shares will constitute UBTI unless the organization
is able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its Shares. Such prospective
investors should consult their own tax advisors concerning these "set aside" and
reserve requirements.
Notwithstanding the foregoing, however, a portion of the dividends paid by
a "pension-held REIT" will be treated as UBTI to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax exempt under Section 501(a)
of the Code, and (iii) holds more than 10% (by value) of the equity interests in
the REIT. Tax-exempt pension, profit-sharing and stock bonus funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts".
A REIT is a "pension-held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself) and (ii) either (A) at least one qualified trust holds more
than 25% (by value) of the interests in the REIT or (B) one or more qualified
trusts, each of which owns more than 10% (by value) of the interests in the
REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the ratio
of (i) the gross income (less direct expenses related thereto) of the REIT from
unrelated trades or businesses (determined as though the REIT were a qualified
trust) to (ii) the total gross income (less direct expenses related thereto) of
the REIT. A de minimis exception applies where this
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percentage is less than 5% for any year. Vornado does not expect to be
classified as a "pension-held REIT".
Tax-exempt entities will be subject to the rules described above, under the
heading "-- U.S. Shareholders" concerning the inclusion of Vornado's designated
undistributed net capital gains in the income of its shareholders. Thus, such
entities will be allowed a credit or refund of the tax deemed paid by such
entities in respect of such includible gains.
NON-U.S. SHAREHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a limited summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in Shares, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by Vornado of U.S. real
property interests (discussed below) and other than distributions designated by
Vornado as capital gain dividends, will be treated as ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
Vornado. Such distributions to Non-U.S. Shareholders will ordinarily be subject
to a withholding tax equal to 30% of the gross amount of the distribution,
unless an applicable tax treaty reduces that tax. However, if income from the
investment in the Shares is treated as effectively connected with the Non-U.S.
Shareholder's conduct of a U.S. trade or business, the Non-U.S. Shareholder
generally will be subject to tax at graduated rates in the same manner as U.S.
shareholders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax if the shareholder is a foreign corporation).
Vornado expects to withhold U.S. tax at the rate of 30% on the gross amount of
any dividends, other than dividends treated as attributable to gain from sales
or exchanges of U.S. real property interests and capital gain dividends, paid to
a Non-U.S. Shareholder, unless (i) a lower treaty rate applies and the required
form evidencing eligibility for that reduced rate is filed with Vornado or the
appropriate withholding agent or (ii) the Non-U.S. Shareholder files an IRS Form
4224 (or a successor form) with Vornado or the appropriate withholding agent
claiming that the distributions are "effectively connected" income.
Distributions to a Non-U.S. Shareholder that are designated by Vornado at
the time of distribution as capital gain dividends which are not attributable to
or treated as attributable to the disposition by Vornado of a U.S. real property
interest generally will not be subject to U.S. Federal income taxation, except
as described below.
RETURN OF CAPITAL. Distributions in excess of current and accumulated
earnings and profits of Vornado, which are not treated as attributable to the
gain from disposition by Vornado of a U.S. real property interest, will not be
taxable to a Non-U.S. Shareholder to the extent that they do not exceed the
adjusted basis of the Non-U.S. Shareholder's Shares, but rather will reduce the
adjusted basis of such Shares. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Shareholder's Shares, they will give rise to tax
liability if the Non-U.S. Shareholder otherwise would be subject to tax on any
gain from the sale or disposition of its Shares, as described below. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Shareholder may seek a refund of such amounts
from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of current accumulated earnings and profits of Vornado.
CAPITAL GAIN DIVIDENDS. For any year in which Vornado qualifies as a REIT,
distributions that are attributable to gain from sales or exchanges by Vornado
of U.S. real property interests will be taxed to a Non-U.S. Shareholder under
the provisions of the Foreign Investment in Real Property
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<PAGE> 55
Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are
taxed to a Non-U.S. Shareholder as if such gain were effectively connected with
a U.S. business. Thus, Non-U.S. Shareholders will be taxed on such distributions
at the normal capital gain rates applicable to U.S. Shareholders (subject to any
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals). Vornado is required by applicable
Treasury Regulations under FIRPTA to withhold 35% of any distribution that could
be designated by Vornado as a capital gain dividend. However, if Vornado
designates as a capital gain dividend a distribution made prior to the day
Vornado actually effects such designation, then (although such distribution may
be taxable to a Non-U.S. Shareholder) such distribution is not subject to
withholding under FIRPTA; rather, Vornado must effect the 35% FIRPTA withholding
from distributions made on and after the date of such designation, until the
distributions so withheld equal the amount of the prior distribution designated
as a capital gain dividend. The amount withheld is creditable against the
Non-U.S. Shareholder's U.S. tax liability.
