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As filed with the Securities and Exchange Commission on April 14, 1999
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)
Maryland 22-1657560
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
Park 80 West, Plaza II, Joseph Macnow
Saddle Brook, New Jersey 07663 Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
(201) 587-1000 (201) 587-1000
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(Address, including zip code, and (Address, including zip code, and
telephone number, including area code, telephone number, including area code,
of registrant's executive offices) of agent for service)
Copies to:
Alan Sinsheimer, 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. |_|
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Aggregate Aggregate Amount of
Title of Shares to Be Price per Offering Registration
to Be Registered Registered Share(2) Price(2) Fee
---------------- ---------- -------- -------- ---
<S> <C> <C> <C> <C>
Common shares of beneficial
interest, par value
$0.04 per share (1) 2,299,017 $33.1875 $76,298,627 $21,211
</TABLE>
(1) This Registration Statement registers the common shares of beneficial
interest, par value $0.04 per share, of Vornado Realty Trust ("Vornado")
issuable if Vornado elects to issue common shares to holders of up to
2,299,017 Class A units of limited partnership interest in Vornado Realty
L.P. (the "Operating Partnership") upon the tender of such units for
redemption. 1,065,722 of such units were issued by the Operating
Partnership in connection with its acquisition of a real estate portfolio
from the Kennedy family on April 1, 1998 and 1,233,295 of such units may
be issued upon the conversion into Class A units of the Series B-1
preferred units and Series B-2 preferred units issued by the Operating
Partnership in connection with such acquisition on such date. This
Registration Statement also relates to such additional common shares as
may be issued as a result of certain adjustments including, without
limitation, share dividends and share splits.
(2) 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, 1999.
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.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not the
solicitation of an offer to buy these securities in any state
where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus Dated April 14, 1999
2,299,017 Shares
Vornado Realty Trust
Common Shares
We are a fully-integrated real estate investment trust. We may issue up to
2,299,017 common shares to holders of up to 2,299,017 units of limited
partnership interest in Vornado Realty L.P. upon tender of those units for
redemption. Vornado Realty L.P. is the operating partnership through which we
own our assets and operate our business.
The units that may be redeemed for common shares were issued in connection
with our acquisition of a real estate portfolio from the Kennedy family on April
1, 1998. We are required to register the 2,299,017 common shares pursuant to a
registration rights agreement with the holders of those units.
We will acquire units from the redeeming unit holders in exchange for any
common shares that we issue. We have registered the issuance of the common
shares to permit their holders to sell them without restriction in the open
market or otherwise, but the registration of the shares does not necessarily
mean that any holders will elect to redeem their units. Also, upon any
redemption, we may elect to pay cash for the units tendered rather than issue
common shares. Although we will incur expenses in connection with the
registration of the 2,299,017 common shares, we will not receive any cash
proceeds upon their issuance.
The common shares are listed on the New York Stock Exchange under the
symbol "VNO."
In order to maintain our qualification as a real estate investment trust
for federal income tax purposes and for other purposes, no person may own more
than 6.7% of the outstanding common shares. Shares owned in excess of this limit
will be deemed "excess shares" under the declaration of trust. The holder of any
excess shares will lose some ownership rights with respect to these shares, and
we will have the right to purchase them from the holder.
See "Risk factors" beginning on page 6 for information about factors
relevant to an investment in the common shares.
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is April , 1999.
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You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
When we say "we," "our," "us" or "Vornado," we mean Vornado Realty Trust
and its consolidated subsidiaries, except where we make it clear that we mean
only the parent company. When we say the "operating partnership," we mean
Vornado Realty L.P. When we say "you," we mean the holders of units that were
issued in connection with our acquisition of a real estate portfolio from the
Kennedy family on April 1, 1998.
Where you can find more information
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms.
This prospectus is part of a registration statement on Form S-3 filed by
Vornado with the SEC under the Securities Act. As permitted by the rules and
regulations of the SEC, this prospectus omits some of the information contained
in the registration statement. You should read the registration statement and
related exhibits for further information about Vornado and the common shares
offered by this prospectus. Statements in this prospectus about the provisions
of any document filed as an exhibit to the registration statement or otherwise
filed with the SEC are not necessarily complete, and in each instance you should
read the document so filed for complete information about its provisions. Each
statement in this prospectus about the provisions of any document filed with the
SEC is qualified in its entirety by reference to the document.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities.
o Our Annual Report on Form 10-K for the year ended December 31, 1998;
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o Our Current Reports on Form 8-K, filed with the SEC on February 9,
February 12, and March 17, 1999; and
o Our Current Reports on Form 8-K/A, filed with the SEC on February 9
and February 24, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
(201) 587-1000
Attn: Secretary
Forward-looking statements
This prospectus includes and incorporates by reference forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. Various factors could cause
our actual results to differ materially from the results described in the
forward-looking statements. Factors that might cause a material difference of
this kind include, but are not limited to:
o changes in the general economic climate;
o local conditions such as an oversupply of space or a reduction in
demand for real estate in the area;
o conditions of our tenants;
o competition from other available space;
o increased operating costs and interest expense;
o the timing of and costs associated with property improvements;
changes in taxation or zoning laws;
o government regulations;
o our failure to continue to qualify as a real estate investment
trust;
o availability of financing on acceptable terms;
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o potential liability under environmental or other laws or
regulations;
o general competitive factors; and
o failure by us, or by other companies with which we do a significant
amount of business, to remediate possible Year 2000 problems in
computer software or embedded technology.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. See "Risk factors" for more information about some of these
factors.
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Risk factors
You should carefully consider, among other factors, the matters described
below.
If you redeem your units, you may incur adverse tax consequences and the nature
of your investment will change.
You should carefully consider the tax consequences of redeeming your
units.
The exercise of your right to require the redemption of your units will be
treated for tax purposes as a sale of your units. Such a sale will be fully
taxable to you, and you 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 your 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., the common shares) received upon such
disposition. See "Redemption of units - Tax consequences of redemption."
The nature of your investment will change upon a redemption of your units.
Unless we elect to assume and perform the operating partnership's
obligation with respect to redeeming your units, you will receive cash on the
specified redemption date (generally, the tenth business day after we receive
your notice of redemption if our common shares are publicly traded) 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,
we have 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 you, in exchange for either cash or common shares, and upon such
acquisition, we will become the owner of your units. See "Redemption of units."
If you receive cash, you will no longer have any interest in the operating
partnership or Vornado and will not benefit from any subsequent increases in the
price of the common shares and will not receive any future distributions from
the operating partnership or Vornado (unless you currently own or acquire in the
future additional common shares or units). If you receive common shares, you
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.
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These differences, some of which may be material to you, are discussed in
"Comparison of ownership of units and common shares."
Real estate investments' value and income fluctuate due to various factors
including those described below.
The value of real estate fluctuates depending on conditions in the
general economy and the real estate business. These conditions may also
limit our revenues and available cash.
The factors that affect the value of our real estate include, among other
things:
o national, regional and local economic conditions;
o oversupply of competing properties in a property's area;
o reduced demand for space in a property's area;
o whether tenants consider a property attractive;
o how well we manage our properties;
o competition from comparable properties;
o whether we are able to collect rent from tenants;
o any bankruptcies of our major tenants;
o increases or decreases in market rental rates;
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o how much it costs us to repair, renovate and rent space, including
substantial costs of tenant improvements and leasing expenses to
re-lease office space;
o increases in operating costs due to inflation, increased real estate
taxes and other factors;
o whether we are able to pass some or all of our increased operating
costs through to tenants;
o government regulations and changes in zoning or tax laws;
o market interest rates;
o whether we are able to obtain financing and the terms of our
financing; and
o our potential liability for environmental or other legal claims.
The rents we receive and the occupancy levels at our properties might decline as
a result of changes in any of these factors. If our rental revenues decline, we
might have less cash available to distribute to our shareholders. In addition,
some of our major expenses, including mortgage payments, real estate taxes and
maintenance costs, generally do not decline when the related rents decline. If
rents decline while costs remain the same, our income and funds available for
distribution to our shareholders would decline.
We depend on leasing space to tenants on economically favorable
terms and collecting rent from our tenants, who may not be able to pay.
Our financial results depend on leasing space in our real estate
properties to tenants on economically favorable terms. In addition, because
substantially all of our income comes from rentals of real property, our income
and funds available for distribution to our shareholders will decrease if a
significant number of our tenants cannot pay their rent. If a tenant does not
pay its rent, we might not be able to enforce our rights as landlord without
delays and we might incur substantial legal costs. See "-- Bankruptcy of tenants
may decrease our revenues and available cash" for information about the
bankruptcy and court-approved reorganization of Bradlees Inc., one of our
tenants, and the status of Bradlees' leases.
Bankruptcy of tenants may decrease our revenues and available cash.
A number of retail companies, including some of our tenants, have declared
bankruptcy in recent years, and other tenants may declare bankruptcy or become
insolvent in the future. If a major tenant declares bankruptcy or becomes
insolvent, the shopping centers where it leases space may have lower revenue and
operational difficulties, and we may have difficulty
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leasing the remainder of the affected shopping centers. Our leases generally do
not contain restrictions designed to ensure the creditworthiness of the tenants.
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 our
shareholders.
In June 1995, Bradlees filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Bradlees emerged from bankruptcy in January 1999, when its plan
of reorganization was confirmed. We withdrew our objection to Bradlees' proposed
plan of reorganization after obtaining Bradlees' agreement that its lease of our
14th Street and Union Square property in New York City would terminate in March
2000. The lease was scheduled to expire in October 2019, and contained an option
to renew for an additional ten years. In addition, the rent under the lease was
increased by $1,100,000 per annum to $3,400,000 per annum from January 1999 to
the March 2000 termination date. As part of this agreement, we paid $11,000,000
to Bradlees. We are considering various alternatives for the redevelopment of
this site. We currently lease 15 other locations to Bradlees. Of these
locations, the leases for 14 are fully guaranteed by Stop & Shop Companies,
Inc., a wholly-owned subsidiary of Royal Ahold NV, a leading international food
retailer, and one is guaranteed as to 70% of the rent. If Bradlees or Stop &
Shop fails to perform its obligations under these leases, our rental revenues
could decline and, as a result, our funds from operations available for
distribution to our shareholders could also decline.
We may acquire or develop new properties and this may create risks.
We may acquire or develop properties or acquire other real estate
companies when we believe that an acquisition or development matches our
business strategies. We might not succeed in consummating desired acquisitions
or in completing developments on time or within our budget. We also might not
succeed in leasing newly developed or acquired properties at rents sufficient to
cover their costs of acquisition or development and operations.
We have experienced rapid growth in recent years, increasing our total
assets from approximately $565 million at December 31, 1996 to approximately
$4,426 million at December 31, 1998. We may continue this rapid growth for the
foreseeable future by acquiring or developing properties when we believe that
market circumstances and investment opportunities are attractive. We may not,
however, be able to manage our growth effectively or to maintain a similar rate
of growth in the future, and the failure to do so may have a material adverse
effect on our financial condition and results of operations.
If persons selling properties to us wish to defer the payment of taxes on
the sales proceeds, we are likely to pay them in units of the operating
partnership. In transactions of this kind, we may also agree not to sell the
acquired properties or reduce the mortgage indebtedness on them for significant
periods of time. If we borrow funds or assume
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indebtedness to acquire or develop properties, the operating partnership's
indebtedness as a percentage of Vornado's asset value or market capitalization
might increase. If this happens, the increased leverage may impair our ability
to take actions that would otherwise be in the best interests of Vornado and our
security holders. If our indebtedness increases significantly, the operating
partnership might not be able to make required principal and interest payments
with respect to indebtedness. See also "-- Vornado's organizational and
financial structure gives rise to operational and financial risks, including
those described below -- We have indebtedness, and this indebtedness may
increase" for further information about our leverage.
It may be difficult to buy and sell real estate quickly, and
transfer restrictions apply to some of our mortgaged properties.
Equity real estate investments are relatively difficult to buy and sell
quickly. We therefore have limited ability to vary our portfolio promptly in
response to changes in economic or other conditions.
Some of our properties are mortgaged to secure payment of indebtedness. If
we were unable to meet our mortgage payments, the lender could foreclose on the
properties and we could incur a loss. In addition, if we wish to dispose of one
or more of the mortgaged properties, we might not be able to obtain release of
the lien on such mortgaged property. If a lender forecloses on a mortgaged
property or if a mortgage lien prevents us from selling a property, our funds
available for distribution to our shareholders could decline. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" in our Annual Report on Form 10-K for the year
ended December 31, 1998 and the Notes to the Consolidated Financial Statements
in the same report for information regarding the mortgages on our properties.
A significant proportion of our properties are in the New York
City/New Jersey region and are affected by that region's economic cycle.
For the year ended December 31, 1998, 59% of our earnings before interest
expense, taxes, depreciation and amortization on a historical basis came from
properties located in the New York City metropolitan area and New Jersey. We
refer to earnings before interest expense, taxes, depreciation and amortization
as "EBITDA." The proportion of our EBITDA derived from properties in these areas
in that year was 54% on a pro forma basis, giving effect to the completed and
pending acquisitions described under "Business -- Acquisitions and Investments"
in our Annual Report on Form 10-K for the year ended December 31, 1998 as if
they had occurred on January 1, 1998. In addition, we may concentrate a
significant portion of our 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 hurt our financial
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performance and the value of our properties. The factors affecting economic
conditions in this region include:
o business layoffs or downsizing;
o industry slowdowns;
o relocations of businesses;
o changing demographics;
o increased telecommuting;
o financial performance and productivity of the financial, publishing,
insurance and real estate industries;
o infrastructure quality; and
o any oversupply of or reduced demand for real estate.
The economy or the real estate markets in New York City and New Jersey might not
remain strong.
All of our cold storage warehouses are leased to one tenant, and that
tenant may defer rent in some circumstances.
Vornado owns a 60% interest in partnerships that own 88 warehouse
facilities nationwide with an aggregate of approximately 450 million cubic feet
of refrigerated, frozen and dry storage space. Crescent Real Estate Equities
Company owns the other 40% interest in these partnerships. On March 12, 1999,
these partnerships sold all of the non-real estate assets encompassing the
operations of the cold storage business for approximately $48,000,000 to a new
partnership owned 60% by Vornado Operating Company and 40% by Crescent Operating
Inc. The new partnership conducts the cold storage business under the name
AmeriCold Logistics. AmeriCold Logistics leases the underlying cold storage
warehouses used in this business from the Vornado/Crescent Real Estate
partnerships that continue to own the real estate and manages 13 additional
warehouses containing approximately 80 million cubic feet. The leases have a
15-year term with two five-year renewal options and provide for the payment of
fixed base rent and percentage rent based on customer revenues. AmeriCold
Logistics is required to pay for all costs arising from the operation,
maintenance and repair of the properties as well as property capital
expenditures in excess of $5,000,000 annually. Fixed base rent and percentage
rent for the initial lease year is projected to be approximately $151 million.
AmeriCold Logistics has the right to defer a
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portion of the rent for up to three years beginning on March 12, 1999 to the
extent that available cash, as defined in the leases, is insufficient to pay
that portion of the rent.
To the extent that operations of AmeriCold Logistics may affect its
ability to pay rent and the amount of percentage rent due under the leases,
Vornado will indirectly bear the risks associated with AmeriCold Logistics' cold
storage business. That business faces national, regional and local competition.
Breadth of service, warehouse locations and customer mix are major competitive
factors, since frozen food manufacturers and distributors incur transportation
costs which typically are significantly greater than warehousing costs. In
addition, in some locations, customers depend upon pooling shipments, which
involves combining their products with the products of other customers destined
for the same markets. In these cases, the mix of customers in a warehouse can
significantly influence the cost of delivering products to markets. The size of
a warehouse is important because large customers prefer to have all of the
products needed to serve a given market in a single location to have the
flexibility to increase storage in that single location during seasonal peaks.
If there are several storage locations that satisfy customer mix and size
requirements, AmeriCold Logistics believes that customers generally will select
a storage facility based upon the types of service available, service
performance and price. Vornado does not control AmeriCold Logistics.
We may incur costs to comply 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 specified hazardous or toxic substances released at a
property. The owner or operator may also 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 those parties because of the
contamination. These laws often impose liability without regard to whether the
owner or operator knew of the release of the substances or was responsible for
the release. The presence of contamination or the failure to remediate
contamination may impair 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 asbestos-containing
materials in the event of demolition, renovations or remodeling and also govern
emissions of and exposure to asbestos fibers in the air. The operation and
subsequent removal of some underground storage tanks are also regulated by
Federal and state laws. We could be held liable for the costs of remedial action
with respect to the foregoing regulated substances or tanks or related claims
arising out of environmental contamination at our properties.
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We are in a competitive business.
The real estate industry is highly competitive. In each region where we
operate, we compete for tenants with a large number of real estate property
owners. Principal means of competition are rents charged, attractiveness of
location and quality of service. In addition, we expect other major real estate
investors with significant capital will compete with us for attractive
investment opportunities. These competitors include other REITs, investment
banking firms and private institutional investors. This competition has
increased prices for commercial properties and may impair our ability to make
suitable property acquisitions on favorable terms in the future.
We may not be able to obtain capital to make investments.
We depend primarily on external financing to fund the growth of our
business. This is because one of the requirements of the Internal Revenue Code
of 1986, as amended, for a REIT is that it distribute 95% of its net taxable
income, excluding net capital gains, to its shareholders. Our access to debt or
equity financing depends on banks' willingness to lend and on conditions in the
capital markets. We and other companies in the real estate industry have
experienced limited availability of bank loans and capital markets financing
from time to time, including during the latter half of 1998. Although we believe
that we will be able to finance any investments we wish to make in the
foreseeable future, financing other than what we already have available might
not be available on acceptable terms. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in our Annual Report on Form 10-K for the year ended December 31,
1998 and the Notes to the Consolidated Financial Statements in the same report
for information about our available sources of funds.
Some of our potential losses may not be covered by insurance.
We carry comprehensive liability, fire, extended coverage and rental loss
insurance on all of our properties. We believe the policy specifications and
insured limits of these policies are adequate and appropriate. There are,
however, some types of losses, including lease and other contract claims, that
generally are not insured. If an uninsured loss or a loss in excess of insured
limits occurs, we could lose all or a portion of the capital we have invested in
a property, as well as the anticipated future revenue from the property. If this
happens, we might nevertheless remain obligated for any mortgage debt or other
financial obligations related to the property.
Vornado's ownership structure and related-party transactions may give rise to
conflicts of interest.
Steven Roth and Interstate Properties may exercise substantial
influence over Vornado. They and some of Vornado's other Trustees and
officers have interests or positions in entities that may compete with
Vornado.
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As of March 31, 1999, Interstate Properties and its partners owned
approximately 18.1% of the outstanding common shares of Vornado, 27.5% of
Alexander's common stock and 7.9% of Vornado Operating's common stock, or
17.1% assuming conversion into shares of all of Interstate Properties' limited
partnership units of Vornado Operating L.P. Vornado Operating L.P. is a
Delaware limited partnership of which Vornado Operating is the general partner
and through which Vornado Operating conducts its business. Interstate Properties
is a general partnership in which Steven Roth, David Mandelbaum and Russell B.
Wight, Jr. are partners. Mr. Roth is the Chairman of the Board and Chief
Executive Officer of Vornado, the Managing General Partner of Interstate
Properties and the Chief Executive Officer and a director of both Alexander's
and Vornado Operating. Mr. Wight is a trustee of Vornado and is also a director
of both Alexander's and Vornado Operating. Mr. Mandelbaum is a trustee of
Vornado and is also a director of Alexander's.
