SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
VORNADO OPERATING COMPANY
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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VORNADO OPERATING COMPANY
------------ V
------------
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
2 0 0 2
VORNADO OPERATING COMPANY
888 SEVENTH AVENUE
NEW YORK, NY 10019
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2002
------------------------
To our Stockholders:
The Annual Meeting of Stockholders of Vornado Operating Company, a Delaware
corporation (the "Company"), will be held at the Marriott Hotel, Interstate 80
and the Garden State Parkway, Saddle Brook, New Jersey 07663, on Wednesday, May
29, 2002, beginning at 10:00 a.m., local time, for the following purposes:
(1) The election of two persons to the Board of Directors of the Company,
each for a term of three years; and
(2) The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Pursuant to the By-laws of the Company, the Board of Directors of the
Company has fixed the close of business on April 22, 2002, as the record date
for determination of stockholders entitled to notice of and to vote at the
meeting.
Your attention is called to the attached proxy statement. Whether or not
you plan to attend the meeting, you are urged to complete and sign the enclosed
proxy and return it in the accompanying envelope to which no postage need be
affixed if mailed in the United States. If you attend the meeting in person, you
may revoke your proxy and vote your own shares.
By Order of the Board of Directors,
Larry Portal
Corporate Secretary
VORNADO OPERATING COMPANY
888 SEVENTH AVENUE
NEW YORK, NY 10019
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2002
------------------------
The enclosed proxy is being solicited by the Board of Directors (the
"Board") of Vornado Operating Company, a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders of the Company to be held on
Wednesday, May 29, 2002, beginning at 10:00 a.m., local time at the Marriott
Hotel, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey
07663 (the "Annual Meeting"). The proxy may be revoked by the stockholder at any
time prior to its exercise at the Annual Meeting by executing and delivering to
the Company at its principal office a written revocation or later dated proxy or
by attending the Annual Meeting and voting in person. The cost of soliciting
proxies will be borne by the Company. MacKenzie Partners, Inc. has been engaged
by the Company to solicit proxies, at a fee not to exceed $5,000. In addition to
solicitation by mail and by telephone, arrangements may be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to their principals and the Company may reimburse them for their
expenses in so doing.
Only stockholders of record at the close of business on April 22, 2002 are
entitled to notice of and to vote at the Annual Meeting. There were on such date
4,068,924 shares of common stock, par value $.01 per share ("Common Stock"), of
the Company outstanding, each entitled to one vote at the Annual Meeting.
The holders of a majority of the outstanding shares of Common Stock on
April 22, 2002 present in person or by proxy and entitled to vote will
constitute a quorum for the transaction of business at the Annual Meeting.
The principal executive office of the Company is located at 888 Seventh
Avenue, New York, New York 10019. The accompanying notice of annual meeting of
stockholders, this proxy statement and the enclosed proxy will be mailed on or
about April 30, 2002 to the Company's stockholders of record as of the close of
business on April 22, 2002.
ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Company's Board of Directors currently has six members. The Company's
restated certificate of incorporation (the "Charter") provides that the
directors of the Company are divided into three classes, as nearly equal in
number as reasonably possible, as determined by the Board of Directors. The term
of office of Class I directors will expire at the annual meeting of stockholders
in 2002, the term of office of Class II directors will expire at the annual
meeting of stockholders in 2003 and the term of office of Class III directors
will expire at the annual meeting of stockholders in 2004, with each class of
directors to hold office until their successors have been duly elected and
qualified. At each annual meeting of stockholders, directors elected to succeed
the directors whose terms expire at such annual meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders in the third
year following the year of their election and until their successors have been
duly elected and qualified.
Unless otherwise directed in the proxy, each of the persons named in the
enclosed proxy, or his substitute, will vote such proxy for the election of the
two nominees listed below as directors for a three-year term and until their
respective successors are duly elected and qualified. If any nominee at the time
of election is unavailable to serve, a contingency not presently anticipated, it
is intended that the persons named in the proxy, or their substitutes, will vote
for an alternate nominee who will be designated by the Board. Proxies may be
voted only for the nominees named or such alternates.
Under the By-laws, the affirmative vote of a plurality of all the votes
cast at the Annual Meeting, assuming a quorum is present, is sufficient to elect
a director. Under Delaware law, proxies marked "withhold authority" will be
counted for the purpose of determining the presence of a quorum but such proxies
will not be counted as votes cast in the election
2
of directors and thus will have no effect on the result of the vote.
Broker non-votes, if any, will be included in determining whether a quorum
is present, but will not be included in determining the number of votes cast in
a Director's favor. A broker non-vote occurs when a broker holding shares for a
beneficial owner does not vote on a particular matter because the broker has not
received instructions from the beneficial owner and does not have discretionary
voting power with respect to that matter.
The following table sets forth the nominees (both of whom are presently
members of the Board) and the other present members of the Board. With respect
to each such person, the table sets forth the age, principal occupation,
position presently held with the Company, and the year in which the person first
became a director of the Company.
YEAR YEAR
PRINCIPAL OCCUPATION TERM FIRST
AND PRESENT POSITION WILL APPOINTED
NAME AGE WITH THE COMPANY EXPIRE AS DIRECTOR
---- --- ------------------------- ------ -----------
NOMINEES FOR ELECTION TO SERVE AS DIRECTORS UNTIL THE
ANNUAL MEETING IN 2005
------------------------------------------------------
Douglas H.
