<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VORNADO REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 22-1657560
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
PARK 80 WEST, PLAZA II, JOSEPH MACNOW
SADDLE BROOK, NEW JERSEY 07663 PARK 80 WEST, PLAZA II,
(201) 587-1000 SADDLE BROOK, NEW JERSEY 07663
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (201) 587-1000
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
PRINCIPAL EXECUTIVE OFFICES) NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
ALAN SINSHEIMER, ESQ.
PATRICIA A. CERUZZI, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM AGGREGATE MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares of beneficial interest,
par value $0.04 per share.......... 5,681,124 $41.3125 $234,701,435 $69,237
=================================================================================================================================
</TABLE>
- ---------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) based on the average of the high and low
reported sales prices on the New York Stock Exchange on April 9, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH EACH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 14, 1998
PROSPECTUS
5,681,124 SHARES
VORNADO REALTY TRUST
COMMON SHARES
------------------------
This Prospectus relates to (i) the possible issuance by Vornado Realty
Trust ("Vornado") of up to 5,681,124 common shares of beneficial interest, par
value $0.04 per share ("Common Shares"), if, and to the extent that, Vornado
elects to issue such Common Shares (the "Redemption Shares") to holders of up to
5,681,124 units of limited partnership interest ("Units") in Vornado Realty L.P.
(the "Operating Partnership"), of which Vornado is the sole general partner and
owns an approximately 89.9% limited partnership interest as of April 8, 1998,
upon the tender of such Units for redemption; and (ii) the offer and sale from
time to time by the holders thereof of any Redemption Shares that may be issued
to and held by persons who may be affiliates of Vornado (the "Selling
Shareholders").
The Units that may be redeemed for Redemption Shares were issued in
connection with the acquisition of interests in all or a portion of seven
Manhattan office buildings and a management company held by Bernard H. Mendik,
David R. Greenbaum and certain entities controlled by them (the "Mendik Group")
and certain of their affiliates on April 15, 1997 (the "Mendik Transaction").
Vornado has registered the Redemption Shares to permit the holders thereof to
sell such shares without restriction in the open market or otherwise, but the
registration of such shares does not necessarily mean that any of such shares
will be offered or sold by the holders thereof. See "Vornado and the Operating
Partnership."
Vornado will acquire Units in the Operating Partnership in exchange for any
Redemption Shares that Vornado may issue to the Unit holders.
Vornado's Common Shares are listed on the New York Stock Exchange (the
"NYSE") under the symbol "VNO." In order to maintain Vornado's qualification as
a real estate investment trust ("REIT") for federal income tax purposes and for
other purposes, Vornado's Amended and Restated Declaration of Trust, as amended
(the "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 Common Shares."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS 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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Selling Shareholders from time to time may offer and sell Common Shares
held by them (the "Secondary Shares") in one or more transactions (which may
involve block transactions) on the NYSE, in the over-the-counter market, through
negotiated transactions or otherwise, at market prices prevailing at the time of
the sale or at prices otherwise negotiated. To the extent required, the names of
any agent or broker-dealer and applicable commissions or discounts and any other
required information with respect to any particular offer will be set forth in
an accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Shareholders reserves the right to accept or reject, in whole or in
part, any proposed purchase of the Secondary Shares.
The Selling Shareholders and any agents or broker-dealers that participate
with the Selling Shareholders in the distribution of Secondary Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Secondary Shares may be deemed to be underwriting
commissions or discounts under the Securities Act.
Vornado will not receive any of the proceeds from the sale of any Secondary
Shares by the Selling Shareholders but has agreed to bear certain expenses of
registration of the Secondary Shares under Federal and state securities laws,
other than commissions and discounts of agents or broker-dealers and transfer
taxes, if any.
------------------------
The date of this Prospectus is April --, 1998.
<PAGE> 3
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 VORNADO, THE OPERATING PARTNERSHIP, THE SELLING
SHAREHOLDERS 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 is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith Vornado files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Vornado 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 , 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 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 with the Commission under 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 and the Common Shares
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.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Vornado 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, 1997, as amended by Form 10-K/A, filed
with the Commission on April 8, 1998, and by Form 10-K/A-1, filed with
the Commission on April 13, 1998; and
(2) 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 and
filed with the Commission on January 29, 1998, as amended by Form
8-K/A, dated January 26, 1998 and filed with the Commission on February
9, 1998, 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 and Vornado's Current Report on Form 8-K (File No. 001-11954),
dated April 1, 1998 and filed with the Commission on April 8, 1998, as
amended by Form 8-K/A, dated April 1, 1998 and filed with the
Commission on April 9, 1998.
All other documents and reports filed with the Commission by Vornado
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 Common
Shares 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 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.
CAUTIONARY STATEMENT CONCERNING FORWARD - LOOKING STATEMENTS
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 and Section 21E of the Exchange Act. Certain factors 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".
3
<PAGE> 5
RISK FACTORS
Prospective investors and holders of Units (each a "Limited Partner")
should carefully consider, among other factors, the matters described below.
SPECIAL CONSIDERATIONS APPLICABLE TO REDEEMING PARTNERS
TAX CONSEQUENCES OF REDEMPTION OF UNITS
The exercise by a Limited Partner of his or her right to require the
redemption of his or her Units will be treated for tax purposes as a sale of the
Units by the Limited Partner. Such a sale will be fully taxable to the redeeming
Limited Partner and such redeeming Limited Partner will be treated as realizing
for tax purposes an amount equal to the sum of the cash or the value of the
Common Shares received in the exchange plus the amount of the Operating
Partnership liabilities (including the Operating Partnership's share of the
liabilities of certain entities in which the Operating Partnership owns an
interest) considered allocable to the redeemed Units at the time of the
redemption. Depending upon a Limited Partner's particular circumstances, it is
possible that the amount of gain recognized (or even the tax liability resulting
from such gain) could exceed the amount of cash and the value of other property
(e.g., Redemption Shares) received upon such disposition. See "Redemption of
Units -- Tax Consequences of Redemption."
POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS
Unless Vornado elects to assume and perform the Operating Partnership's
obligation with respect to the Unit Redemption Right, as described below, a
redeeming Limited Partner will receive cash on the Specified Redemption Date (as
defined below) from the Operating Partnership in an amount equal to the market
value of the Units to be redeemed. In lieu of the Operating Partnership's
acquiring the Units for cash, Vornado has the right (except as described below,
if the Common Shares are not publicly traded) to elect to acquire the Units on
the Specified Redemption Date directly from a Limited Partner exercising the
Unit Redemption Right, in exchange for either cash or Common Shares, and upon
such acquisition, Vornado will become the owner of such Units. See "Redemption
of Units." If a redeeming Limited Partner receives cash, the redeeming Limited
Partner will no longer have any interest in the Company and will not benefit
from any subsequent increases in share price and will not receive any future
distributions from the Company (unless the Limited Partner currently owns or
acquires in the future additional Common Shares or Units). If a redeeming
Limited Partner receives Common Shares, the redeeming Limited Partner will
become a shareholder of Vornado rather than a holder of Units in the Operating
Partnership. Although an investment in Common Shares is substantially equivalent
to an investment in Units in the Operating Partnership, there are some
differences between ownership of Units and ownership of Common Shares relating
to, among other things, form of organization, investment objectives, policies
and restrictions, asset diversification, capitalization, management structure,
duties, liability, exculpation and indemnification of the general partner and
the trustees and investor voting and other rights. These differences, some of
which may be material to investors, are discussed in "Comparison of Ownership of
Units and Common Shares."
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
4
<PAGE> 6
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 10% of the Company's pro forma revenues.
Bradlees accounted for approximately 10.5% of total property rentals (4.2% of
total pro forma property rentals) for the year ended December 31, 1997.
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, the leases for 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 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 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. See also "-- Leverage."
5
<PAGE> 7
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, 1997, 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 December 31, 1997, Interstate Properties, a New Jersey general
partnership ("Interstate"), owned 16.6% of the outstanding Common Shares of
Vornado (assuming conversion of all 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, 19.8%
of the outstanding Common Shares of Vornado and Units of the Operating
Partnership as of December 31, 1997.
As of December 31, 1997, the Company owned 29.3% of the outstanding common
stock of Alexander's Inc., a Delaware corporation ("Alexander's"). Alexander's
is a real estate investment 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, Vornado's Chief Executive Officer, and
Michael D. Fascitelli, Vornado's President, are directors of Alexander's.
Messrs. Mandelbaum, Richard R. West and Wight, members of Vornado's Board of
Trustees, are also members of the Board of Directors of Alexander's.
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 as 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. 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
Vornado (under mutually satisfactory lease terms) and (b) Vornado Operating will
agree not to make any real estate investment or other REIT-qualified investment
unless it first offers the Company the opportunity to make such investment and
the Company has rejected that opportunity. The Company currently expects to
capitalize Vornado Operating with an equity contribution of $25 million of cash,
and currently intends to extend to Vornado Operating a $75 million unsecured
five-year revolving line of credit. The Intercompany Agreement and the Credit
Agreement were not subject to arms-length negotiation because Vornado Operating
is currently a subsidiary of the Company. Accordingly, there can be no assurance
that the terms of these agreements are comparable to those the Company could
have
6
<PAGE> 8
negotiated with an unaffiliated third party. 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
shareholders or 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 H. 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 owns an entity which provides cleaning and related
services and security services to office properties. The Company has entered
into contracts with the Mendik Group to provide such services to 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.
7
<PAGE> 9
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.
LACK OF CONTROL OF AFFILIATES
Certain of the Company's businesses are currently conducted by corporations
in which the Company owns all of the preferred stock ("preferred stock
affiliates") and none of the common equity. Ownership of the preferred stock
entitles the Company to substantially all of the economic benefits of such
affiliates. The common stock of the preferred stock affiliates is owned by
officers and/or trustees of Vornado. Accordingly, the Company is not able to
elect the boards of directors of the preferred stock affiliates, and does not
have the authority to control the management and operations of such affiliates.
As a result, the Company does not have the right to control the timing or amount
of dividends paid by such affiliates and, therefore, does not have the authority
to require that funds be distributed to it by any of these entities.
DEPENDENCE ON DIVIDENDS AND DISTRIBUTIONS OF SUBSIDIARIES
Vornado is a real estate investment trust formed under Title 8 (the
"Maryland REIT Law") of the Corporations and Associations Article of the
Annotated Code of Maryland. 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 security holders 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 December 31, 1997, the Company had aggregate indebtedness outstanding
of approximately $956.7 million, approximately $586.7 million of which is
secured by Company properties. The Operating Partnership's ability to make
required principal and interest payments with respect to indebtedness
represented by its debt securities (the "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 $956.7 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
8
<PAGE> 10
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
55.4% of cash flows from properties of the Operating Partnership and its
consolidated subsidiaries in 1997, the Operating Partnership's ability to pay
interest and principal on its Debt Securities may be adversely affected.
Vornado has historically maintained a relatively low level of debt to
market capitalization of between 15% and 35%. As of December 31, 1997, the level
of the Company's debt to market capitalization was 24%. In the future, in
connection with Vornado's 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, 1997, 82% 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.
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
9
<PAGE> 11
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 real estate industry is highly competitive. The Company's success
depends upon, among other factors, the trends of the national and local
economies, the financial condition and operating results of current and
prospective tenants, the availability and cost of capital. Interest rates,
construction and renovation costs, income tax laws, governmental regulations and
legislation, population trends, the market for real estate properties in the New
York metropolitan area, zoning laws and the ability of the Company to lease,
sublease or sell its properties at profitable levels. The Company competes with
a large number of real estate property owners. Principal means of competition
are rents charged, attractiveness of location and the quality of service. The
Company's properties are principally located in the New York metropolitan area,
a highly competitive market. The economic condition of this market may be
significantly influenced by supply and demand for space and the financial
performance and productivity of the financial insurance and real estate
industries. An economic downturn may adversely affect the Company's performance.
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 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 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
10
<PAGE> 12
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 of
beneficial interest, no par value per share ("Preferred Shares"). These
restrictions on transferability and ownership may delay, defer 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. See "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 change in control of Vornado or other
transaction that might involve a premium 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 change in the control
of Vornado or other transaction that might involve a premium price or otherwise
be in the best interest of the shareholders.
11
<PAGE> 13
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. Vornado is the sole general partner of, and owns an approximately
89.9% limited partnership interest in, the Operating Partnership as of December
31, 1997. 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, which has nine properties in the New York City metropolitan area;
(v) a 60% interest in two 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 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 will not receive any cash proceeds from the issuance of the
Redemption Shares or the sale of any Secondary Shares by the Selling
Shareholders but will acquire Units in the Operating Partnership in exchange for
any Redemption Shares that Vornado may issue to a redeeming Limited Partner.
12
<PAGE> 14
REDEMPTION OF UNITS
At any time after a holding period of one year (two years in the case of
Mendik/FW LLC (as defined in "Description of Units -- General") and certain
members of the Mendik Group) following April 15, 1997 (the "Initial Holding
Period") (subject to compliance with the securities laws, the Second Amended and
Restated Agreement of Limited Partnership of the Operating Partnership, dated as
of October 20, 1997, as amended (the "Partnership Agreement"), and the ownership
limits with respect to Common Shares set forth in the Declaration of Trust),
holders of Class C, Class D and Class E Units will have the right to have their
Units redeemed in whole or in part by the Operating Partnership for cash equal
to the fair market value, at the time of redemption, of one Common Share for
each Unit redeemed or, at the option of Vornado, one Common Share for each Unit
tendered (the "Unit Redemption Right").
Subject to certain limitations, Limited Partners (other than Vornado or any
subsidiary of Vornado) may exercise their Unit Redemption Right by providing a
Notice of Redemption substantially in the form set forth as an exhibit to the
Partnership Agreement to the Operating Partnership, with a copy to Vornado,
after the expiration of the Initial Holding Period. Unless Vornado elects to
assume and perform the Operating Partnership's obligation with respect to the
Unit Redemption Right, as described below, a redeeming Limited Partner will
receive cash on the Specified Redemption Date from the Operating Partnership in
an amount equal to the market value of the Units to be redeemed. The "Specified
Redemption Date" means the tenth Business Day (i.e., a day that is not a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to close) after receipt by Vornado of a Notice
of Redemption; provided, that if Vornado's Common Shares are not publicly
traded, the Specified Redemption Date means the thirtieth Business Day after
receipt by Vornado of a Notice of Redemption. The market value of a Unit for
this purpose will be equal to the average of the closing trading price of a
Common Share on the NYSE for the ten trading days before the day on which the
Notice of Redemption was received by Vornado or, if such date is not a Business
Day, the first Business Day thereafter (the "Cash Redemption Price").
In lieu of the Operating Partnership's acquiring the Units for cash,
Vornado has the right (except as described below, if the Common Shares are not
publicly traded) to elect to acquire the Units on the Specified Redemption Date
directly from a Limited Partner exercising the Unit Redemption Right, in
exchange for either the Cash Redemption Price or Common Shares, and upon such
acquisition, Vornado will become the owner of such Units. In either case,
acquisition of such Units by Vornado will be treated as a sale of the Units to
Vornado for Federal income tax purposes. See "-- Tax Consequences of
Redemption -- Tax Treatment of Redemption of Units." In the event that Vornado
determines to acquire the Units in exchange for Common Shares, the total number
of Common Shares to be paid to the partner redeeming the Units shall be equal to
the product of the number of Units times the Conversion Factor. See "Description
of Units -- Sales of Assets" for a discussion of the Conversion Factor, which is
1.0 as of the date hereof. Any Class C, Class D or Class E Units acquired by
Vornado in connection with satisfaction of the Unit Redemption Right will
automatically convert to Class A Units upon acquisition by Vornado. Vornado
currently anticipates that it generally will elect to acquire directly Units
tendered for redemption and to issue Common Shares in exchange therefor rather
than paying cash, although the determination whether to pay cash or issue Common
Shares upon redemption of Units will be made by Vornado at the time Units are
tendered for redemption.
Upon exercise of the Unit Redemption Right, the Limited Partner's right to
receive distributions for the Units so redeemed or exchanged will cease, unless
the record date for such distribution was a date prior to the Specified
Redemption Date. At least 1,000 Units (or all remaining Units owned by the
limited partner if less than 1,000 Units) must be redeemed each time the Unit
Redemption Right is exercised. No redemption or exchange can occur if delivery
of Common Shares on the Specified Redemption Date to the Unit holder seeking
redemption would be prohibited either under the provisions of Vornado's
Declaration of Trust or under applicable Federal or state securities laws as
long as the Common Shares are publicly traded.
Pursuant to the Partnership Agreement, each Limited Partner agreed with
Vornado that all Units delivered for redemption shall be delivered to the
Operating Partnership or Vornado, as the case may be, free and clear of all
liens, and neither Vornado nor the Operating Partnership shall be under any
obligation to acquire Units which are or may be subject to any liens. Each
Limited Partner has also agreed to pay any state
13
<PAGE> 15
or local property transfer tax that is payable as a result of the transfer of
his or her Units to the Operating Partnership or Vornado.
The assignee of a Limited Partner may exercise the Unit Redemption Right of
such Limited Partner, in which event the redemption price shall be paid directly
to such assignee and not to such Limited Partner.
In the event that Vornado provides notice to the Limited Partners that it
intends to make an extraordinary distribution of cash or property to its
shareholders or to effect a merger, a sale of all or substantially all of its
assets or any other similar extraordinary transaction, the Unit Redemption Right
shall be exercisable, subject to the requirement of expiration of the Initial
Holding Period (which for purposes of this paragraph is shortened to one year
after April 15, 1997 for those Limited Partners for whom it is otherwise two
years after such date), during the period commencing on the date on which
Vornado provides such notice and ending on the record date to determine
shareholders eligible to receive such distribution or to vote upon the approval
of such merger, sale or other extraordinary transaction (or, if no such record
date is applicable, the date that is twenty days after the date Vornado provides
such notice). In the event that this paragraph applies, the Specified Redemption
Date shall be the sooner of the tenth Business Day after the Operating
Partnership receives the Notice of Redemption or the Business Day immediately
preceding the record date to determine shareholders eligible to receive a
distribution or vote on approval; provided, that if such time occurs in less
than ten Business Days and the Operating Partnership elects to redeem the Units
for cash, the Operating Partnership will have up to ten Business Days from
receipt of the Notice of Redemption to deliver payment in respect of such Units.
In the event that there is a merger or consolidation of Vornado, or a sale
of all or substantially all of the assets of Vornado as an entirety, and in
either case, in connection with such transaction, Vornado's shareholders are
obligated to accept cash and/or debt obligations in full or partial
consideration for their Common Shares, then the portion of the consideration per
Unit payable upon exercise of the Unit Redemption Right that is required to be
accepted in cash and/or debt obligations shall be an amount of cash (the
"Required Cash Payment") equal to the sum of the cash payable for one Common
Share multiplied by the Conversion Factor, and the value on the date of closing
of such transaction of the debt obligations to be received with respect to one
Common Share multiplied by the Conversion Factor. The balance of the
consideration payable per Unit upon exercise of the Unit Redemption Right shall
be payable in an amount calculated consistently with the second paragraph of
this section. In the event that such transaction occurs at a time when the
consent of certain Limited Partners is required pursuant to the Lock-out
Provisions (as defined in "Description of Units -- Purposes, Business and
Management"), then the Required Cash Payment to such Limited Partners shall be
increased by an amount such as to provide them with an internal rate of return
on the Required Cash Payment from the date of such transaction to the date of
redemption of the Units equal to the Treasury Constant Yield (as defined in the
Partnership Agreement).
In the event that a Limited Partner exercises his or her Unit Redemption
Right prior to the first Business Day following April 15, 1999, then:
(i) if such Limited Partner's Units are redeemed or purchased for
cash, the receipt of such cash will be conditioned upon Vornado's
satisfaction that any New York Real Estate Transfer Tax and New York City
Real Property Transfer Tax (the "Transfer Taxes") payable by reason of such
Partner's redemption prior to April 15, 1999 are paid or adequately
provided for (as determined by Vornado in its sole discretion); and
(ii) if Vornado purchases such Limited Partner's Units for Common
Shares then, as a condition to receiving such Common Shares, the redeeming
Limited Partner will be required to place in escrow with Vornado an amount
equal to the Transfer Taxes which would have been payable as of the date of
the exercise of the Unit Redemption Right if such Partner had disposed of
such Common Shares on such date. Such escrow may be used by Vornado or the
Limited Partner who provided the escrow for the payment of the Transfer
Taxes, provided, in the latter event, that Vornado determines, in its good
faith discretion, that such tax will be paid. To the extent not used to pay
Transfer Taxes, the escrowed funds will be released to the Limited Partner
after April 15, 1999, if Vornado determines in its sole discretion
exercised in good faith that no such Transfer Tax has been due and payable.
14
<PAGE> 16
In the event that the Common Shares are not publicly traded but another
entity whose shares are publicly traded owns more than 50% of the shares of
Vornado (referred to as the "Parent Entity"), the Unit Redemption Right will be
determined by reference to the publicly-traded stock of the Parent Entity and
the General Partner will have the right to elect to acquire the Units to be
redeemed for publicly traded stock of the Parent Entity. In the event that the
Common Shares are not publicly traded and there is no Parent Entity with
publicly-traded stock, the Unit Redemption right would be based upon the net
fair market value of the Operating Partnership's assets at the time the Unit
Redemption Right is exercised (as determined in good faith by Vornado), and
Vornado and the Operating Partnership would be obligated to satisfy the Unit
Redemption Right in cash, payable on the thirtieth business day after receipt by
Vornado of the Notice of Redemption.
In addition to the foregoing, during the period from July 15, 1997 until
April 15, 1998 holders of Class E Units have the right to redeem those Units for
cash at a 6% discount from the then applicable Cash Redemption Price.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, dated as of April 15, 1997,
between Vornado and the Unit holders named therein (the "Registration Rights
Agreement"), which is filed as an Exhibit to the Registration Statement of which
this Prospectus forms a part, certain persons who received Units in connection
with the Mendik Transaction have the right to demand registration of the Shares
for which such Units may be redeemed at the time of exercise of the Unit
Redemption Right, unless such Redemption Shares are issued to such holders
pursuant to an effective registration statement filed with the Commission. The
Registration Rights Agreement provides that the Company will pay all expenses of
registering the Redemption Shares, and the holders thereof will pay any
brokerage and sales commissions, fees and disbursements of counsel to such
holders, accountants and other advisors, and any transfer taxes relating to the
sale or disposition of the Redemption Shares by such holders.
Pursuant to the Registration Rights Agreement, Vornado has agreed to
indemnify each Unit holder named therein and each person, if any, who controls
such holder within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Redemption Shares were registered under the Securities Act, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; (ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, if such settlement
is effected with the written consent of Vornado; and (iii) against any and all
expenses whatsoever, as incurred, reasonably incurred in investigating,
preparing or defending against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, in each case whether
or not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided, however,
that such indemnity does not apply to any Unit holder with respect to any loss,
liability, claim, damage or expense to the extent arising out of (A) any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to Vornado by such
Unit holder expressly for use in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto), or (B) such
Unit holder's failure to deliver an amended or supplemental Prospectus if such
loss, liability, claim, damage or expense would not have arisen had such
delivery occurred.
15
<PAGE> 17
Pursuant to the Registration Rights Agreement, each of the Unit holders
named therein has agreed to indemnify Vornado, its Trustees and officers and
each person, if any, who controls Vornado within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (i) against any and all
loss, liability, claim, damage and expense whatsoever, as incurred, arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment thereto) pursuant
to which the Redemption Shares were registered under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (ii) against any and
all loss, liability, claim, damage and expense whatsoever, as incurred, to the
extent of the aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement or
omission, if such settlement is effected with the written consent of such Unit
holder; and (iii) against any and all expenses whatsoever, as incurred,
reasonably incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; provided, however, that such indemnity shall only
apply with respect to any loss, liability, claim, damage or expense to the
extent arising out of (A) any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to Vornado by such Unit holder expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), or (B) such Unit holder's failure to deliver
an amended or supplemental Prospectus if such loss, liability, claim, damage or
expense would not have arisen had such delivery occurred. A Unit holder shall
not be required to indemnify Vornado, its officers and Trustees or its control
persons with respect to any amount in excess of the amount of the total proceeds
to such Unit holder from sales of the Redemption Shares of such Unit holder
under the Registration Statement, and no Unit holder shall be liable under the
indemnification provision for any statements or omissions of any other Unit
holder.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes the material federal income tax
considerations that may be relevant to a Limited Partner who exercises his or
her right to require the redemption of his or her Units. This discussion only
applies to Limited Partners that provide an affidavit to the Operating
Partnership, at the time their Units are redeemed, stating under penalties of
perjury (i) that the Limited Partner is not a foreign person and (ii) the
Limited Partner's taxpayer identification number.
LIMITED PARTNERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
THE TAX CONSEQUENCES TO THEM OF THE REDEMPTION OF THEIR UNITS, INCLUDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SUCH REDEMPTION IN THEIR
PARTICULAR CIRCUMSTANCES AND POTENTIAL CHANGES IN APPLICABLE LAWS.
TAX TREATMENT OF REDEMPTION OF UNITS
If Vornado assumes and performs the redemption obligation, the Partnership
Agreement provides that the redemption will be treated by Vornado, the Operating
Partnership and the redeeming Limited Partner as a sale of Units by such Limited
Partner to Vornado at the time of such redemption. (A Limited Partner's right to
require the redemption of Units is referred to as the "Redemption Right.") Such
sale will be fully taxable to the redeeming Limited Partner and such redeeming
Limited Partner will be treated as realizing for tax purposes an amount equal to
the sum of the cash or the value of the Common Shares received in the exchange
plus the amount of Operating Partnership liabilities (including the Operating
Partnership's share of the liabilities of certain entities in which the
Operating Partnership owns an interest) allocable to the redeemed
16
<PAGE> 18
Units at the time of the redemption. The determination of the amount of gain or
loss is discussed more fully below.