As of March 31, 1999, Vornado owned 29.3% of the outstanding common stock
of Alexander's, Inc. Alexander's is a REIT engaged in leasing, managing,
developing and redeveloping properties, focusing primarily on the locations
where its department stores operated before they ceased operations in 1992.
Alexander's has eight properties, which are located in the New York City
metropolitan area. Mr. Roth and Michael D. Fascitelli, Vornado's President and a
member of the Board of Trustees, are Directors of Alexander's. Messrs.
Mandelbaum, Richard R. West and Wight are Trustees of Vornado and are also
Directors of Alexander's.
Vornado formed Vornado Operating Company for the purpose of owning assets
that Vornado could not itself own and conducting activities that Vornado could
not itself conduct. Vornado Operating is able to do so because it is taxable as
a regular C corporation rather than as a REIT. On October 16, 1998, the
operating partnership distributed the shares of Vornado Operating to its
partners, including Vornado, in proportion to their ownership of operating
partnership units, and Vornado distributed the shares it received to the holders
of its common shares in proportion to their ownership of Vornado common shares.
Four members of Vornado's Board of Trustees, Messrs. Roth, Fascitelli, West and
Wight, are members of Vornado Operating's Board of Directors, and certain
members of senior management of Vornado hold corresponding positions with
Vornado Operating. Members of Vornado's Board of Trustees and Vornado
Operating's Board of Directors and senior management may have different
percentage equity interests in Vornado and Vornado Operating.
Because of the foregoing, Mr. Roth and Interstate Properties may have
substantial influence on Vornado, Alexander's and Vornado Operating and on the
outcome of any matters submitted to Vornado's, Alexander's or Vornado
Operating's shareholders or stockholders for approval. In addition, there may be
conflicts of interest among Messrs. Roth, Mandelbaum and
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Wight and Interstate Properties and Vornado's other shareholders concerning
Vornado's operations or financial structure. In addition, Mr. Roth and
Interstate Properties may in the future engage in a wide variety of other
activities in the real estate business and these activities may result in
conflicts of interest with respect to matters affecting Vornado, Alexander's or
Vornado Operating. Matters that may give rise to conflicts of these kinds
include:
o determination of which of these entities or persons, if any, may
take advantage of potential business opportunities;
o decisions concerning the business focus of these entities, including
decisions concerning the types of properties and geographic
locations in which they make investments;
o potential competition between business activities conducted, or
sought to be conducted, by these entities or persons, including
competition for properties and tenants;
o possible corporate transactions, such as acquisitions; and
o other strategic decisions affecting the future of these parties.
Vornado engages in transactions with Vornado Operating whose terms
may or may not be comparable to those Vornado could negotiate with
unaffiliated third parties.
Vornado and Vornado Operating have entered into an intercompany agreement
under which, among other things:
o Vornado agreed under specified circumstances to offer Vornado
Operating an opportunity to lease real property owned now or in the
future by Vornado under mutually satisfactory lease terms; and
o Vornado Operating agreed not to make any real estate investment or
other REIT-qualified investment unless it first offers Vornado the
opportunity to make the investment and Vornado has rejected that
opportunity.
Vornado capitalized Vornado Operating with an equity contribution of $25 million
of cash and has extended to Vornado Operating a $75 million unsecured five-year
revolving line of credit under a credit agreement. The intercompany agreement
and the credit agreement were not negotiated at arm's length because Vornado
Operating was a subsidiary of Vornado at the time they were negotiated.
Therefore, the terms of these agreements may not be comparable to those Vornado
could have negotiated with an unaffiliated third party.
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Vornado and Vornado Operating may enter into additional transactions in
the future. Because Vornado and Vornado Operating share common senior management
and because a majority of Vornado's Trustees also constitute the majority of
Vornado Operating's Directors, the terms of the foregoing agreements and any
future agreements between Vornado and Vornado Operating may not be comparable to
those Vornado could have negotiated with an unaffiliated third party.
There may be conflicts of interest between Vornado and Alexander's.
Vornado has agreed to manage Alexander's business affairs and manage and
develop Alexander's properties for an annual fee under a management and
development agreement between Vornado and Alexander's. Vornado assigned this
management agreement to Vornado Management Corp. Vornado owns 100% of the
outstanding shares of non-voting stock of Vornado Management, which entitles
Vornado to 95% of the economic benefits of Vornado Management through
distributions. Messrs. Roth and West own 100% of the outstanding shares of
voting stock of Vornado Management. Vornado also acts as a leasing agent for
Alexander's properties on a fee basis under a leasing agreement. In addition,
Alexander's owes Vornado $45 million which was borrowed in March 1995 and is the
subordinated tranche of a loan in the original amount of $75 million, which has
a current outstanding balance of $65 million. None of Mr. Roth, Interstate
Properties or Vornado is obligated to present to Alexander's any particular
investment opportunity which comes to his or its attention, even if the
opportunity might be suitable for investment by Alexander's.
An affiliated company provides cleaning and security services to our
office properties under contracts that were not negotiated at arm's length.
David R. Greenbaum, the Chief Executive Officer of Vornado's Mendik
Division, and other investors own a company which provides cleaning and related
services and security services to office properties. We refer to Messrs.
Greenbaum and these other investors as the "Mendik group." We have entered into
contracts with the Mendik group to provide services to our office properties.
These contracts were not negotiated at arm's length, and their terms may not be
comparable to those we could have negotiated with unaffiliated third parties.
However, we believe, based upon comparable fees charged to other real estate
companies, that our contracts with the Mendik group are fair to us.
Vornado's organizational and financial structure gives rise to operational and
financial risks, including those described below.
We do not control some of our affiliates.
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Some of our businesses are currently conducted through corporations in
which Vornado owns all of the non-voting stock and none of the voting stock, and
these corporations provide all of our management, operating and leasing
services. We refer to these corporations as "preferred stock affiliates."
Ownership of the non-voting stock entitles Vornado to substantially all of the
distributed income of these affiliates. The non-voting stock of the preferred
stock affiliates is owned by officers and/or Trustees of Vornado. Accordingly,
Vornado is not able to elect the Boards of Directors of the preferred stock
affiliates and does not have the authority to control the management and
operations of these affiliates or the timing or amount of dividends paid by
them. Vornado therefore does not have the authority to require that funds be
distributed to it by any of these entities.
Vornado depends on its direct and indirect subsidiaries' dividends
and distributions, and these subsidiaries' creditors and preferred
security holders are entitled to payment of amounts payable to them by the
subsidiaries before the subsidiaries may pay any dividends or
distributions to Vornado.
Substantially all of our assets consist of our partnership interests in
the operating partnership. The operating partnership holds substantially all of
its properties and assets through subsidiaries. The operating partnership
therefore depends for substantially all of its revenue on cash distributions to
it by its subsidiaries, and Vornado in turn depends for substantially all of its
revenue on cash distributions to it by the operating partnership. The creditors
of each direct and indirect subsidiary of Vornado are entitled to payment of
that subsidiary's obligations to them, when due and payable, before
distributions may be made by that subsidiary to its equity holders. In addition,
the holders of preferred units of the operating partnership are entitled to
receive preferred distributions before payment of distributions to holders of
common units, including Vornado. Thus, the operating partnership's ability to
make distributions to holders of units depends on its subsidiaries' ability
first to satisfy their obligations to their creditors and then to make
distributions to the operating partnership. Likewise, Vornado's ability to pay
dividends to holders of common and preferred shares depends on the operating
partnership's ability first to satisfy its obligations to its creditors and make
distributions payable to holders of preferred units and then to make
distributions to Vornado. See "Description of the units and the operating
partnership -- ranking of units" for information about the outstanding preferred
units. In addition, Vornado's shareholders will have the right to participate in
any distribution of the assets of any of Vornado's direct or indirect
subsidiaries upon the liquidation, reorganization or insolvency of the
subsidiary, and consequently to participate in those assets, only after the
claims of the creditors, including trade creditors, and preferred security
holders, if any, of the subsidiary are satisfied.
We have indebtedness, and this indebtedness may increase.
As of December 31, 1998, we had aggregate indebtedness outstanding of
approximately $2,051 million, approximately $1,352 million of which was secured
by our
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properties. Substantially all of the secured indebtedness was non-recourse to
Vornado, while approximately $699 million of Vornado's aggregate indebtedness
was unsecured, recourse indebtedness of the operating partnership. The operating
partnership's ability to make required principal and interest payments with
respect to indebtedness represented by its debt securities depends on the
earnings of its subsidiaries and on its ability to receive funds from its
subsidiaries through dividends or other payments, since the debt securities are
obligations of the operating partnership only and its subsidiaries are not
obligated to pay any amounts due under the terms of the debt securities or to
make funds available for payment of these amounts in the form of dividends or
advances to the operating partnership.
As of December 31, 1998, the level of Vornado's debt to enterprise value
was 45%, based on debt of $2,771 million, which included Vornado's proportionate
share of debt of partially-owned entities of $720 million. When we say
"enterprise value" in the preceding sentence, we mean market equity value plus
debt less cash. Historically, we have maintained a lower debt-to-enterprise-
value ratio. In the future, in connection with our strategy for growth, this
percentage may change. We may review and modify this policy from time to time
without the vote of our shareholders.
Loss of our key personnel could harm our operations.
We depend on the efforts of Steven Roth, the Chairman of the Board of
Trustees and Chief Executive Officer of Vornado, and Michael D. Fascitelli, the
President of Vornado. While we believe that we could find replacements for these
key personnel, the loss of their services could harm our operations.
We might fail to qualify or remain qualified as a REIT.
Although we believe that Vornado will remain organized and will continue
to operate so as to qualify as a REIT for Federal income tax purposes, we might
fail to remain qualified in this way. Qualification as a REIT for Federal income
tax purposes is governed by highly technical and complex provisions of the
Internal Revenue Code for which there are only limited judicial or
administrative interpretations. Vornado's qualification as a REIT also depends
on various facts and circumstances that are not entirely within our control. In
addition, legislation, new regulations, administrative interpretations or court
decisions might significantly change the tax laws with respect to the
requirements for qualification as a REIT or the Federal income tax consequences
of qualification as a REIT. President Clinton's fiscal year 2000 budget plan
contains a number of proposals that could affect the way Vornado conducts its
business. At this time it is unclear whether these proposals will be enacted
into law and, if enacted into law, the exact form these proposals would take and
the effect that they would have upon Vornado's operations.
If, with respect to any taxable year, Vornado fails to maintain its
qualification as a REIT, it could not deduct distributions to shareholders in
computing its taxable income and would
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have to pay Federal income tax on its taxable income at regular corporate rates.
The Federal income tax payable would include any applicable alternative minimum
tax. If Vornado had to pay Federal income tax, the amount of money available to
distribute to shareholders would be reduced for the year or years involved, and
Vornado would no longer be required to distribute money to shareholders. In
addition, Vornado would also be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost,
unless Vornado was entitled to relief under the relevant statutory provisions.
Although 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 revoke the REIT election.
Vornado's declaration of trust and applicable law may hinder any
attempt to acquire Vornado.
Generally, for Vornado to maintain its qualification as a REIT under the
Internal Revenue 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 at any time during the last half of Vornado's taxable year.
The Internal Revenue Code defines "individuals" for purposes of the requirement
described in the preceding sentence to include some types of entities. Under
Vornado's Amended and Restated Declaration of Trust, no person may own more than
6.7% of the outstanding common shares or 9.9% of the outstanding preferred
shares, with some exceptions for persons who held common shares in excess of the
6.7% limit before Vornado adopted the limit. 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. We refer to Vornado's Amended and
Restated Declaration of Trust, as amended, as the "declaration of trust."
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 our shareholders. Vornado's declaration of trust
authorizes the Board of Trustees:
o to cause Vornado to issue additional authorized but unissued common
shares or preferred shares;
o to classify or reclassify, in one or more series, any unissued
preferred shares; and
o to set the preferences, rights and other terms of any classified or
reclassified shares that Vornado issues.
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The Board of Trustees could establish a series of preferred shares whose terms
could 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 our shareholders, although the Board of Trustees does not now intend
to establish a series of preferred shares of this kind. Vornado's declaration of
trust and 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, as applicable to
real estate investment trusts, specified "business combinations" between a
Maryland real estate investment trust and an Interested Shareholder (as defined
below) 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. Business combinations for purposes of the preceding
sentence are defined by the statute to include specified mergers,
consolidations, share exchanges and asset transfers and some issuances and
reclassifications of equity securities. After the end of the five-year period,
any business combination with an Interested Shareholder or an affiliate of the
Interested Shareholder must be recommended by the Board of Trustees of the trust
and approved by the affirmative vote of at least:
o 80% of the votes entitled to be cast by holders of outstanding
shares of beneficial interest of the trust; and
o 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 or held by an affiliate or associate
of the Interested Shareholder, voting together as a single voting
group.
These percentage approval requirements do not apply if, among other conditions,
the trust's common shareholders receive a statutorily defined minimum price 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 Maryland General Corporation Law also do not apply to business
combinations that are approved or exempted by the Board of Trustees of the trust
before the Interested Shareholder becomes an Interested Shareholder. The
Maryland General Corporation Law defines "Interested Shareholder" as any person
who beneficially owns ten percent or more of the voting power of the trust's
shares or an affiliate or an associate (as defined in the Maryland General
Corporation Law) of the trust who, at any time within the two-year period before
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.
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Vornado's Board of Trustees has adopted a resolution exempting any
business combination between Vornado and any Trustee or officer of Vornado or an
affiliate of any Trustee or officer of Vornado. As a result, the Trustees and
officers of Vornado and their affiliates may be able to enter into business
combinations with Vornado which may not be in the best interest of shareholders.
With respect to business combinations with other persons, the business
combination provisions of the Maryland General Corporation Law 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.
The market for Vornado's shares gives rise to various risks, including those
described below.
Vornado has many shares available for future sale, which could hurt
the market price of our shares.
As of March 31, 1999, 23,888,967 common shares were reserved for issuance
upon redemption of units. These shares may be sold in the public market after
registration under the Securities Act of 1933 under registration rights
agreements between Vornado and the holders of the units. These shares may also
be sold in the public market under Rule 144 under the Securities Act or other
available exemptions from registration. In addition, we have reserved a number
of common shares for issuance under our employee benefit plans, and these common
shares will be available for sale from time to time. We have granted options to
purchase additional common shares to some of our executive officers and
employees. We cannot predict the effect that future sales of common shares, or
the perception that sales of common shares could occur, will have on the market
prices of our equity securities.
Changes in market conditions could hurt the market price of our
shares.
The value of our shares depends on various market conditions, which may
change from time to time. Among the market conditions that may affect the value
of our shares are the following:
o the extent of institutional investor interest in Vornado;
o the reputation of REITs generally and the attractiveness of their
equity securities in comparison to other equity securities,
including securities issued by other real estate companies, and
fixed income securities;
o our financial condition and performance; and
o general financial market conditions.
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In addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of companies.
Increased market interest rates may hurt the value of our shares.
We believe that investors consider the distribution rate on REIT shares,
expressed as a percentage of the price of the shares, relative to market
interest rates as an important factor in deciding whether to buy or sell the
shares. If market interest rates go up, prospective purchasers of REIT shares
may expect a higher distribution rate. Higher interest rates would not, however,
result in more funds for us to distribute and, in fact, would likely increase
our borrowing costs and might decrease our funds available for distribution.
Thus, higher market interest rates could cause the market price of our shares to
decline.
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Vornado and the operating partnership
Vornado is a fully-integrated real estate investment trust. In April 1997,
Vornado transferred substantially all of its assets to the operating
partnership. As a result, Vornado now conducts its business through the
operating partnership. Vornado is the sole general partner of, and owned
approximately 85% of the common limited partnership interest in, the operating
partnership at March 31, 1999.
The operating partnership currently owns directly or indirectly:
o all or portions of 21 office building properties in the New York
City metropolitan area (primarily Manhattan) containing
approximately 12.5 million square feet;
o a 34% limited partnership interest in Charles E. Smith Commercial
Realty L.P., a limited partnership which owns interests in and
manages approximately 10.7 million square feet of office properties
in Northern Virginia and Washington, D.C., and manages an additional
14.6 million square feet of office and other commercial properties
in the Washington, D.C. area;
o 59 shopping center properties in seven states and Puerto Rico
containing 12.2 million square feet, including 1.4 million square
feet built by tenants on land leased from us;
o a 60% interest in partnerships that own 88 warehouse facilities
nationwide with an aggregate of approximately 450 million cubic feet
of refrigerated, frozen and dry storage space, which excludes 13
additional warehouses containing approximately 80 million cubic feet
managed by AmeriCold Logistics;
o the Merchandise Mart Properties portfolio containing 6.7 million
square feet, including the 3.4 million square foot Merchandise Mart
in Chicago;
o approximately 29.3% of the outstanding common stock of Alexander's,
which has eight properties in the New York City metropolitan area;
o an 80% interest in the Hotel Pennsylvania, a New York City hotel
which contains 800,000 square feet of space with 1,700 rooms and
400,000 square feet of retail and office space;
o eight dry warehouse/industrial properties in New Jersey containing
2.0 million square feet; and
o other real estate and investments.
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The principal 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 shares
offered by this prospectus but will acquire units in the operating partnership
in exchange for any shares that Vornado may issue to a redeeming unit holder.
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Redemption of units
At any time after April 1, 1999, you have the right to have your Class A
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 of
Vornado for each unit redeemed. We have the right to issue you one common share
for each unit tendered instead of paying the cash redemption amount. You may
redeem units only in 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, and the declaration of trust's limits on
ownership of common shares. We refer to the Second Amended and Restated
Agreement of Limited Partnership of the operating partnership, as amended, as
the "partnership agreement."
You may exercise the right to redeem your units by providing a notice of
redemption, substantially in the form attached as an exhibit to the partnership
agreement, to the operating partnership, with a copy to Vornado. You may also be
required to furnish the operating partnership and Vornado with certain other
certificates and forms. The partnership agreement establishes some limitations
on your right to redeem units. Unless we elect to assume and perform the
operating partnership's obligation with respect to the redemption, as described
below, you 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.
When we say "specified redemption date," we mean:
o if Vornado's common shares are publicly traded, the tenth business
day after we receive a notice of redemption; and
o if Vornado's common shares are not publicly traded, the thirtieth
business day after we receive a notice of redemption.
When we say "business day," we mean 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. The market value of a unit for the purpose of
redemption will be equal to the average of the closing trading price of a
Vornado common share on the NYSE for the ten trading days before the day on
which we received the notice of redemption or, if that day is not a business
day, the first business day after that day.
Instead of the operating partnership's acquiring the units for cash, we
have the right to acquire the units on the specified redemption date directly
from you, in exchange for either the market value of the units in cash or for
common shares. However, we do not have this right if the common shares are not
publicly traded, as described below. If we acquire the units, we will become
their owner. In either case, acquisition of the 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" for
information about the tax
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consequences of redeeming units to the redeeming unit holder. If we determine to
acquire the units in exchange for common shares, the total number of common
shares to be paid to you will be equal to the product of the number of units
times the conversion factor. See "Description of units -- Sales of assets" for
further information about the conversion factor, which is 1.0 as of the date of
this prospectus. Vornado currently anticipates that it generally will elect to
acquire directly units tendered for redemption and to issue common shares in
exchange for the units rather than paying cash, but we will decide whether to
pay cash or issue common shares upon redemption of units when units are tendered
for redemption.