Dittrick(1) 68 President and Chief 2002 1998
Executive Officer of
Douglas Communications
Corporation II; Director
of the Company
Richard West(1)(2) 64 Dean Emeritus, Leonard N. 2002 1998
Stern School of Business,
New York University;
Director of the Company
3
YEAR YEAR
PRINCIPAL OCCUPATION TERM FIRST
AND PRESENT POSITION WILL APPOINTED
NAME AGE WITH THE COMPANY EXPIRE AS DIRECTOR
---- --- ------------------------- ------ -----------
PRESENT DIRECTORS ELECTED TO SERVE UNTIL THE ANNUAL
MEETING IN 2004
------------------------------------------------------
Steven Roth(3) 60 Chairman of the Board and 2004 1998
Chief Executive Officer
of the Company; Managing
General Partner of
Interstate Properties
("Interstate")
Michael D.
Fascitelli(3) 45 President of the Company 2004 1998
PRESENT DIRECTORS ELECTED TO SERVE UNTIL THE ANNUAL
MEETING IN 2003
------------------------------------------------------
Martin Rosen(1)(2) 60 President of United Yarn 2003 1998
Products Co., Inc.
Russell B. Wight,
Jr.(3) 62 A general partner of 2003 1998
Interstate
---------------
(1) Member of the Audit Committee of the Board of Directors of the Company.
(2) Member of the Compensation Committee of the Board of Directors of the
Company.
(3) Member of the Executive Committee of the Board of Directors of the Company.
The Board does not have a Nominating Committee.
Mr. Dittrick has been the President and Chief Executive Officer of Douglas
Communications Corporation II (cable television) since July 1986. Prior to July
1986, Mr. Dittrick was the President and Chief Executive Officer of Tribune
Cable Communications, a cable television subsidiary of Tribune Company, which
was sold in 1986. Mr. Dittrick is Chairman of the Board of Trustees of Ohio
Wesleyan University, past President of Phi Gamma Delta, an international college
fraternity, and the Chairman of the Board of Trustees of Valley Hospital.
4
Mr. West is Dean Emeritus of the Leonard N. Stern School of Business, New
York University. He was a professor there from September 1984 until September
1995. He was also Dean from September 1984 until August 1993. Prior thereto, Mr.
West was Dean of the Amos Tuck School of Business Administration at Dartmouth
College. Mr. West is also a trustee of Vornado and a director of Alexander's,
Bowne & Co., Inc., and various investment companies managed by Merrill Lynch
investment managers.
Mr. Roth is Chairman of the Board and Chief Executive Officer of the
Company. Mr. Roth has been Chairman of the Board and Chief Executive Officer of
Vornado Realty Trust ("Vornado") since May 1989 and Chairman of the Executive
Committee of the Board of Vornado since April 1988. Since 1968, he has been a
general partner of Interstate and, more recently, he has been Managing General
Partner. On March 2, 1995, he became Chief Executive Officer of Alexander's,
Inc. ("Alexander's"). Mr. Roth is also a director of Alexander's and of Capital
Trust, Inc.
Mr. Fascitelli is President of the Company. Mr. Fascitelli has been
President and a trustee of Vornado, and a director of Alexander's since December
2, 1996. Mr. Fascitelli has been president of Alexander's since August 1, 2000.
From December 1992 to December 1996, Mr. Fascitelli was a partner at Goldman,
Sachs & Co. in charge of its real estate practice and was a vice president prior
to 1992.
Mr. Rosen has been the President of United Yarn Products Co., Inc. (a
manufacturer of synthetic fiber) since 1970. Mr. Rosen is a former director of
First National Bank of North Jersey, and a former director of First Fidelity
North, N.A. Mr. Rosen is a board member and past president of the YM-YWHA of
North Jersey, a board member of the Daughters of Miriam Home for the Aged
Foundation, and Chairman of the Counsel for the Arts at Massachusetts Institute
of Technology.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight is
also a trustee of Vornado and a director of Alexander's.
5
The Company is not aware of any family relationships among any directors or
executive officers of the Company. Messrs. Roth and Wight are affiliated with
each other as general partners of Interstate and in other businesses.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Executive Committee, an Audit Committee and a Compensation
Committee.
The Board held five meetings during 2001. Each director attended at least
75% of the combined total of the meetings of the Board and all committees on
which he served during 2001.
Executive Committee
The Executive Committee possesses and may exercise all the authority and
powers of the Board in the management of the business and affairs of the
Company, except those reserved to the Board by the Delaware General Corporation
Law. The Executive Committee consists of three members, Messrs. Roth, Fascitelli
and Wight. Mr. Roth is Chairman of the Executive Committee. The Executive
Committee did not meet in 2001.
Audit Committee
The purposes of the Audit Committee are to assist the Board: (i) in its
oversight of the Company's accounting and financial reporting principles and
policies and internal controls and procedures; (ii) in its oversight of the
Company's financial statements and the independent audit thereof; (iii) in
selecting, evaluating and, where deemed appropriate, replacing the outside
auditors; and (iv) in evaluating the independence of the outside auditors. The
function of the Audit Committee is oversight. The management of the Company is
responsible for the preparation, presentation and integrity of the Company's
financial statements and for maintaining appropriate accounting and financial
reporting principles and policies and internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. The outside auditors
6
are responsible for planning and carrying out a proper audit and reviews,
including review of the Company's quarterly financial statements prior to the
filing of each quarterly report on Form 10-Q, and other procedures. The Board
has adopted a written Audit Committee Charter which was attached as Annex A to
the Company's proxy statement for its 2001 Annual Meeting. The Audit Committee,
which held four meetings during 2001, consists of three members, Messrs. West,
Rosen and Dittrick. Mr. Dittrick is the Chairman of the Audit Committee.