If Vornado does not elect to assume the obligation to redeem a Limited
Partner's Units, the Operating Partnership will redeem such Units for cash. If
the Operating Partnership redeems Units for cash that Vornado contributes to the
Operating Partnership to effect such redemption, the redemption likely would be
treated for tax purposes as a sale of such Units to Vornado in a fully taxable
transaction, although the matter is not free from doubt. In that event, the
redeeming Limited Partner would be treated as realizing an amount equal to the
sum of the cash received in the exchange plus the amount of Operating
Partnership liabilities (including the Operating Partnership's share of the
liabilities of certain entities in which the Operating Partnership owns an
interest) allocable to the redeemed Units at the time of the redemption. The
determination of the amount of gain or loss in the event of sale treatment is
discussed more fully below.
If, instead, the Operating Partnership chooses to redeem a Limited
Partner's Units for cash that is not contributed by Vornado to effect the
redemption, the tax consequences would be the same as described in the previous
paragraph, except that if the Operating Partnership redeems less than all of a
Limited Partner's Units, the Limited Partner would not be permitted to recognize
any loss occurring on the transaction and would recognize taxable gain only to
the extent that the cash, plus the share of Operating Partnership liabilities
(including the Operating Partnership's share of the liabilities of certain
entities in which the Operating Partnership owns an interest) allocable to the
redeemed Units, exceeded the Limited Partner's adjusted basis in all of such
Limited Partner's Units immediately before the redemption.
POTENTIAL APPLICATION OF DISGUISED SALE REGULATIONS TO A REDEMPTION OF UNITS
There is a risk that a redemption of Units may cause the original transfer
of property to the Operating Partnership in exchange for Units to be treated as
a "disguised sale" of property. The Code and the Treasury Regulations thereunder
(the "Disguised Sale Regulations") generally provide that, unless one of the
prescribed exceptions is applicable, a partner's contribution of property to a
partnership and a simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability)
from the partnership to the partner will be presumed to be a sale, in whole or
in part, of such property by the partner to the partnership. Further, the
Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will be, when viewed together,
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that if two years have passed between
the contribution of property to the partnership and the transfer of money or
other consideration from a partnership to a partner, the transactions will be
presumed not to be a sale unless the facts and circumstances clearly establish
that the transfers constitute a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership, the
Internal Revenue Service (the "Service") could contend that the Disguised Sale
Regulations apply because the redeeming Limited Partner will receive cash or
Common Shares subsequent to his previous contribution of property to the
Partnership. If the Service were successful in making such an assertion, the
transactions in connection with the issuance of the Units themselves could be
taxable as a disguised sale under the Disguised Sale Regulations.
TAX TREATMENT OF DISPOSITION OF UNITS BY LIMITED PARTNERS GENERALLY
If a Unit is redeemed in a manner that is treated as a sale of the Unit the
determination of gain or loss from the sale or other disposition will be based
on the difference between the amount considered realized for tax purposes and
the Limited Partner's tax basis in such Unit. See "-- Basis of Units" below.
Upon the sale of a Unit, the "amount realized" will be measured by the sum of
the cash and fair market value of other property received (e.g., Redemption
Shares) plus the portion of the Operating Partnership's liabilities (including
the Operating Partnership's share of the liabilities of certain entities in
which the Operating Partnership owns an interest) allocable to the Unit sold. To
the extent that the amount exceeds the Limited Partner's basis in the Unit
disposed of, such Limited Partner will recognize gain. It is possible that the
amount of gain recognized or
17
<PAGE> 19
even the tax liability resulting from such gain could exceed the amount of cash
and the value of any other property (e.g., Redemption Shares) received upon such
disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a Limited Partner's share of "unrealized
receivables" of the Operating Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
For non-corporate holders, the maximum rate of tax on the net capital gain
from the sale or exchange of a capital asset held for more than 18 months is
20%, and the maximum rate of tax from the sale or exchange of a capital asset
held for more than one year but not more than 18 months is 28%. The maximum rate
for net capital gains attributable to the sale of depreciable real property held
for more than 18 months is 25% to the extent of the prior deductions for
"unrecaptured Section 1250 gain" (that is depreciation deductions not otherwise
recaptured as ordinary income under the existing depreciation recapture rules).
The IRS has authority to issue regulations that could, among other things,
apply these rates on a look-through basis in the case of "pass-through" entities
such as the Company. The IRS has not yet issued such regulations, and if it does
not issue such regulations in the future, the rate of tax that would apply to
the disposition of a Unit by a non-corporate holder would be determined based
upon the period of time over which such non-corporate holder held such Unit. No
assurances, however, can be provided that the IRS will not issue regulations
that would provide that the rate of tax that would apply to the disposition of a
Unit by a non-corporate holder would be determined based upon the nature of the
assets of the Operating Partnership and the periods of time over which the
Operating Partnership held such assets. Moreover, no assurances can be provided
that such regulations would not be applied retroactively.
BASIS OF UNITS
In general, a Limited Partner who received Units in exchange for
contributing an interest in a partnership has an initial tax basis in such Units
("Initial Basis") equal to his or her basis in the contributed partnership
interest. A Limited Partner's Initial Basis in his or her Units generally is
increased by (a) such Limited Partner's share of Operating Partnership taxable
and tax-exempt income, (b) increases in his or her share of the liabilities of
the Operating Partnership (including the Operating Partnership's share of the
liabilities of certain entities in which the Operating Partnership owns an
interest) and (c) any gain recognized under Section 737 of the Code due to the
receipt of a distribution from the Operating Partnership within seven years
(five years in the case of contributions on or before June 7, 1997) of a
contribution of property to the Operating Partnership (including the receipt of
Vornado Operating Inc. common shares). Generally, such Partner's Initial Basis
in his or her Units is decreased (but not below zero) by (i) his or her share of
Operating Partnership distributions, (ii) decreases in his or her share of
liabilities of the Operating Partnership (including the Operating Partnership's
share of the liabilities of certain entities in which the Operating Partnership
owns an interest), (iii) his or her share of losses of the Operating
Partnership, and (iv) his or her share of nondeductible expenditures of the
Operating Partnership that are not chargeable to capital.
18
<PAGE> 20
DESCRIPTION OF COMMON SHARES
The following description of the material terms of the Common Shares does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the more complete descriptions thereof set forth in the following
documents: (i) Vornado's Declaration of Trust, and (ii) Vornado's 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 shorter taxable year). 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 of beneficial interest, consisting of 100,000,000 Common Shares,
20,000,000 Preferred Shares of beneficial interest, and 120,000,000 excess
shares of beneficial interest, $.04 par value per share ("Excess Shares"). See
"-- Restrictions on Ownership" for a discussion of the possible issuance of
Excess Shares.
As of March 6, 1998, 72,185,535 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".
Subject to the provisions in the Declaration of Trust regarding the
restriction on the transfer of shares of beneficial interest, the holders of
Common Shares are entitled to receive dividends when, if and as authorized and
declared 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 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, duly authorized, 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
19
<PAGE> 21
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 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
20
<PAGE> 22
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, 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.
21
<PAGE> 23
DESCRIPTION OF UNITS
The following description of the material terms of the Units and certain
material provisions of the Partnership Agreement does not purport to be complete
and is subject to, and qualified in its entirety by reference to, applicable
provisions of Delaware law and the Partnership Agreement, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. For a comparison of the voting and certain other rights of partners in the
Operating Partnership and shareholders of Vornado, see "Comparison of Ownership
of Units and Common Shares."
GENERAL
Holders of Units (other than Vornado in its capacity as general partner)
hold a limited partnership interest in the Operating Partnership, and all
holders of Units (including Vornado in its capacity as general partner) are
entitled to share in cash distributions from, and in the profits and losses of,
the Operating Partnership.
In the Mendik Transaction, the Operating Partnership issued four classes of
common Units. Vornado received Class A Units in exchange for the assets it
contributed to the Operating Partnership. FW/Mendik REIT, L.L.C., a Delaware
limited liability company of which the Mendik Group and FWM, L.P., a Texas
limited partnership and an affiliate of RMB Realty, Inc., are the sole members
("Mendik/FW LLC"), and Messrs. Mendik and Greenbaum (and their affiliates and
members of their immediate families) received Class C Units in exchange for
their interests in the Mendik Partnerships, as well as management-related assets
and pre-existing interests in the Operating Partnership. The "Mendik
Partnerships" means Two Penn Plaza Associates, L.P., a New York limited
partnership; Eleven Penn Plaza Company, a New York general partnership; 1740
Broadway Associates, a Delaware limited partnership; 866 U.N. Plaza Associates
LLC, a New York limited liability company; 330 Madison Company, a New York
general partnership; and 570 Lexington Company, L.P., a New York limited
partnership. The other partners in the Mendik Partnerships (excluding Mendik/FW
LLC and Messrs. Mendik and Greenbaum and members of their immediate families)
received Class D Units, and two entities that held several indirect interests in
Eleven Penn Plaza Company received Class E Units in the Operating Partnership in
exchange for their interests in the Mendik Partnerships.
The Operating Partnership has a fifth class of Units, Class B Units, that
are available for issuance in series having such rights and preferences, if any,
as are established by Vornado at the time of issuance of each such series. No
Class B Units have been issued.
In connection with the Mendik Transaction, Vornado issued 5,750,000 $3.25
Series A Convertible Preferred Shares of Beneficial Interest, no par value,
liquidation preference $50.00 per share (the "Series A Preferred Shares"), and
contributed the proceeds of such issuance to the Operating Partnership in
exchange for 5,750,000 Series A Preferred Units. An additional 39,315 Series A
Preferred Shares of Vornado were issued on December 16, 1997, in connection with
Vornado's acquisition of Arbor Property Trust, a Delaware business trust
("Arbor"), to Arbor shareholders who elected to receive Series A Preferred
Shares in exchange for their Arbor shares, and Vornado contributed Arbor to the
Operating Partnership in exchange for, inter alia, an additional 39,315 Series A
Preferred Units.
In connection with the acquisition of a substantial portion of the real
estate portfolio of the Kennedy family on April 1, 1998, the Operating
Partnership issued 1,065,722 Class A Units, 899,566 Series B-1 Convertible
Preferred Units (the "Series B-1 Units") and 449,783 Series B-2 Restricted
Preferred Units (the "Series B-2 Units" and, together with the Series B-1 Units,
the "Series B Preferred Units") to certain entities owned, directly or
indirectly, by members of the Kennedy family or trusts for their benefit.
Distributions vary among the classes of holders of Units. The Series A
Preferred Units entitle Vornado as the holder thereof to a cumulative
preferential distribution at an annual rate of $3.25 per Series A Preferred Unit
(the "Series A Preferred Distribution Preference"). The Series B-1 Units entitle
the holders thereof to a preferential distribution at the annual rate of $2.50
per Series B-1 Unit, and the Series B-2 Units entitle the
22
<PAGE> 24
holders thereof to a preferential distribution at the annual rate of $4.00 per
Series B-2 Unit (the "Series B Preferred Distribution Preferences"). The Class C
Units entitle the holders thereof to a preferential quarterly distribution of
$0.4225 per Unit until such time as the Operating Partnership has made four
consecutive quarterly distributions of $0.4225 per Unit to the holders of the
Class A Units (the "Class C Distribution Preference"). The Class D and Class E
Units entitle the holders thereof to a preferential quarterly distribution of
$0.50375 per Unit until such time as the Operating Partnership has made four
consecutive quarterly distributions of $0.50375 per Unit to the holders of the
Class A Units (the "Class D/E Distribution Preference" and, together with the
Series A Preferred Distribution Preference, the Series B Preferred Distribution
Preferences and the Class C Distribution Preference, the "Distribution
Preferences"). See "-- Distributions" below.
Holders of Units have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act (the "Limited Partnership Act"). The Units are not registered
pursuant to any Federal or state securities laws, and they are not listed on any
exchange or quoted on any national market system. The Partnership Agreement
imposes certain restrictions on the transfer of Units. See "-- Restrictions on
Transfers of Units by Limited Partners" below.
The holders of Class C, Class D and Class E Units have the Unit Redemption
Right. See "Redemption of Units".
The Series A Preferred Units are redeemable for Class A Units on and after
April 1, 2001 at Vornado's option, and are convertible at Vornado's option into
Class A Units at any time, provided that an equivalent number of Series A
Preferred Shares are concurrently converted into Common Shares by the holders
thereof. The number of Class A Units into which the Series A Preferred Units are
redeemable or convertible is equal to the aggregate liquidation preference of
the Series A Preferred Units being redeemed or converted divided by their
conversion price of $72.75 (as adjusted to take account of stock dividends and
other transactions).
The Series B-1 Units and Series B-2 Units are redeemable on and after
January 1, 2008 at Vornado's option for a number of Class A Units equal to the
aggregate liquidation preference of the Series B Preferred Units of $50.00 per
Unit (the "Series B Preferred Liquidation Preference") divided by their
conversion price of $54.7050 (the "Series B Preferred Conversion Price") and
cash of $50 per Series B-2 Unit, respectively. The Series B Preferred Units are
convertible at any time at the option of the holders thereof in groups of two
Series B-1 Units and one Series B-2 Unit into a number of Class A Units equal to
the aggregate Series B Preferred Liquidation Preference of the Units being
redeemed divided by the Series B Preferred Conversion Price.
FORMATION
The Operating Partnership was formed as a limited partnership under the
Limited Partnership Act on October 2, 1996. Vornado is the sole general partner
of the Operating Partnership and owned approximately 92.7% of the interests in
the Operating Partnership as of December 31, 1997. Of the interests in the
Operating Partnership allocated to Vornado, a 1% interest in the Operating
Partnership is held by Vornado as the general partner of the Operating
Partnership, and the remaining interests in the Operating Partnership allocated
to Vornado are held by Vornado as a Limited Partner in the Operating
Partnership.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
the Limited Partnership Act, except that the Partnership Agreement requires the
business of the Operating Partnership to be conducted in such a manner as will
permit Vornado to be classified as a REIT under Section 856 of the Code, unless
Vornado ceases to qualify as a REIT for any reason. In furtherance of the
foregoing, the Operating Partnership may enter into partnerships, joint
ventures, limited liability companies or similar arrangements and may own
interests in any other entity engaged, directly or indirectly, in any of the
foregoing.
23
<PAGE> 25
Vornado, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the Limited Partners in certain limited
circumstances discussed below. No Limited Partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
In particular, the Limited Partners expressly acknowledge in the
Partnership Agreement that the general partner is acting on behalf of the
Operating Partnership and Vornado's shareholders collectively, and is under no
obligation to consider the tax consequences to, or other separate interests of,
limited partners when making decisions on behalf of the Operating Partnership.
Subject to Sections 7.11.C(1), (2) and (3) of the Partnership Agreement (the
"Lock-out Provisions") and Section 7.11.C(7) of the Partnership Agreement (the
"Gross-up Provisions"), Vornado intends to make decisions in its capacity as
general partner of the Operating Partnership taking into account the interests
of Vornado and the Operating Partnership as a whole, independent of the tax
effects on the Limited Partners. See "-- Borrowing by the Operating Partnership"
and "-- Sales of Assets" below for discussions of the Lock-out Provisions and
the Gross-up Provisions. Vornado and its trustees and officers will have no
liability to the Operating Partnership or to any partner or assignee for any
losses sustained, liabilities incurred or benefits not derived as a result of
errors in judgment or mistakes of fact or law or any act or omission if Vornado
acted in good faith.
ABILITY OF VORNADO TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
Vornado generally may not conduct any business other than through the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership interests
held by Vornado in its capacity as a Limited Partner in the Operating
Partnership). Other persons (including officers, trustees, employees, agents and
other affiliates of Vornado) are not prohibited under the Partnership Agreement
from engaging in other business activities and are not required to present any
business opportunities to the Operating Partnership. In addition, the
Partnership Agreement does not prevent another person or entity that acquires
control of Vornado in the future from conducting other businesses or owning
other assets, even though such businesses or assets may be ones that it would be
in the best interests of the limited partners for the Operating Partnership to
own.
DISTRIBUTIONS
The Partnership Agreement provides for distributions, as determined in the
manner provided in the Partnership Agreement, to Vornado and the Limited
Partners in proportion to their percentage interest in the Operating
Partnership, subject to the Distribution Preferences. As general partner of the
Operating Partnership, Vornado has the exclusive right to declare and cause the
Operating Partnership to make distributions as and when Vornado deems
appropriate or desirable in its sole discretion. For so long as Vornado elects
to qualify as a REIT, Vornado will make reasonable efforts (as determined by it
in its sole discretion) to make distributions to partners in amounts such that
Vornado will be able to pay shareholder dividends that will satisfy the
requirements for qualification as a REIT and avoid any Federal income or excise
tax liability for Vornado.
The value of each common Unit, regardless of its class, equates to one
Common Share of Vornado. Series A Preferred Units and Series B Preferred Units
do not have a value equating to one Common Share, but have such liquidation
preferences and conversion prices for conversion into Class A Units as are set
forth in the Declaration of Trust and the Partnership Agreement. Class C, Class
D and Class E Units, Series A Preferred Units and Series B Preferred Units have
special priorities in the distributions paid by the Operating Partnership. The
Partnership Agreement provides that the Operating Partnership will make
distributions (when, as and if declared by Vornado) in the order of preference
provided for in the Partnership Agreement. The order of preference in the
Partnership Agreement provides that distributions will be paid first to Vornado
as necessary to enable Vornado to pay REIT Expenses. The Partnership Agreement
defines "REIT Expenses" to mean (i) costs and expenses relating to the
continuity of existence of Vornado and any entity in which Vornado owns an
equity interest, (ii) costs and expenses relating to any offer or registration
of securities by Vornado, (iii) costs and expenses associated with preparing and
filing periodic reports of Vornado under federal, state and local laws
(including Commission filings), (iv) costs and expenses associated with
24
<PAGE> 26
Vornado's compliance with laws, rules and regulations applicable to it, and (v)
all other operating or administrative expenses incurred by Vornado in the
ordinary course of its business.
Thereafter, distributions will be paid first to holders of Series A
Preferred Units and Series B Preferred Units in the amount of any accumulated
and unpaid, or currently payable, Series A Preferred Distribution Preference and
Series B Preferred Distribution Preferences, respectively, and to holders of any
other class of limited partnership interests ranking senior (as to distributions
or redemption or voting rights) to Class C Units, Class D Units and Class E
Units, if any class of such Units is then outstanding, in the amount payable
pursuant to the terms of such class as determined by the general partner upon
creation of such class. Distributions will be paid second to holders of Class D
Units and Class E Units (pro rata based on the ratio of the total number of
Class D Units or Class E Units, as applicable, to the aggregate number of Class
D Units and Class E Units taken together on the relevant record date established
by the general partner for such distribution) and pari passu to holders of
Series B Preferred Units for any accumulated and unpaid Class D/E Distribution
Preferences and Series B Preferred Distribution Preferences, respectively, and
third to holders of Class D and Class E Units the Class D/E Distribution
Preference in the quarterly amount of $0.50375 per Unit and pari passu to
holders of Series B Preferred Units the Series B Distribution Preferences.
Distributions will be paid fourth to Class C Unit holders and pari passu to
Series B Preferred Unit holders for any accumulated and unpaid Class C
Distribution Preferences and Series B Distribution Preferences, respectively,
and fifth to holders of Class C Units the Class C Distribution Preference in the
quarterly amount of $0.4225 per Unit and pari passu to holders of Series B
Preferred Units the Series B Preferred Distribution Preferences. Sixth,
distributions will be paid to holders of Class A Units. Class C Unit holders
will also share in any distribution per quarter to Class A Unit holders above
$0.4225 per Unit, and Class D and Class E Unit holders will share in any
distribution per quarter above $0.50375 per Unit.
Class C Units will automatically convert to Class A Units when the
distribution per quarter paid to holders of Class A Units equals the Class C
Distribution Preference for four consecutive quarters following the Mendik
Transaction. Class D and Class E Units will automatically convert to Class A
Units when the distribution per quarter paid to holders of Class A Units equals
the Class D/E Distribution Preference for four consecutive quarters following
the Mendik Transaction. Until such time as all Class C, Class D and Class E
Units have been converted into Class A Units, the Partnership Agreement will
prohibit the Operating Partnership from issuing any class of limited partnership
interests ranking senior (as to distributions or redemption or voting rights) to
Class C Units or Class D Units or Class E Units, unless either (1) such limited
partnership interests are substantially similar to the terms of securities
issued by Vornado and the proceeds of the issuance of such securities have been
contributed to the Operating Partnership or (2) the issuance of such limited
partnership interests has been approved by the holders of a majority of the
Class C, Class D and Class E Units issued in the Mendik Transaction and then
outstanding (taken together as a group).
Prior to the automatic conversion of Class C Units to Class A Units and
prior to the automatic conversion of Class D and Class E Units to Class A Units
as described above, Vornado will be permitted to cause the Operating Partnership
to make a distribution to holders of Class A Units of cash (subject to an
aggregate maximum amount for both such distributions of $1,500,000) representing
any funds from operations that could have been and were not distributed to
holders of Class A Units (without requiring pro rata distributions to holders of
Class C Units or Class D and Class E Units, as applicable) during the twelve
calendar quarters preceding the quarter in which such distribution is made.
BORROWING BY THE OPERATING PARTNERSHIP
Vornado is authorized to cause the Operating Partnership to borrow money
and to issue and guarantee debt as it deems necessary for the conduct of the
activities of the Operating Partnership. Such debt may be secured by mortgages,
deeds of trust, liens or encumbrances on the Operating Partnership's properties.
Vornado also may cause the Operating Partnership to borrow money to enable the
Operating Partnership to make distributions, including distributions in an
amount sufficient to permit Vornado to avoid the payment of any Federal income
tax. Pursuant to the Lock-out Provisions, however, the Operating Partnership may
not, earlier than one year prior to its maturity, repay the mortgage
indebtedness on Two Penn Plaza, Eleven Penn
25
<PAGE> 27
Plaza and 866 United Nations Plaza (each, a midtown Manhattan office property
previously owned by one of the Mendik Partnerships and hereinafter referred to
as a "Mendik Property") during a period of twenty years following April 15, 1997
(the "Lock-out Period") without, in the case of each such Mendik Property, the
consent of holders of 75% of the Units issued to partners of such Mendik
Partnership in the Mendik Transaction that remain outstanding at the time of
such vote (whether held by the original recipient of such Units or by a
successor or transferee of the original recipient, but excluding Units held by
(a) Vornado or any subsidiary of Vornado and (b) the estate of Bernard H. Mendik
following his death), unless the repayment is in connection with either a
refinancing of the outstanding debt (on a basis that is nonrecourse to the
Partnership and the General Partner and with the least amount of principal
amortization that is available on commercially reasonable terms) or an
involuntary sale pursuant to foreclosure of a mortgage securing the debt (or
other similar event). In addition, during the Lock-out Period, the Operating
Partnership is obligated to use commercially reasonable efforts, commencing one
year prior to the stated maturity, to refinance at maturity (on a basis that is
nonrecourse to the Partnership and the General Partner and with the least amount
of principal amortization as is available on commercially reasonable terms) the
mortgage indebtedness secured by each of these three Mendik Properties at not
less than the principal amount outstanding on the maturity date. Finally, during
the Lock-out Period, the Operating Partnership cannot, without, in the case of
each such Property, the consent of holders of 75% of the Units issued to
partners of such Mendik Partnership in the Mendik Transaction that remain
outstanding at the time of such vote, incur debt secured by any of these three
Mendik Properties if the amount of the new debt would exceed the greater of 70%
of the value of the Mendik Property securing the debt or the amount of existing
debt being refinanced (plus the costs associated therewith).
REIMBURSEMENT OF VORNADO; TRANSACTIONS WITH VORNADO AND ITS AFFILIATES
Vornado does not receive any compensation for its services as general
partner of the Operating Partnership. Vornado, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions with
respect to the Units it holds as other partners in the Operating Partnership
holding the same classes of Units. In addition, the Operating Partnership
reimbursed Vornado for all expenses it incurred relating to the Mendik
Transaction and reimburses Vornado for all expenses it incurs relating to the
ongoing operation of Vornado and any other offering of additional partnership
interests in the Operating Partnership or securities of Vornado (or rights,
options, warrants or convertible or exchangeable securities), including expenses
in connection with this registration of Common Shares for issuance in exchange
for Units upon the assumption by Vornado of a Unit Redemption Right exercised by
a Limited Partner in the Operating Partnership. See "Redemption of Units."
Except as expressly permitted by the Partnership Agreement, the Operating
Partnership will not, directly or indirectly, sell, transfer or convey any
property to, or purchase any property from, or borrow funds from, or lend funds
to, any partner in the Operating Partnership or any affiliate of the Operating
Partnership or Vornado that is not also a subsidiary of the Operating
Partnership, except pursuant to a transaction that has been approved by a
majority of the disinterested trustees of Vornado, taking into account the
fiduciary duties of Vornado to the Limited Partners of the Operating
Partnership.
LIABILITY OF VORNADO AND LIMITED PARTNERS
Vornado, as general partner of the Operating Partnership, is liable for all
general recourse obligations of the Operating Partnership to the extent not paid
by the Operating Partnership. Vornado is not liable for the nonrecourse
obligations of the Operating Partnership.
The Limited Partners in the Operating Partnership are not required to make
additional contributions to the Operating Partnership. Assuming that a Limited
Partner does not take part in the control of the business of the Operating
Partnership and otherwise acts in conformity with the provisions of the
Partnership Agreement, the liability of a Limited Partner for obligations of the
Operating Partnership under the Partnership Agreement and the Limited
Partnership Act will be limited, subject to certain exceptions, generally to the
loss of such Limited Partner's investment in the Operating Partnership
represented by his or her Units. Under the Limited Partnership Act, a Limited
Partner may not receive a distribution from the
26
<PAGE> 28
Operating Partnership if, at the time of the distribution and after giving
effect thereto, the liabilities of the Operating Partnership, other than
liabilities to parties on account of their interests in the Operating
Partnership and liabilities for which recourse is limited to specified property
of the Operating Partnership, exceed the fair value of the Operating
Partnership's assets, other than the fair value of any property subject to
nonrecourse liabilities of the Operating Partnership, but only to the extent of
such liabilities. The Limited Partnership Act provides that a Limited Partner
who receives a distribution knowing at the time that it violates the foregoing
prohibition is liable to the Operating Partnership for the amount of the
distribution. Unless otherwise agreed, such a Limited Partner will not be liable
for the return of such distribution after the expiration of three years from the
date of such distribution.