When you redeem units, your right to receive distributions for the units
so redeemed or exchanged will cease, unless the record date for a distribution
was a date prior to the specified redemption date. You must redeem at least
1,000 units at a time, or all of your remaining units if you own less than 1,000
units. 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 Vornado's declaration of trust or under applicable
Federal or state securities laws as long as the common shares are publicly
traded.
Each unit holder has agreed with Vornado under the partnership agreement
that all units delivered for redemption must be delivered to the operating
partnership or Vornado, as the case may be, free and clear of all liens. Neither
Vornado nor the operating partnership will be under any obligation to acquire
units if there are liens on the units. Each unit holder has also agreed to pay
any state 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.
If a unit holder assigns his or her units to another person, that person
may redeem the units. In that case, the redemption price will be paid directly
to that person and not to the unit holder.
If Vornado provides notice to the unit holders 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 right to redeem units will be exercisable during
the period commencing on the date on which Vornado provides such notice and
ending on either:
o if there is a record date to determine shareholders eligible to
receive the extraordinary distribution or to vote upon the approval
of the merger, sale or other extraordinary transaction, the record
date; or
o if there is no record date of this kind, the date that is twenty
days after the date on which Vornado provides notice of the
extraordinary distribution or extraordinary transaction.
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A holder must have held his or her units for at least one year from the date of
issuance to have the right to redeem them under these circumstances. If this
paragraph applies, the specified redemption date will be the sooner of:
o the tenth business day after the operating partnership receives the
notice of redemption; or
o the business day immediately preceding the record date to determine
shareholders eligible to receive the extraordinary distribution or
vote on approval of the extraordinary transaction.
However, if the specified redemption date 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 after receiving the notice of
redemption to deliver payment for the units.
If Vornado merges or consolidates with another company or sells all or
substantially all of its assets as a whole and Vornado's shareholders are
obligated to accept cash and/or debt obligations in full or partial payment for
their common shares in the transaction, then the portion of the payment per unit
payable upon redemption of the units that must be accepted in cash and/or debt
obligations will be equal to an amount of cash equal to the sum of:
o the cash payable for one common share multiplied by the conversion
factor; and
o the value, on the date on which the transaction is consummated, of
the debt obligations to be received with respect to one common share
multiplied by the conversion factor.
The balance of the amount payable per unit when units are redeemed will be
payable in an amount calculated consistently with the second paragraph of this
section. If a transaction of the kind described in this paragraph occurs at a
time when the consent of some unit holders is required under those lockup
agreements that are contained in the partnership agreement, then the portion of
the payment per unit to those unit holders payable upon redemption of their
units that they must accept in cash and/or debt obligations will be increased by
an amount that will provide them with an internal rate of return on that portion
of the payment from the date of the transaction to the date of redemption of the
units equal to the treasury constant yield, as defined in the partnership
agreement. The lockup agreements are described under "Description of units and
the operating partnership -- Borrowing by the operating partnership."
If the common shares are not publicly traded but another entity whose
shares are publicly traded owns more than 50% of the shares of Vornado, the unit
holders' right to redeem units will be determined by reference to the publicly
traded stock of that majority
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owner of Vornado. In that case, the general partner of the operating partnership
will have the right to elect to acquire the units to be redeemed for publicly
traded stock of the majority owner of Vornado. If the common shares are not
publicly traded and there is no majority owner of Vornado with publicly traded
stock, the unit holders' right to redeem units would be based upon the net fair
market value of the operating partnership's assets at the time the units are
redeemed, as determined in good faith by Vornado. In that case, Vornado and the
operating partnership would be obligated to pay for redeemed units in cash,
payable on the thirtieth business day after Vornado receives the notice of
redemption.
Registration rights
Under a registration rights agreement between Vornado and the unit holders
named in the agreement, which has been filed as an exhibit to the registration
statement of which this prospectus forms a part, those unit holders have the
right to demand registration of the common shares for which their units may be
redeemed when they redeem their units, unless the shares they receive are
already registered under an effective registration statement filed with the SEC.
The registration rights agreement provides that Vornado will pay all expenses of
registering the shares. The agreement also provides that the holders of the
shares will pay any brokerage and sales commissions, fees and disbursements of
counsel to the holders, accountants and other advisors, and any transfer taxes
relating to the sale or disposition of the shares by the holders.
Tax consequences of redemption
The following discussion summarizes the material Federal income tax
considerations that may be relevant to a unit holder who redeems his or her
units. This discussion only applies to unit holders that provide an affidavit to
the operating partnership, at the time their units are redeemed, stating that
the unit holder is not a foreign person and stating the unit holder's taxpayer
identification number, under penalties of perjury.
You should consult your own tax advisors regarding the tax consequences to
you of redeeming your units, including the Federal, state, local and foreign tax
consequences of redeeming units in your 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 unit holder as a sale of units by the redeeming
unit holder to Vornado at the time the units are redeemed. This sale will be
fully taxable to the redeeming unit holder,
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and the redeeming unit holder will be treated as realizing for tax purposes an
amount equal to the sum of:
o the cash or the value of the common shares received in the exchange;
plus
o the amount of operating partnership liabilities allocable to the
redeemed units at the time they are redeemed.
The amount of operating partnership liabilities considered in this calculation
will include the operating partnership's share of the liabilities of some
entities in which the operating partnership owns an interest. The determination
of the amount of gain or loss is discussed more fully under "-- Tax treatment of
disposition of units by unit holders generally" below.
If Vornado does not elect to assume the obligation to redeem a unit
holder's units, the operating partnership will redeem the units for cash. If the
operating partnership redeems units for cash that Vornado contributes to the
operating partnership for that purpose, the redemption likely would be treated
for tax purposes as a sale of the units to Vornado in a fully taxable
transaction, although this is not certain. If the redemption is treated that way
for tax purposes, the redeeming unit holder would be treated as realizing an
amount equal to the sum of:
o the cash received in the exchange; plus
o the amount of operating partnership liabilities allocable to the
redeemed units at the time they are redeemed.
The amount of operating partnership liabilities considered in this calculation
will include the operating partnership's share of the liabilities of some
entities in which the operating partnership owns an interest. The determination
of the amount of gain or loss if a redemption is treated as a sale for tax
purposes is discussed more fully under "-- Tax treatment of disposition of units
by unit holders generally" below.
If, instead, the operating partnership chooses to redeem units for cash
that is not contributed by Vornado for that purpose, the tax consequences would
be the same as described in the previous paragraph with the following exception.
If the operating partnership redeems less than all of a unit holder's units, the
unit holder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the amount
he or she would be treated as receiving, as described above, exceeded his or her
adjusted basis in all of his or her units immediately before the redemption.
Proposals by President Clinton would modify the tax provisions described in the
preceding sentence.
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Potential application of disguised sale regulations to a redemption of units
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 Internal Revenue Code and the Treasury regulations under the
Internal Revenue Code 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 from
the partnership to the partner, including the partnership's assumption of a
liability or taking the property subject to a liability, will be presumed to be
a sale, in whole or in part, of the property by the partner to the partnership.
Further, the Treasury regulations provide generally that, in the absence of an
applicable exception, if a partnership transfers money or other consideration to
a partner within two years after the partner contributed property to the
partnership, the transactions will be 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 Treasury regulations also provide that if two
years have passed between the time when the partner contributed property to the
partnership and the time when the partnership transferred money or other
consideration to the 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 the operating partnership redeems a unit, the Internal
Revenue Service could contend that the redemption should be treated as a
disguised sale because the redeeming unit holder will receive cash or common
shares after having contributed property to the operating partnership. If the
IRS took that position successfully, the issuance of the units in exchange for
the contributed property could be taxable as a disguised sale under the Treasury
regulations.
Tax treatment of disposition of units by unit holders generally
If a unit holder redeems units in a manner that is treated as a sale of
the units, the gain or loss from the sale or other disposition will be based on
the difference between:
o the amount considered realized for tax purposes; and
o the unit holder's tax basis in the units.
See "-- Basis of units" below for information about the tax basis of units.
If a unit holder sells units, the "amount realized" will be measured by
the sum of
o the cash and fair market value of other property received, including
any common shares; plus
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o the portion of the operating partnership's liabilities allocable to
the units sold.
The amount of operating partnership liabilities considered in this calculation
will include the operating partnership's share of the liabilities of some
entities in which the operating partnership owns an interest.
A selling unit holder will recognize gain to the extent that the amount he
or she realizes in the sale exceeds his or her basis in the units sold. It is
possible that the amount of gain recognized or even the tax liability resulting
from the gain could exceed the amount of cash and the value of any other
property, including common shares, received in exchange for the units.
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 unit holder's share of "unrealized
receivables" of the operating partnership (as defined in Section 751 of the
Internal Revenue Code) exceeds the basis attributable to those assets, this
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 or a capital asset held for more than one year is 20%.
The maximum rate for net capital gains attributable to the sale of depreciable
real property held for more than one year is 25% to the extent of the prior
deductions for depreciation that are 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 Vornado. The IRS has not yet issued regulations of this kind. If it does
not issue regulations of this kind 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 the non-corporate holder held the unit.
The IRS might, however, 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
the assets. Moreover, if the IRS adopts regulations of this kind, they might
apply retroactively.
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Basis of units
In general, a unit holder who received units in exchange for contributing
an interest in a partnership has an initial tax basis in the units equal to his
or her basis in the contributed partnership interest. A unit holder's initial
basis in his or her units generally is increased by:
o the unit holder's share of operating partnership taxable and
tax-exempt income;
o increases in his or her share of the liabilities of the operating
partnership, including the operating partnership's share of the
liabilities of some entities in which the operating partnership owns
an interest; and
o any gain recognized under Section 737 of the Internal Revenue Code
due to the receipt of a distribution from the operating partnership
within seven years after the unit holder contributed property to the
operating partnership, or within five years after the unit holder
contributed property to the operating partnership if the
contribution occurred on or before June 8, 1997.
Generally, a unit holder's initial basis in his or her units is decreased by:
o his or her share of operating partnership distributions;
o decreases in his or her share of liabilities of the operating
partnership, including the operating partnership's share of the
liabilities of some entities in which the operating partnership owns
an interest;
o his or her share of losses of the operating partnership; and
o his or her share of nondeductible expenditures of the operating
partnership that are not chargeable to capital.
However, a unit holder's initial basis will not decrease below zero.
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Description of common shares
The following description of the common shares does not describe every
aspect of the common shares and is only a summary of, and is qualified in its
entirety by reference to, the provisions governing the common shares contained
in the declaration of trust and bylaws. Copies of the declaration of trust and
bylaws are exhibits to the registration statement of which this prospectus is a
part. See "Where you can find more information" for information about how to
obtain copies of the declaration of trust and bylaws.
Vornado's authorized and outstanding classes of shares
The declaration of trust authorizes the issuance of up to 290,000,000
shares of beneficial interest, consisting of 125,000,000 common shares, $.04 par
value per share, 20,000,000 preferred shares of beneficial interest, no par
value per share and 145,000,000 excess shares of beneficial interest, $.04 par
value per share. We refer to the excess shares of beneficial interest, $.04 par
value per share, as "excess shares." See "-- Restrictions on ownership" for a
discussion of the possible issuance of excess shares.
As of March 31, 1999, 85,096,765 common shares were issued and
outstanding, 5,789,239 series A preferred shares were issued and outstanding,
3,400,000 8.5% series B cumulative redeemable preferred shares were issued and
outstanding and no series D-1 8.5% cumulative redeemable preferred shares or
excess shares were issued and outstanding. The common shares of Vornado are
listed on the NYSE under the symbol "VNO".
Dividend and voting rights of holders of common shares
The holders of common shares are entitled to receive dividends when, if
and as authorized by the Board of Trustees and declared by Vornado out of assets
legally available to pay dividends, if receipt of the dividends is in compliance
with the provisions in the declaration of trust restricting the transfer of
shares of beneficial interest. However, if any preferred shares are at the time
outstanding, Vornado may only pay dividends or other distributions on common
shares or purchase common shares if full cumulative dividends have been paid on
outstanding preferred shares and there is no arrearage in any mandatory sinking
fund on outstanding preferred shares. The terms of the series of preferred
shares that are now issued and outstanding do not provide for any mandatory
sinking fund.
The holders of common shares are entitled to one vote for each share on
all matters on which shareholders are entitled to vote, 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 Vornado. If Vornado is dissolved, liquidated or wound up, holders
of common shares are
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entitled to share proportionally in any assets remaining after the prior rights
of creditors, including holders of Vornado's indebtedness, and the aggregate
liquidation preference of any preferred shares then outstanding are satisfied in
full.
The common shares have equal dividend, distribution, liquidation and other
rights and have no preference, appraisal or exchange rights. All outstanding
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 of common shares
The common shares beneficial ownership limit
For Vornado to maintain its qualification as a REIT under the Internal
Revenue 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 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 Internal Revenue Code defines "individuals" to
include some entities for purposes of the preceding sentence. All references to
a shareholder's ownership of common shares in this section "-- The common shares
beneficial ownership limit" assume application of the applicable attribution
rules of the Internal Revenue Code under which, for example, a shareholder is
deemed to own shares owned by his or her spouse.
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 some exceptions, shareholders from
owning more than a specified percentage of the outstanding common shares. We
call this percentage 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 more than 6.7% of the
common shares immediately after the merger of Vornado, Inc. into Vornado in May
1993 may continue to do so and may acquire additional common shares through
stock option and similar plans or from other shareholders who owned more than
6.7% of the common shares immediately after that merger. However, 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 the
shareholders who owned more than 6.7% of the common shares immediately after
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the merger of Vornado, Inc. into Vornado in May 1993 are not generally permitted
to acquire additional common shares from any other source, these shareholders
may acquire additional common shares from any source if Vornado issues
additional common shares, up to the percentage held by them immediately before
Vornado issues the additional shares.
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 Internal Revenue Code, of common shares in excess of
the common shares beneficial ownership limit. For instance, if two shareholders,
each of whom owns 3.5% of the outstanding common shares, were to marry, then
after their marriage both shareholders would be deemed to own 7.0% of the
outstanding common shares, which is in excess of the common shares beneficial
ownership limit. Similarly, if a shareholder who owns 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 be deemed to own
7.3% of the outstanding common shares. You should consult your own tax advisors
concerning the application of the attribution rules of the Internal Revenue Code
in your particular circumstances.
The constructive ownership limit
Under the Internal Revenue Code, rental income received by a REIT from
persons in which the REIT is treated, under the applicable attribution rules of
the Internal Revenue 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 Internal Revenue Code, by a person
that owns 10% or more of the value of the outstanding shares of the REIT. The
attribution rules of the Code applicable for these purposes are different from
those applicable with respect to the common shares beneficial ownership limit.
All references to a shareholder's ownership of common shares in this section "--
The constructive ownership limit" assume application of the applicable
attribution rules of the Internal Revenue Code.
In order to ensure that rental income of Vornado will not be treated as
nonqualifying income under the rule described in the preceding paragraph, and
thus to ensure that Vornado will not inadvertently lose its REIT status as a
result of the ownership of shares by a tenant, or a person that holds an
interest in a tenant, the declaration of trust contains an ownership limit that
restricts, with some exceptions, shareholders from owning more than 9.9% of the
outstanding shares of any class. We refer to this 9.9% ownership limit as the
"constructive ownership limit." The shareholders who owned shares in excess of
the constructive ownership limit immediately after the merger of Vornado, Inc.
into Vornado in May 1993 generally are not subject to the constructive ownership
limit. The declaration of trust also contains restrictions that are designed to
ensure that the shareholders who owned shares in excess of the constructive
ownership limit immediately after the merger of Vornado, Inc. into Vornado in
May 1993 will not, in the aggregate, own a large enough interest in a tenant or
subtenant of the
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REIT to cause rental income received, directly or indirectly, by the REIT from
that tenant or subtenant to be treated as nonqualifying income for purposes of
the income requirements that REITs must satisfy. The restrictions described in
the preceding sentence have 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.
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 Internal Revenue 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. You should
consult your own tax advisors concerning the application of the attribution
rules of the Internal Revenue Code in your particular circumstances.
Issuance of excess shares if the ownership limits are violated
The declaration of trust provides that a transfer of common shares that
would otherwise result in ownership, under the applicable attribution rules of
the Internal Revenue Code, of common shares in excess of the common shares
beneficial ownership limit or the constructive ownership limit, or which would
cause the shares of beneficial interest of Vornado to be beneficially owned by
fewer than 100 persons, will have no effect and the purported transferee will
acquire no rights or economic interest in the common shares. In addition, the
declaration of trust provides that common shares that would otherwise be owned,
under the applicable attribution rules of the Internal Revenue Code, in excess
of the common shares beneficial ownership limit or the constructive ownership
limit will be automatically exchanged for excess shares. These excess shares
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 the excess shares before Vornado discovers the
automatic exchange for excess shares must 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 the excess shares, he or
she may designate only a person whose ownership of the shares will not violate
the common shares beneficial ownership limit or the constructive ownership
limit. When the designation is made, 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
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shares may not receive, in return for transferring an interest in the trust with
respect to the excess shares, an amount that reflects any appreciation in the
common shares for which the excess shares were exchanged during the period that
the excess shares were outstanding but will bear the burden of any decline in
value during that 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 the
excess shares will be equal to the lesser of:
o 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
o the market price of the common shares exchanged for the excess
shares on the date that Vornado accepts the deemed offer to sell the
excess shares.
Vornado's right to buy the excess shares will 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.
Other provisions concerning the restrictions on ownership
The Board of Trustees may exempt 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 of Vornado, Inc. into Vornado in May 1993, if
evidence satisfactory to the Board of Trustees is presented showing that the
exemption will not jeopardize Vornado's status as a REIT under the Internal
Revenue Code. Before granting an exemption of this kind, 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.
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All persons who own, directly or by virtue of the applicable attribution
rules of the Internal Revenue 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 will be required to disclose to the Company upon demand any
information that Vornado may request, in good faith, to determine Vornado's
status as a REIT or to comply with Treasury regulations promulgated under the
REIT provisions of the Internal Revenue 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.
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Description of the units and the operating partnership
The following description of the material terms of the units and some
material provisions of the partnership agreement does not describe every aspect
of the units or the partnership agreement and is only a summary of, and
qualified in its entirety by reference to, applicable provisions of Delaware law
and the partnership agreement. A copy of the partnership agreement is filed as
an exhibit to the registration statement of which this prospectus is a part. See
"Where you can find more information" for information about how to obtain a copy
of the partnership agreement. For a comparison of the voting rights and some
other rights of unit holders in the operating partnership and shareholders of
Vornado, see "Comparison of ownership of units and common shares."
The operating partnership's outstanding classes of units
Holders of units, other than Vornado in its capacity as general partner,
hold a limited partnership interest in the operating partnership. 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.
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 units are not registered under 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 restrictions on the
transfer of units. See "--Restrictions on transfers of units" below for further
information about these restrictions.
As of March 31, 1999, there were outstanding:
o 5,789,239 series A preferred units;
o 3,400,000 series B pass-through preferred units;
o 899,566 series B-1 convertible preferred units;
o 449,783 series B-2 restricted preferred units;
o 747,912 series C-1 preferred units;
o 3,500,000 series D-1 preferred units;
o 4,998,000 Series E-1 preferred units;
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o 88,337,750 class A units, including 3,240,985 not held by Vornado;
o 3,529,098 class C units; and
o 1,332,596 class D units.