Compensation Committee
The Compensation Committee is responsible for establishing the terms of the
compensation of the executive officers and the granting of awards under the
Company's 1998 Omnibus Stock Plan (the "Omnibus Stock Plan"). The Committee
consists of two members, Mr. West and Mr. Rosen. Mr. West is the Chairman of the
Compensation Committee. The Compensation Committee did not meet in 2001.
7
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board is responsible for establishing the
terms of the compensation of the executive officers and the granting of awards
under the Company's Omnibus Stock Plan.
The only executive officer of the Company that received cash compensation
from the Company is Emanuel Pearlman, the Company's former Chief Operating
Officer. Mr. Pearlman's base salary was $450,000 in accordance with his
employment agreement. None of the Company's other executive officers has
received compensation from or on behalf of the Company since its formation on
October 30, 1997, except that in connection with the formation of the Company,
options and Stock Appreciation Rights ("SARs") were granted to Vornado employees
who held Vornado options, including executive officers of the Company.
The factors and criteria which the Compensation Committee utilizes in
establishing the compensation of the Company's executive officers include an
evaluation of the Company's overall financial and business performance, the
officer's overall leadership and management and contributions by the officer to
the Company's acquisitions or investments. The Compensation Committee also
considers the compensation provided in the prior year and estimates of
compensation to be provided by similar companies in the current year. The
primary objective of the Compensation Committee in establishing the terms of the
executive officers' compensation is to provide strong financial incentives for
the executive officers to maximize stockholder value. The Compensation Committee
believes that the best way to accomplish this objective is to grant substantial
stock options on a fixed share basis without adjusting the number of shares
granted to offset changes in the Company's stock price.
8
Section 162(m) of the Internal Revenue Code, which was adopted in 1993,
provides that, in general, publicly traded companies may not deduct, in any
taxable year, compensation in excess of $1,000,000 paid to the company's chief
executive officer and four other most highly compensated executive officers as
of the end of any fiscal year which is not "performance based", as defined in
Section 162(m). Options granted under the Omnibus Stock Plan to date satisfy the
performance based requirements under the final regulations issued with respect
to Section 162(m).
RICHARD WEST
MARTIN N. ROSEN
9
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
with the performance of the Russell 2000 Index and NASDAQ Industrial Index (a
peer group index) for the period from October 16, 1998 (the initial day of
trading of the Common Stock on the American Stock Exchange) through the end of
2001. The graph assumes that $100 was invested on October 16, 1998 in each of
the Company's Common Stock, the Russell 2000 Index and the NASDAQ Industrial
Index, and that all dividends were reinvested. THERE CAN BE NO ASSURANCE THAT
PERFORMANCE OF THE COMPANY'S SHARES WILL CONTINUE IN LINE WITH THE SAME OR
SIMILAR TRENDS DEPICTED IN THE GRAPH BELOW.
[PERFORMANCE GRAPH]
VORNADO OPERATING NASDAQ INDUSTRIAL
COMPANY RUSSELL 2000 INDEX INDEX
----------------- ------------------ -----------
10/16/98 100.00 100.00 100.00
12/31/98 101.00 123.00 129.00
12/31/99 75.00 149.00 187.00
12/31/00 26.00 146.00 156.00
12/31/01 6.00 149.00 157.00
-----------------------------------------------------------------------
10/16/98 12/31/98 12/31/99 12/31/00 12/31/01
-----------------------------------------------------------------------
Vornado Operating
Company 100 101 75 26 6
Russell 2000 Index 100 123 149 146 149
NASDAQ Industrial
Index 100 129 187 156 157
10
PRINCIPAL SECURITY HOLDERS
The following table sets forth the number of shares of Common Stock and
units of limited partnership interest ("Units") in Vornado Operating L.P., a
Delaware limited partnership (the "Company L.P."), beneficially owned by (i)
each person who holds more than a 5% interest in the Company, (ii) directors of
the Company, (iii) executive officers of the Company, and (iv) the directors and
executive officers of the Company as a group. Unless otherwise noted, the
address of all such persons is c/o Vornado Operating Company, 888 Seventh
Avenue, New York, New York 10019.
NUMBER OF
SHARES OF
COMMON STOCK PERCENT OF
AND UNITS PERCENT OF ALL SHARES
BENEFICIALLY ALL SHARES AND UNITS
NAME OF BENEFICIAL OWNER OWNED(1) (1)(2) (1)(2)
------------------------ ------------ ---------- ----------
NAMED EXECUTIVE OFFICERS AND
DIRECTORS
Steven Roth(3)(4).............. 776,545 8.0% 17.0%
Russell B. Wight, Jr.(3)(5).... 685,140 5.8% 15.1%
Michael D. Fascitelli.......... 179,977 4.3% 3.9%
Douglas H. Dittrick............ 17,500 * *
Martin N. Rosen................ 10,500 * *
Richard West(6)................ 21,550 * *
Joseph Macnow.................. 17,150 * *
All executive officers and
directors as a group (8
persons)..................... 745,275 17.3% 25.1%
OTHER BENEFICIAL OWNERS
David Mandelbaum(3)............ 663,099 5.3% 14.7%
Interstate(3).................. 647,150 4.9% 14.3%
Gotham International Advisors,
L.L.C., Gotham Holdings II,
L.L.C. and Gotham Holdings
III, L.L.C.(7)............... 230,706 5.7% 5.1%
---------------
* Less than 1%.