The Operating Partnership has qualified to conduct business in the State of
New York and may qualify in certain other jurisdictions. Maintenance of limited
liability may require compliance with certain legal requirements of those
jurisdictions and certain other jurisdictions. Limitations on the liability of a
limited partner for the obligations of a limited partnership have not been
clearly established in many jurisdictions. Accordingly, if it were determined
that the right, or exercise of the right by the Limited Partners, to make
certain amendments to the Partnership Agreement or to take other action pursuant
to the Partnership Agreement constituted "control" of the Operating
Partnership's business for the purposes of the statutes of any relevant
jurisdiction, the Limited Partners might be held personally liable for the
Operating Partnership's obligations.
EXCULPATION AND INDEMNIFICATION OF VORNADO
The Partnership Agreement generally provides that Vornado, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any Limited Partner for losses sustained, liabilities incurred or
benefits not derived as a result of errors in judgment or mistakes of fact or
law or any act or omission, if Vornado acted in good faith. In addition, Vornado
is not responsible for any misconduct or negligence on the part of its agents,
provided Vornado appointed such agents in good faith. Vornado may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors, and any action it takes or omits to
take in reliance upon the opinion of such persons, as to matters that Vornado
reasonably believes to be within their professional or expert competence, shall
be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
The Partnership Agreement also provides for indemnification of Vornado, the
trustees and officers of Vornado and such other persons as Vornado may from time
to time designate against any and all losses, claims, damages, liabilities,
expenses, judgments, fines, settlements and other amounts incurred by such
person in connection with any proceeding and related to the Operating
Partnership or Vornado, the formation and operations of the Operating
Partnership or Vornado or the ownership of property by the Operating Partnership
or Vornado, unless it is established by a final determination of a court of
competent jurisdiction that: (i) the act or omission of the indemnified person
was material to the matter giving rise to the proceeding and either was
committed in bad faith or was the result of active and deliberate dishonesty;
(ii) the indemnified person actually received an improper personal benefit in
money, property or services; or (iii) in the case of any criminal proceeding,
the indemnified person had reasonable cause to believe that the act or omission
was unlawful.
SALES OF ASSETS
Under the Partnership Agreement, Vornado generally has the exclusive
authority to determine whether, when and on what terms assets of the Operating
Partnership will be sold, subject to the Lock-out Provisions. The Partnership
Agreement prohibits Vornado from engaging in any merger, consolidation or other
combination with or into another person, sale of all or substantially all of its
assets or any reclassification, recapitalization or change of the terms of any
outstanding Common Shares (a "Termination Transaction") unless, in connection
therewith, all Limited Partners (other than Vornado and entities controlled by
it) will have the right to elect to receive, or will receive, for each Unit an
amount of cash, securities or other property equal to the Conversion Factor
multiplied by the greatest amount of cash, securities or other property paid to
a holder of shares of beneficial interest of Vornado, if any, corresponding to
such Unit in consideration of one
27
<PAGE> 29
such share. The "Conversion Factor" is initially 1.0, but will be adjusted as
necessary to prevent dilution or inflation of the interests of Limited Partners
that would result if Vornado were to pay a dividend on its outstanding shares of
beneficial interest in shares of beneficial interest, subdivide its outstanding
shares of beneficial interest or combine its outstanding shares of beneficial
interest into a smaller number of shares, in each case without a corresponding
issuance to, or redemption or exchange of interests held by, Limited Partners in
the Operating Partnership.
Under the Lock-out Provisions, the Operating Partnership may not sell or
otherwise dispose of the Two Penn Plaza, Eleven Penn Plaza or 866 United Nations
Plaza Properties (or any direct or indirect interest therein) during the
Lock-out Period (except pursuant to a sale or other disposition of all or
substantially all of the Operating Partnership's assets approved as described
below, an involuntary sale pursuant to foreclosure of a mortgage secured by one
of these Mendik Properties or a bankruptcy proceeding, and certain transactions,
including a "Section 1031 like-kind exchange" under the Code, that would not
result in the recognition of any gain for tax purposes by the holders of Units
issued in the Mendik Transaction with respect to these Mendik Properties (the
"Lock-out Unit Holders")) without, in the case of each such Mendik Property, the
consent of holders of 75% of the Units originally issued to partners of such
Mendik Partnership that remain outstanding at the time of such vote (whether
held by the original recipient of such Units or by a successor or transferee of
the original recipient, but excluding Units held by (a) Vornado or any
subsidiary of Vornado and (b) the estate of Bernard H. Mendik following his
death), unless such partners are compensated for certain adverse tax
consequences which would result from such sale or other disposition during the
Lock-out Period pursuant to the Gross-up Provisions. Under the Lock-out
Provisions, a sale or other disposition of all or substantially all of the
assets of the Operating Partnership during the Lock-out Period generally would
require the approval of the holders, as a group, of 75% of the aggregate Units
originally issued with respect to the Two Penn Plaza, Eleven Penn Plaza and 866
United Nations Plaza Properties that remain outstanding (whether held by the
original recipient of such Units or by a successor or transferee of the original
recipient, but excluding Units held by (a) Vornado or any subsidiary of Vornado
and (b) the estate of Bernard H. Mendik following his death). The consent
requirement under the Lock-out Provisions (and the compensation requirement
under the Gross-up Provisions), however, would not apply in the event of a
merger or consolidation involving the Operating Partnership or a transfer of all
or substantially all of its assets if (i) the transaction would not result in
the recognition of any gain with respect to the Two Penn Plaza, Eleven Penn
Plaza and 866 United Nations Plaza Properties, (ii) the Lock-out Provisions
would continue to apply with respect to each of these three Mendik Properties,
and (iii) the surviving entity agrees to a number of restrictions and conditions
for the benefit of the holders of such Units designed to preserve the benefit of
certain provisions and restrictions in the Partnership Agreement for the holders
of such Units.
A further exception to the consent requirement under the Lock-out
Provisions applies if the affected Lock-out Unit Holders are compensated
pursuant to the Gross-up Provisions. The Gross-up Provisions provide that the
Operating Partnership may, in lieu of obtaining the required consent under the
Lock-out Provisions, pay each applicable Lock-out Unit Holder the lesser of (x)
the actual tax payable by such Lock-out Unit Holder as a result of the
transaction and (y) the tax which would have been payable by such holder had the
applicable Mendik Property been sold for its fair market value at the April 15,
1997, subject to certain adjustments, plus, in the case of either (x) or (y), an
additional amount equal to the total tax liability of the Lock-out Unit Holder
attributable to the receipt of payments pursuant to the Gross-up Provisions.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF VORNADO'S INTERESTS
The Partnership Agreement provides that the Limited Partners may not remove
Vornado as general partner of the Operating Partnership with or without cause.
In addition, the Partnership Agreement prohibits Vornado from engaging in any
Termination Transaction unless, in connection therewith, all Limited Partners
(other than Vornado and entities controlled by it) will have the right to elect
to receive, or will receive, for each Unit an amount of cash, securities or
other property equal to the Conversion Factor multiplied by the greatest amount
of cash, securities or other property paid to a holder of shares of beneficial
interest of Vornado, if any, corresponding to such Unit in consideration of one
such share. The Lock-out Provisions (and the Gross-up Provisions) do not apply
to a sale or other transfer by Vornado of its interests as a partner in the
28
<PAGE> 30
Partnership, but they would apply to transfers of assets of the Operating
Partnership undertaken during the Lock-out Period in connection with or as part
of any such transaction by Vornado. See "-- Sales of Assets."
The Partnership Agreement does not prevent a transaction in which another
entity acquires control (or all of the shares) of Vornado and that other entity
owns assets and conducts businesses outside of the Operating Partnership.
RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS
Prior to April 15, 1998, a Limited Partner may not transfer any of his or
her rights as a Limited Partner without the consent of Vornado, which consent
Vornado may withhold in its sole discretion. Any attempted transfer in violation
of this restriction will be void ab initio and without any force or effect.
Beginning on April 15, 1998, a Limited Partner (other than Vornado, certain
members of the Mendik Group and Mendik/FW LLC) will be permitted to transfer all
or any portion of his or her Units without restriction, provided that such
Limited Partner obtains Vornado's prior written consent, which Vornado may
withhold only if it determines in its sole discretion exercised in good faith
that such transfer would cause the Operating Partnership or any or all of the
partners other than the partner seeking to make such transfer to be subject to
tax liability. In addition, Limited Partners (other than Vornado or any
subsidiary of Vornado) will be permitted to dispose of their Units following the
expiration of the Initial Holding Period by exercising their Unit Redemption
Right. See "Redemption of Units".
The right of any permitted transferee of Units to become a substituted
Limited Partner is subject to the consent of Vornado, which consent Vornado may
withhold in its sole and absolute discretion. If Vornado does not consent to the
admission of a transferee of Units as a substituted Limited Partner, then the
transferee will succeed to the economic rights and benefits attributable to such
Units (including the Unit Redemption Right), but will not become a Limited
Partner or possess any other rights of Limited Partners (including the right to
vote).
NO WITHDRAWAL BY LIMITED PARTNERS
No Limited Partner has the right to withdraw from or reduce his or her
capital contribution to the Operating Partnership, except as a result of the
redemption, exchange or transfer of Units pursuant to the terms of the
Partnership Agreement.
ISSUANCE OF LIMITED PARTNERSHIP INTERESTS
Vornado is authorized, without the consent of the Limited Partners, to
cause the Operating Partnership to issue limited partnership interests to
Vornado, to the Limited Partners and to other persons for such consideration and
upon such terms and conditions as Vornado deems appropriate. The Operating
Partnership also may issue partnership interests in different series or classes.
Until such time as all Class C, Class D and Class E Units issued in the Mendik
Transaction are no longer outstanding (whether by conversion, redemption or
otherwise), the Partnership Agreement will prohibit the Operating Partnership
from issuing any class of limited partnership interests ranking senior (as to
distributions or redemption or voting rights) to Class C Units or Class D Units
or Class E Units, unless either (1) such limited partnership interests are
substantially similar to the terms of securities issued by Vornado and the
proceeds of the issuance of such securities have been contributed to the
Operating Partnership or (2) the issuance of such limited partnership interests
has been approved by the holders of a majority of the Class C, Class D and Class
E Units issued in the Mendik Transaction and then outstanding (taken together as
a group). If Units are issued to Vornado, then Vornado must issue Shares of
beneficial interest in connection therewith and must contribute to the Operating
Partnership the proceeds received by Vornado from such issuance. Consideration
for partnership interests may be cash or any property or other assets permitted
by the Act. No limited partner has preemptive, preferential or similar rights
with respect to capital contributions to the Operating Partnership or the
issuance or sale of any partnership interests therein.
29
<PAGE> 31
MEETINGS; VOTING
Meetings of the Limited Partners may be proposed and called only by
Vornado. Limited Partners may vote either in person or by proxy at meetings. Any
action that is required or permitted to be taken by the Limited Partners may be
taken either at a meeting of the Limited Partners or without a meeting if
consents in writing setting forth the action so taken are signed by Limited
Partners owning not less than the minimum number of Units that would be
necessary to authorize or take such action at a meeting of the Limited Partners
at which all Limited Partners entitled to vote on such action were present. On
matters in which Limited Partners are entitled to vote, each Limited Partner
(including Vornado to the extent it holds Units) will have a vote equal to the
number of common Units he or she holds. At this time, there is no voting
preference among the classes of common Units. The Series A Preferred Units and
Series B Preferred Units have no voting rights, except as required by law. A
transferee of Units who has not been admitted as a substituted Limited Partner
with respect to such Units will have no voting rights with respect to such Units
(even if such transferee holds other Units as to which it has been admitted as a
Limited Partner), and Units owned by such transferee will be deemed to be voted
on any matter in the same proportion as all other interests held by Limited
Partners are voted. The Partnership Agreement does not provide for annual
meetings of the Limited Partners, and Vornado does not anticipate calling such
meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by Vornado.
Subject to the limitations described below, Vornado generally has the power,
without the consent of any Limited Partners, to amend the Partnership Agreement
as may be required to reflect any changes to the agreement that Vornado deems
necessary or appropriate in its sole discretion, provided that such amendment
does not adversely affect or eliminate any right granted to a Limited Partner
that is protected by the special voting provisions described below.
The Partnership Agreement provides that it generally may not be amended
with respect to any partner adversely affected by such amendment without the
consent of such partner if the amendment would (i) convert a Limited Partner's
interest into a general partner's interest, (ii) modify the limited liability of
a Limited Partner, (iii) amend Section 7.11.A (prohibiting Vornado from taking
any action in contravention of an express prohibition or limitation in the
Partnership Agreement without the written consent of all partners adversely
affected thereby or such lower percentage of the limited partnership interests
as may be specifically provided for in the Partnership Agreement or under the
Limited Partnership Act), (iv) amend Article V (describing distributions),
Article VI (describing allocations of income and loss for capital account
purposes), or Section 13.2A(3) (providing for distributions, after payment of
partnership debts, among partners according to their capital accounts in
connection with a winding up of the Operating Partnership), (v) amend Section
8.6 (providing redemption rights) or (vi) amend the provision being described in
this paragraph.
In addition, except with the consent of a majority of the Limited Partners
(excluding Vornado and entities controlled by it) Vornado may not amend Section
4.2.A (authorizing issuance of additional limited partnership interests),
Section 5.1.C (requiring that if Vornado is not a REIT or a publicly traded
entity it must for each taxable year make cash distributions equal to at least
95% of the Operating Partnership's taxable income), Section 7.5 (prohibiting
Vornado from conducting any business other than in connection with the ownership
of interests in the Operating Partnership except with the consent of a majority
of the Limited Partners, excluding Vornado and any entity it controls), Section
7.6 (limiting the Operating Partnership's ability to enter transactions with
affiliates), Section 7.8 (describing limits on Vornado's liabilities to the
Operating Partnership and the Limited Partners), Section 11.2 (limiting
Vornado's ability to transfer its interests in the Operating Partnership),
Section 13.1 (describing the manner and circumstances in which the Operating
Partnership will be dissolved), Section 14.1.C (setting forth the limitations on
amendments being described in this paragraph) or Section 14.2 (describing the
rules governing meetings of partners).
In addition, any amendment that would affect the Lock-out Provisions (or
the Gross-up Provisions) with respect to the Two Penn Plaza, Eleven Penn Plaza
or 866 United Nations Plaza Properties during the Lock-out Period would require,
in the case of each such Mendik Property affected by the amendment, the consent
30
<PAGE> 32
of holders of 75% of the Units originally issued to Partners of such Mendik
Partnership that remain outstanding at the time of such vote (whether held by
the original recipient of such Units or by a successor or transferee of the
original recipient, but excluding Units held by Vornado and Units held by the
estate of Bernard Mendik following his death).
BOOKS AND REPORTS
Vornado is required to keep the Operating Partnership's books and records
at the principal office of the Operating Partnership. The books of the Operating
Partnership are required to be maintained for financial and tax reporting
purposes on an accrual basis in accordance with generally accepted accounting
principles ("GAAP"). The Limited Partners have the right, subject to certain
limitations, to receive copies of the most recent annual and quarterly reports
filed with the Commission by Vornado, the Operating Partnership's Federal, state
and local income tax returns, a list of limited partners, the Partnership
Agreement and the partnership certificate and all amendments thereto. Vornado
may keep confidential from the Limited Partners any information that Vornado
believes to be in the nature of trade secrets or other information the
disclosure of which Vornado in good faith believes is not in the best interests
of the Operating Partnership or which the Operating Partnership is required by
law or by agreements with unaffiliated third parties to keep confidential.
Vornado will furnish to each Limited Partner, no later than the date on
which Vornado mails its annual report to its shareholders, an annual report
containing financial statements of the Operating Partnership (or Vornado, if it
prepares consolidated financial statements including the Operating Partnership)
for each fiscal year, presented in accordance with GAAP. The financial
statements will be audited by a nationally recognized firm of independent public
accountants selected by Vornado. In addition, if and to the extent that Vornado
mails quarterly reports to its shareholders, Vornado will furnish to each
Limited Partner, no later than the date on which Vornado mails such reports to
its shareholders, a report containing unaudited financial statements of the
Operating Partnership (or Vornado, if such reports are prepared on a
consolidated basis) as of the last day of the quarter and such other information
as may be required by applicable law or regulation or as Vornado deems
appropriate.
Vornado will use reasonable efforts to furnish to each Limited Partner,
within 90 days after the close of each taxable year, the tax information
reasonably required by the Limited Partners for Federal and state income tax
reporting purposes.
POWER OF ATTORNEY
Pursuant to the terms of the Partnership Agreement, each Limited Partner
and each assignee appoints Vornado, any liquidator, and the authorized officers
and attorneys-in-fact of each, as such Limited Partner's or assignee's
attorney-in-fact to do the following: (i) to execute, swear to, acknowledge,
deliver, file and record in the appropriate public offices (a) all certificates,
documents and other instruments (including, among other things, the Partnership
Agreement and the certificate of limited partnership and all amendments or
restatements thereof) that Vornado or any liquidator deems appropriate or
necessary to form, qualify or maintain the existence of the Operating
Partnership as a limited partnership in the State of Delaware and in all other
jurisdictions in which the Operating Partnership may conduct business or own
property, (b) all instruments that Vornado or any liquidator deems appropriate
or necessary to reflect any amendment or restatement of the Partnership
Agreement in accordance with its terms, (c) all conveyances and other
instruments that Vornado or any liquidator deems appropriate or necessary to
reflect the dissolution and liquidation of the Operating Partnership pursuant to
the terms of the Partnership Agreement, (d) all instruments relating to the
admission, withdrawal, removal or substitution of any partner, any transfer of
Units or the capital contribution of any partner and (e) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of partnership interests; and (ii) to execute, swear
to, acknowledge and file all ballots, consents, approvals, waivers, certificates
and other instruments appropriate or necessary, in the sole and absolute
discretion of Vornado or any liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is made or
given by the partners under the Partnership Agreement or is consistent with the
terms of the Partnership Agreement or appropriate or necessary, in the sole
discretion of Vornado or any liquidator, to effectuate the terms or intent of
the
31
<PAGE> 33
Partnership Agreement. The Partnership Agreement provides that such power of
attorney is irrevocable, will survive the subsequent incapacity of any Limited
Partner and the transfer of all or any portion of such Limited Partner's or
assignee's Units and will extend to such Limited Partner's or assignee's heirs,
successors, assigns and personal representatives.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2095 (as such
date may be extended by the General Partner in its sole discretion), unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of: (i) the withdrawal of Vornado as general partner
without the permitted transfer of Vornado's interest to a successor general
partner (except in certain limited circumstances); (ii) the sale of all or
substantially all of the Operating Partnership's assets and properties (subject
to the Lock-out Provisions and the Gross-up Provisions during the Lock-out
Period); (iii) the entry of a decree of judicial dissolution of the Operating
Partnership pursuant to the provisions of the Limited Partnership Act; (iv) the
entry of a final non-appealable order for relief in a bankruptcy proceeding of
the general partner, or the entry of a final non-appealable judgment ruling that
the general partner is bankrupt or insolvent (except that, in either such case,
in certain circumstances the Limited Partners (other than Vornado) may vote to
continue the Operating Partnership and substitute a new general partner in place
of Vornado); or (v) on or after December 31, 2046, on election by Vornado, in
its sole and absolute discretion. Upon dissolution, Vornado, as general partner,
or any liquidator will proceed to liquidate the assets of the Operating
Partnership and apply the proceeds therefrom in the order of priority set forth
in the Partnership Agreement.
32
<PAGE> 34
COMPARISON OF OWNERSHIP OF UNITS AND COMMON SHARES
The information below highlights a number of the significant differences
and similarities between the Operating Partnership and Vornado relating to,
among other things, form of organization, investment objectives, policies and
restrictions, asset diversification, capitalization, management structure,
duties, liability, exculpation and indemnification of the general partner and
the trustees and investor voting and other rights. These comparisons are
intended to assist partners in understanding how their investments will be
changed if they redeem their Units and Vornado exercises its right to assume the
Operating Partnership's obligation with respect to such redemption and to
acquire the Units in exchange for Common Shares. See "Redemption of Units." THIS
DISCUSSION IS SUMMARY IN NATURE AND DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF
THESE MATTERS, AND LIMITED PARTNERS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS
PROSPECTUS FOR ADDITIONAL IMPORTANT INFORMATION.
FORM OF ORGANIZATION AND PURPOSE
The Operating Partnership is a limited partnership organized under the laws
of the State of Delaware. The Operating Partnership owns interests in shopping
center properties, office building properties, industrial/ warehouse properties
and certain other properties and investments. See "Vornado and the Operating
Partnership." The Operating Partnership may also invest in other types of real
estate and in such geographic areas as Vornado deems appropriate. Vornado
conducts the business of the Operating Partnership in such a manner as to permit
Vornado to be classified as a REIT under the Code.
Vornado is a Maryland real estate investment trust organized under the
Maryland REIT Law. Although Vornado currently intends to continue to qualify as
a REIT under the Code and to operate as a self-administered REIT, Vornado is not
under any contractual obligation to continue such qualification and there can be
no assurance that Vornado (or any successor general partner in the Operating
Partnership) will continue to maintain such qualification or mode of operation
in the future. Except as otherwise permitted in the Partnership Agreement,
Vornado is obligated to conduct its activities through the Operating
Partnership. Vornado is the sole general partner of the Operating Partnership.
NATURE OF INVESTMENT
The Units constitute equity interests entitling each Limited Partner in the
Operating Partnership to his or her pro rata share of cash distributions made to
the Limited Partners in the Operating Partnership, subject to the class
preferences provided for in the Partnership Agreement. See "Description of
Units -- Distribution." The Operating Partnership would ordinarily expect to
retain and reinvest proceeds of the sale of property or excess refinancing
proceeds in its business, except in certain circumstances.
The Common Shares constitute equity interests in Vornado. Vornado is
entitled to receive its pro rata share of distributions made by the Operating
Partnership with respect to the Class A Units owned by it. Each holder of Common
Shares of Vornado is entitled to his or her pro rata share of any dividends or
distributions paid with respect to those Common Shares, which distributions will
generally match distributions made in respect of Class A Units. The dividends
payable to holders of Common Shares are not fixed in amount and are only paid
if, when and as authorized and declared by the Board of Trustees out of assets
legally available therefor, provided that if any Vornado Preferred Shares are at
the time outstanding, the payment of dividends on Vornado Common Shares or other
distributions (including purchases of Vornado Common Shares) may be subject to
the declaration and payment of full cumulative dividends, and the absence of
arrearage in any mandatory sinking fund, on outstanding Vornado Preferred
Shares. In order to qualify as a REIT, Vornado must distribute at least 95% of
its taxable income (excluding capital gains), and any taxable income (including
capital gains) not distributed will be subject to corporate income tax.
The Units and the Common Shares represent equity interests entitling the
holders thereof to participate in the growth and income of the Operating
Partnership and Vornado, respectively. The Partnership Agreement grants Vornado
discretion to determine the frequency and amount of distributions by the
Operating Partnership. Dividends on Common Shares of Vornado are payable in the
discretion of the Board of Trustees. The Operating Partnership (and thus
Vornado) generally expects to reinvest proceeds of any sale of property
33
<PAGE> 35
and refinancings, except in certain limited circumstances. Thus, Limited
Partners in the Operating Partnership will not be able to realize upon their
investments through distributions of sale and refinancing proceeds. Instead,
Limited Partners will be able to realize upon their investments primarily
through the exercise of their Unit Redemption Right and, if Common Shares of
Vornado are issued in satisfaction of such right, the subsequent sale of such
shares.
LENGTH OF INVESTMENT
The Operating Partnership has a stated term expiring on December 31, 2095,
which can be extended by Vornado in its sole discretion. The Operating
Partnership has no specific plans for disposition of its assets. To the extent
that the Operating Partnership sells or refinances its assets, the net proceeds
therefrom generally will be retained by the Operating Partnership for working
capital and new investments rather than being distributed to its partners
(including Vornado), except that Vornado currently expects that it generally
will distribute the capital gains portion of proceeds it receives from the sale
of properties. The Operating Partnership constitutes a vehicle for taking
advantage of future investment opportunities that may be available in the real
estate market.
Vornado has a perpetual term and intends to continue its operations for an
indefinite time period. Pursuant to the Declaration of Trust, the dissolution of
Vornado must be approved at any meeting of shareholders called for that purpose
by the affirmative vote of the holders of not less than a majority of Shares (as
defined in the Declaration of Trust) outstanding. Vornado has an indirect
interest in the properties and property service businesses owned by the
Operating Partnership.
The Operating Partnership (and Vornado) generally will reinvest the
proceeds of asset dispositions, if any, in new properties or other appropriate
investments consistent with their investment objectives. Beginning on April 15,
1998, Limited Partners (except certain members of the Mendik Group and Mendik/FW
LLC) in the Operating Partnership are entitled to exercise the Unit Redemption
Right to have their Units redeemed either for Common Shares or for cash, at the
option of Vornado. Shareholders of Vornado are expected to realize liquidity of
their investments by the trading of the Common Shares on the NYSE.
LIQUIDITY
Units are not registered under the Securities Act or any state securities
laws and therefore may not be sold, pledged, hypothecated or otherwise
transferred unless first registered under the Securities Act and any applicable
state securities laws, or unless an exemption from registration is available,
and unless the other transfer restrictions discussed below have been satisfied.
Vornado and the Operating Partnership do not intend to register the Units under
the Securities Act or any state securities laws.
Limited Partners in the Operating Partnership may not transfer any of their
rights as a Limited Partner without the consent of Vornado, which consent
Vornado may withhold in its sole discretion if it determines that such a
transfer would cause any or all of the Limited Partners other than the Limited
Partner seeking to transfer his or her rights to be subject to tax liability as
a result of such transfer. Limited Partners in the Operating Partnership may, on
or after April 15, 1998 (or April 15, 1999 in the case of certain members of the
Mendik Group and Mendik/FW LLC), transfer beneficial interests in Units without
the consent of Vornado as general partner of the Operating Partnership, subject
to certain restrictions designed to avoid violations of any Federal or state
securities laws. A transferee of Units has no right to become a substituted
Limited Partner without the consent of Vornado, which consent may be withheld in
its sole and absolute discretion. Limited Partners will have the right, upon the
expiration of the Initial Holding Period, to elect to have their Units redeemed
by the Operating Partnership. Upon exercise of the Unit Redemption Right, a
Limited Partner will receive cash or, at the election of Vornado, Common Shares
of Vornado in exchange for such Units. See "Redemption of Units" above. In
addition, holders of Class E Units may elect to have such Units redeemed for
cash at a 6% discount from the applicable Cash Redemption Price during the
period from July 15, 1997 until April 15, 1998.