Distributions with respect to units
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 interests in the operating
partnership, subject to the distribution preferences that are described in the
next paragraph. 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.
Distributions vary among the holders of different classes of units:
o The series A preferred units entitle Vornado as their holder to a
cumulative preferential distribution at an annual rate of $3.25 per
series A preferred unit, which we refer to as the "series A
preferred distribution preference". The series A preferred units
correspond to the series A preferred shares of Vornado.
o The series B pass-through preferred units entitle Vornado as their
holder to a cumulative preferential distribution at an annual rate
of $2.125 per unit, which we call the "series B pass-through
preferred distribution preference". The series B pass-through
preferred units correspond to the series B preferred shares of
Vornado.
o The series B-1 convertible preferred units entitle their holders to
a preferential distribution at the annual rate of $2.50 per unit,
and the series B-2 restricted preferred units entitle their holders
to a preferential distribution at the annual rate of $4.00 per unit.
We refer to these preferential distributions as the "series B-1 and
B-2 preferred distribution preferences".
o The series C-1 preferred units entitle their holders to a
preferential distribution at the annual rate of $3.25 per unit,
which we refer to as the "series C-1 preferred distribution
preference".
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o The series D-1 preferred units entitle their holder to a
preferential distribution at the annual rate of $2.125 per unit,
which we refer to as the "series D-1 preferred distribution
preference".
o The series E-1 preferred units entitle their holder to a
preferential distribution at the annual rate of (a) $3.00 per unit
for distributions paid in respect of the period from the date of
issuance through, but excluding, the first anniversary of that date,
(b) $3.125 per unit for distributions paid in respect of the period
from the first anniversary of the date of issuance through, but
excluding, the second anniversary of that date, (c) $3.25 per unit
for distributions paid in respect of the period from the second
anniversary of the date of issuance through, but excluding, the
seventh anniversary of the date of issuance and (d) $3.375 per unit
for distributions paid in respect of any period thereafter. We refer
to this preferential distribution as the "series E-1 preferred
distribution preference".
o The class C units entitle their holders to a preferential quarterly
distribution of $0.4225 per unit, which we call the "class C
distribution preference," until the operating partnership has made
four consecutive quarterly distributions of at least $0.4225 per
unit to the holders of the class A units.
o The class D units entitle their holders to a preferential quarterly
distribution of $0.50375 per unit, which we call the "class D
distribution preference," until the operating partnership has made
four consecutive quarterly distributions of at least $0.50375 per
unit to the holders of the class A units.
We sometimes refer to the series A preferred distribution preference, the series
B pass-through preferred distribution preference, the series B-1 and B-2
preferred distribution preferences, the series C-1 preferred distribution
preference, the series D-1 preferred distribution preference and the series E-1
preferred distribution preference as the "preferred distribution preferences".
We sometimes refer to the preferred distribution preferences, the class C
distribution preference and the class D distribution preference together as the
"distribution preferences".
The value of each common unit, regardless of its class, equates to one
common share of Vornado. Preferred units do not have a value equating to one
common share, but have the liquidation preferences and conversion prices for
conversion into class A units or cash that are established in the declaration of
trust and the partnership agreement.
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
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distributions will be paid first to Vornado as necessary to enable Vornado to
pay REIT expenses. The partnership agreement defines "REIT expenses" to mean:
o costs and expenses relating to the continuity of existence of
Vornado and any entity in which Vornado owns an equity interest;
o costs and expenses relating to any offer or registration of
securities by Vornado;
o costs and expenses associated with preparing and filing periodic
reports of Vornado under Federal, state and local laws, including
SEC filings;
o costs and expenses associated with Vornado's compliance with laws,
rules and regulations applicable to it; and
o all other operating or administrative expenses incurred by Vornado
in the ordinary course of its business.
After the operating partnership pays Vornado distributions as necessary to
enable Vornado to pay REIT expenses, distributions will be paid:
o first, to holders of preferred units in the amount of any
accumulated and unpaid, or currently payable, preferred distribution
preferences 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 and class D units, if any class of
units ranking senior to class C units and class D units is then
outstanding, in the amount payable according to the terms of that
class as determined by the general partner when it creates that
class;
o second, to holders of class D units for any accumulated and unpaid
class D distribution preferences and on an equal priority to holders
of preferred units for any accumulated and unpaid preferred
distribution preferences;
o third, to holders of class D units the class D distribution
preference in the quarterly amount of $0.50375 per unit and on an
equal priority to holders of preferred units the preferred
distribution preferences;
o fourth, to class C unit holders for any accumulated and unpaid class
C distribution preferences and on an equal priority to series B
preferred unit holders for any accumulated and unpaid series B
distribution preferences;
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o fifth, to holders of class C units the class C distribution
preference in the quarterly amount of $0.4225 per unit and on an
equal priority to holders of preferred units the preferred
distribution preferences; and
o sixth, 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 unit holders will share in any
distribution per quarter above $0.50375 per unit.
Before the automatic conversion of class C units to class A units and
before the automatic conversion of class D units to class A units as described
under "-- Ranking of units" below, Vornado will be permitted to cause the
operating partnership to make a distribution to holders of class A units of cash
up 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 proportional
distributions to holders of class C units or class D units, as applicable)
during the twelve calendar quarters preceding the quarter in which the
distribution is made.
Ranking of units
The series A preferred units and series B pass-through preferred units
rank senior to the class A units, class C units and class D units with respect
to the payment of distributions and amounts upon liquidation, dissolution or
winding up of the operating partnership. The series A preferred units, series B
pass-through preferred units, series B-1 convertible preferred units, series B-2
restricted preferred units, series C-1 preferred units, series D-1 preferred
units, series E-1 preferred units and any other units designated as "parity
units" all rank on a parity with each other, in each case with respect to the
payment of distributions and amounts upon liquidation, dissolution or winding up
of the operating partnership, without preference or priority one over the other,
except that:
o For so long as the class C units are outstanding, the series B-1
convertible preferred units, series B-2 restricted preferred units,
series C-1 preferred units, series D-1 preferred units and series
E-1 preferred units will not rank senior to the class C units as to
preferential distributions or redemption or voting rights. The class
C units automatically will be converted into class A units when all
holders of class A units have received quarterly distributions equal
to $.4225 per unit per quarter for four consecutive quarters.
o In addition, for so long as the class D units are outstanding, the
series B-1 convertible preferred units, series B-2 restricted
preferred units, series C-1 preferred units, series D-1 preferred
units and series E-1 preferred units will not
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rank senior to the class D units as to preferential distributions or
redemption or voting rights. The class D units automatically will be
converted into class A units at such time as all holders of class A
units have received quarterly distributions equal to $.50375 per
unit per quarter for four consecutive quarters.
The series of preferred units have the following liquidation preferences:
o $50.00 per Series A Preferred Unit, series B-1 convertible preferred
unit, series B-2 restricted preferred unit, series C-1 preferred
unit and series E-1 convertible preferred unit;
o $25.00 per series B pass-through preferred unit; and
o an amount per series D-1 preferred unit equal to the capital account
of the series D-1 preferred unit. The capital account of the series
D-1 preferred units is equal to an original capital contribution of
$25.00 per unit, adjusted from time to time to reflect the operating
partnership's income, gains, losses and deductions that are
allocated to the series D-1 preferred units and actual or deemed
distributions to, or capital contributions by, the holders of series
D-1 preferred units.
Until the class C units and class D units are 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,
unless either:
o the new limited partnership interests are substantially similar to
the terms of securities issued by Vornado and the proceeds of the
issuance of those securities have been contributed to the operating
partnership; or
o the issuance of the new limited partnership interests has been
approved by the holders of a majority of the class C units and class
D units issued in the Mendik transaction and then outstanding, taken
together as a group.
The operating partnership may create additional classes of parity units or
issue series of parity units without the consent of any holder of series A
preferred shares or series B preferred shares.
Redemption or conversion of units
The holders of units, other than Vornado or any subsidiary of Vornado,
have the right to redeem their units for cash or, at Vornado's option, common
shares. See "Redemption of units" above for further information about this
right.
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The series A preferred units are redeemable at Vornado's option for class
A units at any time beginning on April 1, 2001, 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 their
holders. 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. The conversion price of the series A preferred units is now
$36.10 and may be adjusted from time to time to take account of stock dividends
and other transactions.
The series B pass-through preferred units are redeemable at Vornado's
option for cash equal to $25.00 per unit and any accumulated and unpaid
distributions owing in respect of the series B pass-through preferred units at
any time beginning on March 17, 2004, provided that an equivalent number of
series B preferred shares are concurrently redeemed by Vornado.
The series B-1 convertible preferred units are redeemable at any time
beginning on January 1, 2008 at Vornado's option for a number of class A units
equal to the aggregate liquidation preference of the series B-1 convertible
preferred units of $50.00 per unit divided by the conversion price of the series
B-1 convertible preferred units of $54.7050. The series B-2 restricted preferred
units are redeemable at any time beginning on January 1, 2008 at Vornado's
option for cash of $50 per unit. The series B-1 convertible preferred units and
series B-2 restricted preferred units are convertible at any time at the option
of their holders in groups of two series B-1 convertible preferred units and one
series B-2 restricted preferred unit into a number of class A units equal to the
aggregate series B-1 and B-2 preferred liquidation preferences of the units
being converted divided by the conversion price of $54.7050.
The series C-1 preferred units are perpetual and may be redeemed without
penalty in whole or in part by the operating partnership at any time beginning
on November 24, 2003 for 1.1431 class A units per series C-1 preferred unit,
subject to anti-dilution adjustments. Holders of series C-1 preferred units have
the right to convert all or a portion of their series C-1 preferred units at any
time into class A units at the same rate.
The series D-1 preferred units are perpetual and may be redeemed without
penalty in whole or in part by the operating partnership at any time beginning
on November 12, 2003 for cash equal to $25.00 per unit and any accumulated and
unpaid distributions owing in respect of the series D-1 units being redeemed. At
any time beginning on November 12, 2008, or earlier upon the occurrence of
specified events, holders of series D-1 preferred units will have the right to
have their series D-1 preferred units redeemed by the operating partnership for
either:
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o cash equal to $25.00 for each series D-1 preferred unit and any
accumulated and unpaid distributions owing in respect of the series
D-1 preferred units being redeemed; or
o at Vornado's option, one series D-1 8.5% cumulative redeemable
preferred share of beneficial interest, no par value, of Vornado for
each series D-1 preferred unit redeemed.
Formation of the operating partnership
The operating partnership was formed as a limited partnership under the
Delaware Revised Uniform Limited Partnership Act on October 2, 1996. Vornado is
the sole general partner of, and owned approximately 85% of the common limited
partnership interest in, the operating partnership at March 31, 1999.
Purposes, business and management of the operating partnership
The purpose of the operating partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
the Delaware Revised Uniform Limited Partnership Act, except that the
partnership agreement requires the business of the operating partnership to be
conducted in a manner that will permit Vornado to be classified as a REIT under
Section 856 of the Internal Revenue Code, unless Vornado ceases to qualify as a
REIT for any reason. In furtherance of its business, 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.
Vornado, as the general partner of the operating partnership, has the
exclusive power and authority to conduct the business of the operating
partnership, except that the consent of the limited partners is required in some
limited circumstances discussed under "-- Meetings and voting" 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.
Except as required by the lockup agreements, 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" below for a discussion of the lockup agreements. Vornado
and its trustees and officers will have no
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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, excluding the limited partnership interests held
by Vornado. 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 those businesses or assets may be ones that it would
be in the best interests of the limited partners for the operating partnership
to own.
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. The operating partnership's 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.
From time to time in connection with acquisitions of properties or
other assets in exchange for limited partner interests in the operating
partnership, Vornado and the operating partnership have entered into contractual
arrangements that impose restrictions on the operating partnership's ability to
sell, finance, refinance and, in some instances, pay down existing financing on
certain of the operating partnership's properties or other assets. These
arrangements are sometimes referred to as "lockup agreements" and include, for
example, arrangements in which the operating partnership agrees that it will not
sell the property or other assets in question for a period of years unless the
operating partnership also pays the contributing partner a portion of the
Federal income tax liability that will accrue to that partner as a result of the
sale. Arrangements of this kind may significantly reduce the operating
partnership's ability to sell, finance or repay indebtedness secured by the
subject properties or assets. Vornado expects to cause the operating partnership
to continue entering into transactions of this type in the future and may do so
without obtaining the consent of any partners in the operating partnership.
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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
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, 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 if Vornado
assumes the obligation to redeem units and elects to redeem them for common
shares instead of cash when a limited partner in the operating partnership
exercises the right to redeem units. See "Redemption of units" above for further
information about the right to redeem 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 in 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 complies 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 Delaware Revised Uniform
Limited Partnership Act will be limited, with some exceptions, generally to the
loss of the limited partner's investment in the operating partnership
represented by his or her units. Under the Delaware Revised Uniform Limited
Partnership Act, a limited partner may not receive a distribution from the
operating partnership if, at the time of the distribution and after giving
effect to the distribution, 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
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nonrecourse liabilities of the operating partnership, but only to the extent of
such liabilities. The Delaware Revised Uniform 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, a limited partner in
the circumstances described in the preceding sentence will not be liable for the
return of the distribution after the expiration of three years from the date of
the 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 legal requirements of those
jurisdictions and some 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 some
amendments to the partnership agreement or to take other action under 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 those 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 those persons, as to matters that Vornado
reasonably believes to be within their professional or expert competence, will
be conclusively presumed to have been done or omitted in good faith and in
accordance with the opinion of those persons.
The partnership agreement also provides for indemnification of Vornado,
the trustees and officers of Vornado and any other persons that Vornado may from
time to time designate against any and all losses, claims, damages, liabilities,
expenses, judgments, fines, settlements and other amounts incurred by an
indemnified 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:
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o 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;
o the indemnified person actually received an improper personal
benefit in money, property or services; or
o 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, as long as any sale of a property covered by the
lockup agreements complies with those 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 unless, in connection with the transaction, all
limited partners other than Vornado and entities controlled by Vornado 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 that unit in
consideration of one share of that kind. We refer to transactions described in
the preceding sentence as "termination transactions". 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.
See "--Borrowing by the operating partnership" above for information about
the lockup agreements, which limit our ability to sell some of our properties.
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 all limited partners other than Vornado and
entities controlled by Vornado will have the right in
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the termination transaction 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
that unit in consideration of one share of Vornado. 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 operating partnership, but they would apply to
transfers of assets of the operating partnership undertaken during the period
when the lockup agreements are in effect as part of any sale or other transfer
by Vornado of its interests as a partner in the operating partnership. See "--
Borrowing by the operating partnership" for a description of the restrictions on
transfers of assets under the lockup agreements.
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
Before the expiration of the initial holding period with respect to his or
her units, 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. The initial holding period expires on a date
specified in the partnership agreement or in a particular limited partner's
agreement accepting the partnership agreement. This date was October 1, 1998
with respect to the units that may be redeemed for the common shares covered by
this prospectus. Any attempted transfer in violation of this restriction will
have no force or effect. After the expiration of the initial holding period with
respect to his or her units, a limited partner, other than Vornado, some members
of the Mendik group and FW/Mendik REIT, will be permitted to transfer all or any
portion of his or her units without restriction, provided that the 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 the
transfer would cause the operating partnership or any or all of the partners
other than the partner seeking to make the transfer to incur 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 right to redeem units as described under
"Redemption of units" above.
Any permitted transferee of units may become a substituted limited partner
only with the consent of Vornado, and Vornado may withhold its consent 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 the units, including
the right to redeem units, but will not become a limited partner or possess any
other rights of limited partners, including the right to vote.
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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 under 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 the consideration and
upon the terms and conditions that Vornado deems appropriate. The operating
partnership also may issue partnership interests in different series or classes.
See "-- Ranking" above for a description of restrictions on the issuance of
units while the class C units and class D units remain outstanding. Units may be
issued to Vornado only if Vornado issues shares of beneficial interest and
contributes to the operating partnership the proceeds received by Vornado from
the issuance of the shares. Consideration for partnership interests may be cash
or any property or other assets permitted by the Delaware Revised Uniform
Limited Partnership 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.
Meetings and 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 stating 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 the action at a meeting of the limited partners at which all
limited partners entitled to vote on the 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 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 his or her transferred units will
have no voting rights with respect to those Units, even if the transferee holds
other units as to which he or she has been admitted as a limited partner, and
units owned by the 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
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Amendments to the partnership agreement may be proposed only by Vornado.
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 the amendment does not adversely affect or eliminate any right
granted to a limited partner that is protected by the special voting provisions
described below. Limitations on Vornado's power to amend the partnership
agreement are described below.
The partnership agreement provides that it generally may not be amended
with respect to any partner adversely affected by the amendment without the
consent of that partner if the amendment would:
o convert a limited partner's interest into a general partner's
interest;
o modify the limited liability of a limited partner;
o amend Section 7.11.A, which prohibits 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 by the action or any lower percentage of the
limited partnership interests that may be specifically provided for
in the partnership agreement or under the Delaware Revised Uniform
Limited Partnership Act;
o amend Article V, which governs distributions, Article VI, which
governs allocations of income and loss for capital account purposes,
or Section 13.2A(3), which provides for distributions, after payment
of partnership debts, among partners according to their capital
accounts upon a winding up of the operating partnership;
o amend Section 8.6, which provides redemption rights; or
o 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 Vornado, Vornado may not
amend:
o Section 4.2.A, which authorizes issuance of additional limited
partnership interests;
o Section 5.1.C, which requires 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;
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o Section 7.5, which prohibits 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 controlled by
Vornado;
o Section 7.6, which limits the operating partnership's ability to
enter transactions with affiliates;
o Section 7.8, which establishes limits on Vornado's liabilities to
the operating partnership and the limited partners;
o Section 11.2, which limits Vornado's ability to transfer its
interests in the operating partnership;
o Section 13.1, which describes the manner and circumstances in which
the operating partnership will be dissolved;
o Section 14.1.C, which establishes the limitations on amendments
being described in this paragraph; or
o Section 14.2, which establishes the rules governing meetings of
partners.
In addition, any amendment that would affect those lockup agreements that
are part of the partnership agreement requires the consent of 75% of the limited
partners benefited by those lockup agreements, with some exceptions. See
"Description of the units and the operating partnership -- Borrowing by the
operating partnership" for information about the lockup agreements.
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, which we refer to as "GAAP". The limited partners have the right,
with some limitations, to receive copies of the most recent annual and quarterly
reports filed with the SEC 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 to the partnership
certificate. Vornado may keep confidential from the limited partners any
information that Vornado believes to be in the nature of trade secrets or other
information whose disclosure Vornado in good faith believes is not in the best
interests of the operating partnership or which the
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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 of Vornado, if
Vornado 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
the quarterly reports to its shareholders, a report containing unaudited
financial statements of the operating partnership, or of Vornado, if the reports
are prepared on a consolidated basis, as of the last day of the quarter and any
other information that may be required by applicable law or regulation or that
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
Under 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 the limited partner's or assignee's
attorney-in-fact to do the following:
o 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 of the certificate of limited partnership 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 under 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
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certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of
partnership interests; and
o 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 partnership agreement.