(1) Unless otherwise indicated, each person is the direct owner of, and has sole
voting power and sole investment power with respect to, such Common Stock.
Numbers and percentages in the table are based on 4,068,924 shares of Common
Stock and 447,017 Units outstanding as of April 22, 2002.
11
(2) The total number of shares outstanding used in calculating this percentage
assumes that all shares that each person has the right to acquire within 60
days pursuant to the exercise of options or upon the redemption of Units for
shares are deemed to be outstanding, but are not deemed to be outstanding
for the purpose of computing the ownership percentage of any other person.
(3) Interstate, a partnership of which Messrs. Roth, Wight and Mandelbaum are
the general partners, owns 200,133 shares of Common Stock and also owns a
9.9% limited partnership interest in Company L.P. Interstate has the right
to have its Units in Company L.P. redeemed by Company L.P. either (a) for
cash in an amount equal to the fair market value, at the time of redemption,
of 447,017 shares of Common Stock or (b) for 447,017 shares of Common Stock,
in each case as selected by the Company and subject to customary
anti-dilution provisions.
(4) Includes 1,720 shares owned by the Daryl and Steven Roth Foundation, over
which Mr. Roth holds sole voting power and investment power. Does not
include 1,800 shares owned by Mr. Roth's wife, as to which Mr. Roth
disclaims any beneficial interest.
(5) Includes 3,340 shares owned by the Wight Foundation, over which Mr. Wight
holds sole voting power and investment power.
(6) Mr. West and his wife own 10,150 shares jointly. Mr. West holds 900 shares
in self-directed Keogh accounts.
(7) Based on Schedule 13G filed on February 15, 2002, Gotham International
Advisors, L.L.C., Gotham Holdings II, L.L.C. and Gotham Holdings III, L.L.C.
have the sole power to vote or to direct the vote of, and the sole power to
dispose or to direct the disposition of, 185,420 shares, 24,391 shares and
20,895 shares, respectively. The address of Gotham International Advisors,
L.L.C., Gotham Holdings II, L.L.C. and Gotham Holdings III, L.L.C. is 110
East 42nd Street, 18th Floor, New York, New York 10017.
12
EXECUTIVE COMPENSATION
The following table summarizes the compensation during each of the past
three fiscal years for each of the executive officers of the Company whose total
compensation aggregated $100,000 or more in 2001 ("Covered Executives"). Only
Emanuel Pearlman, the Company's former Chief Operating Officer, received cash
compensation from the Company since its formation. None of the Company's other
executive officers has received cash compensation from or on behalf of the
Company since its formation. Although the Company did not pay a salary or other
compensation to any executive officer other than to Mr. Pearlman (except that
options or SARs have been granted to executive officers in prior years), the
Company expects that it will pay salaries and other compensation to all of its
executive officers when it begins conducting business operations material enough
to warrant such compensation.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND ------------------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) OPTIONS(1) ($)(2)
------------------ ---- --------- -------- -------- ------------ ------------
Steven Roth............ 2001 -- -- -- -- --
Chairman and 2000 -- -- -- -- --
Chief Executive 1999 -- -- -- -- --
Officer
Michael Fascitelli..... 2001 -- -- -- -- --
President 2000 -- -- -- -- --
1999 -- -- -- -- --
Emanuel Pearlman....... 2001 220,084 -- -- -- 5,614
Chief Operating 2000 156,108 175,000 -- 175,000 4,283
Officer(3)
Joseph Macnow.......... 2001 -- -- -- -- --
Executive Vice 2000 -- -- -- -- --
President -- Finance 1999 -- -- -- -- --
and Administration
Patrick Hogan.......... 2001 -- -- -- -- --
Vice President -- 2000 -- -- -- -- --
Chief Financial
Officer(4)
---------------
(1) Options and SARs are exercisable 34% twelve months after grant, and 33%
after each of the following two twelve-month periods.
13
(2) Represents annual amounts of (i) employer-paid contributions to the
Company's 401(k) retirement plan and (ii) Company-paid whole life insurance
premiums. Employer contributions to the Company's 401(k) retirement plan
become vested 100% after the completion of five years of eligible service.
The whole life insurance policies provide coverage in an amount equal to the
excess of the amount covered under the Company's non-discriminatory group
term life insurance benefit for all full time employees (i.e., two times
salary) over the benefit cap imposed by the term insurance carrier.
(3) Mr. Pearlman's employment with the Company commenced on June 15, 2000 and
terminated on June 15, 2001 upon his resignation.
(4) Mr. Hogan joined the Company on March 2, 2001.
The following table summarizes all exercises of options during 2001, and
the number and value of options held at December 31, 2001, by the Covered
Executives.
AGGREGATED OPTION AND SAR EXERCISES IN 2001 AND
YEAR END OPTION AND SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS
ACQUIRED AT 12/31/01 AT 12/31/01
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- -------------- -------------
Steven Roth.................. -- $-- 205,000/0 $0/0
Michael D. Fascitelli........ -- -- 200,000/0 0/0
Joseph Macnow................ -- -- 20,000/0 0/0
Emanual Pearlman............. -- -- 59,500/115,500 0/0
EMPLOYMENT CONTRACTS
Emanuel Pearlman
Mr. Pearlman had an employment agreement which commenced on June 15, 2000
and terminated upon his resignation on June 15, 2001, pursuant to which he
served as Chief Operating Officer of the Company. The employment agreement
provided for an annual base salary of not less than $300,000. In June 2000, Mr.