Any Common Shares issued in exchange for redeemed Units will be registered
under the Securities Act and freely transferable, subject to the ownership
limits in the Declaration of Trust. Vornado's Common Shares
34
<PAGE> 36
are currently listed on the NYSE under the ticker symbol of "VNO" and have been
so listed by Vornado (and its predecessor) for over 35 years. The future breadth
and strength of this secondary market will depend, among other things, upon the
number of Common Shares outstanding, Vornado's financial results and prospects,
the general interest in Vornado's and other real estate investments, and
Vornado's dividend yield compared to that of other debt and equity securities.
POTENTIAL DILUTION OF RIGHTS
Vornado as general partner of the Operating Partnership is authorized, in
its sole discretion and without Limited Partner approval, to cause the Operating
Partnership to issue additional limited partnership interests and other equity
securities for any partnership purpose at any time to Vornado, the Limited
Partners or other persons on terms established by Vornado. Until such time as
all Class C, Class D and Class E Units have been converted into Class A Units,
the Partnership Agreement will prohibit the Operating Partnership from issuing
any class of limited partnership interests ranking senior (as to distributions
or redemption or voting rights) to Class C Units or Class D Units or Class E
Units, unless either (1) such limited partnership interests are substantially
similar to the terms of securities issued by Vornado and the proceeds of the
issuance of such securities have been contributed to the Operating Partnership
or (2) the issuance of such limited partnership interests has been approved by
the holders of a majority of the Class C, Class D and Class E Units issued in
the Consolidation and then outstanding (taken together as a group).
The Board of Trustees of Vornado may issue, in its discretion, additional
Common Shares and other equity securities of Vornado, including one or more
classes or series of common or preferred shares of beneficial interest, with
such voting rights, dividend or interest rates, preferences, subordinations,
conversion or redemption prices or rights, maturity dates, distribution,
exchange or liquidation rights or other rights as the Board of Trustees may
specify at the time. See "Description of Common Shares of Beneficial Interest"
above. The issuance of additional shares of either Common Shares or other
similar equity securities may result in the dilution of the interests of the
shareholders. As permitted by the Maryland REIT Law, the Declaration of Trust
contains a provision permitting the Board of Trustees, without any action by the
shareholders of Vornado, to amend the Declaration of Trust to increase or
decrease the aggregate number of shares of beneficial interest or the number of
shares of any class of share of beneficial interest that Vornado has authority
to issue. Pursuant to the Declaration of Trust, holders of Common Shares do not
have any preemptive rights to subscribe to any securities of Vornado.
The Limited Partners in the Operating Partnership are subject to potential
dilution of their interests with respect to cash available for distribution if
Vornado, in its sole discretion, causes the Operating Partnership to issue
additional Units or other equity securities. Vornado shareholders are also
subject to potential dilution if the Board of Trustees, in its discretion,
decides to issue additional Common Shares or other equity securities.
MANAGEMENT CONTROL
All management powers over the business and affairs of the Operating
Partnership are vested in Vornado as the general partner of the Operating
Partnership, and no Limited Partner of the Operating Partnership has any right
to participate in or exercise control or management power over the business and
affairs of the Operating Partnership, except as described under "Description of
Units -- Borrowing by the Operating Partnership" and "-- Sales of Assets."
Vornado may not be removed by the Limited Partners with or without cause. See
"Risk Factors; Substantial Influence of Controlling Shareholder; Possible
Conflicts of Interest; Related Party Transactions" and "Description of
Units -- Removal of the General Partner; Transfers of Vornado's Interests."
The Board of Trustees has exclusive control over the direction of Vornado's
business and affairs, subject only to certain restrictions in the Declaration of
Trust and Bylaws, the Partnership Agreement and applicable law. The Board of
Trustees is classified into three classes of trustees. At each annual meeting of
the shareholders of Vornado, the successors of the class of trustees whose terms
expire at that meeting are elected. The policies adopted by the Board of
Trustees may be altered or eliminated without a vote of the shareholders.
35
<PAGE> 37
Accordingly, except for their vote in the elections of trustees, shareholders
have no control over the ordinary business policies of Vornado.
Because a portion of the Board of Trustees is elected each year by the
shareholders at Vornado's annual meeting, the shareholders have greater control
over the management of Vornado than the Limited Partners have over the Operating
Partnership. See "Risk Factors -- Substantial Influence of Controlling
Shareholder; Possible Conflicts of Interest; Related Party Transactions" above.
DUTIES OF GENERAL PARTNER AND TRUSTEES
Under Delaware law, Vornado (as the general partner of the Operating
Partnership) is accountable to the Operating Partnership as a fiduciary and,
consequently, is required to exercise good faith and integrity in all of its
dealings with respect to partnership affairs. However, under the Partnership
Agreement, Vornado is expressly under no obligation to consider the separate
interests of the Limited Partners in deciding whether to cause the Operating
Partnership to take (or decline to take) any actions, and Vornado is not liable
for monetary damages for losses sustained, liabilities incurred or benefits not
derived by Limited Partners in connection with such decisions, provided that the
general partner has acted in good faith.
Under Maryland law, there is no statute specifying the duties of trustees
of a REIT such as Vornado. However, counsel to Vornado believes that it is
likely that a Maryland court would refer to the MGCL, which requires directors
of a Maryland corporation to perform their duties in good faith, in a manner
that they reasonably believe to be in the best interests of the corporation and
with the care of an ordinarily prudent person in a like position under similar
circumstances.
MANAGEMENT LIABILITY AND INDEMNIFICATION
As a matter of Delaware law, the general partner has liability for the
payment of the obligations and debts of the Operating Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligation. Under the Partnership Agreement, the Operating
Partnership has agreed to indemnify Vornado and any trustee or officer of
Vornado from and against all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees), fines, settlements and other amounts
incurred in connection with any actions relating to the operations of the
Operating Partnership as set forth in the Partnership Agreement in which Vornado
or any such trustee or officer is involved, unless: (i) the act was in bad faith
and was material to the action; (ii) such party received an improper personal
benefit; or (iii) in the case of any criminal proceeding, such party had
reasonable cause to believe the act was unlawful. The reasonable expenses
incurred by an indemnitee may be advanced by the Operating Partnership prior to
the final disposition of the proceeding upon receipt by the Operating
Partnership of an affirmation by such indemnitee of his, her or its good faith
belief that the standard of conduct necessary for indemnification has been met
and an undertaking by such indemnitee to repay the amount if it is determined
that such standard was not met.
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of any improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by the Maryland REIT Law.
Vornado's Declaration of Trust authorizes it to indemnify, and to pay or
reimburse reasonable expenses to, as such expenses are incurred by, each trustee
or officer (including any person who, while a trustee of Vornado, is or was
serving at the request of Vornado as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan) from all claims and
liabilities to which such person may become subject by reason of his being or
having been a trustee or officer.
36
<PAGE> 38
Vornado's Bylaws require it to indemnify (a) any present or former trustee
or officer (including without limitation, any individual who, while a trustee or
officer and at the request of Vornado, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise) who has been
successful, on the merits or otherwise, in the defense of a proceeding to which
he was made a party by reason of such status, against reasonable expenses
incurred by him in connection with the proceeding and (b) any present or former
trustee or officer against any claim or liability to which he may become subject
by reason of such status unless it is established that (i) his act or omission
was material to the cause of action giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful. In addition, Vornado's Bylaws
require it to pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a present or former trustee or officer made a
party to a proceeding by reason of such status provided that Vornado shall have
received (i) a written affirmation by the trustee or officer of his good faith
belief that he has met the applicable standard of conduct necessary for
indemnification by Vornado as authorized by the Bylaws and (ii) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
Vornado if it shall ultimately be determined that the applicable standard of
conduct was not met. Vornado's Bylaws also (i) permit Vornado to provide
indemnification and payment or reimbursement of expenses to a present or former
trustee or officer who served a predecessor of Vornado in such capacity and to
any employee or agent of Vornado or a predecessor of Vornado, (ii) provide that
any indemnification or payment or reimbursement of the expenses permitted by the
Bylaws shall be furnished in accordance with the procedures provided for
indemnification or payment or reimbursement of expenses, as the case may be,
under Section 2-418 of the MGCL for directors of Maryland corporations and (iii)
permit Vornado to provide such other and further indemnification or payment or
reimbursement of expenses as may be permitted by the MGCL for directors of
Maryland corporations.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees and officers to the same extent
as permitted by the MGCL for directors and officers of Maryland corporations.
The MGCL permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Thus, the management of the Operating Partnership and Vornado have
substantially the same rights to indemnification.
LIABILITY OF INVESTORS
Under the Partnership Agreement and applicable state law, the liability of
the Limited Partners for the Operating Partnership's debts and obligations
generally is limited to the amount of their investments in the Operating
Partnership, together with an interest in the Operating Partnership's
undistributed income, if any.
Under the Maryland REIT Law, shareholders are not personally liable for the
obligations of Vornado. The Common Shares, upon issuance, will be fully paid and
nonassessable.
37
<PAGE> 39
Thus, the Limited Partners in the Operating Partnership and the
shareholders of Vornado have substantially the same personal liability.
VOTING RIGHTS
Under the Partnership Agreement, the Limited Partners have limited voting
rights. The Limited Partners have the right to vote on any proposed action of
the general partner that would contravene any express prohibition or limitation
in the Partnership Agreement, and any such action requires unanimous approval by
the Limited Partners. The Limited Partners do not have the right to vote on any
proposed sale, exchange, transfer or disposal of all or substantially all of the
assets of the Operating Partnership, except as required under the Lock-out
Provisions. See "Description of Units -- Sales of Assets." In addition, the
Limited Partners do not have the right to propose amendments to the Partnership
Agreement and their rights to vote on amendments are restricted as described
under the caption "Description of Units -- Amendment of the Partnership
Agreement." Any amendment which requires the approval of the Limited Partners
may be approved by a majority of the Limited Partners, except that any amendment
which would change the limited liability of a Limited Partner, change the voting
requirements for certain actions or amendments under the Partnership Agreement
or change certain provisions in the Partnership Agreement with respect to
distributions and allocations or the Unit Redemption Right must be approved by
each Limited Partner adversely affected by such amendment.
The business and affairs of Vornado are managed under the direction of the
Board of Trustees, which currently consists of nine members in classes having
staggered terms of office. Each class is elected by the shareholders at the
annual meetings of Vornado. Maryland law requires that certain major corporate
transactions, including most amendments to the Declaration of Trust, may not be
consummated without the approval of shareholders.
The Declaration of Trust permits any action which may be taken at a meeting
of shareholders to be taken without a meeting if a written consent to the action
is signed by holders of outstanding shares of beneficial interest having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote were present
and voted.
Vornado has 5,789,315 Series A Preferred Shares issued and outstanding. The
holders of Series A Preferred Shares generally have no right to vote, except
that (a) if and whenever six quarterly dividends (whether or not consecutive)
payable on the Series A Preferred shall be in arrears (which, with respect to
any such quarterly dividend, means that such dividend has not been paid in
full), whether or not earned or declared, such holders shall have the right,
voting as a class, to elect two additional Trustees, and (b) so long as any
Series A Preferred shares are outstanding, the affirmative vote of at least
two-thirds of the outstanding Series A Preferred Shares (and all other series of
voting preferred shares, voting as a single class regardless of series) shall be
necessary to (i) amend, alter or repeal the Declaration of Trust so as to
materially and adversely affect the voting powers, rights or preferences of the
holders of the Series A Preferred or (ii) authorize, create or increase the
authorized amount of any shares ranking prior to the Series A Preferred Shares
in the distribution of assets or any liquidation or in the payment of dividends.
The Board of Trustees has the power, however, to create additional classes of
parity and junior shares, increase the authorized number of parity and junior
shares, and issue additional series of parity and junior shares without the
consent of any holder of Series A Preferred Shares.
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE DECLARATION OF TRUST
Subject to certain limitations, Vornado generally has the power, without
the consent of any Limited Partners, to amend the Partnership Agreement as may
be required to reflect any changes that Vornado deems necessary or appropriate
in its sole discretion, provided that such amendment does not adversely affect
or eliminate any right granted to a Limited Partner that is protected by certain
special voting provisions. See "Description of Units -- Amendment of the
Partnership Agreement".
Under the Maryland REIT Law and the Declaration of Trust, the Trustees, by
a two-thirds vote, may at any time amend the Declaration of Trust to enable
Vornado to qualify as a REIT under the Code or as a real
38
<PAGE> 40
estate investment trust under the Maryland REIT Law, without the approval of the
shareholders. As permitted by the Maryland REIT Law, the Declaration of Trust
authorizes Vornado's Board of Trustees, without any action by the shareholders,
to amend the Declaration of Trust from time to time to increase or decrease the
aggregate number of shares of beneficial interest or the number of shares of
beneficial interest of any class that Vornado is authorized to issue. Other
amendments to the Declaration of Trust require the vote of a majority of the
outstanding Shares (as defined in the Declaration of Trust).
REVIEW OF INVESTOR LISTS
Under the Partnership Agreement, Limited Partners in the Operating
Partnership, upon written demand with a statement of the purpose of such demand
and at the Limited Partner's expense, are entitled to obtain a current list of
the name and last known business, residence or mailing address of each Limited
Partner of the Operating Partnership.
Under the MGCL, as applicable to REITs, one or more shareholders holding of
record for at least six months at least 5% of the outstanding shares of
beneficial interest of any class of a real estate investment trust may upon
written request inspect and copy during usual business hours the share ledger of
such real estate investment trust and a verified list of shareholders, setting
forth their names and addresses and the number of shares of each class held by
the shareholder.
Thus, the Limited Partners in the Operating Partnership and the
shareholders of Vornado have substantially the same rights to inspect and, at
their own expense, make copies of investor lists, subject to certain
limitations.
REVIEW OF BOOKS AND RECORDS
Under the Partnership Agreement, Limited Partners in the Operating
Partnership, upon written demand with a statement of the purpose of such demand
and at the Limited Partner's expense, are entitled to obtain a copy of the
Operating Partnership's Federal, state and local income tax returns, to obtain a
copy of the most recent annual and quarterly reports filed by Vornado with the
Commission and to obtain certain other records and information as provided in
the Partnership Agreement. Limited Partners in the Operating Partnership do not
have any right to inspect the books of the Operating Partnership.
Under the MGCL, as applicable to REITs, a shareholder or his agent may
inspect and copy during normal business hours the following real estate
investment trust documents: (i) bylaws; (ii) minutes of the proceedings of
shareholders; (iii) annual statements of affairs; and (iv) voting trust
agreements on file at the real estate investment trust's principal office. In
addition, a shareholder holding at least 5% of the outstanding shares of a real
estate investment trust may, upon written request, inspect and copy during usual
business hours the books of account of such real estate investment trust.
ISSUANCE OF ADDITIONAL EQUITY
The Operating Partnership is authorized to issue Units and other
partnership interests (including partnership interests of different series or
classes) as determined by Vornado as the general partner in its sole discretion.
The Operating Partnership may issue Units and other partnership interests to
Vornado, as long as such interests are issued in connection with a comparable
issuance of securities of Vornado and proceeds raised in connection with the
issuance of such securities are contributed to the Operating Partnership.
The Board Of Trustees may issue, in its discretion, additional Common
Shares and other equity securities of Vornado, including one or more classes of
common or preferred shares, with such preferences, conversion or other rights,
voting powers, restrictions limitations as to dividends, qualifications and
terms and conditions of redemption, provided that the total number of shares
issued does not exceed the authorized number of shares of beneficial interest
set forth in Vornado's provision permitting the Board of Trustees, without any
action by the shareholders of Vornado, to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that Vornado
has authority to issue.
39
<PAGE> 41
The Operating Partnership and Vornado both have substantial flexibility to
raise equity through the sale of additional Units, shares of beneficial interest
or other securities to finance the business and affairs of the Operating
Partnership.
BORROWING POLICIES
The Operating Partnership has no restrictions on borrowings, and Vornado as
general partner has full power and authority to borrow money on behalf of the
Operating Partnership. However, under the terms of the Lock-out Provisions, the
Operating Partnership is limited in its ability to refinance the indebtedness
secured by certain of the Mendik Properties, unless affected Partners are
compensated for certain adverse tax consequences pursuant to the Gross-up
Provisions. See "Description of Units -- Borrowing by the Operating
Partnership."
Vornado is not restricted under its Declaration of Trust from borrowing.
However, under the Partnership Agreement, Vornado, as general partner, may not
issue debt securities or otherwise incur any debts unless it contributes the
proceeds therefrom to the Operating Partnership. Therefore, all indebtedness
incurred by Vornado will be for the benefit of the Operating Partnership.
PERMITTED INVESTMENTS
The Operating Partnership's purpose is to conduct any business that may be
lawfully conducted by a Delaware limited partnership, provided that such
business is to be conducted in a manner that permits Vornado to be qualified as
a REIT (unless Vornado ceases to qualify as a REIT for any reason). The
Operating Partnership is authorized to perform any and all acts for the
furtherance of the purposes and business of the Operating Partnership, including
making investments, provided that the Operating Partnership may not take, or
refrain from taking, any action which, in the judgment of Vornado as general
partner (i) could adversely affect the ability of the general partner to
continue to qualify as a REIT, (ii) could subject the general partner to any
additional taxes under Section 857 or Section 4981 of the Code or (iii) could
violate any law or regulation of any governmental body (unless, in each case,
such action, or inaction, is specifically consented to by Vornado).
Under its Declaration of Trust, Vornado may engage in any lawful activity
permitted by the Maryland REIT Law. To maintain its qualification as a Maryland
real estate investment trust, the Maryland REIT Law requires that Vornado hold,
either directly or indirectly, at least 75% of the value of its assets in real
estate assets, mortgages or mortgage-related securities, government securities,
cash and cash equivalent items, including high-grade short-term securities and
receivables. The Maryland REIT Law also prohibits using or applying land for
farming, agricultural, horticultural or similar purposes. Under the Partnership
Agreement, Vornado, as general partner, agrees that it will not, directly or
indirectly, enter into or conduct any business other than in connection with the
ownership, acquisition and disposition of partnership interests in the Operating
Partnership except with the consent of a majority of the holders of Class C,
Class D and Class E Units. Notwithstanding the foregoing, Vornado will be
permitted to own (i) interests in entities, including qualified REIT
subsidiaries, that hold no material assets, (ii) interests in entities that only
hold interests in the Operating Partnership, (iii) assets and/or interests in
entities that hold assets having an aggregate value not greater than 5% of the
total market value of Vornado (provided that (A) income derived from such assets
will be used to pay REIT Expenses and (B) amounts remaining thereafter will be
contributed to the Operating Partnership and (C) Vornado will use commercially
reasonable efforts to transfer such assets and interests to the Operating
Partnership as soon as such a transfer can be made without causing Vornado or
the Operating Partnership to incur any material expenses in connection
therewith) and (iv) bank accounts and other instruments and accounts necessary
to carry out Vornado's responsibilities under the Partnership Agreement. Vornado
will also be permitted to acquire, directly or indirectly, up to a 1% interest
in any partnership or limited liability company at least ninety-nine percent
(99%) of the equity of which is owned by the Operating Partnership.
Vornado, through the Operating Partnership, has historically owned and
operated primarily retail, industrial/warehouse and office properties primarily
in the Mid-Atlantic and Northeast regions of the United
40
<PAGE> 42
States. The Operating Partnership may invest in other types of real estate and
in other geographic areas as Vornado deems appropriate. Subject to restrictions
relating to the protection of Vornado's REIT status, the Operating Partnership
may perform all acts necessary for the furtherance of the Operating
Partnership's business, including diversifying its portfolio to protect the
value of its assets or as a prudent hedge against the risk of having too many of
its investments limited to a single asset group or in a particular region of the
country. Vornado, as general partner of the Operating Partnership, generally may
not conduct any business other than through the Operating Partnership without
the consent of the holders of a majority of the limited partnership interests
(not including the limited partnership interests held by Vornado in its capacity
as a limited partner in the Operating Partnership). Thus, holders of Units and
holders of Shares have an economic interest in the same assets.
OTHER INVESTMENT RESTRICTIONS
Other than restrictions precluding investments by the Operating Partnership
that would adversely affect the qualification of Vornado as a REIT and
restrictions on transactions with affiliates, the Partnership Agreement does not
generally restrict the Operating Partnership's authority to make investments,
lend Operating Partnership funds or reinvest the Operating Partnership's cash
flow and net sale or refinancing proceeds.
Vornado's Declaration of Trust authorizes Vornado to enter into any
contract or transaction of any kind (including the purchase or sale of property)
with any person, including any trustee, officer, employee or agent of the trust,
whether or not any of them has a financial interest in the transaction.
41
<PAGE> 43
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the taxation of Vornado and the material Federal
income tax consequences to holders of the Common Shares is for general
information only, and is not tax advice. The tax treatment of a holder of Common
Shares will vary depending upon the holder's particular situation, and this
discussion addresses only holders that hold Common Shares 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.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON
SHARES, 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 (i) relying, as to certain factual matters, upon the
statements and representations contained in certificates provided to Sullivan &
Cromwell by Vornado, Two Penn Plaza, REIT, Inc. ("Two Penn") and Vornado
Operating and (ii) assuming that Alexander's has qualified as a REIT for each
taxable year commencing with its taxable year ending December 31, 1995 and will
continue to so qualify. Shearman & Sterling is 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. In providing its
opinion regarding the qualification of Alexander's as a REIT for Federal income
tax purposes, Shearman & Sterling is relying, as to certain factual matters,
upon representations received from Alexander's. Vornado's qualification as a
REIT will depend upon the continuing satisfaction by Vornado and, given
Vornado's current ownership interest in Alexander's and Two Penn, by Alexander's
and Two Penn, of the requirements of the Code relating to qualification for REIT
status, which requirements include those that are dependent upon actual
operating results, distribution levels, diversity of stock ownership, asset
composition, source of income and recordkeeping. In addition, Vornado's
qualification as a REIT may depend upon Vornado Operating's ability to qualify
as a REIT for Vornado Operating's taxable year ending December 31, 1998. Vornado
Operating's qualification as a REIT will depend upon the continuing satisfaction
by Vornado Operating of the requirements of the Code relating to qualification
for REIT status, which requirements include those that are dependent upon actual
operating results, distribution levels, diversity of stock ownership, asset
composition, source of income and recordkeeping. 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, Two Penn's, Vornado Operating's or
Alexander's operations for any particular year will satisfy such requirements.
Neither Sullivan & Cromwell nor Shearman & Sterling will monitor the compliance
of Vornado, Two Penn, Vornado Operating or Alexander's with the requirements for
REIT qualification on an ongoing basis.
42
<PAGE> 44
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 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.
43
<PAGE> 45
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 Common
Shares are described above under the headings "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 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
44
<PAGE> 46
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 treated as
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 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. Vornado's
indirect ownership interest in Two Penn will not cause Vornado to
45
<PAGE> 47
fail to satisfy the asset tests for REIT status so long as Two Penn qualifies as
a REIT for its first taxable year and each taxable year thereafter. Vornado
believes that Two Penn 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 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.
46
<PAGE> 48
TAXATION OF HOLDERS OF COMMON 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, 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 Vornado 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.
47
<PAGE> 49
Shareholder as a capital asset, will be long-term gain or 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 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
48
<PAGE> 50
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 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
49
<PAGE> 51
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. Vornado
believes that it is and 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 recently issued Treasury regulations that are effective for payments
made after December 31, 1999 (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.
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.
50
<PAGE> 52
SELLING SHAREHOLDERS
The Secondary Shares offered by this Prospectus may be offered from time to
time by the Selling Shareholders named below. As described elsewhere herein,
"Selling Shareholders" are only those persons who may receive Redemption Shares
upon redemption of Units and who may be affiliates of Vornado.
Resales of Redemption Shares issued pursuant to this Prospectus to persons
who are not at the time of redemption affiliates of Vornado will not be
restricted under the Securities Act. Holders of Units who are not affiliates of
Vornado are therefore not included herein as Selling Shareholders.
The following table provides the names of and the number of Common Shares
or Units known to Vornado to be owned by each Selling Shareholder as of March
31, 1998. As indicated in the footnotes, the number of shares includes the
number of Common Shares into which Units held by the Selling Shareholders are
redeemable. Each Selling Shareholder may sell any or all of the Common Shares
included herein, but Vornado cannot estimate the number of shares that may be
offered and sold, or that will be owned by each Selling Shareholder upon
completion of the offering to which this Prospectus relates.
The number of Redemption Shares being registered pursuant to the
Registration Statement of which this Prospectus forms a part represents the
maximum aggregate number of Common Shares that Vornado may elect to issue upon
redemption of Units that are tendered for redemption by the holders thereof.
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND/OR
UNITS OWNED
AND SHARES THAT
MAY BE
NAME OFFERED
---- ---------------
<S> <C>
The Mendik Partnership, L.P................................. 2,549,782
FW/Mendik REIT, L.L.C....................................... 801,926
Mendik RELP Corp............................................ 846
</TABLE>
Bernard H. Mendik, the Co-Chairman of the Board of Trustees of Vornado and
Chief Executive Officer of the Mendik Division of the Company, is a limited
partner in, and controls the company which is the general partner of, The Mendik
Partnership, L.P. FW/Mendik REIT, L.L.C., is comprised of two members controlled
by Mr. Mendik, and Mendik RELP Corp. is controlled by Mr. Mendik.
51
<PAGE> 53
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the possible issuance by Vornado of up to
5,681,124 Redemption Shares, if, and to the extent that, Vornado elects to issue
such Redemption Shares to holders of up to 5,681,124 Units, upon the tender of
such Units for redemption and (ii) the offer and sale from time to time by the
holders thereof of Redemption Shares that may be issued and held by persons who
may be affiliates of Vornado.
