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
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
VORNADO OPERATING COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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
-------------*------------
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
2 0 0 3
VORNADO OPERATING COMPANY
888 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 2003
------------------------
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
28, 2003, 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 until their successors are duly elected and
qualified; and
(2) The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Pursuant to the Bylaws of the Company, the Board of Directors of the Company
has fixed the close of business on April 17, 2003, 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, your shares should be represented and voted. 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 at that time and
vote your own shares.
By Order of the Board of Directors,
Paul F. Larner
Corporate Secretary
April 30, 2003
VORNADO OPERATING COMPANY
888 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 2003
------------------------
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 28, 2003, 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"). A stockholder may authorize their proxy by
executing and returning the enclosed proxy card. A stockholder may revoke their
proxy 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. Attending
the Annual Meeting will not automatically revoke your prior authorization of
your proxy. Only the last vote of a stockholder will be counted. 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, 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 17, 2003, 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 at the
close of business on April 17, 2003, 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, 2003, to the Company's stockholders of record as of the close of
business on April 17, 2003.
ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Company's Board 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. The term of office of Class II directors will expire at
the Annual Meeting of Stockholders in 2003, the term of office of Class III
directors will expire at the Annual Meeting of Stockholders in 2004 and the term
of office of Class I directors will expire at the Annual Meeting of Stockholders
in 2005, 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 each of the persons named in the proxy, or his substitute, 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 Bylaws, 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 of directors and thus will
have no effect on the result of the vote.
If you would like to attend the Annual Meeting, you will need to bring an
account statement or other acceptable evidence of ownership of your shares as of
the close of business on April 17, 2003, the record date for voting. If you hold
shares in "street name" (i.e., through a bank, broker or other nominee), you
will receive instructions from your nominee which you must follow in order to
have your proxy authorized. If you hold shares in "street name" and wish to vote
at the Annual Meeting, you will need to contact your nominee and obtain a proxy
from that person and bring it to the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE ELECTION OF THE NOMINEES LISTED BELOW TO SERVE AS DIRECTORS UNTIL THE ANNUAL
MEETING IN 2006.
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
2
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
PRINCIPAL OCCUPATION TERM YEAR 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 2006
-------------------------------------------------------------------------------------
Martin N. Rosen(1)(2) 61 President of United Yarn Products Co., Inc. 2003 1998
Russell B. Wight, Jr.(3) 63 A general partner of Interstate Properties 2003 1998
("Interstate")
PRESENT DIRECTORS ELECTED TO SERVE UNTIL THE ANNUAL MEETING IN 2004
-------------------------------------------------------------------------------------
Steven Roth(3) 61 Chairman of the Board and Chief Executive Officer of 2004 1998
the Company; Managing General Partner of Interstate
Michael D. Fascitelli(3) 46 President of the Company 2004 1998
PRESENT DIRECTORS ELECTED TO SERVE UNTIL THE ANNUAL MEETING IN 2005
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Douglas H. Dittrick(1) 69 President and Chief Executive Officer of Douglas 2005 1998
Communications Corporation II
Richard West(1)(2) 65 Dean Emeritus, Leonard N. Stern School of Business, 2005 1998
New York University
---------------
(1) Member of the Audit Committee of the Board.
(2) Member of the Compensation Committee of the Board.
(3) Member of the Executive Committee of the Board.
Mr. Rosen has been the President of United Yarn Products Co., Inc. (a
manufacturer of synthetic fiber) since 1970. Mr. Rosen is a board member of the
YM-YWHA of North Jersey, a board member of the Daughters of Miriam Home for the
Aged Foundation, and the Chairman of the Council for the Arts at Massachusetts
Institute of Technology.
Mr. Wight has been a general partner of Interstate (an owner of shopping
centers and an investor in securities and partnerships) since 1968. Mr. Wight is
also a trustee of Vornado Realty Trust ("Vornado") and a director of
Alexander's, Inc. ("Alexander's") (a real estate investment trust).
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 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. In March
1995, he became Chief Executive Officer of Alexander's. Mr. Roth is also a
director of Alexander's and of Capital Trust, Inc. (a real estate lender).