The partnership agreement provides that this power of attorney is irrevocable,
will survive the subsequent incapacity of any limited partner and the transfer
of all or any portion of the limited partner's or assignee's units and will
extend to the 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 this
date may be extended by the General Partner in its sole discretion, unless
sooner dissolved and terminated. The operating partnership will be dissolved
before the expiration of its term, and its affairs wound up upon the occurrence
of the earliest of:
o the withdrawal of Vornado as general partner without the permitted
transfer of Vornado's interest to a successor general partner,
except in some limited circumstances;
o the sale of all or substantially all of the operating partnership's
assets and properties, subject to the lockup agreements during the
period when the lockup agreements are in effect;
o the entry of a decree of judicial dissolution of the operating
partnership under the provisions of the Delaware Revised Uniform
Limited Partnership Act;
o 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 of these cases, in some
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
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o 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 from
the liquidation in the order of priority provided in the partnership agreement.
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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 you in understanding how your investment will be changed if
you redeem your units and Vornado exercises its right to assume the operating
partnership's obligation with respect to the redemption and to acquire the units
in exchange for common shares. See "Redemption of units" for a description of
your right to have your units redeemed and Vornado's right to redeem the units
for common shares instead of cash. The discussion below is summary in nature and
does not constitute a complete discussion of these matters, and you should
carefully review the balance of this prospectus for additional important
information.
Form of Organization and Purpose
The operating partnership
The operating partnership is a limited partnership organized under the
laws of the State of Delaware. The operating partnership owns interests in
office building properties, shopping center properties, cold storage facilities,
trade showroom properties, industrial/warehouse properties and various other
properties and investments. See "Vornado and the operating partnership" for
further information about the operating partnership's assets. The operating
partnership may also invest in other types of real estate and in any geographic
areas that Vornado deems appropriate. Vornado conducts the business of the
operating partnership in a manner intended to permit Vornado to be classified as
a REIT under the Internal Revenue Code.
Vornado
Vornado is a Maryland real estate investment trust organized under Title 8
of the Corporations and Associations Article of the Annotated Code of Maryland,
as amended. We refer to Title 8 as the "Maryland REIT law". Although Vornado
currently intends to continue to qualify as a REIT under the Internal Revenue
Code and to operate as a self-administered REIT, Vornado is not under any
contractual obligation to continue to qualify as a REIT and there can be no
assurance that Vornado will continue to maintain this qualification or mode of
operation in the future. Although Vornado has no intention of ceasing to qualify
as a REIT, some other real estate companies that previously operated as REITs
have chosen to cease to qualify as REITs. 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.
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Nature of investment
The operating partnership
The units constitute equity interests entitling each limited partner in
the operating partnership to his or her proportional share of cash distributions
made to the limited partners in the operating partnership, consistent with the
class preferences provided for in the partnership agreement. See "Description of
units -- Distributions" for further information about distributions to limited
partners. 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 some circumstances.
The units represent equity interests entitling the holders thereof to
participate in the growth and income of the operating partnership. The
partnership agreement grants Vornado discretion to determine the frequency and
amount of distributions by the operating partnership. The operating partnership
and thus Vornado generally expect to reinvest proceeds of any sale of property
and refinancings, except in some 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 by redeeming
units and, if Vornado issues common shares in exchange for redeemed units, by
subsequently selling the common shares.
Vornado
The common shares constitute equity interests in Vornado. Vornado is
entitled to receive its proportionate 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 proportionate share of any
dividends or distributions paid with respect to those common shares, and these
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 by the Board of Trustees and
declared by Vornado out of assets legally available to pay dividends. If any
preferred shares are at the time outstanding, dividends on the common shares and
other distributions, including purchases by Vornado of common shares, may be
made only if full cumulative dividends have been declared and paid on the
outstanding preferred shares and there are no arrearages in any mandatory
sinking fund on outstanding preferred shares. To qualify as a REIT, Vornado must
distribute to its shareholders 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.
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Length of investment
The operating partnership
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
from the sale or refinancing 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.
The operating partnership generally will reinvest the proceeds of asset
dispositions, if any, in new properties or other appropriate investments
consistent with their investment objectives. After the expiration of the
applicable holding period with respect to their units, limited partners in the
operating partnership are entitled to exercise the right to have their units
redeemed either for common shares or for cash, at the option of Vornado.
Vornado
Vornado has a perpetual term and intends to continue its operations for an
indefinite time period. Under 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.
Shareholders of Vornado are expected to realize liquidity of their
investments by the trading of the common shares on the NYSE.
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Liquidity
The operating partnership
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.
Units also may not be sold or otherwise transferred 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 limited partners without the consent of Vornado, and Vornado may
withhold its consent in its sole discretion if it determines that the transfer
would cause any or all of the limited partners other than the limited partner
seeking to transfer his or her rights to incur tax liability as a result of the
transfer. Limited partners in the operating partnership may, after the
expiration of the applicable holding period with respect to their units,
transfer beneficial interests in units without the consent of Vornado as general
partner of the operating partnership, if they comply with 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 Vornado may withhold 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
redemption of units, a limited partner will receive cash or, at the election of
Vornado, common shares of Vornado in exchange for the redeemed units.
Vornado
Any common shares issued in exchange for redeemed units will be registered
under the Securities Act and freely transferable, as long as the shareholder
complies with the ownership limits in the declaration of trust. Vornado's common
shares 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.
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Potential dilution of rights
The operating partnership
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 all class C
units and class D 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, unless either:
o the newly issued limited partnership interests are substantially
similar to the terms of securities issued by Vornado and the
proceeds of the issuance of the Vornado securities have been
contributed to the operating partnership; or
o the issuance of the limited partnership interests has been approved
by the holders of a majority of the class C and class D units issued
in the Mendik transaction and then outstanding, taken together as a
group.
The interests with respect to cash available for distribution of the
limited partners in the operating partnership may be diluted if Vornado, in its
sole discretion, causes the operating partnership to issue additional units or
other equity securities.
Vornado
The Board of Trustees of Vornado may, in its discretion, authorize the
issuance of 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 the voting rights, dividend or interest rates,
preferences, subordinations, conversion or redemption prices or rights, maturity
dates, distribution, exchange or liquidation rights or other rights that the
Board of Trustees may specify at the time. 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 shares of beneficial
interest that Vornado has authority to issue. Under the declaration of trust,
holders of common shares do not have any preemptive rights to subscribe to any
securities of Vornado.
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Management control
The operating partnership
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 as general partner by the limited partners with or without
cause.
Vornado
The Board of Trustees has exclusive control over the management of
Vornado's business and affairs, limited only by express restrictions on the
Board's control 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. 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.
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Duties of general partner and trustees
The operating partnership
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 as a result of Vornado's decisions, provided that
the general partner has acted in good faith.
Vornado
Under Maryland law, there is no statute specifying the duties of trustees
of a REIT like Vornado. However, counsel to Vornado believes that it is likely
that a Maryland court would refer to the Maryland General Corporation Law, 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
The operating partnership
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 this 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 described in the partnership agreement in which Vornado
or any such trustee or officer is involved, unless:
Vornado
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:
o actual receipt of any improper benefit or profit in money, property
or services; or
o active and deliberate dishonesty material to the cause of action
established by a final judgment.
The declaration of trust of Vornado contains a provision of this kind which
eliminates the liability of Vornado's trustees and officers to Vornado and its
shareholders to the maximum extent permitted by the Maryland REIT law.
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The operating partnership
o the act was in bad faith and was material to the action;
o the party seeking indemnification received an improper personal
benefit; or
o in the case of any criminal proceeding, the party seeking
indemnification had reasonable cause to believe the act was
unlawful.
The reasonable expenses incurred by an indemnified party may be advanced by the
operating partnership before the final disposition of the proceeding upon
receipt by the operating partnership of an affirmation by the indemnified person
of his, her or its good faith belief that the standard of conduct necessary for
indemnification has been met and an undertaking by the indemnified person to
repay the amount if it is determined that this standard was not met.
Vornado
Vornado's declaration of trust authorizes it, to the extent provided in the
bylaws, to indemnify, and to pay or reimburse reasonable expenses to, as they
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 the indemnified person
may become subject by reason of being or having been a trustee or officer.
Vornado's bylaws require it to indemnify to the maximum extent permitted
by the Maryland REIT law:
o 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 that
corporation, partnership, joint venture, trust, employee
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Vornado
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 that status, against reasonable expenses
incurred by him in connection with the proceeding; and
o any present or former trustee or officer against any claim or
liability to which that person may become subject by reason of that
status unless it is established that (a) that person's 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, (b) he or she actually received an
improper personal benefit in money, property or services or (c) in
the case of a criminal proceeding, he or she had reasonable cause to
believe that his or her act or omission was unlawful.
In addition, Vornado's bylaws require Vornado to pay or reimburse, in accordance
with the Maryland REIT law, in advance of final disposition of a proceeding,
reasonable expenses incurred by a present or former trustee or officer
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Vornado
made a party to a proceeding by reason of that status provided that Vornado has
received
o 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
o a written undertaking by him or on his behalf to repay the amount
paid or reimbursed by Vornado if it is ultimately determined that
the applicable standard of Vornado conduct was not met.
Vornado's bylaws also:
o 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 that capacity and to any
employee or agent of Vornado or a predecessor of Vornado;
o provide that any indemnification or payment or reimbursement of the
expenses permitted by the bylaws shall be furnished in
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Vornado
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 for directors
of Maryland corporations; and
o permit Vornado to provide any other and further indemnification or
payment or reimbursement of expenses that may be permitted by the
Maryland General Corporation Law 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 Maryland General Corporation Law for directors and officers
of Maryland corporations. The Maryland General Corporation Law 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:
o the act or omission of the director or officer was
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Vornado
material to the matter giving rise to the proceeding and (a) was
committed in bad faith or (b) was the result of active and
deliberate dishonesty;
o the director or officer actually received an improper personal
benefit in money, property or services; or
o 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 Maryland General Corporation Law, 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 Maryland General Corporation Law
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation's receipt of:
o 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
o a written undertaking by him
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or on his behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately 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
The operating partnership
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 their interest in the operating partnership's
undistributed income, if any.
Vornado
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.
Thus, the limited partners in the operating partnership and the
shareholders of Vornado have substantially the same limited personal liability.
Voting rights
The operating partnership
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
Vornado
The business and affairs of Vornado are managed under the direction of the
Board of Trustees, which currently consists of seven members in classes having
three-year staggered terms of office. Each class is elected by the shareholders
at the annual meetings of Vornado shareholders. Maryland law requires that
certain major corporate transactions, including most amendments to the
declaration of trust, may be consummated only with the approval of shareholders.
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The operating partnership
"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
specified actions or amendments under the partnership agreement or change
specified provisions in the partnership agreement with respect to distributions
and allocations or the right to redeem units must be approved by each limited
partner adversely affected by the amendment.
Vornado
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 the action at a meeting at which all shares entitled to vote were present
and voted.
Vornado had 5,789,315 series A preferred shares and 3,400,000 series B
preferred shares issued and outstanding as of March 31, 1999. The holders of
preferred shares generally have no right to vote, except that:
o if and whenever six quarterly dividends, whether or not consecutive,
payable on either series of preferred shares are in arrears, which,
with respect to any quarterly dividend, means that the dividend has
not been paid in full, whether or not the dividend was earned or
declared, the holders of that series will have the right, voting as
a class, to elect two additional Trustees; and
o so long as any preferred shares are outstanding, the affirmative
vote of at least two-thirds of the outstanding preferred shares and
all other series of voting preferred shares, voting as a single
class regardless of series, will
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Vornado
be necessary to (a) 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 preferred share or (b)
authorize, create or increase the authorized amount of any shares
ranking prior to the 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 preferred shares.
Amendment of the partnership agreement or the declaration of trust
The operating partnership
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 the amendment does not adversely affect or eliminate any right
granted to a limited partner that is protected by specified special voting
provisions. See "Description of Units-- Amendment of the partnership agreement"
for further information about Vornado's power to amend the partnership agreement
and the limits on that power.
Vornado
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, without
the approval of shareholders, to enable Vornado to qualify as a REIT under the
Internal Revenue Code or as a real estate investment trust under the Maryland
REIT law. 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. Except for
certain specified amendments which require the vote of the holders of two-thirds
of the outstanding shares, other amendments to the declaration of trust require
the vote of holders of a majority of the outstanding shares, as defined in the
declaration of trust.
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Review of investor lists
The operating partnership
Under the partnership agreement, limited partners in the operating
partnership, upon written demand with a statement of the purpose of the 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.
Vornado
Under the Maryland General Corporation Law, 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 the real estate investment trust or, if the
real estate investment trust does not maintain an original or duplicate share
ledger at its principal office, obtain a verified list of shareholders, setting
forth their names and addresses and the number of shares of each class held by
each shareholder.
Thus, the limited partners in the operating partnership and the
shareholders of Vornado have similar rights to inspect and, at their own
expense, make copies of investor lists, with some limitations.
Review of books and records
The operating partnership
Under the partnership agreement, limited partners in the operating
partnership, upon written demand with a statement of the purpose of the 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
SEC and to obtain some 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.
Vornado
Under the Maryland General Corporation Law, as applicable to REITs, any
shareholder or his agent may inspect and copy during normal business hours the
following real estate investment trust documents:
o bylaws;
o minutes of the proceedings of shareholders;
o annual statements of affairs; and
o voting trust agreements on file at the real estate investment
trust's principal office.
In addition, one or more shareholders holding of record 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 books of account of the real estate investment trust.
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Issuance of additional equity
The operating partnership
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 these interests are issued in connection with a comparable
issuance of securities of Vornado and proceeds raised in connection with the
issuance of the Vornado securities are contributed to the operating partnership.
Vornado
The Board of Trustees may authorize the issuance, in its discretion, of
additional common shares and other equity securities of Vornado, including one
or more classes of common or preferred shares, with the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption that the Board of Trustees
may establish.
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
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 some of its properties, unless affected limited partners are
compensated for adverse tax consequences in accordance with the lockup
agreements. See "Description of units and the operating partnership-- Borrowing
by the operating partnership" for further information about the lockup
agreements.
Vornado
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 from the incurrence of debts to the operating partnership. Therefore,
all indebtedness incurred by Vornado will be for the benefit of the operating
partnership.
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Permitted investments
The operating partnership
The operating partnership's purpose is to conduct any business that may be
lawfully conducted by a Delaware limited partnership, provided that this
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:
o could adversely affect the ability of the general partner to
continue to qualify as a REIT;
o could subject the general partner to any additional taxes under
Section 857 or Section 4981 of the Internal Revenue Code; or
Vornado
Under its declaration of trust, Vornado may engage in any lawful activity
permitted by the Maryland REIT law. To maintain Vornado's 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. In April, 1999, the Maryland legislature adopted a bill that, if
signed by the Governor of Maryland as expected, will become effective on October
1, 1999 and will repeal the provisions of the Maryland REIT law discussed in the
preceding two sentences. 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 units and class D units.
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The operating partnership
o could violate any law or regulation of any governmental body.
The operating partnership may take any action or inaction described in the
preceding sentence only with Vornado's specific consent.
Vornado
Vornado is also 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 whose equity is owned by the operating partnership.
Vornado and the operating partnership may invest in any types of real
estate and geographic areas that 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.
Other investment restrictions
The operating partnership
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
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 Vornado,
whether or not any of them has a financial interest in the transaction.
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Federal income tax considerations
This section summarizes the taxation of Vornado and the material Federal
income tax consequences to holders of the common shares for your general
information only. It 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 deal with all aspects of taxation that may be relevant to particular
holders in light of their personal investment or tax circumstances. This section
also does not deal with all aspects of taxation that may be relevant to certain
types of holders to which special provisions of the Federal income tax laws
apply, including:
o broker-dealers;
o traders in securities that elect to mark-to-market;
o banks;
o tax-exempt organizations;
o certain insurance companies;
o persons liable for the alternative minimum tax;
o persons that hold securities that are a hedge, that are hedged
against currency risks or that are part of a straddle or conversion
transaction; and
o persons whose functional currency is not the U.S. dollar.
This summary is based on the Internal Revenue Code, its legislative history,
existing and proposed regulations under the Internal Revenue Code, published
rulings and court decisions. This summary describes the provisions of these
sources of law only as they are currently in effect. All of these sources of law
may change at any time, and any change in the law may apply retroactively.
We urge you to consult with your own tax advisors regarding the tax
consequences to you of acquiring, owning and selling common shares, including
the federal, state, local and foreign tax consequences of acquiring, owning and
selling common shares in your particular circumstances and potential changes in
applicable laws.
Taxation of Vornado as a REIT
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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
Internal Revenue Code, and Vornado's proposed method of operation will enable it
to continue to meet the requirements for qualification and taxation as a REIT
under the Code. Investors should be aware, however, that opinions of counsel are
not binding upon the Internal Revenue Service or any court.
In providing its opinion, Sullivan & Cromwell is relying
o as to certain factual matters upon the statements and
representations contained in certificates provided to Sullivan &
Cromwell by Vornado and Two Penn Plaza, REIT, Inc.;
o without independent investigation, as to certain factual matters
upon the statements and representations contained in the certificate
provided to Sullivan & Cromwell by Alexander's; and
o without independent investigation, upon the opinion of Shearman &
Sterling concerning the qualification of Alexander's as a REIT for
each taxable year commencing with its taxable year ending December
31, 1995.
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 Internal Revenue Code relating to qualification for REIT status. Some of
these requirements depend 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, the actual results of Vornado's, Two Penn's or Alexander's
operations for any particular year might not satisfy these requirements. Neither
Sullivan & Cromwell nor Shearman & Sterling will monitor the compliance of
Vornado, Two Penn or Alexander's with the requirements for REIT qualification on
an ongoing basis.
The sections of the Internal Revenue Code applicable to REITs are highly
technical and complex. The following discussion summarizes material aspects of
these sections of the Internal Revenue Code.
As a REIT, Vornado generally will not have to pay Federal corporate income
taxes on its net income that it currently distributes to shareholders. This
treatment substantially
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eliminates the "double taxation" at the corporate and shareholder levels that
generally results from investment in a regular corporation.
However, Vornado will have to pay federal income tax as follows.
o First, Vornado will have to pay tax at regular corporate rates on
any undistributed real estate investment trust taxable income,
including undistributed net capital gains.
o Second, under certain circumstances, Vornado may have to pay the
alternative minimum tax on its items of tax preference.
o Third, if Vornado has (a) net income from the sale or other
disposition of foreclosure property, as defined in the Internal
Revenue Code, which is held primarily for sale to customers in the
ordinary course of business or (b) other non-qualifying income from
foreclosure property, it will have to pay tax at the highest
corporate rate on that income.
o Fourth, if Vornado has net income from "prohibited transactions", as
defined in the Internal Revenue Code, Vornado will have to pay a
100% tax on that income. Prohibited transactions 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.
o Fifth, if Vornado should fail to satisfy the 75% gross income test
or the 95% gross income test, as discussed below under
"--Requirements for qualification-- Income tests", but has
nonetheless maintained its qualification as a REIT because Vornado
has satisfied some other requirements, it will have to pay 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.
o Sixth, if Vornado should fail to distribute during each calendar
year at least the sum of (a) 85% of its real estate investment trust
ordinary income for that year, (b) 95% of its real estate investment
trust capital gain net income for that year and (c) any
undistributed taxable income from prior periods, Vornado would have
to pay a 4% excise tax on the excess of that required distribution
over the amounts actually distributed.
o Seventh, if during the 10-year 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 that period, then,
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to the extent of the excess of (a) fair market value of that asset
as of the beginning of that period over (b) Vornado's adjusted basis
in that asset as of the beginning of that period, Vornado will have
to pay tax on that gain at the highest regular corporate rate under
Treasury regulations that have not yet been promulgated. We refer to
the excess of fair market value over adjusted basis described in the
preceding sentence as "built-in gain".