SALES OF SHARES. Gain recognized by a Non-U.S. Shareholder upon a sale or
exchange of Common Shares generally will not be taxed under FIRPTA if Vornado is
a "domestically controlled REIT," defined generally as a REIT in respect of
which at all times during a specified testing period less than 50% in value of
the stock is and was held directly or indirectly by foreign persons. It is
currently anticipated that Vornado will continue to be a "domestically
controlled REIT," and, therefore, that the sale of Shares will not be subject to
taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if (i) investment in the Shares is treated as "effectively
connected" with the Non-U.S. Shareholder's U.S. trade or business, in which case
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and 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 nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. A similar rule will
apply to capital gain dividends not subject to FIRPTA.
If Vornado were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Shares would be subject to tax under FIRPTA only if the
selling Non-U.S. Shareholder owned more than 5% of the class of Shares sold at
any time during a specified period (generally the shorter of the period that the
Non-U.S. Shareholder owned the Shares sold or the five-year period ending on the
date of disposition). If the gain on the sale of Shares were to be subject to
tax under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals) and the purchaser of such Shares would be
required to withhold 10% of the gross purchase price.
TREATY BENEFITS. Pursuant to current Treasury Regulations, dividends paid
to an address in a country outside the United States are generally presumed to
be paid to a resident of such country for purposes of determining the
applicability of withholding discussed above and the applicability of a tax
treaty rate. Shareholders that are partnerships or entities that are similarly
fiscally transparent for Federal income tax purposes, and persons holding Shares
through such entities, may be subject to restrictions on their ability to claim
benefits under U.S. tax treaties and should consult a tax advisor.
Under the Withholding Regulations, however, a Non-U.S. Shareholder who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification requirements. In addition, under the
Withholding Regulations, in the case of Shares held by a foreign partnership,
(x) the certification requirement would generally be applied to the partners in
the partnership and (y) the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Withholding Regulations provide look-through rules in the case of tiered
partnerships. The Withholding Regulations are effective for payments made after
December 31, 1998.
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OTHER TAX CONSEQUENCES
Vornado and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Vornado and
its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders are urged to consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in Vornado.
PLAN OF DISTRIBUTION
Vornado and the Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Vornado's Common Shares
being registered hereby may be issued in connection with the exchange of the
Debt Securities of the Operating Partnership. Any such underwriter or agent
involved in the offer and sale of the Securities will be named in the related
Prospectus Supplement. Such underwriters may include Goldman, Sachs & Co., or a
group of underwriters represented by firms including Goldman, Sachs & Co.
Goldman, Sachs & Co. may also act as agents. Vornado and the Operating
Partnership have reserved the right to sell the Securities directly to investors
on their own behalf in those jurisdictions where it is authorized to do so.
Underwriters may offer and sell the Securities at a fixed price or prices
that may be changed or at negotiated prices. Vornado and the Operating
Partnership also may, from time to time, authorize dealers, acting as Vornado's
or the Operating Partnership's agents, to offer and sell the Securities upon
such terms and conditions as set forth in the related Prospectus Supplement. In
connection with the sale of the Securities, underwriters may receive
compensation from Vornado or the Operating Partnership in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell the Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agents.
Any underwriting compensation paid by Vornado or the Operating Partnership
to underwriters or agents in connection with the offering of the Securities, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the related Prospectus Supplement.
Dealers and agents participating in the distribution of the Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with Vornado
or the Operating Partnership, to indemnification against and contribution
towards certain civil liabilities, including any liabilities under the
Securities Act.
Any Securities issued hereunder (other than Common Shares and Series A
Preferred Shares) will be new issues of securities with no established trading
market. Any underwriters or agents to or through whom such Securities are sold
by Vornado or the Operating Partnership for public offering and sale may make a
market in such Securities, but such underwriters or agents will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any such
Securities.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with, and perform services for, Vornado, the Operating
Partnership and certain of their affiliates in the ordinary course of business.