Pearlman was granted
14
options to purchase 175,000 Shares, exercisable at the current market price on
the date of grant.
The employment agreement provided that each party shall notify the other
party, at least 90 days prior to June 15, 2003, of its intention either (i) to
negotiate an extension thereof on at least the same terms, conditions and
compensation as then in effect or (ii) that the employment period shall expire.
The employment agreement would have been sooner terminated by either party by
prior written notice of termination. If Mr. Pearlman's employment would have
been terminated by the Company without cause or by Mr. Pearlman for a material
breach of the agreement by the Company or upon a change of control, he would
have received (A) his base salary accrued through the date of termination; (B)
(i) a lump-sum payment equal to his then current base salary, if the termination
would occur prior to June 15, 2001, or (ii) a lump-sum payment equal to one and
one-half times his then current base salary, if the termination occurs on or
after June 15, 2001; (C) continued provision of benefits to him and his family
for 12 months following the termination; and (D) options granted to him would
have become fully exercisable. The agreement further provided that if Mr.
Pearlman's employment would have been terminated by the Company for cause or by
him without a material breach by the Company, the payment of salary would have
ceased upon the date of termination.
COMPENSATION OF DIRECTORS
Messrs. Roth, Fascitelli and Wight each receive from the Company
compensation at a rate of $25,000 per year for serving as a director of the
Company and Messrs. West, Dittrick and Rosen each receive from the Company
compensation at a rate of $50,000 per year for serving as a director of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
On October 16, 1998 Vornado Realty L.P. (the "Operating Partnership"), a
subsidiary of Vornado, made a distribu-
15
tion (the "Distribution") of one share of Common Stock of the Company for each
20 units of limited partnership interest of the Operating Partnership (including
the units owned by Vornado) held of record as of the close of business on
October 9, 1998 (the "Record Date"), and Vornado in turn made a distribution of
the Common Stock it received to the holders of its common shares of beneficial
interest.
The Company was formed on October 30, 1997, as a wholly owned subsidiary of
Vornado. In order to maintain its status as a real estate investment trust
("REIT") for federal income tax purposes, Vornado is required to focus
principally on investments in real estate assets. Accordingly, Vornado is
prevented from owning certain assets and conducting certain activities that
would be inconsistent with its status as a REIT. The Company was formed to own
assets that Vornado could not itself own and conduct activities that Vornado
could not itself conduct. The Company functions principally as an operating
company, in contrast to Vornado's principal focus on investments in real estate
assets. The Company is able to do so because it is taxable as a regular "C"
corporation rather than as a REIT.
The Company operates businesses conducted at properties it leases from
Vornado, as contemplated by the agreement between the Company and Vornado, as
described under "Vornado Agreement" below. The Company expects to rely on
Vornado to identify business opportunities and currently expects that those
opportunities will relate in some manner to Vornado and its real estate
investments rather than to unrelated businesses.
Capital Contribution and Revolving Credit Agreement
As part of its formation, the Company obtained a $75,000,000 unsecured
five-year revolving credit facility from Vornado ("Revolving Credit Agreement")
which expires on December 31, 2004. Borrowings under the Revolving Credit
Agreement bear interest at LIBOR plus 3% (4.87% at December 31, 2001). The
Company pays Vornado a commitment fee equal to 1% per annum on the average daily
unused portion of the facility. For the year ended December 31, 2001, the
Company paid Vornado $485,000.
16
Amounts may be borrowed under the Revolving Credit Agreement, repaid and
reborrowed from time to time on a revolving basis (so long as the principal
amount outstanding at any time does not exceed $75,000,000). Principal payments
are not required under the Revolving Credit Agreement during its term. The
Revolving Credit Agreement prohibits the Company from incurring indebtedness to
third parties (other than certain purchase money debt and certain other
exceptions) and prohibits the Company from paying dividends. Debt under the
Revolving Credit Agreement is fully recourse against the Company. At December
31, 2001, $31,424,000 was outstanding under the Revolving Credit Agreement,
which was the largest outstanding balance under the agreement during the last
fiscal year.
Vornado Agreement
The Company and Vornado have entered into an agreement (the "Vornado
Agreement") pursuant to which, among other things, (a) Vornado will under
certain circumstances offer the Company an opportunity to become the lessee of
certain real property owned now or in the future by Vornado (under mutually
satisfactory lease terms) and (b) the Company will not make any real estate
investment or other REIT-Qualified Investment (as defined below) unless it first
offers Vornado the opportunity to make such investment and Vornado has rejected
that opportunity.
More specifically, the Vornado Agreement requires, subject to certain
terms, that Vornado provide the Company with an opportunity (a "Tenant
Opportunity") to become the lessee of any real property owned now or in the
future by Vornado if Vornado determines in its sole discretion that, consistent
with Vornado's status as a REIT, it is required to enter into a "master" lease
arrangement with respect to such property and that the Company is qualified to
act as lessee thereof. In general, a master lease arrangement is an arrangement
pursuant to which an entire property or project (or a group of related
properties or projects) is leased to a single lessee. Under the Vornado
Agreement, the Company and Vornado will negotiate with each other on an
exclusive basis for 30 days regarding the terms and conditions of the
17
lease in respect of each Tenant Opportunity. If a mutually satisfactory
agreement cannot be reached within the 30-day period, Vornado may for a period
of one year thereafter enter into a binding agreement with respect to such
Tenant Opportunity with any third party on terms no more favorable to the third
party than the terms last offered to the Company. If Vornado does not enter into
a binding agreement with respect to such Tenant Opportunity within such one-year
period, Vornado must again offer the Tenant Opportunity to the Company in
accordance with the procedures specified above prior to offering such Tenant
Opportunity to any other party.