Notwithstanding the taxation of built-in gain described in the
preceding paragraph of this bullet point, Vornado will not have to
pay tax on recognized built-in gain with respect to assets held as
of the first day of the 10-year period beginning on the first day of
the first taxable year for which Vornado qualified as a REIT, to the
extent that the aggregate amount of that recognized built-in gain
exceeds the net aggregate amount of Vornado's unrealized built-in
gain as of the first day of that period.
o Eighth, if Vornado acquires any asset from a C corporation in
certain transactions in which Vornado must adopt the basis of the
asset or any other property in the hands of the C corporation as the
basis of the asset in the hands of Vornado, and Vornado recognizes
gain on the disposition of that asset during the 10-year period
beginning on the date on which Vornado acquired that asset, then,
under the Treasury regulations that have not yet been issued and to
the extent of the built-in gain, Vornado will have to pay tax on
that gain at the highest regular corporate rate. A C corporation
means generally a corporation that has to pay full corporate-level
tax.
Requirements for qualification
The Internal Revenue Code defines a REIT as a corporation, trust or
association
o which is managed by one or more trustees or directors;
o the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
o which would otherwise be taxable as a domestic corporation, but for
Sections 856 through 859 of the Code;
o which is neither a financial institution nor an insurance company to
which certain provisions of the Code apply;
o the beneficial ownership of which is held by 100 or more persons;
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o 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
Internal Revenue Code to include certain entities; and
o which meets certain other tests, described below, regarding the
nature of its income and assets.
The Internal Revenue Code provides that the conditions described in the first
through fourth bullet points above must be met during the entire taxable year
and that the condition described in the fifth bullet point above must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months.
Vornado has satisfied the conditions described in the first through fifth
bullet points of the preceding paragraph and believes that it has also satisfied
the condition described in the sixth bullet point of the preceding paragraph. In
addition, Vornado's declaration of trust provides for restrictions regarding the
ownership and transfer of Vornado's shares of beneficial interest. These
restrictions are intended to assist Vornado in continuing to satisfy the share
ownership requirements described in the fifth and sixth bullet points of the
preceding paragraph. The ownership and transfer restrictions pertaining to the
common shares are described above under the heading "Description of common
shares -- Restrictions on ownership of common shares".
Vornado owns a number of wholly-owned subsidiaries. Internal Revenue Code
Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary", as defined in the Code, will not be treated as a separate
corporation, and all assets, liabilities, and items of income, deduction, and
credit of a qualified REIT subsidiary will be treated as assets, liabilities and
items of these kinds of the REIT. Thus, in applying the requirements described
in this section, 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 items of these kinds of
Vornado. Vornado believes that all of its wholly-owned subsidiaries are
qualified REIT subsidiaries.
If a REIT 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 that 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 Internal Revenue 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 in this section. Thus, actions
taken by
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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. See the fourth
bullet point on page __ for a discussion of prohibited transactions.
Income tests. In order to maintain its qualification as a REIT, Vornado
annually must satisfy three gross income requirements.
o First, Vornado must derive at least 75% of its gross income,
excluding gross income from prohibited transactions, for each
taxable year directly or indirectly from investments relating to
real property or mortgages on real property, including "rents from
real property", as defined in the Internal Revenue Code, or from
certain types of temporary investments. Rents from real property
generally include expenses of Vornado that are paid or reimbursed by
tenants.
o Second, at least 95% of Vornado's gross income, excluding gross
income from prohibited transactions, for each taxable year must be
derived from real property investments as described in the preceding
bullet point, dividends, interest and gain from the sale or
disposition of stock or securities, or from any combination of these
types of source.
o 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 of these taxable years.
Rents that Vornado receives will qualify as rents from real property in
satisfying the gross income requirements for a REIT described above only if the
rents satisfy several conditions.
o 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 rents from real property
solely because it is based on a fixed percentage or percentages of
receipts or sales.
o Second, the Internal Revenue 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
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interest in that tenant. We refer to a tenant in which Vornado owns
a 10% or greater interest as a "related party tenant".
o 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 the personal property will not qualify as rents from
real property.
o 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 the property, other
than through an independent contractor from whom the REIT derives no
revenue. However, Vornado may directly perform certain services that
landlords usually or customarily render when renting space for
occupancy only or that are not considered rendered to the occupant
of the property.
Vornado does not derive significant rents from related party tenants. Vornado
also 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 some of its tenants. Vornado does
not believe that the provision of these services will cause its gross income
attributable to these tenants to fail to be treated as rents from real property.
If Vornado were to provide services to a tenant that are other than those
landlords usually or customarily provide when renting space for occupancy only,
amounts received or accrued by Vornado for any of these services will not be
treated as rents from real property for purposes of the REIT gross income tests.
However, the amounts received or accrued for these services 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 the
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 the property. If the sum of the amounts received in respect of
the services to tenants and management services described in the preceding
sentence exceeds the 1% threshold, then all amounts received or accrued by
Vornado with respect to the property will not qualify as rents from real
property, even if Vornado provides the impermissible services 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 that 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
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from the term interest solely because it is 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 that year
if it satisfies the requirements of other provisions of the Internal Revenue
Code that allow relief from disqualification as a REIT. These relief provisions
will generally be available if
o Vornado's failure to meet the income tests was due to reasonable
cause and not due to willful neglect;
o Vornado attaches a schedule of the sources of its income to its
Federal income tax return; and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
Vornado might not be entitled to the benefit of these relief provisions,
however. As discussed in the fifth bullet point on page __, even if these relief
provisions apply, Vornado would have to pay a tax on 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.
o First, at least 75% of the value of Vornado's total assets must be
represented by real estate assets, including (a) real estate assets
held by Vornado's qualified REIT subsidiaries, Vornado's allocable
share of real estate assets held by partnerships in which Vornado
owns an interest and stock issued by another REIT, (b) 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 debt with a term of
at least five years, stock or debt instruments purchased with these
proceeds and (c) cash, cash items and government securities.
o Second, not more than 25% of Vornado's total assets may be
represented by securities other than those in the 75% asset class.
o 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.
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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 Internal Revenue 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 Internal Revenue 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 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 subsequent taxable year. Vornado believes
that Two Penn will also qualify.
In order to ensure compliance with the 95% gross income test described in
the second bullet point on page __, Vornado transferred certain contract rights
and obligations to VMC, a New Jersey corporation, in return for all of VMC's
nonvoting preferred stock. Since April of 1997, the operating partnership has
held this stock. This stock entitles its holder to 95% of the dividends paid by
VMC. Vornado does not believe that its indirect ownership of this 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 these 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 (1) the sum of (a) 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 (b) 95% of the net
after-tax income, if any, from foreclosure property minus (2) the sum of certain
items of non-cash income.
In addition, if Vornado disposes of any asset within 10 years of acquiring
it, Vornado will be required, under Treasury regulations which the Treasury has
not yet promulgated, to distribute at least 95% of the after-tax built-in gain,
if any, recognized on the disposition of the asset.
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These 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 the year to which they relate and if paid on or before the first
regular dividend payment after the 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 have to pay tax on those amounts at
regular ordinary and capital gain corporate tax rates. Furthermore, if Vornado
fails to distribute during each calendar year at least the sum of (a) 85% of its
ordinary income for that year, (b) 95% of its capital gain net income for that
year, and (c) any undistributed taxable income from prior periods, Vornado would
have to pay a 4% excise tax on the excess of the required distribution over the
amounts actually distributed.
Vornado intends to satisfy the annual distribution requirements.
From time to time, Vornado may not have sufficient cash or other liquid
assets to meet the 95% distribution requirement due to timing differences
between (a) when Vornado actually receives income and when it actually pays
deductible expenses and (b) when Vornado includes the income and deducts the
expenses in arriving at its taxable income. If timing differences of this kind
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 as a REIT
If Vornado fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, Vornado will have to pay tax, including
any applicable alternative minimum tax, on its taxable income at regular
corporate rates. Vornado will not be able to deduct distributions to
shareholders in any year in which it fails to qualify, nor will Vornado be
required to make distributions to shareholders. In this event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income and corporate distributees may be eligible
for the dividends received deduction if they satisfy the relevant provisions of
the Internal Revenue Code. 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.
Vornado might not be entitled to the statutory relief described in this
paragraph in all circumstances.
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President Clinton's tax proposals
President Clinton's fiscal year 2000 budget plan contains a number of
proposals that could affect the way Vornado conducts its business. At this time
it is unclear whether these proposals will be enacted into law and, if enacted
into law, the exact form these proposals would take and the effect that they
would have upon Vornado's operations.
Taxation of holders of common shares
U.S. shareholders
As used in this section, the term "U.S. shareholder" means a holder of
common shares who, for United States Federal income tax purposes, is
o a citizen or resident of the United States;
o a corporation organized under the laws of the United States or any
State;
o an estate whose income is subject to United States Federal income
taxation regardless of its source; or
o 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. Distributions of this kind will not be eligible
for the dividends received deduction in the case of U.S. shareholders that are
corporations. Distributions made by Vornado that Vornado properly designates 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,
with certain limitations, capital gains dividends received by an individual U.S.
shareholder may be eligible for 20% or 25% 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,
these distributions will be treated first as a tax-free return of capital to
each U.S. shareholder. Thus, these distributions will reduce the adjusted basis
which the U.S. shareholder has in his shares for tax
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purposes by the amount of the distribution, but not below zero. Distributions in
excess of a U.S. shareholder's adjusted basis in his shares will be 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 of these
months will be treated as both paid by Vornado and received by the shareholder
on December 31 of that year, provided that Vornado actually pays the dividend 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.
U.S. shareholders holding shares at the close of Vornado's taxable year
are 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, the amount
that Vornado designates 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 the designated
amount in determining the 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 the undistributed net capital gains. U.S. shareholders to whom these
rules apply will be allowed a credit or a refund, as the case may be, for the
tax they are deemed to have paid. U.S. shareholders will increase their basis in
their shares by the difference between the amount of the includible gains and
the tax deemed paid by the shareholder in respect of these gains.
Distributions made by Vornado and gain arising from a U.S. shareholder's
sale or exchange of shares will not be treated as passive activity income. As a
result, U.S. shareholders generally will not be able to apply any passive losses
against that income or gain.
When a U.S. shareholder sells or otherwise disposes of shares, the
shareholder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (a) the amount of cash and the fair
market value of any property received on the sale or other disposition, and (b)
the holder's adjusted basis in the shares for tax purposes. This gain or loss
will be capital gain or loss if the U.S. shareholder has held the shares as a
capital asset. The gain or loss will be long-term gain or loss if the U.S.
shareholder has held the shares for more than one year. A maximum tax rate of
20% generally applies to long-term capital gain of an individual U.S.
shareholder. In general, any loss recognized by a U.S. shareholder when the
shareholder sells or otherwise disposes of shares of Vornado that the
shareholder has held for six months or less, after applying certain holding
period rules, will be
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treated as a long-term capital loss, to the extent of distributions received by
the 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, backup withholding at
the rate of 31% may apply to a shareholder with respect to dividends paid unless
the 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. The IRS may also impose penalties on a U.S. shareholder that
does not provide Vornado with his correct taxpayer identification number. A
shareholder may credit any amount paid as backup withholding 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 when received by a tax-exempt entity. Based on that
ruling, provided that a tax-exempt shareholder is not one of the types of entity
described in the next paragraph and has not held its shares as "debt financed
property" within the meaning of the Internal Revenue Code and the shares are not
otherwise used in a trade or business, the dividend income from shares will not
be unrelated business taxable income to a tax-exempt shareholder. Similarly,
income from the sale of shares will not constitute unrelated business taxable
income unless the tax-exempt shareholder has held the shares as "debt financed
property" within the meaning of the Internal Revenue Code or has used the shares
in a trade or business.
Income from an investment in Vornado's shares will constitute unrelated
business taxable income 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 the applicable subsections of Section 501(c) of the Internal
Revenue Code, 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. Prospective investors of the types described in the
preceding sentence 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 unrelated business taxable income to
any trust which
o is described in Section 401(a) of the Internal Revenue Code;
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o is tax exempt under Section 501(a) of the Code; and
o 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 Internal Revenue Code are referred to below as "qualified
trusts". A REIT is a "pension-held REIT" if
o it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Internal Revenue Code provides that stock owned by
qualified trusts will 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
o 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 unrelated business taxable income
is equal to the ratio of (a) the gross income of the REIT from unrelated trades
or businesses, determined as though the REIT were a qualified trust, less direct
expenses related to this gross income, to (b) the total gross income of the
REIT, less direct expenses related to the total gross income. 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.
The rules described above under the heading "-- U.S. shareholders"
concerning the inclusion of Vornado's designated undistributed net capital gains
in the income of its shareholders will apply to tax-exempt entities. Thus,
tax-exempt entities will be allowed a credit or refund of the tax deemed paid by
these entities in respect of the 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, which we call "non-U.S. shareholders", are complex. The following
discussion is only a limited summary of these 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, as discussed below, and other than distributions designated
by Vornado as capital gain
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dividends, will be treated as ordinary income to the extent that they are made
out of current or accumulated earnings and profits of Vornado. A withholding tax
equal to 30% of the gross amount of the distribution will ordinarily apply to
distributions of this kind to non-U.S. shareholders, 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, tax at graduated rates will generally apply to the
non-U.S. shareholder in the same manner as U.S. shareholders are taxed with
respect to dividends, and the 30% branch profits tax may also apply 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 (a)
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
(b) 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 with the non-U.S. shareholder's conduct of a U.S. trade or
business.
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 Vornado's current and
accumulated earnings and profits, which are not treated as attributable to the
gain from Vornado's disposition 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. Distributions of this kind
will instead reduce the adjusted basis of the shares. To the extent that
distributions of this kind 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 have to pay 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 the distribution will be in excess of current and
accumulated earnings and profits, withholding will apply to the distribution at
the rate applicable to dividends. However, the non-U.S. shareholder may seek a
refund of these amounts from the IRS if it is subsequently determined that the
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. Under this statute, these distributions are taxed to a non-U.S.
shareholder as if the gain were effectively connected with a U.S. business.
Thus, non-U.S. shareholders will be taxed on the distributions at the normal
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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 this statute to withhold 35% of any distribution that Vornado
could designate as a capital gain dividend. However, if Vornado designates as a
capital gain dividend a distribution made before the day Vornado actually
effects the designation, then although the distribution may be taxable to a
non-U.S. shareholder, withholding does not apply to the distribution under this
statute. Rather, Vornado must effect the 35% withholding from distributions made
on and after the date of the designation, until the distributions so withheld
equal the amount of the prior distribution designated as a capital gain
dividend. The non-U.S. shareholder may credit the amount withheld against its
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 the Foreign
Investment in Real Property Tax Act if Vornado is a "domestically controlled
REIT", defined generally as a REIT, less than 50% in value of whose stock is and
was held directly or indirectly by foreign persons at all times during a
specified testing period. Vornado believes that it is and will continue to be a
domestically controlled REIT, and, therefore, that taxation under this statute
generally will not apply to the sale of Vornado shares. However, gain to which
this statute does not apply will be taxable to a non-U.S. shareholder if
investment in the shares is treated as effectively connected with the non-U.S.
shareholder's U.S. trade or business. In this case, the same treatment will
apply to the non-U.S. shareholder as to U.S. shareholders with respect to the
gain. In addition, gain to which the Foreign Investment in Real Property Tax Act
does not apply will be taxable to a non-U.S. shareholder if 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 this case, a 30% tax will apply to
the nonresident alien individual's capital gains. A similar rule will apply to
capital gain dividends to which this statute does not apply.
If Vornado were not a domestically-controlled REIT, tax under the Foreign
Investment in Real Property Tax Act would apply to a non-U.S. shareholder's sale
of shares 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. This period is
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 when the shareholder
disposed of the shares. If tax under this statute applies to the gain on the
sale of shares, the same treatment would apply to the non-U.S. shareholder as to
U.S. shareholders with respect to the gain, subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals.
Treaty benefits. Under 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 that
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country for purposes of determining whether the withholding discussed above
applies and whether a tax treaty rate applies. Shareholders that are
partnerships or entities that are similarly fiscally transparent for Federal
income tax purposes, and persons holding shares through such entities, may not
be able to claim benefits under U.S. tax treaties. Shareholders of these kinds
should consult a tax advisor.
Under recently issued Treasury regulations that are effective for payments
made after December 31, 1999, 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 these regulations, in
the case of shares held by a foreign partnership, (x) the certification
requirement would generally apply to the partners in the partnership and (y) the
partnership would be required to provide certain information, including a United
States taxpayer identification number. These regulations provide look-through
rules in the case of tiered partnerships.
Other tax consequences
State or local taxation may apply to Vornado and its shareholders 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 should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Vornado.
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Plan of Distribution
This prospectus relates to the possible issuance by Vornado of up to
2,299,017 shares, if, and to the extent that, Vornado elects to issue common
shares to holders of up to 2,299,017 units, upon the tender of the units for
redemption.
Vornado will not receive any cash proceeds from the issuance of the common
shares to holders of units upon receiving a notice of redemption. Vornado will
acquire one unit from an exchanging partner, in exchange for each common share
that Vornado issues. Consequently, with each redemption, Vornado's interest in
the operating partnership will increase.
All costs, expenses and fees in connection with the registration of the
common shares will be borne by Vornado.
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, 1998, and
the statement of revenues and certain expenses of 888 7th Avenue for the year
ended December 31, 1997 incorporated in this prospectus by reference from
Vornado's Current Report on Form 8-K/A, dated August 12, 1998 and filed with the
SEC on February 24, 1999, 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 statement of revenues and certain expenses of 689 Fifth Avenue New
York, New York, for the year ended December 31, 1997 incorporated in this
prospectus by reference from Vornado's Current Report on Form 8-K, dated August
12, 1998 and filed with the SEC on February 12, 1999, has been audited by
Friedman Alpren & Green LLP, independent auditors, as stated in their report
which is incorporated herein by reference, and has been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The statements of income and expense of Market Square Limited Partnership
for the year ended December 31, 1997 incorporated in this prospectus by
reference from Vornado's Current Report on Form 8-K, dated August 12, 1998 and
filed with the SEC on February 12, 1999, have been audited by Sharrard McGee &
Co., P.A., independent certified public accountants, as stated in their report
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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The consolidated balance sheets of Mendik Real Estate Limited Partnership
and consolidated venture as of December 31, 1997 and 1996, and the related
consolidated statements of operations, partners' capital (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1997
incorporated in this prospectus by reference from Vornado's Current Report on
Form 8-K, dated August 4, 1998 and filed with the SEC on February 12, 1999, have
been audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
Validity of the common shares
The validity of the common shares issued under this prospectus will be
passed upon for Vornado by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland, Maryland counsel to Vornado.
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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 $ 21,211
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 $286,211
</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)
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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
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
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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 Securities and Exchange 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.
Pursuant to the Registration Rights Agreements, 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 (and the
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officers, directors, shareholders, partners, employees, agents and
representatives of certain of the foregoing persons) (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, or any such alleged 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
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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, or any such alleged 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 (with respect to certain of such
indemnified Unit holders) (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.
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-5
<PAGE> 103
Item 16. Exhibits.