Vornado has registered the Redemption Shares for sale to permit the holders
thereof to sell such shares without restriction in the open market or otherwise,
but registration of such shares does not necessarily mean that any of such
shares will be offered or sold by the holders thereof.
Vornado will not receive any cash proceeds from the offering by the Selling
Shareholders or from the issuance of the Redemption Shares to holders of Units
upon receiving a notice of redemption. Vornado will acquire one Unit from an
exchanging partner, in exchange for each Redemption Share that Vornado issues.
Consequently, with each redemption, Vornado's interest in the Operating
Partnership will increase.
Secondary Shares may be sold from time to time by the Selling Shareholders,
or by their pledgees, donees, transferees or other successors in interest. Such
sales may be made on the NYSE, in the over-the-counter market or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. Secondary Shares may be sold by the
Selling Shareholders by one or more of the following: (a) a block trade in which
the broker-dealer so engaged will attempt to sell such Secondary Shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchase of such Secondary Shares by a broker-dealer as
principal and resale by such broker-dealer for its account pursuant to this
Prospectus; and (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, broker-dealers engaged by
the Selling Shareholders may arrange for other broker-dealers to participate in
the resales.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders in amounts to be
negotiated in connection with the sales. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales, and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any Common Shares covered by
this Prospectus which qualify for sale pursuant to Rule 144 under the Securities
Act may be sold under Rule 144 rather than pursuant to this Prospectus.
All costs, expenses and fees in connection with the registration of the
Redemption Shares, including any Secondary Shares sold by the Selling
Shareholders, will be borne by Vornado. Commissions and discounts, if any,
attributable to the sales of Secondary Shares by the Selling Shareholders will
be borne by the Selling Shareholders.
52
<PAGE> 54
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, 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 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 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 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 the combined statement of revenue and certain operating
expense of the Merchandise Mart Group of Properties for the year ended December
31, 1997 incorporated by reference in this Prospectus from Vornado Realty
Trust's Current Report on Form 8-K/A, dated April 1, 1998 and filed with the
Commission on April 9, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
VALIDITY OF THE COMMON SHARES
The validity of the Common Shares issued hereunder will be passed upon for
Vornado by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland, Maryland
counsel to Vornado.
53
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than Underwriting Compensation, are as
follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 69,237
Printing and engraving expenses............................. $ 50,000
Legal fees and disbursements................................ $ 100,000
Accounting fees and disbursements........................... $ 50,000
Transfer Agent's and Depositary's fees and disbursements.... $ 25,000
Blue Sky fees and expenses.................................. $ 15,000
Miscellaneous (including listing fees)...................... $ 25,000
Total............................................. $ 334,237
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended ("Title 8"), permits a Maryland real estate investment
trust to include in its declaration of trust a provision limiting the liability
of its trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit or
profit in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action.
Vornado's Declaration of Trust includes such a provision eliminating such
liability to the maximum extent permitted by Title 8.
Vornado's Declaration of Trust authorizes it to indemnify, and to pay or
reimburse reasonable expenses to, as such expenses are incurred by, each trustee
or officer (including any person who, while a trustee of Vornado, is or was
serving at the request of Vornado as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan) from all claims and
liabilities to which such person may become subject by reason of his being or
having been a trustee, officer, employee or agent.
Vornado's Bylaws require it to indemnify (a) any trustee or officer or any
former trustee or officer (including and without limitation, any individual who,
while a trustee or officer and at the request of Vornado, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) who has been successful, on the merits or otherwise, in the defense
of a proceeding to which he was made a party by reason of such status, against
reasonable expenses incurred by him in connection with the proceeding and (b)
any present or former trustee or officer against any claim or liability to which
he may become subject by reason of such status unless it is established that (i)
his act or omission was material to the matter giving rise to the proceeding and
was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) he actually received an improper personal benefit in money,
property or services or (iii) in the case of a criminal proceeding, he had
reasonable cause to believe that his act or omission was unlawful. In addition,
Vornado's Bylaws require it to pay or reimburse, in advance of final disposition
of a proceeding, reasonable expenses incurred by a present or former trustee or
officer made a party to a proceeding by reason of such status upon Vornado's
receipt of (i) a written affirmation by the trustee or officer of his good faith
belief that he has met the applicable standard of conduct necessary for
indemnification by Vornado and (ii) a written undertaking by him or on his
behalf to repay the amount paid or reimbursed by Vornado if it shall ultimately
be determined that the applicable standard of conduct was not met. Vornado's
Bylaws also (i) permit Vornado to provide indemnification and payment or
reimbursement of expenses to a present or former trustee or officer who served a
predecessor of Vornado in such capacity and to any employee or agent of Vornado
or a predecessor of Vornado, (ii) provide that any indemnification or payment or
II-1
<PAGE> 56
reimbursement of the expenses permitted by the Bylaws shall be furnished in
accordance with the procedures provided for indemnification or payment or
reimbursement of expenses, as the case may be, under Section 2-418 of the
Maryland General Corporation Law (the "MGCL") for directors of Maryland
corporations and (iii) permit Vornado to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
the MGCL, as in effect from time to time, for directors of Maryland
corporations.
Title 8 permits a Maryland real estate investment trust to indemnify and
advance expenses to its trustees, officers, employees and agents to the same
extent as permitted by the MGCL for directors and officers of Maryland
corporations. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, officers and controlling persons of Vornado
pursuant to the foregoing provisions or otherwise, Vornado has been advised
that, although the validity and scope of the governing statute has not been
tested in court, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
The Second Amended and Restated Agreement of Limited Partnership, dated as
of October 20, 1997, as amended (the "Partnership Agreement"), of the Operating
Partnership provides, generally, for the indemnification of an "Indemnitee"
against losses, claims, damages, liabilities, expenses (including, without
limitation, attorneys' fees and other legal fees and expenses), judgments,
fines, settlements and other amounts that relate to the operations of the
Operating Partnership unless it is established that (i) the act or omission of
the Indemnitee was material and either was committed in bad faith or pursuant to
active and deliberate dishonesty, (ii) the Indemnitee actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the Indemnitee had reasonable cause to believe that the
act or omission was unlawful. For this purpose, the term "Indemnitee" includes
(i) any person made a party to a proceeding by reason of its status as (A) the
general partner of the Operating Partnership, (B) a limited partner of the
Operating Partnership or (C) an officer of the Operating Partnership or a
trustee, officer or shareholder of Vornado and (ii) such other persons
(including affiliates of Vornado or the Operating Partnership) as Vornado may
designate from time to time in its discretion. Any such indemnification will be
made only out of assets of the Operating Partnership, and in no event may an
Indemnitee subject the limited partners of the Operating Partnership to personal
liability by reason of the indemnification provisions in the Partnership
Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to officers, trustees or controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the Operating
Partnership has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and, therefore,
unenforceable. The Operating Partnership has purchased liability insurance for
the purpose of providing a source of funds to pay the indemnification described
above.
II-2
<PAGE> 57
Pursuant to the Registration Rights Agreement, Vornado agrees to indemnify
each Unit holder named therein and each person, if any, who controls such holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which the Redemption Shares
were registered under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, if such settlement is effected with the
written consent of Vornado; and (iii) against any and all expenses whatsoever,
as incurred, reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, in each case whether or not a party, or
any claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission; provided, however, that such
indemnity does not apply to any Unit holder with respect to any loss, liability,
claim, damage or expense to the extent arising out of (A) any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to Vornado by such Unit holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or (B) such Unit
holder's failure to deliver an amended or supplemental Prospectus if such loss,
liability, claim, damage or expense would not have arisen had such delivery
occurred.
Pursuant to the Registration Rights Agreement, each of the Unit holders
named therein agrees to indemnify Vornado, its Trustees and officers and each
person, if any, who controls Vornado within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (i) against any and all loss,
liability, claim, damage and expense whatsoever, as incurred, arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto) pursuant to
which the Redemption Shares were registered under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (ii) against any and
all loss, liability, claim, damage and expense whatsoever, as incurred, to the
extent of the aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement or
omission, if such settlement is effected with the written consent of such Unit
holder; and (iii) against any and all expenses whatsoever, as incurred,
reasonably incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; provided, however, that such indemnity shall only
apply with respect to any loss, liability, claim, damage or expense to the
extent arising out of (A) any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to Vornado by such Unit holder expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), or (B) such Unit holder's failure to deliver
an amended or supplemental Prospectus if such loss, liability, claim, damage or
expense would not have arisen had such delivery occurred. A Unit holder shall
not be required to indemnify Vornado, its officers and Trustees or its control
persons with respect to any amount in excess of the amount of the total proceeds
to such Unit holder from sales of the Redemption Shares of such Unit holder
under the Registration
II-3
<PAGE> 58
Statement, and no Unit holder shall be liable under the indemnification
provision for any statements or omissions of any other Unit holder.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to officers, trustees or controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the Company has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy and, therefore, unenforceable. The
Company has purchased liability insurance for the purpose of providing a source
of funds to pay the indemnification described above.
II-4
<PAGE> 59
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
3.1 Amended and Restated Declaration of Trust of Vornado,
amended April 3, 1997 (incorporated by reference to Exhibit
3.1 of Vornado's Registration Statement on Form S-8 (File
No. 333-29011), filed on June 12, 1997)
3.2 By-laws of Vornado, as amended on April 28, 1997
(incorporated by reference to Exhibit 3(b) of Vornado's
Quarterly Report on Form 10-Q for the period ended March 31,
1997 (File No. 001-11954), filed on May 14, 1997)
3.3 Second Amended and Restated Agreement of Limited Partnership
of the Operating Partnership, dated as of October 20, 1997
(the "Partnership Agreement") (incorporated by reference to
Exhibit 3.4 of Vornado's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 001-11954), filed on
March 31, 1998 (the "1997 10-K"))
3.4 Amendment, dated as of December 16, 1997, to the Partnership
Agreement (incorporated by reference to Exhibit 3.5 of
Vornado's 1997 10-K)
3.5 Second Amendment, dated as of April 1, 1998, to the
Partnership Agreement
4.1 Specimen certificate representing Vornado's Common Shares of
Beneficial Interest, par value $0.04 per share (incorporated
by reference to Exhibit 4.1 of Amendment No. 1 to Vornado's
Registration Statement on Form S-3 (File No. 33-62395),
filed on October 26, 1995)
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
8.1 Tax opinion of Sullivan & Cromwell
8.2 Tax opinion of Shearman & Sterling
10 Registration Rights Agreement, dated as of April 15, 1997,
between Vornado and the Unit Holders named therein
(incorporated by reference to Exhibit 10.2 of Vornado's
Current Report on Form 8-K, dated April 15, 1997, as filed
with the Commission on April 30, 1997)
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in its opinion filed as Exhibit 5.1)
23.3 Consent of Sullivan & Cromwell (included in its opinion
filed as Exhibit 8.1)
23.4 Consent of Shearman & Sterling (included in its opinion
filed as Exhibit 8.2)
23.5 Consents of Arthur Andersen LLP
24.1 Powers of Attorney (included on signature page)
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate
II-5
<PAGE> 60
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1) (i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 5(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise (other than
insurance), the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than insurance
payments and the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrants in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-6
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Saddle Brook and State of New Jersey, on April
14, 1998.
VORNADO REALTY TRUST,
a Maryland real estate investment
trust
By:
/s/ STEVEN ROTH
------------------------------------
Steven Roth
Chairman of the Board of Trustees
(Principal Executive Officer)
II-7
<PAGE> 62
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven Roth, Michael D. Fascitelli, Joseph Macnow
and Irwin Goldberg, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission or any other regulatory
authority, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in their
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVEN ROTH Chairman of the Board of Trustees April 14, 1998
- ------------------------------------------ (Principal Executive Officer)
Steven Roth
/s/ MICHAEL D. FASCITELLI President and Trustee April 14, 1998
- ------------------------------------------
Michael D. Fascitelli
/s/ BERNARD H. MENDIK Co-Chairman of the Board of Trustees April 14, 1998
- ------------------------------------------ and Chief Executive Officer of the
Bernard H. Mendik Mendik Division
/s/ IRWIN GOLDBERG Vice President -- Chief Financial Officer April 14, 1998
- ------------------------------------------ (Principal Financial and Accounting
Irwin Goldberg Officer)
/s/ DAVID MANDELBAUM Trustee April 14, 1998
- ------------------------------------------
David Mandelbaum
/s/ STANLEY SIMON Trustee April 14, 1998
- ------------------------------------------
Stanley Simon
/s/ RICHARD R. WEST Trustee April 14, 1998
- ------------------------------------------
Richard R. West
/s/ RONALD G. TARGAN Trustee April 14, 1998
- ------------------------------------------
Ronald G. Targan
/s/ RUSSELL B. WIGHT, JR. Trustee April 14, 1998
- ------------------------------------------
Russell B. Wight, Jr.
</TABLE>
II-8
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <C> <S>
3.1 -- Amended and Restated Declaration of Trust of Vornado,
amended April 3, 1997 (incorporated by reference to Exhibit
3.1 of Vornado's Registration Statement on Form S-8 (File
No. 333-29011), filed on June 12, 1997)
3.2 -- By-laws of Vornado, as amended on April 28, 1997
(incorporated by reference to Exhibit 3(b) of Vornado's
Quarterly Report on Form 10-Q for the period ended March 31,
1997 (File No. 001-11954), filed on May 14, 1997)
3.3 -- Second Amended and Restated Agreement of Limited Partnership
of the Operating Partnership, dated as of October 20, 1997
(the "Partnership Agreement") (incorporated by reference to
Exhibit 3.4 of Vornado's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 001-11954), filed on
March 31, 1998 (the "1997 10-K"))
3.4 -- Amendment, dated as of December 16, 1997, to the Partnership
Agreement (incorporated by reference to Exhibit 3.5 of
Vornado's 1997 10-K)
3.5 -- Second Amendment, dated as of April 1, 1998, to the
Partnership Agreement
4.1 -- Specimen certificate representing Vornado's Common Shares of
Beneficial Interest, par value $0.04 per share (incorporated
by reference to Exhibit 4.1 of Amendment No. 1 to Vornado's
Registration Statement on Form S-3 (File No. 33-62395),
filed on October 26, 1995)
5 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP
8.1 -- Tax opinion of Sullivan & Cromwell
8.2 -- Tax opinion of Shearman & Sterling
10 -- Registration Rights Agreement, dated as of April 15, 1997,
between Vornado Realty Trust and the Unit holders named
therein (incorporated by reference to Exhibit 10.2 of
Vornado's Current Report on Form 8-K, dated April 15, 1997,
as filed with the Commission on April 30, 1997)
23.1 -- Consents of Deloitte & Touche LLP
23.2 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in its opinion filed as Exhibit 5.1)
23.3 -- Consent of Sullivan & Cromwell (included in its opinion
filed as Exhibit 8.1)
23.4 -- Consent of Shearman & Sterling (included in its opinion
filed as Exhibit 8.2)
23.5 -- Consents of Arthur Andersen LLP
24.1 -- Powers of Attorney (included on signature page)
</TABLE>
<PAGE> 1
EXHIBIT 3.5
SECOND
AMENDMENT
TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VORNADO REALTY L.P.
--------------------------------------
Dated as of April 1, 1998
--------------------------------------
THIS SECOND AMENDMENT, dated as of April 1, 1998, to the Second Amended
and Restated Agreement of Limited Partnership of Vornado Realty L.P. (the
"Agreement"), a Delaware limited partnership (the "Partnership") is hereby
adopted by Vornado Realty Trust, a Maryland real estate investment trust
(defined therein as the "General Partner"), as the general partner of the
Partnership. For ease of reference, capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the Agreement.
WHEREAS, the Partnership was formed under the name "Mendik Real Estate
Group, L.P." on October 2, 1996, and, on October 2, 1996, the Partnership
adopted an Agreement of Limited Partnership;
WHEREAS, on November 7, 1996, the general partner of the Partnership
changed the Partnership's name to "The Mendik Company, L.P." and, in connection
therewith, caused a Certificate of Amendment to the Certificate of Limited
Partnership of the Partnership to be filed in the office of the Delaware
Secretary of State on November 8, 1996;
WHEREAS, as of April 15, 1997, the General Partner, certain of affiliates
of the General Partner, FW/Mendik REIT, L.L.C., a Delaware limited liability
company, and The Mendik Company, Inc., a Maryland corporation, recapitalized
the Partnership and, in connection therewith, entered into a First Amended and
Restated Agreement of Limited Partnership, dated as of April 15, 1997 (the
"Prior Agreement"), and in connection therewith filed a Certificate of
Amendment to the Certificate of Limited Partnership of the Partnership in the
office of the Delaware Secretary of State, which filing was made on April 15,
1997;
WHEREAS, effective as of October 20, 1997, the General Partner caused the
Partnership to issue and distribute to each Person who was a Limited Partner on
October 15, 1997, an additional Common Partnership Unit for each Common
Partnership Unit (and in the same Class) that was owned by such Person on
October 15, 1997 and, in connection therewith, the General Partner amended and
restated the Prior Agreement in the form of the Agreement.
WHEREAS, as of December 16, 1997 the first Amendment to the Agreement was
adopted by the Partnership in connection with the acquisition of Arbor Property
Trust;
<PAGE> 2
WHEREAS, as of January 23, 1998, the Contribution Agreement (the
"Contribution Agreement") between Vornado Realty Trust, Vornado Realty L.P.
("Vornado Realty Group") and the contributors signatory thereto, Merchandise
Mart Properties, Inc. (DE) and Merchandise Mart Enterprises, Inc. (the "MM
Contributors") was entered into;
WHEREAS, as of the date of this Second Amendment, Vornado Realty Trust or
the Partnership is acquiring, by contribution, sale and/or transfer, pursuant
to the Contribution Agreement, certain assets previously owned by the MM
Contributors and, in connection with that contribution, sale and/or transfer,
is issuing 200,000 and 699,566 Series B-1 Convertible Preferred Units of
Beneficial Interest, no par value, $50.00 liquidation preference, to Washington
Design Center, L.L.C. and Merchandise Mart Owners, L.L.C., respectively, and
100,000 and 349,783 Series B-2 Restricted Preferred Units of Beneficial
Interest, no par value, $50.00 liquidation preference, to Washington Design
Center, L.L.C. and Merchandise Mart Owners, L.L.C., respectively, in exchange
for certain of the interests set forth in Section 1.1 of the Contribution
Agreement;
WHEREAS, pursuant to the Contribution Agreement and concurrently herewith,
the Partnership is issuing 395,967 Class A Units to Merchandise Mart
Enterprises, L.L.C., 603,948 Class A Units to World Trade Center Chicago,
L.L.C., and 65,807 Class A Units to Washington Design Center, L.L.C.;
WHEREAS, the General Partner has determined that it is in the best
interest of the Partnership to amend the Agreement to reflect the issuance of
the above-referenced Series B-1 Convertible Preferred Units, Series B-2
Restricted Preferred Units and the Class A Units;
WHEREAS, Section 14.1.B of the Agreement grants the General Partner power
and authority to amend the Agreement without the consent of any of the
Partnership's limited partners if the amendment does not adversely affect or
eliminate any right granted to a limited partner pursuant to any of the
provisions of the Agreement specified in Section 14.1.C or Section 14.1.D of
the Agreement as requiring a particular minimum vote; and
WHEREAS, the General Partner has determined that the amendment effected
hereby does not adversely affect or eliminate any of the limited partner rights
specified in Section 14.1.C or Section 14.1.D of the Agreement;
NOW, THEREFORE, the General Partner hereby amends the Agreement as follows:
1. Exhibit I, attached hereto as Attachment 1, is hereby incorporated into
the Agreement and made a part thereof.
2. Section 4.2 of the Agreement is hereby supplemented by adding the
following paragraph to the end thereof:
"G. Issuance of Series B-1 Convertible Preferred Units and Series B-2
Restricted Preferred Units. In consideration of the contribution on April
1, 1998 of the interests set forth in Section 1.1 of the Contribution
Agreement (the "MM Contribution Agreement") between Vornado Realty Trust,
Vornado Realty L.P. and the contributors signatory
-2-
<PAGE> 3
thereto, Merchandise Mart Properties, Inc. (DE) and Merchandise Mart
Enterprises, Inc. (the "Contributors") contributed, sold and/or
transferred to the Partnership by the MM Contributors pursuant to the
Contribution Agreement, the Partnership will issue to Washington Design
Center, L.L.C. and Merchandise Mart Owners, L.L.C. 200,000 and 699,566,
respectively, of a series of Preference Units designated as the "Series
B-1 Convertible Preferred Units" (as defined in Exhibit I hereto) and
100,000 and 349,783, respectively, of a series of Preference Units
designated as the "Series B-2 Restricted Preferred Units (as defined in
Exhibit I hereto). The terms of the Series B Preferred Units and Series
B-2 Restricted Preferred Units are set forth in Exhibit I attached
hereto and made part hereof."
3. In making distributions pursuant to Section 5.1(b) of the Agreement,
the General Partner of the Partnership shall take into account the provisions
of Section 2.B. of new Exhibit I of the Agreement, including, but not limited
to, Section 2.B. hereof.
4. Section 8.6 of the Agreement is hereby supplemented by adding the
following paragraph to the end thereof:
"G. Series B Preferred Unit Exception. Section 8.6A of this
Agreement shall not apply to Series B Preferred Units, as defined in Exhibit I
hereto."
5. Exhibit A of the Agreement is hereby deleted and is replaced in its
entirety by new Exhibit A attached hereto as Attachment 2.
6. Except as expressly amended hereby, the Agreement shall remain in
full force and effect.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the General Partner has executed this Amendment as
of the date first written above.
VORNADO REALTY TRUST
By: /s/ Joseph Macnow
-----------------------------
Joseph Macnow
Executive Vice President of
Finance and Administration
-4-
<PAGE> 5
Attachment 1
EXHIBIT I
DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION
OF THE
SERIES B-1 CONVERTIBLE PREFERRED UNITS
AND OF THE
SERIES B-2 RESTRICTED PREFERRED UNITS
1. Definitions.
In addition to those terms defined in the Agreement and Exhibits
thereto, the following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary or if such terms defined in this Exhibit I are
defined differently elsewhere in the Agreement or in an Exhibit thereto (in
which case such definition provided in this Exhibit I shall only apply for
purposes of defined terms used in this Exhibit I), apply to the terms used in
the Agreement and Exhibits thereto including this Exhibit I:
"Common Shares" shall mean the common shares of beneficial interest of
the General Partner, par value $.04 per share.
"Contribution Agreement" shall mean the Contribution Agreement dated as
of January 23, 1998, between Vornado Realty Trust, Vornado Realty L.P., the
contributors signatory thereto, Merchandise Mart Properties, Inc. (DE) and
Merchandise Mart Enterprises, Inc., as amended.
"Conversion Price" shall mean the conversion price per Class A Unit for
which the Series B Preferred Units may be convertible, as such Conversion Price
may be adjusted pursuant to the terms of the Series B Preferred Units. The
initial conversion price shall be $54.7050 (equivalent to a conversion rate of
0.9140 Class A Units for each Series B Preferred Unit).
"Current Market Price" of publicly traded Common Shares or any other
class of shares of beneficial interest or other security of the General Partner
or any other issuer for any day shall mean the last reported sales price,
regular way, on such day, or, if no sale takes place on such day, the average of
the reported closing bid and asked prices on such day, regular way, in either
case as reported on the New York Stock Exchange ("NYSE") or, if such security is
not listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted for trading or,
if not listed or admitted for trading on any national securities exchange, on
the NASDAQ National Market or, if such security is not quoted on such NASDAQ
National Market, the average of the closing bid and asked prices on such day in
the over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security selected for such purpose by the
Chief Executive Officer of the General Partner or the Board of Trustees.
"Distribution Payment Date" shall mean the first calendar day of
January, April, July and October, in each year, commencing on July 1, 1998;
provided, however, that if any Distribution Payment
I-1
<PAGE> 6
Date falls on any day other than a Unit Business Day, the dividend payment due
on such Distribution Payment Date shall be paid on the first Unit Business Day
immediately following such Distribution Payment Date.
"Distribution Periods" shall mean quarterly distribution periods
commencing on January 1, April 1, July 1 and October 1 of each year and ending
on and including the day preceding the first day of the next succeeding
Distribution Period (other than the Initial Distribution Period).
"Initial Distribution Period" shall mean the quarterly distribution
period commencing on January 1, 1998 and including March 31, 1998.
"Nongovernmental Account" shall mean an account established by the
Partnership in which the Partnership will deposit amounts which the Partnership
may use to make distributions to holders of units of the Partnership but shall
not contain any amounts derived from contracts with "the United States or any
agency thereof" as such terms are used in 18 U.S.C. Sections 431-433, 41
U.S.C. Section 22 and similar statutes.
"Series B Preferred Units" shall mean, collectively, the Series B-1
Convertible Preferred Units and the Series B-2 Restricted Preferred Units.
"Series B-1 Convertible Preferred Unit" means a Partnership Unit issued
by the Partnership pursuant to the Contribution Agreement and this Agreement.
The Series B-1 Convertible Preferred Units shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption as are set
forth in this Exhibit I.
"Series B-2 Restricted Preferred Unit" means a Partnership Unit issued
by the Partnership pursuant to the Contribution Agreement and this Agreement.
The Series B-2 Restricted Preferred Units shall have the preferences and other
rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms and conditions of redemption as are set forth in this
Exhibit I.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Partnership or the General
Partner on behalf of the Partnership in its accounting ledgers of any
accounting or bookkeeping entry which indicates, pursuant to a declaration of a
distribution by the General Partner, the allocation of funds to be so paid on
any series or class of Partnership Units; provided, however, that if any funds
for any class or series of Junior Units or any class or series of Partnership
Units ranking on a parity with the Series B Preferred Units as to the payment
of distributions are placed in a separate account of the Partnership or
delivered to a disbursing, paying or other similar agent, then "set apart for
payment" with respect to the Series B Preferred Units shall mean placing such
funds in a separate account or delivering such funds to a disbursing, paying or
other similar agent.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such securities are listed or admitted, or if not listed or admitted for
trading on any national securities exchange, on the NASDAQ National Market, or
if such securities are not quoted on such NASDAQ National Market, in the
applicable securities market in which the securities are traded.