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EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in this Prospectus by reference from
Vornado's Annual Report on Form 10-K for the year ended December 31, 1996, as
amended, the Balance Sheet of Vornado Realty L.P. as at April 14, 1997
incorporated by reference in this Prospectus from Vornado Realty L.P.'s
Registration Statement on Form 10 filed with the Commission on June 12, 1997, as
amended, the combined statement of revenues and certain expenses of Ninety Park
Avenue incorporated by reference in this Prospectus from Vornado Realty Trust's
Current Report on Form 8K/A, dated August 21, 1997 and filed with the Commission
on September 11, 1997 and from Vornado Realty L.P.'s Current Report on Form
8K/A, dated August 21, 1997 and filed with the Commission on September 11, 1997,
the consolidated financial statements of URS Logistics, Inc. for the year ended
December 31, 1996, the statement and revenues and certain expenses of the
Montehiedra Town Center for the year ended December 31, 1996, and the statement
of revenues and certain expenses of the Riese Properties for the year ended
April 30, 1997, all incorporated by reference in this Prospectus from Vornado
Realty Trust's Current Report on Form 8-K, dated September 22, 1997 and filed
with the Commission on October 8, 1997 and from Vornado Realty L.P.'s Current
Report on Form 8-K, dated September 22, 1997 and filed with the Commission on
October 8, 1997, and the statement of revenues and certain expenses of One Penn
Plaza for the year ended December 31, 1996, the statement of revenues and
certain expenses of 150 East 58th Street for the year ended December 31, 1996,
and the statement of revenues and certain expenses of 640 Fifth Avenue for the
year ended December 31, 1996, all incorporated by reference in this Prospectus
from Vornado Realty Trust's Current Report on Form 8-K/A, dated November 18,
1997 and filed with the Commission on February 3, 1998 and from Vornado Realty
L.P.'s Current Report on Form 8-K/A, dated Novenber 18, 1997 and filed with the
Commission on February 3, 1998, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of 866 U.N. Plaza Associates LLC; the combined
financial statements of M Eleven Associates, M393 Associates and Eleven Penn
Plaza Company; the financial statements of Two Penn Plaza Associates L.P.; the
financial statements of 1740 Broadway Associates, L.P.; and the financial
statements of B&B Park Avenue L.P., all incorporated herein by reference from
Vornado's Current Report on Form 8-K, dated March 12, 1997, as amended by
Vornado's Current Report on Form 8-K/A, dated March 12, 1997, and the combined
financial statements of the Mendik Predecessors incorporated by reference herein
from the Vornado Realty L.P. Registration Statement on Form 10 filed with the
Commission on June 12, 1997, as amended, have been audited by Friedman Alpren &
Green LLP, independent auditors, as stated in their reports which are
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Two Park Company, a New York general
partnership, as of December 31, 1996 and 1995, and for each of the years in the
three year period ended December 31, 1996, incorporated herein by reference from
Vornado's Current Report on Form 8-K, dated March 12, 1997, as amended by
Vornado's Current Report on Form 8-K/A, dated March 12, 1997 and filed with the
Commission on April 1, 1997 and the consolidated balance sheets of Americold
Corporation as of the last day of February 1996 and 1997, and the related
consolidated statements of operations, common stockholders' deficit and cash
flows for each of the years in the three-year period ended the last day of
February 1997, incorporated by reference in this Prospectus from Vornado Realty
Trust's Current Report on Form 8-K, dated September 22, 1997 and filed with the
Commission on October 8, 1997, and from Vornado Realty L.P.'s Current Report on
Form 8-K, dated September 22, 1997 and filed with the Commission on October 8,
1997, have been audited by KPMG Peat Marwick LLP, independent auditors, as
stated in their reports which are incorporated
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herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The statement of Revenue and Certain Expenses of Green Acres Mall and the
Plaza at Green Acres for the year ended December 31, 1996 incorporated by
reference in this Prospectus and elsewhere in the Registration Statement from
Vornado Realty Trust's Current Report on Form 8-K/A, dated August 21, 1997 and
filed with the Commission on September 11, 1997 and from Vornado Realty L.P.'s
Current Report on Form 8-K/A, dated August 21, 1997 and filed with the
Commission on September 11, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The combined statement of revenue and certain operating expenses of The
Merchandise Mart Group of Properties for the year ended December 31, 1996
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement from Vornado Realty Trust's Current Report on Form 8-K/A, dated
January 26, 1998 and filed with the Commission on February 9, 1998 and from
Vornado Realty L.P.'s Current Report on Form 8-K/A, dated January 26, 1998 and
filed with the Commission on February 9, 1998, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the auhtority of said
firm as experts in giving said reports.
VALIDITY OF THE SECURITIES
The validity of any Debt Securities issued hereunder will be passed upon
for the Operating Partnership and the validity of any Depositary Shares issued
hereunder will be passed upon for Vornado by Sullivan & Cromwell, New York, New
York, counsel to Vornado and the Operating Partnership, and the validity of any
Preferred Shares or Common Shares issued hereunder will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, counsel to
Vornado. The validity of any Securities issued hereunder will be passed upon for
any underwriters by the counsel named in the applicable Prospectus Supplement.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT 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 SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER 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 OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company.............................. S-3
Recent Developments...................... S-4
Proposed Spin-Off of Operating Company... S-5
The Offering............................. S-6
Use of Proceeds.......................... S-6
Capitalization........................... S-7
Price Range of the Common Shares and
Distributions.......................... S-8
Underwriting............................. S-9
Validity of the Common Shares............ S-10
PROSPECTUS
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 3
Risk Factors............................. 5
Vornado and the Operating Partnership.... 12
Use of Proceeds.......................... 13
Consolidated Ratios of Earnings to
Combined Fixed Charges and Preferred
Share Dividend Requirements............ 13
Description of Debt Securities........... 14
Description of Shares of Beneficial
Interest............................... 23
Federal Income Tax Considerations........ 34
Plan of Distribution..................... 46
Experts.................................. 47
Validity of the Securities............... 48
</TABLE>
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==========================================================
10,000,000 SHARES
[VORNADO LOGO]
COMMON SHARES OF
BENEFICIAL INTEREST
(PAR VALUE $.04 PER SHARE)
----------------------
PROSPECTUS SUPPLEMENT
----------------------
GOLDMAN, SACHS & CO.
==========================================================