Exhibit No. Exhibit
- ----------- -------
3.1 Amended and Restated Declaration of Trust of Vornado Realty
Trust, as amended on 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 July 12, 1997)
3.2 Articles of Amendment of Declaration of Trust of Vornado
Realty Trust, as filed with the State Department of
Assessments and Taxation of Maryland on April 22, 1998
(incorporated by reference to Exhibit 3.1 of Vornado's Current
Report on Form 8-K dated April 22, 1998 (File No. 1-11954),
filed on April 28, 1998)
3.3 Articles Supplementary to Declaration of Trust of Vornado
Realty Trust with respect to the Series D-1 Preferred Shares,
dated November 12, 1998, as filed with the State Department of
Assessments and Taxation of Maryland on November 25, 1998
(incorporated by reference to Exhibit 3.1 of Vornado's Current
Report on Form 8-K dated November 12, 1998 (File No. 1-11954),
filed on November 30, 1998)
3.4 Articles Supplementary to Declaration of Trust of Vornado
Realty Trust with respect to the Series D-1 Preferred Shares,
dated December 22, 1998, as filed with the State Department of
Assessments and Taxation of Maryland on January 12, 1999
(incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K/A, dated November 12, 1998 (File No.
1-11954), filed on February 9, 1999)
3.5 Articles Supplementary classifying the Series B Cumulative
Redeemable Shares of Beneficial Interest (incorporated by
reference to Exhibit 3.3 of Vornado's Current Report on Form
8-K, dated March 3, 1999 (File No. 1-11954), filed on March
17, 1999)
3.6 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)
3.7 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)
II-6
<PAGE> 104
Exhibit No. Exhibit
- ----------- -------
3.8 Amendment, dated as of December 16, 1997, to the Partnership
Agreement (incorporated by reference to Exhibit 3.5 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)
3.9 Second Amendment, dated as of April 1, 1998, to the
Partnership Agreement (incorporated by reference to Exhibit
3.5 of Vornado's Registration Statement on Form S-3 (File No.
333-50095), filed on April 14, 1998)
3.10 Third Amendment, dated as of November 12, 1998, to the
Partnership Agreement (incorporated by reference to Exhibit
3.2 of Vornado's Current Report on Form 8-K, dated November
12, 1998 (File No. 1-11954), filed on November 30, 1998)
3.11 Fourth Amendment to the Partnership Agreement, dated as of
November 30, 1998 (incorporated by reference to Exhibit 3.1 of
Vornado's Current Report on Form 8-K, dated December 1, 1998
(File No. 1-11954), filed on February 9, 1999)
3.12 Exhibit A to the Partnership Agreement, dated as of December
22, 1998 (incorporated by reference to Exhibit 3.4 of
Vornado's Current Report on Form 8-K/A, dated November 12,
1998 (File No. 1-11954), filed on February 9, 1999)
3.13 Fifth Amendment to the Partnership Agreement, dated as of
March 3, 1999 (incorporated by reference to Exhibit 3.1 of
Vornado's Current Report on Form 8-K, dated March 3, 1999
(File No. 1-11954), filed on March 17, 1999)
4.1 Instruments defining the rights of security holders (see
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 of this registration
statement)
4.2 Specimen certificate evidencing Vornado's Series B Cumulative
Redeemable Shares of Beneficial Interest (incorporated by
reference to Exhibit 4.2 of Vornado's Registration Statement
on Form 8-A (File No. 1-11954), filed on March 15, 1999.
4.3 Specimen certificate evidencing Vornado's common shares of
beneficial interest, par value $.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)
II-7
<PAGE> 105
Exhibit No. Exhibit
- ----------- -------
4.4 Specimen certificate representing Vornado's $3.25 Series A
Preferred Shares of Beneficial Interest, liquidation
preference $50.00 per share (incorporated by reference to
Exhibit 4.2 of Vornado's Current Report on Form 8-K, dated
April 3, 1997 (File No. 001-11954), filed on April 8, 1998)
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 1, 1998,
between Vornado and the Unit Holders named therein
(incorporated by reference to Exhibit 10.2 of Vornado's
Amendment No. 1 to Registration Statement on Form S-3 (File
No. 333-50095), filed on May 6, 1998)
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
its opinion filed as Exhibit 5)
23.2 Consent of Sullivan & Cromwell (included in its opinion filed
as Exhibit 8.1)
23.3 Consent of Shearman & Sterling (included in its opinion filed
as Exhibit 8.2)
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Friedman Alpren & Green LLP
23.6 Consent of Sharrard, McGee & Co., P.A.
23.7 Consent of KPMG Peat Marwick LLP
24.1 Powers of Attorney (included on pages II-11 to II-12)
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
II-8
<PAGE> 106
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 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 registrant 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
II-9
<PAGE> 107
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-10
<PAGE> 108
Signatures and 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 attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capabilities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
VORNADO REALTY TRUST,
a Maryland real estate investment trust
By: /s/ Steven Roth
-----------------------------------
Steven Roth
Chairman of the Board of
Trustees
(Principal Executive Officer)
Signature Title Date
--------- ----- ----
/s/ Steven Roth
- --------------------- Chairman of the Board of Trustees April 14, 1999
Steven Roth (Principal Executive Officer)
/s/ Michael D. Fascitelli
- ------------------------ President and Trustee April 14, 1999
Michael D. Fascitelli
/s/ Irwin Goldberg
- -------------------- Vice President--Chief Financial April 14, 1999
Irwin Goldberg Officer (Principal Financial and
Accounting Officer)
/s/ David Mandelbaum
- -------------------- Trustee April 14, 1999
David Mandelbaum
II-11
<PAGE> 109
/s/ Stanley Simon Trustee April 14, 1999
- ----------------------
Stanley Simon
/s/ Ronald Targan Trustee April 14, 1999
- ----------------------
Ronald Targan
/s/ Richard West Trustee April 14, 1999
- ----------------------
Richard West
/s/ Russell Wight, Jr. Trustee April 14, 1999
- ----------------------
Russell Wight, Jr.
II-12
<PAGE> 110
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
3.1 Amended and Restated Declaration of Trust of Vornado Realty
Trust, as amended on 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 July 12, 1997)
3.2 Articles of Amendment of Declaration of Trust of Vornado
Realty Trust, as filed with the State Department of
Assessments and Taxation of Maryland on April 22, 1998
(incorporated by reference to Exhibit 3.1 of Vornado's Current
Report on Form 8-K dated April 22, 1998 (File No. 1-11954),
filed on April 28, 1998)
3.3 Articles Supplementary to Declaration of Trust of Vornado
Realty Trust with respect to the Series D-1 Preferred Shares,
dated November 12, 1998, as filed with the State Department of
Assessments and Taxation of Maryland on November 25, 1998
(incorporated by reference to Exhibit 3.1 of Vornado's Current
Report on Form 8-K dated November 12, 1998 (File No. 1-11954),
filed on November 30, 1998)
3.4 Articles Supplementary to Declaration of Trust of Vornado
Realty Trust with respect to the Series D-1 Preferred Shares,
dated December 22, 1998, as filed with the State Department of
Assessments and Taxation of Maryland on January 12, 1999
(incorporated by reference to Exhibit 3.2 of Vornado's Current
Report on Form 8-K/A, dated November 12, 1998 (File No.
1-11954), filed on February 9, 1999)
3.5 Articles Supplementary classifying the Series B Cumulative
Redeemable Shares of Beneficial Interest (incorporated by
reference to Exhibit 3.3 of Vornado's Current Report on Form
8-K, dated March 3, 1999 (File No. 1-11954), filed on March
17, 1999)
3.6 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)
3.7 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)
II-13
<PAGE> 111
Exhibit No. Exhibit
- ----------- -------
3.8 Amendment, dated as of December 16, 1997, to the Partnership
Agreement (incorporated by reference to Exhibit 3.5 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)
3.9 Second Amendment, dated as of April 1, 1998, to the
Partnership Agreement (incorporated by reference to Exhibit
3.5 of Vornado's Registration Statement on Form S-3 (File No.
333-50095), filed on April 14, 1998)
3.10 Third Amendment, dated as of November 12, 1998, to the
Partnership Agreement (incorporated by reference to Exhibit
3.2 of Vornado's Current Report on Form 8-K, dated November
12, 1998 (File No. 1-11954), filed on November 30, 1998)
3.11 Fourth Amendment to the Partnership Agreement, dated as of
November 30, 1998 (incorporated by reference to Exhibit 3.1 of
Vornado's Current Report on Form 8-K, dated December 1, 1998
(File No. 1-11954), filed on February 9, 1999)
3.12 Exhibit A to the Partnership Agreement, dated as of December
22, 1998 (incorporated by reference to Exhibit 3.4 of
Vornado's Current Report on Form 8-K/A, dated November 12,
1998 (File No. 1-11954), filed on February 9, 1999)
3.13 Fifth Amendment to the Partnership Agreement, dated as of
March 3, 1999 (incorporated by reference to Exhibit 3.1 of
Vornado's Current Report on Form 8-K, dated March 3, 1999
(File No. 1-11954), filed on March 17, 1999)
4.1 Instruments defining the rights of security holders (see
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 of this registration
statement)
4.2 Specimen share certificate evidencing Vornado's Series B
Cumulative Redeemable Shares of Beneficial Interest
(incorporated by reference to Exhibit 4.2 of Vornado's
Registration Statement on Form 8-A (File No. 1-11954, filed
on March 15, 1999)
4.3 Specimen certificate evidencing Vornado's common shares of
beneficial interest, par value $.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)
II-14
<PAGE> 112
Exhibit No. Exhibit
- ----------- -------
4.4 Specimen certificate evidencing Vornado's $3.25 Series A
Preferred Shares of Beneficial Interest, liquidation
preference $50.00 per share (incorporated by reference to
Exhibit 4.2 of Vornado's Current Report on Form 8-K, dated
April 3, 1997 (File No. 001-11954), filed on April 8, 1998)
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 1, 1998,
between Vornado and the Unit Holders named therein
(incorporated by reference to Exhibit 10.2 of Vornado's
Amendment No. 1 to Registration Statement on Form S-3 (File
No. 333-50095), filed on May 6, 1998)
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
its opinion filed as Exhibit 5)
23.2 Consent of Sullivan & Cromwell (included in its opinion filed
as Exhibit 8.1)
23.3 Consent of Shearman & Sterling (included in its opinion filed
as Exhibit 8.2)
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Friedman Alpren & Green LLP
23.6 Consent of Sharrard, McGee & Co., P.A.
23.7 Consent of KPMG Peat Marwick LLP
24 Powers of Attorney (included on pages II-11 to II-12)
II-15
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
FILE NUMBER
865301
April 13, 1999
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Re: Vornado Realty Trust
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 the registration of up to
2,299,017 common shares (the "Shares") of beneficial interest, $.04 par value
per share, of the Company (the "Common Shares"), covered by the above-referenced
Registration Statement and all amendments thereto (the "Registration
Statement"), as filed by the Company under the Securities Act of 1933, as
amended (the "1933 Act"). Capitalized terms used herein but not defined 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 (collectively, the "Documents"):
1. The Registration Statement, including the related form of
prospectus included therein, in the form in which it was transmitted by the
Company to the Securities and Exchange Commission (the "Commission") under the
1933 Act;
2. The Amended and Restated Declaration of Trust, as amended, of the
Company (the "Declaration"), certified as of a recent date by the State
Department of Assessments and Taxation of Maryland (the "SDAT");
<PAGE> 2
Vornado Realty Trust
April 13, 1999
Page 2
3. The Amended and Restated Bylaws of the Company, (the "Bylaws"),
certified as of the date hereof by an officer of the Company;
4. Resolutions adopted by the Board of Trustees, or a duly
authorized committee thereof, of the Company relating to the issuance and
registration of the Shares, certified as of the date hereof by an officer of the
Company;
5. The form of certificate evidencing the Common Shares, certified
as of the date hereof by an officer of the Company;
6. A certificate of the SDAT as of a recent date as to the good
standing of the Company;
7. A certificate executed by an officer of the Company, dated as of
the date hereof; and
8. 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 individual executing any of the Documents, whether on behalf
of such individual or any other person, is legally competent to do so.
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 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 and are enforceable in accordance with all stated
terms.
4. Any Documents submitted to us as originals are authentic. The
form and content of any Documents submitted to us as unexecuted drafts do not
differ in any respect relevant to this opinion from the form and content of such
Documents as executed and delivered. Any Documents submitted to us as
<PAGE> 3
Vornado Realty Trust
April 13, 1999
Page 3
certified or photostatic copies conform to the original documents. All
signatures on all 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 of or amendment to any of the Documents, and there
has been no waiver of any provision of any of the Documents, by action or
omission of the parties or otherwise.
5. The Shares will not be transferred in violation of any
restriction or limitation contained in the Declaration.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our 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 Shares are duly authorized and, when and if issued and
delivered against payment therefor and otherwise in the manner described in the
Resolutions and the Registration Statement, will be (assuming that upon any such
issuance the total number of Common Shares issued and outstanding will not
exceed the total number of Common Shares that the Company is then authorized to
issue under the Declaration) 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 the applicability or effect of any federal or
state securities (or "blue sky") laws, including the securities laws of the
State of Maryland, any federal or state laws regarding fraudulent transfers, or
any real estate syndication laws of the State of Maryland. To the extent that
any matter as to which our opinion is expressed herein would be governed by any
jurisdiction other than the State of Maryland, we do not express any opinion on
such matter.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become
<PAGE> 4
Vornado Realty Trust
April 13, 1999
Page 4
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
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.
We consent to the filing of this opinion as an exhibit to the
Registration Statement. 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]
April 14, 1999
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 2,299,017 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 relied (i) as to certain factual matters upon the statements
and representations contained in the certificates provided to us by Vornado and
Two Penn Plaza REIT, Inc. ("Two Penn"), both dated April 14, 1999 (collectively,
the "Vornado Certificates"), (ii) without independent investigation, as to
certain factual matters upon the statements and representations contained in the
certificate provided to Sullivan & Cromwell by Alexander's, Inc. ("Alexander's")
dated April 14, 1999 (together with the Vornado Certificates, the
"Certificates") and (iii) without independent investigation, upon the opinion of
Shearman & Sterling, dated April 14, 1999, concerning the qualification of
Alexander's as a real estate
<PAGE> 2
Vornado Realty Trust -2-
investment trust (a "REIT") for federal income tax purposes for each taxable
year commencing with its taxable year ending December 31, 1995 (the "Shearman &
Sterling Opinion"). We understand that, in providing their Certificates, Vornado
and Two Penn are relying upon certificates, dated April 14, 1999, 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, (II) the Certificates have been executed by appropriate
and authorized officers of Vornado, Two Penn and Alexander's and (III) the
assumptions and conditions underlying the Shearman & Sterling Opinion are true
and correct.
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. This opinion represents
our legal judgement, but it has no binding effect or official status of any
kind, and no assurance can be given that contrary positions may not be taken by
the Internal Revenue Service or a court.
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 each of Alexander's and Two Penn, of the
requirements of the
<PAGE> 3
Vornado Realty Trust -3-
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 any of Vornado, Alexander's or Two Penn
actually has satisfied or will satisfy the 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 included in the registration
statement on Form S-3 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
<PAGE> 5
EXHIBIT A
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
April 14, 1999
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 Prospectus of Vornado included in the Registration
Statement on Form S-3 filed by Vornado with the Securities and Exchange
Commission of the United States. In providing this certificate the undersigned
officer is relying upon a certificate, dated April 14, 1999 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 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
<PAGE> 6
Sullivan & Cromwell -2-
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, 1997 and 1998
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 1998. Constructive ownership for purposes
of this representation is determined by reference to the attribution rules of
Section 544 of the Code, as modified by Section 856(h) of the Code.
8. The beneficial ownership of Vornado is evidenced by transferable
shares. Vornado will not impose, and is not aware of, any transfer restrictions
on the Shares other than those currently set forth in Vornado's Amended and
Restated Declaration of Trust.
9. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, at least 75 percent of Vornado's gross income has consisted of
and will continue to consist of (i) "rents from real property" within the
meaning of Section 856(d) of the Code, (ii) interest on obligations secured by
mortgages on real property or on interests in real property, (iii) gain from the
sale or other disposition of real property (including interests in real property
and interests in mortgages on real property) which is not described in Section
1221(1) of the Code, (iv) dividends or other distributions on, and gain (other
than gain from
<PAGE> 7
Sullivan & Cromwell -3-
"prohibited transactions") from the sale or other disposition of, transferable
shares in other qualifying REITs, or (v) amounts described in Sections
856(c)(3)(E) through 856 (c)(3)(I) of the Code.*
10. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, at least 95 percent of Vornado's gross income has consisted of
and will consist of (i) the items of income described in paragraph 9 hereof
(other than those described in Section 856(c)(3)(I) of the Code), (ii) gain
realized from the sale or other disposition of stock or securities which are not
property described in Section 1221(1) of the Code, (iii) interest, (iv)
dividends and (v) (x) for taxable years beginning on or before August 5, 1997,
income derived from payments to Vornado or a wholly-owned subsidiary of Vornado
on a bona fide interest rate swap or cap agreement entered into to hedge any
variable rate indebtedness of Vornado or such a subsidiary incurred or to be
incurred to acquire or carry real estate assets, or gain from the sale or other
disposition of such an agreement (an "Interest Rate Agreement") and (y) for
taxable years beginning after August 5, 1997, income derived from payments to
Vornado or a wholly-owned subsidiary of Vornado on interest rate swap or cap
agreements, options, futures contracts, forward rate agreements and other
similar financial instruments entered into to reduce the interest rate risks
with respect to any indebtedness incurred or to be incurred to acquire or carry
real estate assets, or gain from the sale or other disposition of such an
investment.
11. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter other than taxable years beginning after August 5, 1997, less
than 30 percent 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> 8
Sullivan & Cromwell -4-
Vornado's gross income has been derived from the sale or other disposition of
(i) stock or securities (including Interest Rate Agreements) held for less than
one year, (ii) property in a transaction which is a "prohibited transaction" (as
defined in Section 857(b)(6)(B) of the Code), and (iii) real property (including
interests in real property and interests in mortgages on real property) held for
less than four years other than property compulsorily or involuntarily converted
within the meaning of Section 1033 of the Code, and property which is
foreclosure property as defined in Section 856(e) of the Code.
12. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will not receive or
accrue any amount 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
<PAGE> 9
Sullivan & Cromwell -5-
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 bases of the personal property at the beginning and at
the end of the taxable year does not exceed 15 percent of the average of the
aggregate adjusted bases of the real property and the personal property leased
under such lease at the beginning and at the end of such taxable year within the
meaning of Section 856(d)(1) of the Code.
14. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will continue not to
receive or accrue, directly or indirectly, any rent or interest, where the
determination of the amount of rent or interest depends, in the case of rent, on
the income or profits of any person from the property, and, in the case of
interest, upon the income or profits of any person, except where interest or
rent is based on a fixed percentage or percentages of receipts or sales within
the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and
except that Vornado may receive or accrue a de minimis amount of such rent or
interest, provided that such amount does not materially adversely affect
Vornado's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 9 and 10 hereof.