"Unit Business Day" shall mean any day other than a Saturday, Sunday or
a day on which state or federally chartered banking institutions in New York,
New York are not required to be open.
I-2
<PAGE> 7
2. Terms of the Series B Preferred Units.
A. Number. As of the close of business on the date hereof, the
total number of Series B-1 Convertible Preferred Units issued and outstanding
will be 899,566 and the total number of Series B-2 Restricted Preferred Units
will be 449,783. The General Partner may issue additional Series B Preferred
Units from time to time in accordance with the terms of the Agreement,
including Exhibit 1, and in connection with any such additional issuance the
General Partner shall revise Exhibit A and Exhibit I to the Agreement to reflect
the total number of Series B Preferred Units then issued and outstanding.
B. Distributors. (i) The holders of the then outstanding Series
B-1 Convertible Preferred Units, shall be entitled to receive, when, as and if
declared by the General Partner, distributions payable in cash at the rate per
annum of $2.50 per Series B-1 Convertible Preferred Unit and the holders of the
then outstanding Series B-2 Restricted Preferred Units, shall be entitled to
receive, when, as and if declared by the General Partner, distributions payable
in cash at the rate per annum of $4.00 per Series B-2 Restricted Preferred Unit
(together, the "Annual Distribution Rates"). Such distributions shall be
cumulative from January 1, 1998 and shall be payable quarterly, when, as and if
authorized and declared by the General Partner, in arrears on Distribution
Payment Dates, commencing on the first Distribution Payment Date after the date
of issuance of the Series B Preferred Units, provided, however, that all
distributions in respect of the Initial Distribution Period shall be paid on the
date of issuance of the Series B Preferred Units. Distributions are cumulative
from the most recent Distribution Payment Date to which distributions have been
paid. Accrued and unpaid distribution for any past Distribution Periods may be
declared and paid at any time, without reference to any regular Distribution
Payment Date. Distributions on the Series B-2 Restricted Preferred may only be
made by the Partnership from the Nongovernmental Account, provided, however, if
such account should not contain sufficient cash to fund distributions authorized
and declared by the General Partner on the Series B-2 Restricted Preferred
Units, such distributions shall accumulate without interest until such time as
the Nongovernmental Account contains sufficient cash to pay such cumulative
distributions, at which time such distributions shall be made on the Series B-2
Restricted Preferred Units. To the extent distributions are to be paid on the
Series B-2 Restricted Preferred Units or there exists accrued and unpaid
distributions or any Liquidation Preference or redemption amount thereon under
Section 2D below due to any prior deficiency in the Nongovernmental Account, and
funds not derived from contracts with "the United States or any agency thereof"
are available for distribution, the Partnership will cause such funds to be
deposited in the Nongovernmental Account for such purposes.
(ii) The amount of dividends payable for each full Distribution Period
for the Series B Preferred Units shall be computed by dividing the Annual
Distribution Rates by four. The amount of distributions payable for the initial
Distribution Period, or any other period shorter or longer than a full
Distribution Period, on the Series B Preferred Units shall be computed on the
basis of a 360-day year of twelve 30-day months. The holders of the then
outstanding Series B Preferred Units shall not be entitled to any distributions,
whether payable in cash, property or securities, in excess of cumulative
distribution, as herein provided, on the Series B Preferred Units. No interest,
or sum of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on the Series B Preferred Units that may be in
arrears.
(iii) So long as any Series B Preferred Units are outstanding, no
distributions, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any series or class or classes
of Parity Units for any period unless full cumulative distributions have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Series B Preferred Units
for all Distribution Periods terminating on or prior to the distribution
payment date on such class or series of Parity Units, except in the case of
distributions on the Series B-2 Restricted Preferred Units to the extent not
paid due to a lack of funds in the Nongovernmental Account. When distributions
are not paid in full or a sum sufficient for such payment is not set apart, as
I-3
<PAGE> 8
aforesaid, except in the case of distributions on the Series B-2 Restricted
Preferred Units to the extent not paid due to a lack of funds in the
Nongovernmental Account, all distributions declared upon Series B Preferred
Units and all distributions declared upon any other series or class or classes
of Parity Units shall be declared ratably in proportion to the respective
amounts of distributions accumulated and unpaid on the Series B Preferred Units
and such Parity Units.
(iv) So long as any Series B Preferred Units are outstanding, no
distributions (other than distributions paid solely in Junior Units or options,
warrants or rights to subscribe for or purchase Junior Units) shall be declared
or paid or set apart for payment or other distribution declared or made upon
Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of Junior Units
made in respect of a redemption, purchase or other acquisition of Common Shares
made for purposes of and in compliance with requirements of an employee
incentive or benefit plan of the General Partner or any subsidiary, or as
permitted under Article VI of the Declaration of Trust of the General Partner),
for any consideration (or any moneys to be paid to or made available for a
sinking fund for the redemption of any such Junior Units) by the General
Partner, directly or indirectly (except by conversion into or exchange for
Junior Units), unless in each case (a) the full cumulative distributions on all
outstanding Series B Preferred Units and any other Parity Units of the
Partnership shall have been paid or set apart for payment for all past
Distribution Periods with respect to the Series B Preferred Units and all past
distribution periods with respect to such Parity Units, except to the extent
that distributions on the Series B-2 Restricted Preferred Units are not then
able to be paid owing to a lack of funds in the Nongovernmental Account, and (b)
sufficient funds shall have been paid or set apart for the payment of the
distribution for the current Distribution Period with respect to the Series B
Preferred Units and any Parity Units, except to the extent that distributions on
the Series B-2 Restricted Preferred Units are not then able to be paid owing to
a lack of funds in the Nongovernmental Account.
C. Liquidation Preference. (i) In the event of any liquidation,
dissolution or winding up of the Partnership or the General Partner, whether
voluntary or involuntary, before any payment or distribution of the assets of
the Partnership shall be made to or set apart for the holders of Junior Units,
holders of the Series B Preferred Units shall be entitled to receive Fifty
Dollars ($50.00) per Series B Preferred Unit (the "Liquidation Preference") plus
an amount equal to all distributions (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to the holders of such
units, except in the case of distributions on or the Liquidation Preference of
the Series B-2 Restricted Preferred Units to the extent they may not be paid due
to a lack of funds in the Nongovernmental Account; but the holders of the Series
B Preferred Units shall not be entitled to any further payment, except, to the
extent certain distributions (or the Liquidation Preference) were not able to be
made on (or paid to) the Series B-2 Restricted Preferred Units due to a
deficiency in the Nongovernmental Account, such distributions will be made to
the extent funds later become available in the Nongovernmental Account. If, upon
any such liquidation, dissolution or winding up of the Partnership or the
General Partner, the assets of the Partnership, or proceeds thereof,
distributable to the holders of the Series B Preferred Units shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any other Parity Units, then such assets, or the proceeds thereof,
shall be distributed among the holders of the Series B Preferred Units and the
holders of any such other Parity Units ratably in accordance with the respective
amounts that would be payable on such Series B Preferred Units and any such
other Parity Units if all amounts payable thereon were paid in full. For the
purposes of this Section C, (i) a consolidation or merger of the Partnership or
the General Partner with one or more entities, (ii) a statutory share exchange
by the Partnership or the General Partner and (iii) a sale or transfer of all or
substantially all of the Partnership's or the General Partner's assets, shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Partnership or General Partner.
(ii) Subject to the rights of the holders of Partnership Units of any
series or class or classes of shares ranking on a parity with or prior to the
Series B Preferred Units upon any liquidation, dissolution or winding up of the
General Partner or the Partnership, after payment shall have been made in
I-4
<PAGE> 9
full to the holders of the Series B Preferred Units as provided in this
Section, except in the case of distributions on the Series B-2 Restricted
Preferred Units to the extent not paid due to a lack of funds in the
Nongovernmental Account, any series or class or classes of Junior Units shall,
subject to any respective terms and provisions applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series B Preferred Units shall not be entitled to share therein.
D. Redemption of the Series B Preferred Units. (i) The Series B
Preferred Units shall not be redeemable prior to January 1, 2008. On and after
January 1, 2008, the General Partner may, at its option, cause the Partnership
to redeem the Series B Preferred Units for cash or Class A Units, as described
below, in whole or in part, as set forth herein, subject to the provisions
described below (the "Redemption Date"), provided, however, the Partnership may
redeem Series B Preferred Units only in one or more groups of two Series B-1
Convertible Preferred Units and one Series B-2 Restricted Preferred Unit to the
extent it redeems any Series B Preferred Units.
(ii) Upon redemption of Series B Preferred Units by the General Partner on
the Redemption Date, each Series B-1 Convertible Preferred Unit so redeemed
shall be converted into a number of Class A Units equal to the aggregate
Liquidation Preference of the Series B-1 Convertible Preferred Units being
redeemed divided by the Conversion Price as of the opening of business on the
Redemption Date and each Series B-2 Restricted Preferred Unit shall be redeemed
for $50.00 in cash which shall be paid only from the Nongovernmental Account.
Upon any redemption of Series B Preferred Units, the Partnership shall pay
any accrued and unpaid distributions thereon in arrears for any Distribution
Period ending on or prior to the Redemption Date, except to the extent that
such distributions or amounts distributable on the Series B-2 Restricted
Preferred Units may not be payable due to a lack of funds in the
Nongovernmental Account. If the Redemption Date falls after the record date for
a Distribution Payment Date and before the related Distribution Payment Date,
the holder of the Series B Preferred Units to which such redemption applies
shall be entitled to such distributions notwithstanding the redemption of such
Series B Preferred Units, except to the extent that such distributions or
amounts distributable on the Series B-2 Restricted Preferred Units may not be
payable due to a lack of funds in the Nongovernmental Account. Except as
provided above, the Partnership shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series B Preferred Units called
for redemption or on the Class A Units issued upon such redemption. To the
extent certain distributions were not able to be made on the Series B-2
Restricted Preferred Units due to a deficiency in the Nongovernmental Account,
such distributions will be made to the extent funds become available in the
Nongovernmental Account.
(iii) If full cumulative distributions on the Series B Preferred Units and
any other series or class or classes of Parity Units of the Partnership have
not been paid or declared and set apart for payment, except to the extent that
such distributions or amounts distributable on the Series B-2 Restricted
Preferred Units may not be payable due to a lack of funds in the
Nongovernmental Account, the Series B Preferred Units may not be redeemed in
part and the Partnership may not purchase, redeem or otherwise acquire Series B
Preferred Units.
As promptly as practicable after the surrender of the certificates for any
such Series B Preferred Units so redeemed, such Series B Preferred Units shall
be exchanged for certificates of Class A Units and/or any cash (without interest
thereon), as provided herein, for which such Series B Preferred Units have been
redeemed. If fewer than all the Series B Preferred Units represented by any
certificate are redeemed, then new certificates representing the unredeemed
Series B Preferred Units shall be issued without cost to the holders thereof.
(iv) No fractional Partnership Unit shall be issued upon redemption of a
Series B-1 Convertible Preferred Unit. Instead of any fractional interest in a
Class A Unit that would otherwise be
I-5
<PAGE> 10
deliverable upon the redemption of a Series B-1 Convertible Preferred Unit, the
Partnership shall pay to the holders of the Series B-1 Convertible Preferred
Units an amount in cash (computed to the nearest cent) based upon the Current
Market Price of Common Shares of the General Partner on the Trading Day
immediately preceding the Redemption Date.
(v) The Partnership covenants that any Class A Unit issued upon redemption
of the Series B-1 Convertible Preferred Units shall be validly issued, fully
paid and non-assessable.
E. Conversion.
The holders of Series B-1 Convertible Preferred Units shall have the right
to convert all or a portion of such Series B Preferred Units into Class A
Units, converted as follows:
(i) Subject to and upon compliance with the provisions of this Section E,
the holders of Series B-1 Convertible Preferred Units shall have the right, at
their option, at any time and from time to time, to convert all or any portion
of the Series B Preferred Units into the number of fully paid and
non-assessable Class A Units obtained by dividing the aggregate Liquidation
Preference of the Series B Preferred Units by the Conversion Price (as in
effect at the time and on the date provided for in the last paragraph of
paragraph (ii) of this Section E) by surrendering Series B Preferred Units to
the Partnership to be converted as described herein, such surrender to be made
in the manner provided in paragraph (ii) of this Section E; provided, however,
that so long as, and to the extent that, Series B-2 Restricted Preferred Units
are outstanding, the right to convert Series B Preferred Units described herein
may only be exercised by a holder of Series B-1 Convertible Preferred Units and
if (x) such holder simultaneously converts the Series B Preferred Units in
groups of two Series B-1 Convertible Preferred Units and one Series B-2
Restricted Preferred Unit and (y) such holder of Series B-1 Convertible Units
is also a holder of Series B-2 Restricted Preferred Units on the date hereof or
acquires the applicable Series B-2 Restricted Preferred Units from the holder
thereof at a purchase price of $50.00 (and no more) per Unit in cash or by
delivery of a recourse unsecured promissory note or similar debt instrument
(provided such promissory note or similar debt instrument does not bear
interest in excess of 8% per annum), and provided further that the right to
convert Series B-1 Convertible Preferred Units called for redemption pursuant
to Section D hereof shall terminate at the close of business on the Redemption
Date fixed for such redemption, unless the Partnership shall default in making
payment of the Class A Units and any cash payable in lieu of fractional
Partnership Units upon such redemption under Section D hereof.
(ii) In order to exercise the conversion right, the holder of each group of
Series B Preferred Units to be converted shall surrender the certificate
representing such Series B-1 Convertible Preferred Units along with the
certificate representing the appropriate number of Series B-2 Restricted
Preferred Units to the Partnership.
The holders of Series B Preferred Units shall be entitled to receive the
distribution payable on such Series B Preferred Units on a Distribution Payment
Date notwithstanding the conversion thereof following the record date for such
Distribution Payment Date and prior to such Distribution Payment Date. However,
Series B Preferred Units surrendered for conversion during the period between
the close of business on the record date of any Distribution Payment Date and
the opening of business on the corresponding Distribution Payment Date must be
accompanied by payment of an amount equal to the distribution payable on such
Series B Preferred Units on such Distribution Payment Date, to the extent such
distribution amount has been received, or when such amount is thereafter
received, by the holder of the Series B Preferred Units, except to the extent
such distribution was in respect of accrued and unpaid distributions on the
Series B-2 Restricted Preferred Unit due to an earlier deficiency in the
Nongovernmental Account. Except as provided above, the Partnership shall make no
payment or allowance for unpaid distributions, whether or not in arrears, on
converted Series B Preferred Units or for distributions on the Class A Units
issued upon such conversion, except to the extent certain distributions
I-6
<PAGE> 11
were not able to be made on the Series B-2 Restricted Preferred Units solely
due to a shortfall of funds in the Nongovernmental Account.
As promptly as practicable after the surrender of certificates for Series
B Preferred Units as aforesaid, the General Partner shall receive a certificate
or certificates for the number of full Class A Units issuable upon the
conversion of Series B Preferred Units surrendered in accordance with the
provisions of this Section E, and any fractional interest in respect of a Class
A Unit arising upon such conversion shall be settled as provided in paragraph
(iii) of this Section E.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for Series B
Preferred Units shall have been surrendered (and if applicable, payment of an
amount equal to the distribution payable on such Series B Preferred Units) and
received by the Partnership as aforesaid, and the General Partner shall be
deemed to have become the holder or holders of record of the Class A Units
represented thereby at such time on such date, and such conversion shall be at
the Conversion Price in effect at such time and on such date unless the stock
transfer books of the Partnership shall be closed on that date, in which event
such person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such
partnership transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such Series B Preferred Units
shall have been surrendered and received by the General Partner.
(iii) No fractional Partnership Unit shall be issued upon conversion of
the Series B Preferred Units. Instead of any fractional interest in a Class A
Unit that would otherwise be deliverable upon the conversion of a Series B
Preferred Unit, the Partnerships shall pay to the holder of such Series B
Preferred Unit an amount in cash based upon the Current Market Price of Common
Shares of the General Partner on the Trading Day immediately preceding the date
of conversion.
(iv) Prior to effecting a conversion of Series B Preferred Units, the
Partnership shall have received from the holders of such Series B Preferred
Units a written certification that such conversion does not violate the
provisions of 18 U.S.C. Sections 431-433, 41 U.S.C. Section 22 or any similar
statute and that no Class A Units received upon conversion shall be held for the
benefit of or distributed to a person subject to the provisions of 18 U.S.C.
Sections 431-433, 41 U.S.C. Section 22 or any similar statute.
(v) No transfers or conversions shall be effected if such transfer or
conversion, in the opinion of counsel of the Partnership, would violate 18
U.S.C. Sections 431-433, 41 U.S.C. Section 22 or any similar statute. In
addition, holders of Series B-2 Restricted Preferred Units may only transfer and
assign such Units to the extent the consideration received in respect of such
transfer or assignment consists of cash or a recourse unsecured promissory note
or similar debt instrument (provided that such promissory note or similar debt
instrument may not bear interest in excess of 8% per annum) in an amount not in
excess of $50 per Unit.
F. Ranking. (i) Any class or series of Partnership Units shall be
deemed to rank:
(a) prior to the Series B Preferred Units, as to the payment of
distributions and as to distribution of assets upon liquidation, dissolution or
winding up of the General Partner or the Partnership, if the holders of such
class or series of Preferred Units shall be entitled to the receipt of
distributions or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
Series B Preferred Units;
(b) on a parity with the Series B Preferred Units, as to the payment of
distributions and as to the distribution of assets upon liquidation, dissolution
or winding up of the General Partner or the Partnership, whether or not the
distribution rates, distribution payment dates or redemption or liquidation
I-7
<PAGE> 12
prices per Partnership Unit be different from those of the Series B Preferred
Units, if the holders of such Partnership Units of such class or series and the
Series B Preferred Units shall be entitled to the receipt of distributions and
of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid distributions per
Partnership Unit or liquidation preferences, without preference or priority one
over the other, except to the extent that such distribution or amounts
distributable on the Series B-2 Restricted Preferred Units may not be payable
due to a lack of funds in the Nongovernmental Account ("Parity Unit"); and
(c) junior to the Series B Preferred Units, as to the payment of
distributions or as to the distribution of assets upon liquidation, dissolution
or winding up of the General Partner or the Partnership, if such class or
series of Partnership Units shall be Common Partnership Units or if the General
Partner, in its capacity as the holder of Series B Preferred Units, shall be
entitled to receipt of distribution or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Partnership Units of such class or series, and such
class or series of Partnership Units shall not in either case rank prior to the
Series B Preferred Units, except to the extent that such distributions or
amounts distributable on the Series B-2 Restricted Preferred Units may not be
payable due to a lack of funds in the Nongovernmental Account ("Junior Units").
(ii) The Series A Preferred Units shall be Parity Units with respect
to the Series B Preferred Units and the holders of the Series B Preferred Units
and the Series A Preferred Units shall be entitled to the receipt of
distributions and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
distributions per Partnership Unit or liquidation preferences, without
preference or priority one over the other, except in the case of distributions
on the Series B-2 Restricted Preferred Units to the extent not payable due to a
lack of funds in the Nongovernmental Account and except that:
(a) For so long as the Class C Units are outstanding, the Series B
Preferred Units shall not rank senior to the Class C Units as to preferential
distributions or redemption or voting rights and shall receive: (i) accumulated
and unpaid distributions pari passu with distributions made to the holders of
Class C Units pursuant to the Subsection 5.1.B(iv) of the Agreement and (ii)
other distributions pari passu with distributions made to the holders of Class C
Units pursuant to Subsection 5.1.B(v) of the Agreement, except to the extent
that distributions on the Series B-2 Restricted Preferred Units may not be paid
due to a lack of funds in the Nongovernmental Account.
(b) For so long as the Class D Units and Class E Units are
outstanding, the Series B Preferred Units shall not rank senior to the Class D
Units and Class E Units as to preferential distributions or redemption or voting
rights. For so long as the Class D Units or Class E Units are outstanding (and
the Class C Units are no longer outstanding), the Series B Preferred Units shall
receive: (i) accumulated and unpaid distributions pari passu with distributions
made to the holders of any outstanding Class D Units and Class E Units pursuant
to Subsection 5.1.B(ii) of the Agreement and (ii) other distributions pari passu
with distributions made to the holders of any outstanding Class D Units and
Class E Units pursuant to Subsection 5.1.B(iii) of the Agreement, except to the
extent that distributions on the Series B-2 Restricted Preferred Units may not
be paid due to a lack of funds in the Nongovernmental Account.
(c) When the Class C Units, Class D Units and Class E Units are no
longer outstanding, the Series B Preferred Units shall receive distributions
pari passu with other Partnership Units, if any, receiving distributions
pursuant to Section 5.1.B(i), except to the extent that distributions on the
Series B-2 Restricted Preferred Units may not be paid due to a lack of funds
in the Nongovernmental Account.
(d) Distributions made pursuant to Subsection F(ii)(a) and F(ii)(b)
of this Exhibit I shall be made pro rata with other distributions made to other
Partnership Units as to which they rank pari passu based on the ratio of the
amounts to be paid the Series B Preferred Units and such other Partnership
I-8
<PAGE> 13
Units, as applicable, to the total amounts to be paid the Series B Preferred
Units and such other Partnership Units taken together on the Partnership Record
Date, except in the case of distributions on the Series B-2 Restricted
Preferred Units to the extent such distribution may not be paid due to a lack
of funds in the Nongovernmental Account.
(iii) For purposes of allocations of items made pursuant to Article VI of
the Agreement:
(a) As long as Class C Units are outstanding, the Series B Preferred Units
shall be allocated items pari passu with the Class C Units (and shall share in
those allocations in a pro rata manner based on the distributions and
allocations of items, as applicable, made to such Partnership Units, as
applicable); references to Class C Units in Article VI of the Agreement shall
be deemed to also refer to Series B Preferred Units except that references to
distributions made to the Class C Units shall be deemed to refer to
distributions made to the Series B Preferred Units in a pro rata manner with
such distributions made to the Class C Units.
(b) As long as the Class D Units or Class E Units are outstanding (and the
Class C Units are no longer outstanding), the Series B Preferred Units shall be
allocated items pari passu with the Class D Units or Class E Units (and shall
share in those allocations in a pro rata manner based on the distributions and
allocations of items, as applicable, made to such Partnership Units, as
applicable); references to Class D Units or Class E Units in Article VI of the
Agreement shall be deemed to also refer to Series B Preferred Units except that
references to distributions made to the Class D Units or Class E Units shall be
deemed to refer to distributions made to the Series B Preferred Units in a pro
rata manner with such distributions made to the Class D Units or Class E Units.
(c) When the Class C Units, Class D Units and Class E Units are no longer
outstanding, the Series B Preferred Units shall be allocated items pari passu
with the Preference Units (and shall share in those allocations in a pro rata
manner based on the distributions and allocations of items, as applicable, made
to such Partnership Units, as applicable); references to Preference Units in
Article VI of the Agreement shall be deemed to also refer to Series B Preferred
Units except that references to distributions made to Preference Units shall be
deemed to refer to distributions made to the Series B Preferred Units in a pro
rata manner with such distributions, if any, made to the Preference Units.
G. Voting. Except as required by law, the holders of the Series B
Preferred Units shall not be entitled to vote at any meeting of the Partners or
for any other purpose or otherwise to participate in any action taken by the
Partnership or the Partners, or to receive notice of any meeting of the
Partners. When entitled to vote, the Series B Preferred Units shall vote
together as a class.
H. Restrictions on Ownership and Transfer. Transfers of Series B Preferred
Units shall be governed by Article XI of the Agreement. The Series B Preferred
Units shall be owned and held by Washington Design Center, L.L.C. and
Merchandise Mart Owners, L.L.C. as provided below:
<TABLE>
<CAPTION>
Series B-1 Convertible Series B-2 Restricted
Preferred Units Preferred Units
---------------------- ---------------------
<S> <C> <C>
Washington Design Center, L.L.C. 200,000 100,000
Merchandise Mart Owners, L.L.C. 699,566 349,783
</TABLE>
I. Conflicts with Federal Law. Notwithstanding anything to the contrary
contained in this Exhibit I, if the Partnership reasonably believes, based on
an opinion of counsel, that there is a material risk that the ownership of the
Series B Preferred Units will result in a violation of 18 U.S.C. Sections
431-433, 41 U.S.C. Section 22 or any similar statute or any regulations
thereunder then the Partnership shall have the right to suspend distributions
on the Series B Preferred Units and take any other actions it
I-9
<PAGE> 14
deems reasonably required to remedy such violation. In the case of such a
suspension of distributions on the Series B Preferred Units, (i) each holder of
Series B-2 Restricted Preferred Units shall have a right at its election to be
redeemed for $50 per Unit in cash, plus accrued and unpaid distributions
thereon, and (ii) each holder of Series B-1 Convertible Preferred Units shall
have a right at its election to be redeemed for an amount of cash per Unit equal
to 1.5 multiplied by (.9140 times the Current Market Price of the Common Shares
on the business day immediately preceding the redemption election), less $25.00,
provided, however, such redemption shall not be permitted if the Partnership
reasonably believes, based on an opinion of counsel, that there is a material
risk that such redemption will result in a violation of 18 U.S.C. Sections
431-433, 41 U.S.C. Section 22 or any similar statute or any regulations
thereunder. The Partnership shall only be required to redeem any Series B
Preferred Units from any one or more holders of Series B Preferred Units under
this paragraph to the extent that it may do so in one or more groups of two
Series B-1 Convertible Preferred Units and one Series B-2 Restricted Preferred
Unit.