Mr. Fascitelli is President of the Company. Mr. Fascitelli has been the
President and a trustee of Vornado, and a director of Alexander's since December
1996. Mr. Fascitelli has been the President of Alexander's since August 2000.
From December 1992 to December 1996, Mr. Fascitelli was a partner at Goldman
Sachs & Co. (an investment banking firm) in charge of its real estate practice
and was a vice president prior to 1992.
3
Mr. Dittrick has been the President and Chief Executive Officer of Douglas
Communications Corporation II (a cable television company) 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 the Chairman of the Board of
Trustees of Ohio Wesleyan University, and the Chairman of the Board of Trustees
of Valley Hospital.
Mr. West is Dean Emeritus of the Leonard N. Stern School of Business at New
York University. He was a professor there from September 1984 until September
1995 and 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. (a commercial printing company) and 23 investment companies managed by
Merrill Lynch Investment Managers.
The Company is not aware of any family relationships among any directors or
executive officers of the Company or persons nominated or chosen by the Company
to become directors or executive officers. Messrs. Roth and Wight are affiliated
with each other as general partners of Interstate and through other businesses.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Executive Committee, an Audit Committee and a Compensation
Committee. The Board does not have a Nominating Committee.
The Board held three meetings during 2002. Each director attended at least
75% of the combined total of the meetings of the Board and all committees on
which he served during 2002.
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 the Chairman of the Executive Committee. The Executive
Committee did not meet in 2002.
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
consolidated 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 are responsible for planning and carrying out
independent annual audits and reviews, including reviews of the Company's
quarterly consolidated financial statements prior to the
4
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 six meetings during 2002, consists of three members, Messrs.
Dittrick, Rosen and West. 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 2002.
COMPENSATION COMMITTEE 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. None of the Company's executive officers
received compensation from or on behalf of the Company in 2002.
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
awards on a fixed share basis without adjusting the number of shares granted to
offset changes in the Company's stock price.
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
5
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
2002. 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 without the payment of any
commission. THERE CAN BE NO ASSURANCE THAT THE PERFORMANCE OF THE COMPANY'S
SHARES WILL CONTINUE IN LINE WITH THE SAME OR SIMILAR TRENDS DEPICTED IN THE
GRAPH BELOW.
[PERFORMANCE LINE GRAPH]
------------------------------------------------------------------------------------------------------------------------
10/16/98 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
------------------------------------------------------------------------------------------------------------------------
Vornado Operating Company 100 101 75 26 6 6
Russell 2000 Index 100 123 149 146 149 119
NASDAQ Industrial Index 100 129 187 156 157 131
6
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 ("Company L.P."), as of April 17, 2003,
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.
NUMBER OF
SHARES OF
COMMON STOCK PERCENT OF
ADDRESS OF AND UNITS PERCENT OF ALL SHARES
BENEFICIAL BENEFICIALLY ALL SHARES AND UNITS
NAME OF BENEFICIAL OWNER OWNER OWNED(1) (1)(2) (1)(2)
------------------------ ----------------- ------------ ---------- ----------
NAMED EXECUTIVE OFFICERS AND
DIRECTORS
Steven Roth(3)(4).................... (5) 726,295 6.9% 16.1%
Russell B. Wight, Jr.(3)(6).......... (5) 674,640 5.6% 14.9%
Michael D. Fascitelli(7)............. (5) 245,977 5.8% 5.2%
Douglas H. Dittrick(7)............... (5) 22,000 * *
Martin N. Rosen(7)................... (5) 15,000 * *
Richard West(7)(8)................... (5) 31,150 * *
Joseph Macnow(7)(9).................. (5) 23,750 * *
All executive officers and directors
as a group (seven persons)(7)...... (5) 1,061,634 14.2% 22.2%
OTHER BENEFICIAL OWNERS
David Mandelbaum(3).................. (5) 663,099 5.3% 14.7%
Interstate Properties(3)............. (5) 647,150 4.9% 14.3%
Gregg Frankel(10).................... 37 Water Street 333,800 8.2% 7.4%
Lebanon, NJ 08833
---------------
* 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 and Units. Numbers and percentages in the table are based on
4,068,924 shares of Common Stock and 447,017 Units outstanding as of April
17, 2003.