15. For Vornado's 1993 taxable year and for each of Vornado's taxable
years thereafter, Vornado has not received or accrued and will not receive or
accrue, directly or indirectly, rent or any other consideration under a lease
from any person in which Vornado owns, directly or indirectly (a) in the case of
a corporation, 10 percent or more of the total combined voting power of all
classes of stock entitled to vote, or 10 percent or more of the total number of
shares of all classes of stock, or (b) in the case of an entity other than a
corporation, an interest of 10 percent or more in the assets or net profits of
such entity, except that Vornado may receive or accrue a de minimis amount of
such rent or other consideration provided that such amount does not materially
adversely affect Vornado's ability to satisfy the standards relating to 75
percent and 95 percent of its gross income as set forth in paragraphs 9 and 10
hereof. For purposes of this paragraph ownership will be determined by taking
into account the constructive ownership rules of Section 318(a) of the Code (as
modified by Section 856(d)(5) of the Code). For Vornado's 1993
<PAGE> 10
Sullivan & Cromwell -6-
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 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
<PAGE> 11
Sullivan & Cromwell -7-
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
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
<PAGE> 12
Sullivan & Cromwell -8-
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 treated as a
corporation under Section 7704 of the Code).*
26. Vornado is a "domestically-controlled REIT" within the meaning of
Section 897(h)(4)(B) of the Code (that is, at all times during the last five
years less than 50 percent (as determined by reference to value) of the
outstanding interests in Vornado, or the predecessor of Vornado, have been held,
directly or indirectly, by foreign persons).
27. Vornado is not a "pension-held REIT" within the meaning of Section
856(h)(3)(D) of the Code (that is, either (i) it is not the case that Vornado
fails to be closely-held (within the meaning of Section 856(h) of the Code
solely as a result of Section 856(h)(3) of the Code or (ii) certain other
conditions are met).
28. Vornado has made a timely election, pursuant to Notice 88-19, to be
subject to rules similar to the rules of Section 1374 of the Code with respect
to built-in gains recognized during the ten-year period following its initial
qualification as a REIT.
29. Vornado has at all times dealt, and will continue to deal, with
Vornado Management Corp., The Mendik Management Company, Inc. and Vornado RR,
Inc. on an arm's length basis. Furthermore, Vornado will deal on an arm's length
basis with any corporation in which Vornado owns, directly or indirectly,
non-voting shares, which is not a wholly-owned subsidiary of Vornado.
- --------
* For these purposes we are disregarding a partnership
between two wholly-owned subsidiaries of Vornado.
<PAGE> 13
Sullivan & Cromwell -9-
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 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 14th day of April, 1999.
VORNADO REALTY TRUST
By: /s/ Joseph Macnow
--------------------------
Name: Joseph Macnow
Title: Executive Vice
President
<PAGE> 14
EXHIBIT B
Two Penn Plaza REIT, Inc.
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
April 14, 1999
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 Prospectus of
Vornado included in the Registration Statement on Form S-3 filed by Vornado with
the Securities and Exchange Commission of the United States. In providing this
certificate the undersigned officer is relying upon a certificate, dated April
14, 1999 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.
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
<PAGE> 15
Sullivan & Cromwell -2-
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
mortgages on real property or on interests in real property, (iii) gain from the
sale or other disposition of real property (including interests in real property
and interests in mortgages on real property) which is not described in Section
1221(1) of the Code, (iv) dividends or other distributions on, and gain (other
than gain from "prohibited transactions") from the sale or other disposition of,
transferable shares in other qualifying real estate investment trusts, or (v)
amounts described in Sections 856(c)(3)(E) through 856 (c)(3)(I) of the Code.*
- --------
* For purposes of these representations (i) all assets, liabilities and
items of income, deduction and credit of a "qualified REIT subsidiary"
(as such term is defined in Section 856(i) of the Code) of Two Penn
will be treated as assets, liabilities and such items of Two Penn and
(ii) Two Penn will be deemed to own its
<PAGE> 16
Sullivan & Cromwell -3-
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 (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
- ----------
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> 17
Sullivan & Cromwell -4-
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 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
<PAGE> 18
Sullivan & Cromwell -5-
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 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
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
<PAGE> 19
Sullivan & Cromwell -6-
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 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
<PAGE> 20
Sullivan & Cromwell -7-
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 Two Penn, signed this officers
certificate as of this 14th day of April, 1999.
TWO PENN PLAZA REIT, INC.
By: /s/ Joseph Macnow
---------------------------
Name: Joseph Macnow
Title: Executive Vice
President
<PAGE> 21
EXHIBIT C
Alexander's, Inc.
Park 80 West, Plaza II
Saddle Brook, NJ 07663
April 14, 1999
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned officer of Alexander's, Inc. (the "Company") hereby
certifies on behalf of the Company that, after due inquiry, he has made the
representations set forth below and affirms as of the date hereof the accuracy
of such representations. The Company acknowledges and understands that Shearman
& Sterling will be relying upon the accuracy of this certificate and these
representations in (i) rendering an opinion regarding the election made by the
Company to be treated for federal income tax purposes as a real estate
investment trust (a "REIT") within the meaning of Section 856(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) allowing the Shearman &
Sterling name and opinion to be included by reference in the Registration
Statement filed by Vornado Realty Trust with the Securities and Exchange
Commission of the United States in connection with the registration of 2,299,017
shares of common stock, par value $.04 per share, of Vornado Realty Trust. In
certain of these representations, the Company is relying on representations
furnished to it by Vornado Realty Trust.
1. The Company has operated, and will continue to operate, in
accordance with (i) its organizational document and (ii) the laws of the
jurisdiction in which it is organized.
2. The Company has been, and will continue to be, managed by a board
of directors.
3. Since January 1, 1995, the taxable year of the Company has been
the calendar year.
<PAGE> 22
4. The Company has made a valid election to be taxed as a REIT for
its taxable year ended December 31, 1995, which election has not been, and will
not be, revoked or terminated.
5. For its taxable year ended December 31, 1995, the Company had a
deficit in earnings and profits (as defined in the Code) in excess of its
accumulated earnings and profits (if any) as of the close of its taxable year
ended December 31, 1994.
6. For each taxable year of the Company commencing with the
Company's taxable year ended December 31, 1995, at least 75 percent of the
Company's annual gross income has consisted, and will continue to consist, of
(i) "rents from real property" within the meaning of Section 856(d) of the Code,
(ii) interest on obligations secured by mortgages on real property or on
interests in real property, (iii) gain from the sale or other disposition of
real property (including interests in real property and interests in mortgages
on real property) which is not described in Section 1221(l) of the Code, or (iv)
amounts described in Sections 856(c)(3)(D) through 856(c)(3)(I) of the Code.(1)
7. For each taxable year of the Company commencing with the
Company's taxable year ended December 31, 1995, at least 95 percent of the
Company's annual gross income has consisted, and will continue to consist, of
(i) the items of income described in paragraph 6 hereof (other than those
described in Section 856(c)(3)(I) of the Code), (ii) gain realized from the sale
or other disposition of stock or securities which are not property described in
Section 1221(l) of the Code, (iii) interest, (iv) dividends and (v) income
derived from payments to the Company on interest rate swap or cap agreements,
options, futures contracts, forward rate agreements and other similar financial
instruments entered into to reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred to acquire or carry real estate assets,
or gain from the sale or other disposition of such an investment.
8. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, any amount (herein "service consideration"),
directly or indirectly, with respect to any real or personal property in any
case in which the Company or any wholly-owned subsidiary of the Company or any
partnership or tenancy-in-common in which the
- --------
(1) For purposes of these representations (i) all assets, liabilities and
items of income, deduction and credit of a "qualified REIT subsidiary" (as
such term is defined in Section 856(i) of the Code) of the Company are
treated as assets, liabilities and such items of the Company and (ii) the
Company is deemed to own its proportionate share (determined in accordance
with Treasury Regulations Section 1.856-3(g)) of each of the assets of
each partnership or tenancy-in-common in which it holds an interest
(including as a result of the operation of clause (i)) and is deemed to be
entitled to the income of the partnership or tenancy-in-common
attributable to such share.
<PAGE> 23
Company has an interest (or any agent of any of the foregoing) furnishes or
renders services to the tenants of such property, or manages or operates such
property other than (i) through an "independent contractor" with respect to the
Company (within the meaning of Section 856(d)(3) of the Code) from whom or which
the Company or such subsidiary, partnership or tenancy-in-common, as the case
may be, does not derive or receive any income; (ii) services usually or
customarily rendered in connection with the rental of space for occupancy only
within the meaning of Treasury Regulations Section 1.512(b)-l(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)-l(c)(5); or (iii)
actions carried out by or on behalf of the directors of the Company as a part of
performing their fiduciary duty to manage the Company, which need not be
delegated or contracted out to independent contractors, pursuant to Treasury
Regulations Section 1.856-4(b)(5)(ii), except that the Company may receive or
accrue a de minimis amount of service consideration which does not (a) cause any
amount included in the Company's gross income, other than such service
consideration, to fail to qualify as "rents from real property" under Section
856(d) of the Code or (b) materially adversely affect the Company's ability to
satisfy the standards relating to 75 percent and 95 percent of its gross income
as set forth in paragraphs 6 and 7 hereof.
9. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, rent attributable to personal property except
with respect to a lease of real property where the average of the adjusted bases
of the personal property at the beginning and at the end of the taxable year
does not exceed 15 percent of the average of the aggregate adjusted bases of the
real property and the personal property leased under such lease at the beginning
and at the end of such taxable year within the meaning of Section 856(d)(1) of
the Code.
10. Since January 1, 1995, the Company has not received or accrued,
and will not receive or accrue, directly or indirectly, any rent or interest,
where the determination of amount of rent or interest depends, in the case of
rent, on the income or profits of any person from the property, and, in the case
of interest, upon the income or profits of any person, except where interest or
rent is based on a fixed percentage or percentages of receipts or sales within
the meaning of Section 856(d)(2)(A) and Section 856(f)(1)(A) of the Code, and
except that the Company may receive or accrue a de minimis amount of such rent
or interest, provided that such amount does not materially adversely affect the
Company's ability to satisfy the standards relating to 75 percent and 95 percent
of its gross income as set forth in paragraphs 6 and 7 hereof.
11. The Company will not receive or accrue (and since January 1,
1995, has not received or accrued) any amount from (i) any corporation in which
it owns (or since July 1, 1994, has owned) 10 percent or more of the total
combined voting power of all shares of stock entitled to vote or 10 percent or
more of the total number of shares of all classes of stock of such corporation,
or (ii) any unincorporated entity in which it owns (or since July 1, 1994, has
owned) an interest of 10 percent or more in the assets or net profits of such
person. For
<PAGE> 24
purposes of this assumption, ownership is determined in accordance with section
856(d)(5) of the Code. Since January 1, 1995, the Company has complied, and will
continue to comply, with the recordkeeping and filing requirements of Treasury
Regulations Section 1.856-4(b)(4).
12. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, at least 75 percent of the value of the Company's total
assets (as determined in accordance with Treasury Regulations Section
1.856-2(d)) has consisted, and will continue to consist, of real estate assets
within the meaning of Sections 856(c)(4) and 856(c)(5)(B) of the Code, cash and
cash items (including receivables which arise in the ordinary course of the
Company's operations, but not including receivables purchased from another
person), and Government securities.
13. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, the Company has not beneficially owned, and will not
beneficially own, securities in any one issuer (except for any securities
qualifying as "real estate assets" within the meaning of section 856(c)(5)(B) of
the Code) having an aggregate value in excess of 5 percent of the Company's
total assets, as determined in accordance with Treasury Regulations Section
1.856-2(d).
14. Since January 1, 1995, at the close of each quarter of the
Company's taxable year, the Company has not beneficially owned, and will not
beneficially own, securities of any issuer (except for any securities qualifying
as "real estate assets" within the meaning of section 856(c)(5)(B) of the Code)
representing more than 10 percent of the outstanding voting securities of such
issuer.
15. The Company has requested and maintained, and will continue to
request and maintain, records concerning ownership of its outstanding shares in
accordance with section 857(f)(1) of the Code and Treasury Regulations
promulgated thereunder and predecessor requirements.
16. The Company has made, and will make, distributions to its
stockholders sufficient to meet the 95 percent distribution requirements of
section 857(a)(1) of the Code for the taxable year for which the REIT election
was made and every subsequent taxable year. In this connection, the Company has
complied with and will continue to comply with the distribution requirements
imposed by Notice 88-19 in respect of "built-in gains" recognized by the
Company.
17. Each distribution by the Company that is treated as a dividend
within the meaning of Section 316 of the Code will qualify for the deduction for
dividends paid under Section 561 of the Code, and without limiting the
foregoing, the Company will not make any distribution that constitutes a
preferential dividend as described in Section 562(c) of the Code.
<PAGE> 25
18. At all times, the Company has beneficially held, and will
continue to beneficially hold, all of its assets for investment purposes and not
as (i) stock in trade or other property of a kind which would properly be
includible in inventory at hand at the close of a taxable year or (ii) property
held primarily for sale to customers in the ordinary course of the Company's
trade or business.
19. The Company has not held, and will not hold, a partnership
interest, unless such partnership is treated at all times for federal income tax
purposes as a partnership and not as an association taxable as a corporation
(including a publicly traded partnership that is treated as a corporation under
Section 7704 of the Code).
20. Since January 1, 1995, the outstanding shares of the Company have
been held by at least 100 or more persons, and such shares will continue to be
held by 100 or more persons.
21. Not more than 50 percent in value of the outstanding shares of
the Company have been or will be owned directly or indirectly, actually or
constructively (within the meaning of section 542(a)(2) of the Code, as modified
by section 856(h) of the Code), by five or fewer individuals (or entities
treated as individuals for purposes of section 856(h) of the Code) during the
second half of every taxable year following the taxable year ended December 31,
1995.
22. In addition to those representations set forth in this officer's
certificate relating to the qualification of the Company as a REIT, the Company
has complied, and will continue to comply, with all other requirements under the
Code (including, without limitation, Sections 856 through 860 of the Code) in
order to qualify as a REIT for each of the Company's taxable years since January
1, 1995.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this
officers certificate as of this 14th day of April 1999.
ALEXANDER'S INC.
By: /s/ Joseph Macnow
----------------------------------
Name: Joseph Macnow
Title: Chief Financial Officer
<PAGE> 26
EXHIBIT D
[LETTERHEAD OF SHEARMAN & STERLING]
April 14, 1999
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 of Vornado
Realty Trust 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
April 14, 1999. 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> 27
(a) Alexander's has made a valid election to be taxed as a
REIT for its taxable year ended December 31, 1995, which election has
not been, and will not be, revoked or terminated.
(b) Since January 1, 1995, the outstanding shares of
Alexander's have been held by at least 100 or more persons, and such
shares will continue to be held by 100 or more persons.
(c) Not more than 50 percent in value of the outstanding
shares of Alexander's have been or will be owned directly or
indirectly, actually or constructively (within the meaning of section
542(a)(2) of the Code, as modified by section 856(h) of the Code), by
five or fewer individuals (or entities treated as individuals for
purposes of section 856(h) of the Code) during the second half of every
taxable year following the taxable year ended December 31, 1995.
(d) Alexander's will not receive or accrue (and since January
1, 1995, has not received or accrued) any amount from (i) any
corporation in which it owns (or since July 1, 1994, has owned) 10
percent or more of the total combined voting power of all shares of
stock entitled to vote or 10 percent or more of the total number of
shares of all classes of stock of such corporation, or (ii) any
unincorporated entity in which it owns (or since July 1, 1994, has
owned) an interest of 10 percent or more in the assets or net profits
of such person. For purposes of this assumption, ownership is
determined in accordance with section 856(d)(5) of the Code.
(e) Alexander's has requested and maintained, and will
continue to request and maintain, records concerning ownership of its
outstanding shares in accordance with section 857(f)(1) of the Code and
Treasury Regulations promulgated thereunder and predecessor
requirements.
(f) Alexander's has made and will make distributions to its
stockholders sufficient to meet the 95 percent distribution
requirements of section 857(a)(1) of the Code for the taxable year for
which the REIT election was made and every subsequent taxable year.
(g) For its taxable year ended December 31, 1995, Alexander's
had a deficit in earnings and profits (as defined in the Code) in
excess of its accumulated earnings and profits (if any) as of the close
of its taxable year ended December 31, 1994.
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> 28
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 being
filed in conjunction with the registration of 2,299,017 shares of common stock,
par value $.04 per share, of Vornado Realty Trust and (ii) the inclusion of this
opinion as an exhibit to the Prospectus included in such Registration Statement.
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 8.2
[LETTERHEAD OF SHEARMAN & STERLING]
April 14, 1999
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 of Vornado
Realty Trust 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
April 14, 1999. 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) an interest of 10 percent or more in the assets or net profits
of such person. For purposes of this assumption, ownership is
determined in accordance with section 856(d)(5) of the Code.
(e) Alexander's has requested and maintained, and will
continue to request and maintain, records concerning ownership of its
outstanding shares in accordance with section 857(f)(1) of the Code and
Treasury Regulations promulgated thereunder and predecessor
requirements.
(f) Alexander's has made and will make distributions to its
stockholders sufficient to meet the 95 percent distribution
requirements of section 857(a)(1) of the Code for the taxable year for
which the REIT election was made and every subsequent taxable year.
(g) For its taxable year ended December 31, 1995, Alexander's
had a deficit in earnings and profits (as defined in the Code) in
excess of its accumulated earnings and profits (if any) as of the close
of its taxable year ended December 31, 1994.
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 being
filed in conjunction with the registration of 2,299,017 shares of common stock,
par value $.04 per share, of Vornado Realty Trust and (ii) the inclusion of this
opinion as an exhibit to the Prospectus included in such Registration Statement.
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 23.4
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 20, 1998
on the statement of revenues and certain expenses of 888 7th Avenue for the year
ended December 31, 1997, which report is incorporated by reference in the Form
8-K/A of Vornado Realty Trust filed with the Securities and Exchange Commission
on February 24, 1999, 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, 1999
<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 March 24, 1999, appearing
in the Annual Report on Form 10-K of Vornado Realty Trust for the year ended
December 31, 1998 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 8, 1999
<PAGE> 1
Exhibit 23.5
[Letterhead of Friedman Alpren & Green LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into this Registration Statement
of Vornado Realty Trust on Form S-3 or our report dated July 30, 1998 on the
statement of revenues and certain expenses of 689 Fifth Avenue New York, New
York, for the year ended December 31, 1997, which report appears in the Form
8-K of Vornado Realty Trust, dated August 4, 1998 and filed with the Securities
and Exchange Commission on February 12, 1999, and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Friedman Alpren & Green LLP
New York, New York
April 12, 1999
<PAGE> 1
Exhibit 23.6
[Letterhead of Sharrard, McGee & Co., P.A.]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into this Registration Statement of
Vornado Realty Trust on Form S-3 of our report dated September 30, 1998 on the
statement of income and expense of Market Square Limited Partnership for year
ended December 31, 1997, and our report dated November 12, 1998 on the statement
of income and expense of Market Square Limited Partnership for the nine months
ended September 30, 1998 and 1997, which reports appear in the Form 8-K of
Vornado Realty Trust, dated August 12, 1998 and filed with the Securities and
Exchange Commission on February 12, 1999, and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Sharrard, McGee & Co., P.A.
High Point, North Carolina
April 13, 1999
<PAGE> 1
Exhibit 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into this Registration Statement
on Form S-3 of Vornado Realty Trust of our report dated March 20, 1998, with
respect to the consolidated balance sheets of Mendik Real Estate Limited
Partnership and consolidated venture as of December 31, 1997 and 1996, and the
related consolidated statements of operations, partners' capital (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1997, which report is incorporated by reference in the Form 8-K of Vornado
Realty Trust, dated August 4, 1998 and filed with the Securities and Exchange
Commission on February 12, 1999, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 13, 1999