I-10
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF BALLARD SPAHR ANDREWS AND INGERSOLL, LLP]
April 14, 1998
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have served as Maryland counsel to Vornado Realty Trust, a Maryland
real estate investment trust (the "Company"), in connection with certain matters
of Maryland law arising out of (i) the possible offer and sale from time to time
of up to 5,681,124 common shares (the "Exchange Shares") of beneficial interest,
par value $.04 per share, of the Company ("Common Shares"), that may be issued
to holders of up to 5,681,124 units of limited partnership interest in Vornado
Realty L.P., a Delaware limited partnership (the "OP Units"), if, and to the
extent that, the Company elects to issue such Exchange Shares to holders (the
"Selling Shareholders") upon the tender of their OP Units for redemption, and
(ii) the offer and sale from time to time by the Selling Shareholders of any
Exchange Shares that may be issued to and held by such Selling Shareholders. The
OP Units that may be redeemed for Exchange Shares were issued in connection with
the acquisition of interests in all or a portion of seven Manhattan office
buildings and a management company held by Bernard H. Mendik, David R. Greenbaum
and certain entities controlled by them and certain of their affiliates on April
15,
<PAGE> 2
Vornado Realty Trust
April 14, 1998
Page 2
1997. The Exchange Shares are covered by the above-referenced Registration
Statement, and all amendments thereto (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "1933 Act"). Unless otherwise defined
herein, capitalized terms used herein shall have the meanings assigned to them
in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted to the Securities and
Exchange Commission under the 1933 Act;
2. The declaration of trust of the Company (the "Declaration"),
certified as of a recent date by the State Department of Assessments and
Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of a recent date by an
officer of the Company;
4. Resolutions adopted by the Board of Trustees of the Company
relating to the sale, issuance and registration of the Exchange Shares (the
"Resolutions"), certified as of a recent date by an officer of the Company;
5. The Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of October 20, 1997, as
amended (the "Partnership Agreement"), certified as of a recent date by an
officer of the Company;
6. The form of certificate evidencing a Common Share, certified as
of a recent date by an officer of the Company;
7. A certificate of the SDAT as to the good standing of the
Company, dated as of a recent date;
8. A certificate executed by Joseph Macnow, Executive Vice
President (Finance and Administration) of the Company, dated as of the date
hereof; and
<PAGE> 3
Vornado Realty Trust
April 14, 1998
Page 3
9. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of
the Documents has duly and validly executed and delivered each of the Documents
to which such party is a signatory, and such party's obligations set forth
therein are legal, valid and binding.
2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on
behalf of such individual or any other person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. The
form and content of the Documents submitted to us as unexecuted drafts do not
differ in any respect relevant to this opinion from such Documents as executed
and delivered. All Documents submitted to us as certified or photostatic copies
conform to the original documents. All signatures on all such Documents are
genuine. All public records reviewed or relied upon by us or on our behalf are
true and complete. All statements and information contained in the Documents
are true and complete. There has been no oral or written modification or
amendment to any of the Documents, and there has been no waiver of any provision
of the Documents, by action or omission of the parties or otherwise.
5. The Exchange Shares will not be issued or transferred in
violation of any restriction or limitation contained in the Declaration of
Trust.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our
<PAGE> 4
Vornado Realty Trust
April 14, 1998
Page 4
firm who have performed legal services in connection with the issuance of this
opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed and
existing under and by virtue of the laws of the State of Maryland and is in
good standing with the SDAT.
2. The Exchange Shares, upon the due execution, countersignature
and delivery of certificates evidencing the Exchange Shares and assuming that
the sum of (a) all Common Shares issued as of the date hereof, (b) any Common
Shares issued between the date hereof and the date on which any of the Exchange
Shares are actually issued (not including any of the Exchange Shares), and (c)
the Exchange Shares will not exceed the total number of Common Shares that the
Company is then authorized to issue, are duly authorized and, when and if
delivered in accordance with the Partnership Agreement and the Resolutions,
will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to compliance with the securities (or "blue sky") laws
or the real estate syndication laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission to the
Securities and Exchange Commission as an exhibit to the Registration
Statement and, accordingly, may not be relied upon by, quoted in any manner to,
or delivered to any other person or entity (other than Sullivan & Cromwell,
counsel to the Company) without, in each instance, our prior written consent.
<PAGE> 5
Vornado Realty Trust
April 14, 1998
Page 5
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF SULLIVAN & CROMWELL]
March 31, 1998
Vornado Realty Trust,
Park 80 West, Plaza II,
Saddle Brook, New Jersey 07663.
Dear Sirs:
We have acted as your counsel in connection with the registration on the
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), of 5,681,124 common shares of beneficial interest, par
value $.04 per share, of Vornado Realty Trust ("Vornado").
In rendering this opinion, we have reviewed such documents as we have
considered necessary or appropriate. In addition, in rendering this opinion, we
have (i) relied as to certain factual matters upon the statements and
representations contained in the certificates provided to us by Vornado, Two
Penn Plaza REIT, Inc. ("Two Penn") and Vornado Operating, Inc. ("Vornado
Operating"), each dated March 31, 1998 attached as Exhibits A, B and C
(collectively, the "Certificates") and (ii) assumed, with your approval, that
Alexander's, Inc. ("Alexander's") has qualified for federal income tax purposes
as a real estate investment trust (a "REIT") for each taxable year commencing
with its
<PAGE> 2
Vornado Realty Trust -2-
taxable year ending December 31, 1995 and will continue to so qualify. Vornado
has indicated that it has received an opinion from Shearman & Sterling
regarding the qualification of Alexander's as a REIT. We understand that, in
providing the Certificates, Vornado and Two Penn are relying upon certificates,
dated March 31, 1998, provided to them by David R. Greenbaum.
In rendering this opinion we have also assumed, with your approval, that
(I) the statements and representations made in the Certificates are true and
correct and (II) the Certificates have been executed by appropriate and
authorized officers of Vornado, Two Penn and Vornado Operating.
Based on the foregoing and in reliance thereon and subject thereto and on
an analysis of the Code, Treasury Regulations thereunder, judicial authority
and current administrative rulings and such other laws and facts as we have
deemed relevant and necessary, we hereby confirm our opinion that, commencing
with its taxable year ending December 31, 1993, Vornado has been organized in
conformity with the requirements for qualification as a REIT under the Code,
and its proposed method of operation will enable it to satisfy the requirements
for qualification and taxation as a REIT.
Vornado's qualification as a REIT will depend upon the continuing
satisfaction by Vornado and its subsidiaries and, given Vornado's current
ownership interest in Alexander's and Two Penn, by Alexander's and Two Penn, of
the requirements of the Code relating to qualification for REIT status, which
requirements include those that are dependent upon actual operating results,
distribution levels, diversity of stock ownership, asset composition, source of
income and
<PAGE> 3
Vornado Realty Trust -3-
recordkeeping. In addition, Vornado's qualification as a REIT may depend upon
Vornado Operating's ability to qualify as a REIT for Vornado Operating's taxable
year ending December 31, 1998. We do not undertake to monitor whether any of
Vornado, Alexander's, Two Penn or Vornado Operating actually has satisfied or
will satisfy the various REIT qualification tests, and we express no opinion
concerning whether any of Vornado, Alexander's, Two Penn or Vornado Operating
actually has satisfied or will satisfy these various REIT qualification tests.
The Company's qualification as a REIT will depend upon the continuing
satisfaction by the Company and its subsidiaries of the requirements of the
Code relating to qualification for REIT status, which requirements include
those that are dependent upon actual operating results, distribution levels,
diversity of stock ownership, asset composition, source of income and
recordkeeping. We do not undertake to monitor whether the Company actually has
satisfied or will satisfy the various REIT qualification tests, and we express
no opinion concerning whether the Company actually has satisfied or will
satisfy these various REIT qualification tests.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Prospectus and the reference to
us therein under the caption "Federal Income Tax Considerations". In giving
such consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 4
EXHIBIT A
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
March 31, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Vornado Realty Trust ("Vornado") hereby
certifies on behalf of Vornado that, after due inquiry, he has made the factual
representations set forth below and affirms as of the date hereof the accuracy
of such representations. Vornado acknowledges and understands that Sullivan &
Cromwell will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding Vornado's qualification
for federal income tax purposes as a real estate investment trust (a "REIT") and
(ii) preparing the discussion set forth under the heading "Federal Income Tax
Considerations" in the Preliminary Prospectus of Vornado and Vornado Realty L.P.
included in the Registration Statement on Form S-3 filed by Vornado and Vornado
Realty L.P. with the Securities and Exchange Commission of the United States. In
providing this certificate the undersigned officer is relying upon a
certificate, dated March 31, 1998 received from David R. Greenbaum.
1. Each of Vornado, its wholly-owned subsidiaries and Vornado Realty
L.P. have operated and will operate in accordance with (i) its organizational
document and (ii) the
<PAGE> 5
Sullivan & Cromwell -2-
laws of the jurisdiction in which it is organized.
2. Vornado is and will continue to be managed by one or more trustees.
3. Vornado uses and will continue to use the calendar year as its
accounting period for federal income tax purposes.
4. Vornado has made a timely election, pursuant to Section 856(c)(1) of
the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed as a
REIT commencing with its taxable year ending December 31, 1993 and such election
has not been terminated or revoked.
5. As of December 31, 1993, Vornado had distributed all "earnings and
profits" (as determined for federal income tax purposes) which had been
accumulated in taxable periods prior to 1993. Vornado has had and will have, as
of the close of each taxable year subsequent to the taxable year ending December
31, 1993, no undistributed earnings and profits accumulated in any non-REIT
year.
6. For at least 335 days of its 1993 taxable year and for each taxable
year thereafter, 100 or more persons have beneficially owned shares of
beneficial interest in Vornado ("Shares").
7. At no time during the last half of 1994, 1995, 1996 and 1997 was
more than 50 percent (as determined by reference to value) of Vornado's
outstanding Shares, owned, directly or constructively, by five or fewer
individuals (as defined in Section 542(a)(2), as modified by Section 856(h) of
the Code, to include certain entities). This ownership restriction will continue
to be satisfied in taxable years after 1997. Constructive ownership for purposes
of this representation is determined by reference to the attribution rules of
Section 544 of the Code, as modified by Section
<PAGE> 6
Sullivan & Cromwell -3-
856(h) of the Code.
8. The beneficial ownership of Vornado is evidenced by transferable
shares. Vornado will not impose, and is not aware of, any transfer restrictions
on the Shares other than those currently set forth in Vornado's Amended and
Restated Declaration of Trust.
9. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, at least 75 percent of Vornado's gross income has consisted of
and will continue to consist of (i) "rents from real property" within the
meaning of Section 856(d) of the Code, (ii) interest on obligations secured by
mortgages on real property or on interests in real property, (iii) gain from the
sale or other disposition of real property (including interests in real property
and interests in mortgages on real property) which is not described in Section
1221(1) of the Code, (iv) dividends or other distributions on, and gain (other
than gain from "prohibited transactions") from the sale or other disposition of,
transferable shares in other qualifying REITs, or (v) amounts described in
Sections 856(c)(3)(E) through 856 (c)(3)(I) of the Code.*
10. For Vornado's 1993 taxable year and for each of
- --------
* For purposes of these representations (i) all assets,
liabilities and items of income, deduction and credit
of a "qualified REIT subsidiary" (as such term is
defined in Section 856(i) of the Code) of Vornado are
treated as assets, liabilities and such items of
Vornado and (ii) Vornado is deemed to own its
proportionate share (determined in accordance with
Treasury Regulations Section 1.856-3(g)) of each of the
assets of each partnership in which it holds an
interest (including as a result of the operation of
clause (i)) and is deemed to be entitled to the income
of the partnership attributable to such share.
<PAGE> 7
Sullivan & Cromwell -4-
Vornado's taxable years thereafter, at least 95 percent of Vornado's gross
income has consisted of and will consist of (i) the items of income described in
paragraph 9 hereof (other than those described in Section 856(c)(3)(I) of the
Code), (ii) gain realized from the sale or other disposition of stock or
securities which are not property described in Section 1221(1) of the Code,
(iii) interest, (iv) dividends and (v) (x) for taxable years beginning on or
before August 5, 1997, income derived from payments to Vornado or a wholly-owned
subsidiary of Vornado on a bona fide interest rate swap or cap agreement entered
into to hedge any variable rate indebtedness of Vornado or such a subsidiary
incurred or to be incurred to acquire or carry real estate assets, or gain from
the sale or other disposition of such an agreement (an "Interest Rate
Agreement") and (y) for taxable years beginning after August 5, 1997, income
derived from payments to Vornado or a wholly-owned subsidiary of Vornado on
interest rate swap or cap agreements, options, futures contracts, forward rate
agreements and other similar financial instruments entered into to reduce the
interest rate risks with respect to any indebtedness incurred or to be incurred
to acquire or carry real estate assets, or gain from the sale or other
disposition of such an investment.
11. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter other than taxable years beginning after August 5, 1997, less
than 30 percent of Vornado's gross income has been derived from the sale or
other disposition of (i) stock or securities (including Interest Rate
Agreements) held for less than one year, (ii) property in a transaction which is
a "prohibited transaction" (as defined in Section 857(b)(6)(B) of the Code), and
(iii) real property (including interests in real property and interests in
mortgages on real property) held for less than four years other than property
compulsorily or involuntarily converted within the meaning of Section 1033 of
the Code, and property which is foreclosure property as defined in Section
856(e) of the Code.
<PAGE> 8
Sullivan & Cromwell -5
12. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will not receive or
accrue any amount directly or indirectly, with respect to any real or personal
property in any case in which Vornado or any wholly-owned subsidiary of Vornado
or any partnership in which Vornado has an interest (or any agent of any of the
foregoing) furnishes or renders services to the tenants of such property, or
manages or operates such property, either (i) other than through an "independent
contractor" with respect to Vornado (within the meaning of Section 856(d)(3) of
the Code) from whom or which Vornado or such subsidiary or partnership, as the
case may be, does not derive or receive any income or (ii) other than services
usually or customarily rendered in connection with the rental of space for
occupancy only within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), or not rendered primarily for the convenience of the occupant
of the real property, within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), except that for taxable years beginning after August 5, 1997,
Vornado may receive or accrue a de minimis amount for (i) services furnished or
rendered by Vornado to the tenants of such property (other than services
described in Section 856(d)(7)(C) of the Code) or (ii) managing or operating
such property (herein "service consideration") which does not (a) cause any
amount included in Vornado's gross income, other than such service
consideration, to fail to qualify as "rents from real property" under Section
856(d) of the Code and (b) materially adversely affect Vornado's ability to
satisfy the standards relating to 75 percent and 95 percent of its gross income
as set forth in paragraphs 9 and 10 hereof.
13. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will continue not to
receive or accrue rent attributable to personal property except with respect to
a lease of real property where the average of the adjusted
<PAGE> 9
Sullivan & Cromwell -6
bases of the personal property at the beginning and at the end of the taxable
year does not exceed 15 percent of the average of the aggregate adjusted bases
of the real property and the personal property leased under such lease at the
beginning and at the end of such taxable year within the meaning of Section
856(d)(1) of the Code.
14. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will continue not to
receive or accrue, directly or indirectly, any rent or interest, where the
determination of the amount of rent or interest depends, in the case of rent, on
the income or profits of any person from the property, and, in the case of
interest, upon the income or profits of any person, except where interest or
rent is based on a fixed percentage or percentages of receipts or sales within
the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and
except that Vornado may receive or accrue a de minimis amount of such rent or
interest, provided that such amount does not materially adversely affect
Vornado's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 9 and 10 hereof.
15. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will not receive or
accrue, directly or indirectly, rent or any other consideration under a lease
from any person in which Vornado owns, directly or indirectly (a) in the case of
a corporation, 10 percent or more of the total combined voting power of all
classes of stock entitled to vote, or 10 percent or more of the total number of
shares of all classes of stock, or (b) in the case of an entity other than a
corporation, an interest of 10 percent or more in the assets or net profits of
such entity, except that Vornado may receive or accrue a de minimis amount of
such rent or other consideration provided that such amount does not materially
adversely affect Vornado's
<PAGE> 10
Sullivan & Cromwell -7-
ability to satisfy the standards relating to 75 percent and 95 percent of its
gross income as set forth in paragraphs 9 and 10 hereof. For purposes of this
paragraph ownership will be determined by taking into account the constructive
ownership rules of Section 318(a) of the Code (as modified by Section 856(d)(5)
of the Code). For Vornado's 1993 taxable year and for each of its taxable years
thereafter, Vornado has complied and will comply with the recordkeeping and
filing requirements of Treasury Regulations Section 1.856-4(b)(4).
16. At the close of each quarter of Vornado's 1993 taxable year and of
each quarter of each of Vornado's taxable years thereafter, at least 75 percent
of the value of Vornado's total assets (as determined in accordance with
Treasury Regulations Section 1.856-2(d)) has consisted of and will continue to
consist of real estate assets within the meaning of Sections 856(c)(4) and
856(c)(5)(B) of the Code, cash and cash items (including receivables which arise
in the ordinary course of Vornado's operations, but not including receivables
purchased from another person), and Government securities.
17. At the close of each quarter of Vornado's 1993 taxable year and,
assuming that Alexander's qualified as a REIT commencing with its taxable year
beginning January 1, 1995 and will so qualify for subsequent periods, at the
close of each quarter of each of Vornado's taxable years thereafter, Vornado has
not beneficially owned and will continue not to beneficially own securities in
any one issuer (except for any securities qualifying as "real estate assets"
within the meaning of section 856(c)(5)(B) of the Code) having an aggregate
value in excess of 5 percent of Vornado's total assets, as determined in
accordance with Treasury Regulations Section 1.856-2(d).
18. At the close of each quarter of Vornado's 1993 taxable year and,
assuming that Alexander's qualified as a
<PAGE> 11
Sullivan & Cromwell -8-
REIT commencing with its taxable year beginning January 1, 1995 and will so
qualify for subsequent periods, at the close of each quarter of each of
Vornado's taxable years thereafter, Vornado has not beneficially owned and will
continue not to beneficially own securities of any issuer (except for any
securities qualifying as "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code) representing more than 10 percent of the outstanding
voting securities of such issuer.
19. At no time since January 1, 1993 has Vornado or a direct or
indirect wholly-owned subsidiary of Vornado owned and Vornado will not in the
future own, more than 10 percent of the outstanding voting securities of any
issuer other than (i) since March 2, 1995, Alexander's, Inc., (ii) an issuer in
which Vornado or, for periods after January 1, 1993, a direct or indirect
wholly-owned subsidiary of Vornado, has held all of the outstanding shares at
all times since the formation of such issuer and (iii) Two Penn Plaza REIT, Inc.
Notwithstanding the foregoing, for taxable years beginning after August 5, 1997,
Vornado may have wholly-owned subsidiaries whose shares it has not held at all
times; provided that in connection with those subsidiaries Vornado complies with
the requirements of Section 856(i) of the Code.
20. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has complied with and will continue to comply with the
shareholder solicitation and the record-keeping requirements prescribed by
Section 857(a)(2) of the Code while still in effect and Section 857(f) of the
Code thereafter and by Treasury Regulations Section 1.857-8.
21. For Vornado's 1993 taxable year and each taxable year thereafter
Vornado has distributed and will continue to distribute to its shareholders
amounts equal in the aggregate to at least 95 percent of Vornado's "real estate
<PAGE> 12
Sullivan & Cromwell -9-
investment trust taxable income" (determined without regard to the deduction for
dividends paid (as defined in section 561 of the Code)) and by excluding any net
capital gain (within the meaning of Section 857(a)(1)(A) of the Code), plus at
least 95 percent of the excess of any "net income from foreclosure property"
over the tax imposed by Section 857(b)(4)(A) of the Code on such net income, if
any, as such terms in quotations are defined in Sections 857(b)(2) and
857(b)(4)(B), respectively, of the Code, during the taxable year involved or
during the period thereafter as prescribed by Section 858 of the Code.
Similarly, Vornado has complied with and will continue to comply with the
distribution requirements imposed by Notice 88-19 in respect of "built-in gains"
recognized by Vornado.
22. Each distribution by Vornado that is treated as a dividend within
the meaning of Section 316 of the Code will qualify for the deduction for
dividends paid under Section 561 of the Code, and without limiting the
foregoing, Vornado will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
23. Vornado will at all times beneficially hold all of its assets for
investment purposes and not as (i) stock in trade or other property of a kind
which would properly be includible in inventory on hand at the close of a
taxable year or (ii) property held primarily for sale to customers in the
ordinary course of Vornado's trade or business.
24. Vornado does not own and has not owned since January 1, 1993 any
REMIC residual interests.
25. Vornado has not, since January 1, 1993, and will not hold a
partnership interest, unless such partnership is treated at all times for
federal income tax purposes as a partnership and not as an association taxable
as a corporation (including a publicly-traded partnership that is
<PAGE> 13
Sullivan & Cromwell -10-
treated as a corporation under Section 7704 of the Code).*
26. Vornado is a "domestically-controlled REIT" within the meaning of
Section 897(h)(4)(B) of the Code (that is, at all times during the last five
years less than 50 percent (as determined by reference to value) of the
outstanding interests in Vornado, or the predecessor of Vornado, have been held,
directly or indirectly, by foreign persons).
27. Vornado is not a "pension-held REIT" within the meaning of Section
856(h)(3)(D) of the Code (that is, either (i) it is not the case that Vornado
fails to be closely-held (within the meaning of Section 856(h) of the Code
solely as a result of Section 856(h)(3) of the Code or (ii) certain other
conditions are met).
28. Vornado has made a timely election, pursuant to Notice 88-19, to be
subject to rules similar to the rules of Section 1374 of the Code with respect
to built-in gains recognized during the ten-year period following its initial
qualification as a REIT.
29. Vornado has at all times dealt, and will continue to deal, with
Vornado Management Corp., The Mendik Management Company, Inc. and Vornado RR,
Inc. on an arm's length basis. Furthermore, Vornado will deal on an arm's length
basis with any corporation in which Vornado owns, directly or indirectly,
non-voting shares, which is not a holly-owned subsidiary of Vornado.
30. In addition to those representations set forth in this officer's
certificate relating to the qualification of Vornado as a REIT, Vornado will
comply with all other requirements under the Code (including, without
limitation, Sections 856 through 860 of the Code) in order to maintain
- --------
* For these purposes we are disregarding a partnership
between two wholly-owned subsidiaries of Vornado.
<PAGE> 14
Sullivan & Cromwell -11-
its qualification as a REIT.
31. Vornado believes, based upon an opinion received from Shearman &
Sterling and upon representations received by it from Alexander's, that
Alexander's qualified as a REIT for its taxable year beginning January 1, 1995
and will so qualify for subsequent periods.
32. Neither Vornado nor any of its subsidiaries (including for this
purpose any entity at least 95% of the nonvoting stock of which is owned by
Vornado) have performed, or will perform, any services for Alexander's or Two
Penn Plaza REIT, Inc., any of their subsidiaries or any partnership or other
unincorporated entity in which Alexander's or Two Penn Plaza REIT, Inc. holds
(directly or indirectly) an interest, that would cause any income realized by
Alexander's or Two Penn Plaza REIT, Inc. (or any such subsidiary, partnership or
other entity) from and after July 1, 1994, to fail to be described in Section
856(c)(2) of the Code.
IN WITNESS WHEREOF, I have, on behalf of Vornado, signed this officers
certificate as of this 31st day of March, 1998.
VORNADO REALTY TRUST
By: /s/ Joseph Macnow
----------------------
Name: Joseph Macnow
Title: Executive Vice
President
<PAGE> 15
EXHIBIT B
Two Penn Plaza REIT, Inc.
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
March 31, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Two Penn Plaza REIT, Inc. ("Two Penn")
hereby certifies on behalf of Two Penn that, after due inquiry, he has made the
factual representations set forth below and affirms as of the date hereof the
accuracy of such representations. Two Penn acknowledges and understands that
Sullivan & Cromwell will be relying upon the accuracy of this certificate and
these representations in (i) rendering an opinion regarding Vornado Realty
Trust's ("Vornado") qualification for federal income tax purposes as a real
estate investment trust (a "REIT") and (ii) preparing the discussion set forth
under the heading "Federal Income Tax Considerations" in the Preliminary
Prospectus of Vornado and Vornado Realty L.P. included in the Registration
Statement on Form S-3 filed by Vornado and Vornado L.P. with the Securities and
Exchange Commission of the United States. In providing this certificate the
undersigned officer is relying upon a certificate, dated March 31, 1998 received
by David R. Greenbaum.
1. Two Penn and each of its wholly-owned subsidiaries has operated and
will operate in accordance with (i) its organizational document and (ii) the
laws of the jurisdiction in which it is organized.
2. Two Penn has been and will be managed by one or more trustees or
directors.
<PAGE> 16
Sullivan & Cromwell -2-
3. Two Penn has used and will use the calendar year as its accounting
period for federal income tax purposes.
4. Two Penn will make a timely election, pursuant to Section 856(c)(1)
of the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed as a
real estate investment trust commencing with its first taxable year.
5. As of the close of its first taxable year and each taxable year
thereafter, Two Penn will have no undistributed earnings and profits accumulated
in any non-REIT year.
6. For at least 335 days of each taxable year following its first
taxable year, 100 or more persons will beneficially own shares of beneficial
interest in Two Penn ("Shares").
7. At no time during the last half of any taxable year following its
first taxable year will more than 50 percent (as determined by reference to
value) of Two Penn's outstanding Shares, be owned, directly or constructively,
by five or fewer individuals (as defined in Section 542(a)(2), as modified by
Section 856(h) of the Code, to include certain entities). Constructive ownership
for purposes of this representation is determined by reference to the
attribution rules of Section 544 of the Code, as modified by Section 856(h) of
the Code.
8. The beneficial ownership of Two Penn will be evidenced by
transferable shares. Two Penn will not impose any transfer restrictions on the
Shares other than those designed to enable Two Penn to qualify as a REIT for
federal income tax purposes.