In addition, the Vornado Agreement prohibits the Company from making (i)
any investment in real estate (including the provision of services related to
real estate, real estate mortgages, real estate derivatives or entities that
invest in the foregoing) or (ii) any other REIT-Qualified Investment, unless it
has provided written notice to Vornado of the material terms and conditions of
the investment opportunity and Vornado has determined not to pursue such
investment either by providing written notice to the Company rejecting the
opportunity within 10 days from the date of receipt of notice of the opportunity
or by allowing such 10-day period to lapse. As used herein, "REIT-Qualified
Investment" means an investment, at least 95% of the gross income from which
would qualify under the 95% gross income test set forth in Section 856(c)(2) of
the Internal Revenue Code of 1986, as amended (the "Code") (or could be
structured to so qualify), and the ownership of which would not cause Vornado to
violate the asset limitations set forth in Section 856(c)(4) of the Code (or
could be structured not to cause Vornado to violate the Section 856(c)(4)
limitations); provided, however, that "REIT-Qualified Investment" does not
include an investment in government securities, cash or cash items (as defined
for purposes of Section 856(c)(4) of the Code), money market funds, certificates
of deposit, commercial paper having a maturity of not more than 90 days,
bankers' acceptances or the property transferred to the Company by the Operating
Partnership. The Vornado Agreement also requires the
18
Company to assist Vornado in structuring and consummating any such investment
which Vornado elects to pursue, on terms determined by Vornado. In addition, the
Company has agreed to notify Vornado of, and make available to Vornado,
investment opportunities developed by the Company or of which the Company
becomes aware but is unable or unwilling to pursue.
Under the Vornado Agreement, Vornado provides the Company with certain
administrative, corporate, accounting, financial, insurance, legal, tax, data
processing, human resources and operational services. Also, Vornado makes
available to the Company, at Vornado's offices, space for the Company's
principal corporate office. For these services, the Company compensates Vornado
in an amount determined in good faith by Vornado as the amount an unaffiliated
third party would charge the Company for comparable services and reimburses
Vornado for certain costs incurred and paid to third parties on behalf of the
Company. For the year ended December 31, 2001, approximately $371,000 for such
services was charged pursuant to the Vornado Agreement.
Vornado and the Company each have the right to terminate the Vornado
Agreement if the other party is in material default of the Vornado Agreement or
upon 90 days written notice to the other party at any time after December 31,
2003. In addition, Vornado has the right to terminate the Vornado Agreement upon
a change in control of the Company.
The Company's Charter specifies that one of its corporate purposes is to
perform the Vornado Agreement and, for so long as the Vornado Agreement remains
in effect, prohibits the Company from making any real estate investment or other
REIT-Qualified Investment without first offering the opportunity to Vornado in
the manner specified in the Vornado Agreement.
The Company's Management
Messrs. Roth, Fascitelli, West and Wight are directors of the Company and
trustees of Vornado. Mr. Roth is Chairman
19
of the Board and Chief Executive Officer of the Company and of Vornado, Mr.
Fascitelli is President of the Company and of Vornado, and certain other members
of the Company's senior management hold corresponding positions with Vornado.
Vornado Operating L.P. and the Interstate Exchange
The Company holds its assets and conducts its business through Company L.P.
The Company is the sole general partner of, and as of December 31, 2001 owned a
90.1% partnership interest in, Company L.P. All references to the Company refer
to Vornado Operating Company and its subsidiaries including Company L.P.
Interstate and its three partners -- Steven Roth (Chairman of the Board and
Chief Executive Officer of Vornado and the Company), David Mandelbaum (a trustee
of Vornado) and Russell B. Wight, Jr. (a trustee of Vornado and a director of
the Company) -- beneficially owned, in the aggregate, 17.0% of the Company's
Common Stock immediately after the Distribution (excluding shares underlying
SARs and options held by Messrs. Roth and Wight for this purpose). Under
applicable provisions of the Code, Vornado will not continue to be treated as a
REIT unless it satisfies, among other things, requirements relating to the
sources of its gross income. Rents received or accrued by Vornado from the
Company will not be treated as qualifying rent for purposes of these
requirements if Vornado owns, either directly or under the applicable
attribution rules, 10% or more of the Common Stock of the Company. Thus, in
order to enable rents received or accrued by Vornado from the Company to be
treated as qualifying rent for purposes of the REIT gross income requirements
and to achieve certain other purposes, pursuant to the Exchange Agreement, dated
as of October 16, 1998, between the Company and Interstate, (i) Interstate
exchanged 447,017 shares of Common Stock for a 9.9% undivided interest in all of
the Company's assets and (ii) Interstate and the Company contributed all of
their interests in such assets to Company L.P. and in return Interstate received
a 9.9% limited partnership interest and the Company received a 90.1% partnership
20
interest therein. Interstate has the right to have its limited partnership
interest in Company L.P. redeemed by Company L.P. either (a) for cash in an
amount equal to the fair market value, at the time of redemption, of 447,017
shares of Common Stock or (b) for 447,017 shares of Common Stock, in each case
as selected by the Company and subject to customary anti-dilution adjustments.
Interstate and its partners owned approximately 14.4% of the shares of Vornado
and approximately 7.9% of the Company's shares as of December 31, 2001.