9. For each of Two Penn's taxable years, at least 75 percent of Two
Penn's gross income will consist of (i) "rents from real property" within the
meaning of Section 856(d) of the Code, (ii) interest on obligations secured by
<PAGE> 17
Sullivan & Cromwell -3-
mortgages on real property or on interests in real property, (iii) gain from the
sale or other disposition of real property (including interests in real property
and interests in mortgages on real property) which is not described in Section
1221(1) of the Code, (iv) dividends or other distributions on, and gain (other
than gain from "prohibited transactions") from the sale or other disposition of,
transferable shares in other qualifying real estate investment trusts, or (v)
amounts described in Sections 856(c)(3)(E) through 856 (c)(3)(I) of the Code.*
10. For each of Two Penn's taxable years, at least 95% of Two Penn's
gross income will consist of (i) the items of income described in paragraph 9
hereof (other than those described in Section 856(c)(3)(I) of the Code), (ii)
gain realized from the sale or other disposition of stock or securities which
are not property described in Section 1221(1) of the Code, (iii) interest, (iv)
dividends and (v) (x) for taxable years beginning on or before August 5, 1997,
income derived from payments to Two Penn or a wholly-owned subsidiary of Two
Penn on a bona fide interest rate swap or cap agreement entered into to hedge
any variable rate indebtedness of Two Penn or such a subsidiary incurred or to
be incurred to acquire or carry real estate assets or gain from the sale or
other disposition of such an agreement
- --------
* For purposes of these representations (i) all assets,
liabilities and items of income, deduction and credit
of a "qualified REIT subsidiary" (as such term is
defined in Section 856(i) of the Code) of Two Penn will
be treated as assets, liabilities and such items of Two
Penn and (ii) Two Penn will be deemed to own its
proportionate share (determined in accordance with
Treasury Regulations Section 1.856-3(g)) of each of the
assets of each partnership in which it holds an
interest (including as a result of the operation of
clause (i)) and deemed to be entitled to the income of
the partnership attributable to such share.
<PAGE> 18
Sullivan & Cromwell -4-
(an "Interest Rate Agreement") and (y) for taxable years beginning after August
5, 1997, income derived from payments to Two Penn or a wholly-owned subsidiary
of Two Penn on interest rate swap or cap agreements, options, futures contracts,
forward rate agreements and other similar financial instruments entered into to
reduce the interest rate risks with respect to any indebtedness incurred or to
be incurred to acquire or carry real estate assets, or gain from the sale or
other disposition of such an investment.
11. For each of Two Penn's taxable years other than taxable years
beginning after August 5, 1997, less than 30 percent of Two Penn's gross income
was derived from the sale or other disposition of (i) stock or securities
(including Interest Rate Agreements) held for less than one year, (ii) property
in a transaction which is a "prohibited transaction" (as defined in Section
857(b)(6)(B) of the Code), and (iii) real property (including interests in real
property and interests in mortgages on real property) held for less than four
years other than property compulsorily or involuntarily converted within the
meaning of Section 1033 of the Code, and property which is foreclosure property
as defined in Section 856(e) of the Code.
12. For each of Two Penn's taxable years, Two Penn has not received or
accrued and will not receive or accrue any amount, directly or indirectly, with
respect to any real or personal property in any case in which Two Penn or any
wholly-owned subsidiary of Two Penn or any partnership in which Two Penn has an
interest (or any agent of any of the foregoing) furnishes or renders services to
the tenants of such property, or manages or operates such property, either (i)
other than through an "independent contractor" with respect to Two Penn (within
the meaning of Section 856(d)(3) of the Code) from whom or which Two Penn or
such subsidiary or partnership, as the case may be, does not derive or receive
any income or (ii) other than services usually or customarily rendered in
connection with the rental of space
<PAGE> 19
Sullivan & Cromwell -5-
for occupancy only within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), or not rendered primarily for the convenience of the occupant
of the real property, within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), except that for taxable years beginning after August 5, 1997,
Two Penn may receive or accrue a de minimis amount for (i) services furnished or
rendered by Two Penn to the tenants of such property (other than services
described in Section 856(d)(7)(C) of the Code) or (ii) managing or operating
such property (herein "service consideration") which does not (a) cause any
amount included in Two Penn's gross income, other than such service
consideration, to fail to qualify as "rents from real property" under Section
856(d) of the Code and (b) materially adversely affect Two Penn's ability to
satisfy the standards relating to 75 percent and 95 percent of its gross income
as set forth in paragraphs 9 and 10 hereof.
13. For each of Two Penn's taxable years, Two Penn will not receive or
accrue rent attributable to personal property except with respect to a lease of
real property where the average of the adjusted bases of the personal property
at the beginning and at the end of the taxable year does not exceed 15 percent
of the average of the aggregate adjusted bases of the real property and the
personal property leased under such lease at the beginning and at the end of
such taxable year within the meaning of Section 856(d)(1) of the Code.
14. For each of Two Penn's taxable years, Two Penn will not receive or
accrue, directly or indirectly, any rent or interest, where the determination of
the amount of rent or interest depends, in the case of rent, on the income or
profits of any person from the property, and, in the case of interest, upon the
income or profits of any person, except where interest or rent is based on a
fixed percentage or percentages of receipts or sales within the meaning of
<PAGE> 20
Sullivan & Cromwell -6-
Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and except that Two
Penn may receive or accrue a de minimis amount of such rent or interest,
provided that such amount does not materially adversely affect Two Penn's
ability to satisfy the standards relating to 75 percent and 95 percent of its
gross income as set forth in paragraphs 9 and 10 hereof.
15. For each of Two Penn's taxable years, Two Penn will not receive or
accrue, directly or indirectly, rent or any other consideration under a lease
from any person in which Two Penn owns, directly or indirectly (a) in the case
of a corporation, 10 percent or more of the total combined voting power of all
classes of stock entitled to vote, or 10 percent or more of the total number of
shares of all classes of stock, or (b) in the case of an entity other than a
corporation, an interest of 10 percent or more in the assets or net profits of
such entity, except that Two Penn may receive or accrue a de minimis amount of
such rent or other consideration provided that such amount does not materially
adversely affect Two Penn's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 9 and 10
hereof. For purposes of this paragraph ownership will be determined by taking
into account the constructive ownership rules of Section 318(a) of the Code (as
modified by Section 856(d)(5) of the Code). For each of Two Penn's taxable
years, Two Penn has complied and will comply with the recordkeeping and filing
requirements of Treasury Regulations Section 1.856-4(b)(4).
16. At the close of each quarter of each of Two Penn's taxable years,
at least 75 percent of the value of Two Penn's total assets (as determined in
accordance with Treasury Regulations Section 1.856-2(d)) has consisted of and
will continue to consist of real estate assets within the meaning of Sections
856(c)(4) and 856(c)(5)(B) of the Code, cash and cash items (including
receivables which arise in the ordinary course of Two Penn's operations, but not
<PAGE> 21
Sullivan & Cromwell -7-
including receivables purchased from another person), and Government securities.
17. At the close of each quarter of each of Two Penn's taxable years,
Two Penn will not beneficially own securities in any one issuer (except for any
securities qualifying as "real estate assets" within the meaning of section
856(c)(5)(B) of the Code) having an aggregate value in excess of 5 percent of
Two Penn's total assets, as determined in accordance with Treasury Regulations
Section 1.856-2(d).
18. At the close of each quarter of each taxable year of Two Penn, Two
Penn will not beneficially own securities of any issuer (except for any
securities qualifying as "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code) representing more than 10 percent of the outstanding
voting securities of such issuer.
19. For each of Two Penn's taxable years, Two Penn has complied with
and will continue to comply with the shareholder solicitation and the
record-keeping requirements prescribed by Section 857(a)(2) of the Code while
still in effect and Section 857(f) of the Code thereafter and by Treasury
Regulations Section 1.857-8.
20. For each of Two Penn's taxable years, Two Penn will distribute to
its shareholders amounts equal in the aggregate to at least 95 percent of Two
Penn's "real estate investment trust taxable income" (determined without regard
to the deduction for dividends paid (as defined in section 561 of the Code)) and
by excluding any net capital gain (within the meaning of Section 857(a)(1)(A) of
the Code), plus at least 95 percent of the excess of any "net income from
foreclosure property" over the tax imposed by Section 857(b)(4)(A) of the Code
on such net income, if any, as such terms in quotations are defined in Sections
857(b)(2) and 857(b)(4)(B), respectively, of the Code, during the taxable
<PAGE> 22
Sullivan & Cromwell -8-
year involved or during the period thereafter as prescribed by Section 858 of
the Code.
21. Each distribution by Two Penn that is treated as a dividend within
the meaning of Section 316 of the Code will qualify for the deduction for
dividends paid under Section 561 of the Code, and without limiting the
foregoing, Two Penn will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
22. Two Penn will at all times beneficially hold all of its assets for
investment purposes and not as (i) stock in trade or other property of a kind
which would properly be includible in inventory on hand at the close of a
taxable year or (ii) property held primarily for sale to customers in the
ordinary course of Two Penn's trade or business.
23. Two Penn will not own any REMIC residual interests.
24. Two Penn will not hold a partnership interest unless such
partnership is treated at all times for federal income tax purposes as a
partnership and not as an association taxable as a corporation (including a
publicly-traded partnership that is treated as a corporation under Section 7704
of the Code).
25. In addition to those representations set forth in this officer's
certificate relating to the qualification of Two Penn as a REIT for federal
income tax purposes, Two Penn will comply with all other requirements under the
Code (including, without limitation, Sections 856 through 860 of the Code) in
order to maintain its qualification as a REIT.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this
officers certificate as of this 31st day of March, 1998.
<PAGE> 23
Sullivan & Cromwell -9-
TWO PENN PLAZA REIT, INC.
By: /s/ Joseph Macnow
--------------------------
Name: Joseph Macnow
Title: Executive Vice President
<PAGE> 24
EXHIBIT C
Vornado Operating Inc.
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
March 31, 1998
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Vornado Operating Inc. (the "Company")
hereby certifies on behalf of the Company that, after due inquiry, he has made
the factual representations set forth below and affirms as of the date hereof
the accuracy of such representations. The Company acknowledges and understands
that Sullivan & Cromwell will be relying upon the accuracy of this certificate
and these representations in (i) rendering an opinion regarding Vornado Realty
Trust's ("Vornado") qualification for federal income tax purposes as a real
estate investment trust (a "REIT") and (ii) preparing the discussion set forth
under the heading "Federal Income Tax Considerations" in the Preliminary
Prospectus of Vornado and Vornado Realty L.P. included in the Registration
Statement on Form S-3 filed by Vornado and Vornado Realty L.P. with the
Securities and Exchange Commission of the United States. These representations
are based upon the assumption that Vornado Realty L.P. will not waive the
Company's obligation to seek to qualify as a REIT for the Company's taxable year
ending December 31, 1998.
1. The Company will operate in accordance with
<PAGE> 25
Sullivan & Cromwell -2-
(i) its organizational document and (ii) the laws of the jurisdiction in which
it is organized.
2. The Company will be managed by a board of directors.
3. The Company will elect to use the calendar year as its accounting
period for federal income tax purposes. The Company's initial taxable year will
end on December 31, 1998.
4. The Company will make a timely election, pursuant to Section
856(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), to be
taxed as a REIT for its taxable year ending December 31, 1998 and such election
will not be terminated or revoked.
5. The Company will have, as of the close of its taxable year ending
December 31, 1998, no undistributed earnings and profits accumulated in any
non-REIT year.
6. The beneficial ownership of the Company will be evidenced by
transferable shares. The Company will not impose, and is not aware of, any
transfer restrictions on the Shares other than those currently set forth in the
Company's Amended and Restated Certificate of Incorporation.
7. For the Company's taxable year ending December 31, 1998, at least 75
percent of the Company's gross income will consist of (i) "rents from real
property" within the meaning of Section 856(d) of the Code, (ii) interest on
obligations secured by mortgages on real property or on interests in real
property, (iii) gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on real
property) which is not described in Section 1221(1) of the Code, (iv) dividends
or other distributions on, and gain (other than gain from "prohibited
transactions") from the sale or other
<PAGE> 26
Sullivan & Cromwell -3-
disposition of, transferable shares in other qualifying REITs, or (v) amounts
described in Sections 856(c)(3)(E) through 856 (c)(3)(I) of the Code.*
8. For the Company's taxable year ending December 31, 1998, at least 95
percent of the Company's gross income will consist of (i) the items of income
described in paragraph 7 hereof (other than those described in Section
856(c)(3)(I) of the Code), (ii) gain realized from the sale or other disposition
of stock or securities which are not property described in Section 1221(1) of
the Code, (iii) interest, (iv) dividends and (v) income derived from payments to
the Company on interest rate swap or cap agreements, options, futures contracts,
forward rate agreements and other similar financial instruments entered into to
reduce the interest rate risks with respect to any indebtedness incurred or to
be incurred to acquire or carry real estate assets, or gain from the sale or
other disposition of such an investment.
9. For the Company's taxable year ending December 31, 1998, the Company
will not receive or accrue any amount, directly or indirectly, with respect to
any real or personal property in any case in which the Company or any
wholly-owned subsidiary of the Company or any partnership in which the Company
has an interest (or any agent of any of the
- --------
* For purposes of these representations (i) all assets,
liabilities and items of income, deduction and credit
of a "qualified REIT subsidiary" (as such term is
defined in Section 856(i) of the Code) of the Company
are treated as assets, liabilities and such items of
the Company and (ii) the Company is deemed to own its
proportionate share (determined in accordance with
Treasury Regulations Section 1.856-3(g)) of each of the
assets of each partnership in which it holds an
interest (including as a result of the operation of
clause (i)) and is deemed to be entitled to the income
of the partnership attributable to such share.
<PAGE> 27
Sullivan & Cromwell -4-
foregoing) furnishes or renders services to the tenants of such property, or
manages or operates such property, either (i) other than through an "independent
contractor" with respect to the Company (within the meaning of Section 856(d)(3)
of the Code) from whom or which the Company or such subsidiary or partnership,
as the case may be, does not derive or receive any income or (ii) other than
services usually or customarily rendered in connection with the rental of space
for occupancy only within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), or not rendered primarily for the convenience of the occupant
of the real property, within the meaning of Treasury Regulations Section
1.512(b)-1(c)(5), except that the Company may receive or accrue a de minimis
amount for (i) services furnished or rendered by the Company to tenants of such
property (other than services described in Section 856(d)(7)(C) of the Code) or
(ii) managing or operating such property (herein "service consideration") which
does not (a) cause any amount included in the Company's gross income, other than
such service consideration, to fail to qualify as "rents from real property"
under Section 856(d) of the Code and (b) materially adversely affect the
Company's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 7 and 8 hereof.
10. For the Company's taxable year ending December 31, 1998, the
Company will not receive or accrue rent attributable to personal property except
with respect to a lease of real property where the average of the adjusted bases
of the personal property at the beginning and at the end of the taxable year
does not exceed 15 percent of the average of the aggregate adjusted bases of the
real property and the personal property leased under such lease at the beginning
and at the end of such taxable year within the meaning of Section 856(d)(1) of
the Code.
11. For the Company's taxable year ending December 31,
<PAGE> 28
Sullivan & Cromwell -5-
1998, the Company will not receive or accrue, directly or indirectly, any rent
or interest, where the determination of the amount of rent or interest depends,
in the case of rent, on the income or profits of any person from the property,
and, in the case of interest, upon the income or profits of any person, except
where interest or rent is based on a fixed percentage or percentages of receipts
or sales within the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of
the Code, and except that the Company may receive or accrue a de minimis amount
of such rent or interest, provided that such amount does not materially
adversely affect the Company's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 7 and 8
hereof.
12. For the Company's taxable year ending December 31, 1998, the
Company will not receive or accrue, directly or indirectly, rent or any other
consideration under a lease from any person in which the Company owns, directly
or indirectly (a) in the case of a corporation, 10 percent or more of the total
combined voting power of all classes of stock entitled to vote, or 10 percent or
more of the total number of shares of all classes of stock, or (b) in the case
of an entity other than a corporation, an interest of 10 percent or more in the
assets or net profits of such entity, except that the Company may receive or
accrue a de minimis amount of such rent or other consideration provided that
such amount does not materially adversely affect the Company's ability to
satisfy the standards relating to 75 percent and 95 percent of its gross income
as set forth in paragraphs 7 and 8 hereof. For purposes of this paragraph
ownership will be determined by taking into account the constructive ownership
rules of Section 318(a) of the Code (as modified by Section 856(d)(5) of the
Code). For the Company's taxable year ending December 31, 1998, the Company will
comply with the recordkeeping and filing requirements of Treasury Regulations
Section 1.856-4(b)(4).
<PAGE> 29
Sullivan & Cromwell -6-
13. At the close of each quarter of the Company's taxable year ending
December 31, 1998, at least 75 percent of the value of the Company's total
assets (as determined in accordance with Treasury Regulations Section
1.856-2(d)) will consist of real estate assets within the meaning of Sections
856(c)(4) and 856(c)(5)(B) of the Code, cash and cash items (including
receivables which arise in the ordinary course of the Company's operations, but
not including receivables purchased from another person), and Government
securities.
14. At the close of each quarter of the Company's taxable year ending
December 31, 1998, the Company will not beneficially own securities in any one
issuer (except for any securities qualifying as "real estate assets" within the
meaning of section 856(c)(5)(B) of the Code) having an aggregate value in excess
of 5 percent of the Company's total assets, as determined in accordance with
Treasury Regulations Section 1.856-2(d).
15. At the close of each quarter of the Company's taxable year ending
December 31, 1998, the Company will not beneficially own securities of any
issuer (except for any securities qualifying as "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code) representing more than 10 percent
of the outstanding voting securities of such issuer.
16. For the Company's taxable year ending December 31, 1998, the
Company will comply with the shareholder solicitation and the record-keeping
requirements prescribed by Section 857(f) of the Code and by Treasury
Regulations Section 1.857-8.
17. For the Company's taxable year ending December 31, 1998, the
Company will distribute to its shareholders amounts equal in the aggregate to at
least 95 percent of the Company's "real estate investment trust taxable income"
<PAGE> 30
Sullivan & Cromwell -7-
(determined without regard to the deduction for dividends paid (as defined in
section 561 of the Code)) and by excluding any net capital gain (within the
meaning of Section 857(a)(1)(A) of the Code), plus at least 95 percent of the
excess of any "net income from foreclosure property" over the tax imposed by
Section 857(b)(4)(A) of the Code on such net income, if any, as such terms in
quotations are defined in Sections 857(b)(2) and 857(b)(4)(B), respectively, of
the Code, during the taxable year involved or during the period thereafter as
prescribed by Section 858 of the Code. Similarly, the Company has complied with
and will continue to comply with the distribution requirements imposed by Notice
88-19 in respect of "built-in gains" recognized by the Company.
18. Each distribution by the Company that is treated as a dividend
within the meaning of Section 316 of the Code will qualify for the deduction for
dividends paid under Section 561 of the Code, and without limiting the
foregoing, the Company will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
19. The Company will at all times beneficially hold all of its assets
for investment purposes and not as (i) stock in trade or other property of a
kind which would properly be includible in inventory on hand at the close of a
taxable year or (ii) property held primarily for sale to customers in the
ordinary course of the Company's trade or business.
20. The Company will not own any REMIC residual interests.
21. The Company will not hold a partnership interest, unless such
partnership is treated at all times for federal income tax purposes as a
partnership and not as an association taxable as a corporation (including a
publicly-
<PAGE> 31
Sullivan & Cromwell -8-
traded partnership that is treated as a corporation under Section 7704
of the Code).
22. For its taxable year ending December 31, 1998, the Company will be
a "domestically-controlled REIT" within the meaning of Section 897(h)(4)(B) of
the Code.
23. For its taxable year ending December 31, 1998, the Company will not
be a "pension-held REIT" within the meaning of Section 856(h)(3)(D) of the Code.
24. In addition to those representations set forth in this officer's
certificate relating to the qualification of the Company as a REIT, the Company
will comply with all other requirements under the Code (including, without
limitation, Sections 856 through 860 of the Code) in order to qualify as a REIT
for its taxable year ending December 31, 1998.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this
officers certificate as of this 31st day of March, 1998.
VORNADO OPERATING INC.
By: /s/ Joseph Macnow
-----------------------
Name: Joseph Macnow
Title: Executive Vice
President
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF SHEARMAN & STERLING]
March 31, 1998
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, NJ 07663
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
ALEXANDER'S REIT ELECTION
Dear Sirs:
In connection with a certain registration statement on Form S-3 of
Vornado Realty Trust and referred to below ("Registration Statement"), you
have requested our opinion with regard to the election by Alexander's, Inc.
("Alexander's") to be treated for Federal income tax purposes as a real estate
investment trust (a "REIT"), within the meaning of section 856(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). We understand that
Alexander's has elected to be treated as a REIT initially for its taxable year
ended December 31, 1995, and intends to continue to be so treated for
subsequent taxable years.
In rendering this opinion, we have relied as to certain factual matters
upon the statements and representations contained in the certificate provided
to us by Alexander's (the "Alexander's Certificate") dated March 31, 1998. We
have assumed that the statements made in the Alexander's Certificate are true
and correct and that the Alexander's Certificate has been executed by
appropriate and authorized officers of Alexander's.
In rendering this opinion, with your permission we have also made the
following assumptions, which are based on factual representations made by
Alexander's and certified to us:
<PAGE> 2
(a) Alexander's has made a valid election to be taxed as a REIT
for its taxable year ended December 31, 1995, which election has not
been, and will not be, revoked or terminated.
(b) Since January 1, 1995, the outstanding shares of
Alexander's have been held by at least 100 or more persons, and such
shares will continue to be held by 100 or more persons.
(c) Not more than 50 percent in value of the outstanding shares
of Alexander's have been or will be owned directly or indirectly,
actually or constructively (within the meaning of section 542(a)(2) of
the Code, as modified by section 856(h) of the Code), by five or fewer
individuals (or entities treated as individuals for purposes of section
856(h) of the Code) during the second half of every taxable year
following the taxable year ended December 31, 1995.
(d) Alexander's will not receive or accrue (and since
January 1, 1995, has not received or accrued) any amount from (i) any
corporation in which it owns (or since July 1, 1994, has owned) 10
percent or more of the total combined voting power of all shares of
stock entitled to vote or 10 percent or more of the total number of
shares of all classes of stock of such corporation, or (ii) any
unincorporated entity in which it owns (or since July 1, 1994, has
owned) as interest of 10 percent or more in the assets or net profits of
such person. For purposes of this assumption, ownership is determined in
accordance with section 856(d)(5) of the Code.
(e) Alexander's has requested and maintained, and will continue
to request and maintain, records concerning ownership of its outstanding
shares in accordance with section 857(f)(1) of the Code and Treasury
Regulations promulgated thereunder and predecessor requirements.
(f) Alexander's has made and will make distributions to its
stockholders sufficient to meet the 95 percent distribution requirements
of section 857(a)(1) of the Code for the taxable year for which the REIT
election was made and every subsequent taxable year.
(g) For its taxable year ended December 31, 1995, Alexander's
had a deficit in earnings and profits (as defined in the Code) in excess
of its accumulated earnings and profits (if any) as of the close of its
taxable year ended December 31, 1994.
Based on the foregoing and in reliance thereon and subject
thereto and on an analysis of the Code, Treasury Regulations thereunder,
judicial authority and current administrative rulings and such other laws and
facts as we have deemed relevant and
<PAGE> 3
necessary, we are of the opinion that commencing with its taxable year ended
December 31, 1995, Alexander's has been organized and operated in conformity
with the requirements for qualification and taxation as a REIT under the Code,
and its proposed method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code.
Qualification of Alexander's as a REIT will depend upon the
satisfaction by Alexander's and its subsidiaries (the "Company"), through actual
operating results, distribution levels, diversity of stock ownership and
otherwise, of the applicable asset composition, source of income, shareholder
diversification, distribution, recordkeeping and other requirements of the Code
necessary for a corporation to qualify as a REIT. No assurance can be given that
the actual results of the Company's operations for any one taxable year will
satisfy all such requirements. We do not undertake to monitor whether the
Company actually has satisfied or actually will satisfy the various
qualification tests, and we express no opinion whether the Company actually has
satisfied or actually will satisfy these various qualification tests.
This opinion is based on current Federal income tax law, and we
do not undertake to advise you as to future changes in Federal income tax law
that may affect this opinion unless we are specifically engaged to do so. This
opinion relates solely to Federal income tax law, and we do not undertake to
render any opinion as to the taxation of the Company under any state or local
corporate franchise or income tax law.
We hereby consent to (i) the use of our name and the making of
statements with respect to us as set forth in the Registration Statement on
Form S-3, (ii) the incorporation by reference of this opinion into the
Registration Statement on Form S-3, and (iii) the inclusion of this opinion as
an exhibit in the Registration Statement on Form S-3. In giving such consent,
we do not thereby admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ SHEARMAN & STERLING
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Vornado Realty Trust on Form S-3 of our report dated March 25, 1998, appearing
in the Annual Report on Form 10-K of Vornado Realty Trust for the year ended
December 31, 1997, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 8, 1998
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Vornado Realty Trust on Form S-3 of our report dated February 12,
1997 on the statement of revenues and certain expenses of 640 Fifth Avenue for
the year ended December 31, 1996, which report appears in the Form 8-K/A of
Vornado Realty Trust dated November 18, 1997, and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
DELOITTE & TOUCHE LLP
New York, New York
April 8, 1998
<PAGE> 3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Vornado Realty Trust on Form S-3 of our report dated January 16, 1998 on the
statement of revenues and certain expenses of 150 East 58th Street for the year
ended December 31, 1996, which report appears in the Form 8-K/A of Vornado
Realty Trust dated November 18, 1997, and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 8, 1998
<PAGE> 4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Vornado Realty Trust on Form S-3 of our report dated March 17, 1997 on the
statement of revenues and certain expenses of One Penn Plaza for the year ended
December 31, 1996, which report appears in the Form 8-K/A of Vornado Realty
Trust dated November 18, 1997, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
April 8, 1998
<PAGE> 1
EXHIBIT 23.5
As independent public accountants, we hereby consent to the incorporation by
reference into this S-3 Registration Statement of Vornado Realty Trust of our
report dated February 5, 1998, on the combined statement of revenues and
certain operating expenses of The Merchandise Mart Group of Properties for the
year ended December 31, 1996 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
--------------------------------
Arthur Andersen LLP
Chicago, Illinois
April 8, 1998
<PAGE> 2
As independent public accountants, we hereby consent to the incorporation by
reference into this S-3 Registration Statement of Vornado Realty Trust of our
report dated April 8, 1998, on the combined statement of revenues and certain
operating expenses of The Merchandise Mart Group of Properties for the year
ended December 31, 1997 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
----------------------------
Arthur Andersen LLP
Chicago, Illinois
April 8, 1998