The Temperature Controlled Logistics Business and Related Leases
In October 1997, partnerships (the "Vornado/Crescent Partnerships" or the
"Landlord") in which Vornado has a 60% interest and Crescent Real Estate
Equities Company ("Crescent") has a 40% interest acquired each of Americold
Corporation ("Americold") and URS Logistics, Inc. ("URS"). In June 1998,
Vornado/Crescent Partnerships acquired the assets of Freezer Services, Inc. and
in July 1998 acquired the Carmar Group.
In March 1999, the Company and Crescent Operating Inc. ("Crescent
Operating") formed a new partnership -- the "Vornado Crescent Logistics
Operating Partnership" (which does business under the name "AmeriCold
Logistics") that purchased all of the non-real estate assets of the
Vornado/Crescent Partnerships for $48,700,000, of which the Company's share was
$29,200,000. The purchase price was proposed by the Vornado/Crescent
Partnerships (the Sellers). The Board of Directors of both the Company and
Crescent Operating reviewed and approved the transaction after concluding that
the price was fair market value at the time of the transaction. To fund its
share of the purchase price, the Company utilized $4,600,000 of cash, borrowed
$18,600,000 under the Revolving Credit Facility and paid the balance of
$6,000,000 in March 2000.
On February 14, 2002, Crescent Operating announced that it intends to file
a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. Subject to
confirmation of a plan
21
of reorganization and shareholder approval, it had agreed to transfer its
interest in Americold Logistics to an entity that will be owned by the
shareholders of Crescent. It is uncertain at this time whether or when this plan
will be approved and what effect, if any, this will have on the operation and
management of Americold Logistics.
AmeriCold Logistics, headquartered in Atlanta, Georgia, has 5,900 employees
and operates 100 temperature controlled warehouse facilities nationwide with an
aggregate of approximately 525 million cubic feet of refrigerated, frozen and
dry storage space. Of the 100 warehouses, AmeriCold Logistics leases 89
temperature controlled warehouses with an aggregate of approximately 445 million
cubic feet from the Vornado/Crescent Partnership, and manages 11 additional
warehouses containing approximately 80 million cubic feet of space. AmeriCold
Logistics provides the frozen food industry with refrigerated warehousing and
transportation management services. Refrigerated warehouses are comprised of
production and distribution facilities. Production facilities typically serve
one or a small number of customers, generally food processors, located nearby.
These customers store large quantities of processed or partially processed
products in the facility until they are shipped to the next stage of production
or distribution. Distribution facilities primarily warehouse a wide variety of
customers' finished products until future shipment to end-users. Each
distribution facility generally services the surrounding regional market.
AmeriCold Logistics' transportation management services include freight routing,
dispatching, freight rate negotiation, backhaul coordination, freight bill
auditing, network flow management, order consolidation and distribution channel
assessment. AmeriCold Logistics' temperature controlled logistics expertise and
access to both frozen food warehouses and distribution channels enable its
customers to respond quickly and efficiently to time-sensitive orders from
distributors and retailers.
AmeriCold Logistics' customers consist primarily of national, regional and
local frozen food manufacturers, distributors, retailers and food service
organizations including Con-Agra, Tyson Foods, H.J. Heinz & Co., McCain Foods,
22
Sara Lee, J.R. Simplot, Diageo, Pro-Fac Cooperative, Flowers Industries and
Norpac Foods.
On March 11, 1999, AmeriCold Logistics entered into leases covering the
warehouses used in this business. The leases, as amended, generally 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, including all real estate taxes and
assessments, utility charges, permit fees and insurance premiums, as well as
property capital expenditures in excess of $5,000,000 annually. AmeriCold
Logistics recognized $156,276,000 of rent expense for the year ended December
31, 2001. AmeriCold Logistics has the right to defer the payment of 15% of fixed
base rent and all percentage rent for up to three years beginning on March 11,
1999 to the extent that available cash, as defined in the leases, is
insufficient to pay such rent, and pursuant thereto, $25,467,000 (of which the
Company's share was $15,281,400) was deferred for the period ended December 31,
2001. The fixed rent for each of the two five-year renewal options is equal to
the greater of the then fair market value rent and the fixed rent for the
immediately preceding lease year plus 5%.
On February 22, 2001, the Landlord restructured the Americold Logistics
leases to, among other things, (i) reduce 2001's contractual rent to
$146,000,000, (ii) reduce 2002's contractual rent to $150,000,000 (plus
contingent rent in certain circumstances), (iii) increase the Landlord's share
of annual maintenance capital expenditures by $4,500,000 to $9,500,000 effective
January 1, 2000 and (iv) extend the deferred rent period to December 31, 2003
from March 11, 2002.
During 2002, the Landlord waived its right to collect rent in the amount of
$39,812,000 (of which the Company's share was $23,887,000) representing a
portion of the rent due under the leases which Americold Logistics deferred in
2000 and 2001.
23
Management of AmeriCold Logistics
Vornado is the day-to-day liaison to the management of AmeriCold Logistics.
AmeriCold Logistics pays Vornado an annual fee of $487,000, which is based on
the non-real estate assets acquired by Americold Logistics in March 1999. The
fee increases by an amount equal to 1% of the cost of new acquisitions,
including transaction costs. AmeriCold Logistics provides financial statement
preparation, tax and similar services to the Vornado/Crescent Partnerships for
an annual fee of $260,000 increasing 2% each year.
24
REPORT OF THE AUDIT COMMITTEE
The Audit Committee's purpose is to assist the Board of Directors in its
oversight of the Company's internal controls and financial statements and the
audit process. The Board of Directors, in its business judgment, has determined
that all members of the Committee are "independent", as required by applicable
listing standards of the American Stock Exchange. The Committee operates
pursuant to a Charter that was adopted by the Board on May 31, 2000; a copy of
the current Charter was attached to the Company's proxy statement for its 2001
Annual Meeting of Stockholders.
Management is responsible for the preparation, presentation and integrity
of the Company's financial statements, accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors, Deloitte & Touche LLP, are responsible for performing an independent
audit of the consolidated financial statements in accordance with generally
accepted auditing standards.
In performing its oversight role, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Committee has also discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. The Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board No. 1, Independence Discussions with
Audit Committees, as currently in effect. The Committee has also considered
whether the provision of non-audit services provided by the independent auditors
is compatible with maintaining the auditors' independence and has discussed with
the auditors the auditors' independence.
Based on the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred to
below and in the Charter, the Audit Committee recommended to the Board of
25
Directors that the audited financial statements be included in the Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Committee rely without independent verification on the information provided
to them and on the representations made by management and the independent
auditors. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not assure that the audit of
the Company's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
Deloitte & Touche LLP is in fact "independent".
RICHARD WEST
DOUGLAS DITTRICK
MARTIN ROSEN
April 30, 2002
26
INFORMATION RESPECTING THE COMPANY'S
INDEPENDENT AUDITORS
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP, the Company's
independent auditors for the year ended December 31, 2001, for professional
services rendered for the audit of the Company's annual financial statements for
that fiscal year and for the reviews of the financial statements included in the
Company's quarterly reports on Form 10-Q for that fiscal year were $73,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed to the Company by Deloitte & Touche LLP for
professional services rendered for information technology services relating to
financial information systems design and implementation for the year ended
December 31, 2001.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche LLP for services rendered to
the Company, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," for the fiscal
year ended December 31, 2001 were $3,000 which were for audit related services.
RETENTION OF INDEPENDENT AUDITORS FOR THE YEAR 2002
The Board has retained Deloitte & Touche LLP to act as independent auditors
for the fiscal year ending December 31, 2002. The firm of Deloitte & Touche LLP
was engaged as independent auditors for the 2001 fiscal year, and
representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
27
ADDITIONAL MATTERS TO COME BEFORE
THE MEETING
The Board does not intend to present any other matter, nor does it have any
information that any other matter will be brought before the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote said proxy in
accordance with his discretion on such matters.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS
AND PROPOSALS OF NEW BUSINESS
The By-laws of the Company generally require notice of any proposal to be
presented by any stockholder or of the name of any person to be nominated by any
stockholder for election as a director of the Company at the 2003 annual meeting
of stockholders to be delivered to the Secretary of the Company at the principal
executive office of the Company, 888 Seventh Avenue, New York, New York, 10019
between December 30, 2002, and January 29, 2003. Accordingly, failure by a
stockholder to act in compliance with the notice provisions will mean that the
stockholder will not be able to nominate directors or propose new business for
consideration at the 2002 meeting.
Stockholders interested in presenting a proposal for inclusion in the proxy
statement for the Company's annual meeting of stockholders in 2003 may do so by
following the procedures prescribed in Rule 14a-8 under the Securities Exchange
Act of 1934. To be eligible for inclusion, stockholder proposals must be
received at the principal executive office of the Company, 888 Seventh Avenue,
New York, New
28
York 10019, Attention: Secretary, not later than December 31, 2002.
By order of the Board of Directors,
Larry Portal
Corporate Secretary
April 30, 2002
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS ARE
URGED TO FILL IN, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ENVELOPE.
29
VORNADO OPERATING COMPANY
PROXY
The undersigned stockholder, revoking all prior proxies, hereby appoints
Steven Roth and Michael Fascitelli, and each of them, as proxies, each with full
power of substitution, to attend, and to cast all votes which the undersigned
stockholder is entitled to cast at the Annual Meeting of Stockholders of Vornado
Operating Company, a Delaware corporation (the "Company"), to be held at the
Marriott Hotel, Interstate 80 and the Garden State Parkway, Saddle Brook, New
Jersey 07663 on Wednesday, May 29, 2002 at 10:00 A.M., local time, upon any and
all business as may properly come before the meeting and all postponements or
adjournments thereof. Said proxies are authorized to vote as directed on the
reverse side hereof upon the proposals which are more fully set forth in the
Proxy Statement and otherwise in his discretion upon such other business as may
properly come before the meeting and all postponements or adjournments thereof,
all as more fully set forth in the Notice of Meeting and Proxy Statement,
receipt of which is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. WHEN
PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS EXECUTED BUT NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND OTHERWISE IN THE
DISCRETION OF THE PROXIES.
(Continued and to be Executed, on Reverse side)
(Continued from other side)
1. ELECTION OF DIRECTORS:
The Board of Directors recommends a Vote "FOR" Election of
the nominees for Directors listed below.
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees
Nominees: Douglas H. Dittrick
Richard West
(each for a term ending at the Annual Meeting of
Stockholders in 2005)
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
------------------------------------------------------------
Address Change and/or
Comments [ ]
Please date and sign as your
name or names appear hereon.
Each joint owner must sign.
(Officers, Executors,
Administrators, Trustees, etc.,
will kindly so indicate when
signing.)
Dated
-------------------------------------------------------------------------,
2002
-------------------------------
Signature(s) of Stockholder(s)
INDICATE YOUR VOTE (X) IN BLACK
OR BLUE INK. [X]
PLEASE VOTE, DATE AND SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.