(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 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 447,017
Units. Interstate has the right to have its Units redeemed by Company L.P.
either for (a) cash in an amount equal to the fair market value, at the
time of redemption, of 447,017 shares of Common Stock or
7
(b) 447,017 shares of Common Stock, in each case as selected by the Company
and subject to customary anti-dilution adjustments. Messrs. Roth, Wight and
Mandelbaum share voting power and investment power with respect to these
shares and Units.
(4) Includes 4,145 shares owned by the Daryl and Steven Roth Foundation, over
which Mr. Roth holds sole voting power and sole investment power. Does not
include 1,800 shares owned by Mr. Roth's wife, as to which Mr. Roth
disclaims any beneficial interest.
(5) The address of such person(s) is c/o Vornado Operating Company, 888 Seventh
Avenue, New York, New York 10019
(6) Includes 4,690 shares owned by the Wight Foundation, over which Mr. Wight
holds sole voting power and sole investment power.
(7) The number of shares beneficially owned by the following persons includes
the number of shares indicated due to vesting of options: Michael D.
Fascitelli -- 200,000; Douglas H. Dittrick -- 15,000; Martin N.
Rosen -- 15,000; Richard West -- 15,000; Joseph Macnow -- 20,000; and all
directors and executive officers as a group -- 265,000.
(8) Mr. West and his wife own 150 of these shares jointly.
(9) Mr. Macnow and his wife own 3,750 of these shares jointly.
(10) Based on a Schedule 13G filed on May 2, 2002, Gregg Frankel has the sole
power to vote or to direct the vote of, and the sole power to dispose or to
direct the disposition of, 333,800 shares. 141,300 of the 333,800 shares
are held in accounts for Mr. Frankel's minor children.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of a registered class
of our equity securities, to file reports of ownership of, and transactions in,
our equity securities with the Securities and Exchange Commission ("SEC"). Such
directors, executive officers and 10% stockholders are also required to furnish
us with copies of all Section 16(a) reports they file.
Based solely on a review of the Forms 3, 4 and 5, and any amendments
thereto, furnished to us, and on written representations from certain reporting
persons, we believe that the only filing deficiencies under Section 16(a) by our
directors, executive officers and 10% stockholders were late filings by Steven
Roth (two reports covering one transaction) and Russell B. Wight, Jr. (two
reports covering one transaction).
8
EXECUTIVE COMPENSATION
The Company's Chief Executive Officer and each of its three other executive
officers who were executive officers in 2002 ("Covered Executives") have not
received compensation from or on behalf of the Company since its formation,
except for options and stock appreciation rights ("SARs") that were granted in
1998. Although the Company has not paid a salary or other compensation to any
Covered Executives (except for options and SARs that were granted in 1998), the
Company expects that it would pay salaries and other compensation to all of its
executive officers if it begins conducting business operations material enough
to warrant such compensation.
The following table summarizes all exercises of options during 2002, and
the number and value of options and SARs held at December 31, 2002, by the
Covered Executives.
AGGREGATED OPTION/SAR EXERCISES IN 2002 AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED 12/31/02 12/31/02
ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
---- -------- -------- --------------- ---------------
Steven Roth -- -- 205,000/0 0/0
Michael D. Fascitelli -- -- 200,000/0 0/0
Joseph Macnow -- -- 20,000/0 0/0
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. Messrs. West, Dittrick and Rosen's annual retainers are reflective of
their membership on the Audit Committee.
9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
On October 16, 1998 Vornado Realty L.P. (the "Operating Partnership"), a
subsidiary of Vornado, made a distribution (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, 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 incorporated 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 or entities partially owned by 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 for
the Company 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% (4.38% at December 31, 2002). The
Company pays Vornado a commitment fee equal to 1% per annum on the average daily
unused portion of the facility pursuant thereto; for the year ended December 31,
2002, the Company paid commitment fees of $432,000. 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 any dividends. Debt under the Revolving Credit Agreement is fully
recourse against the Company. At December 31, 2002, $23,834,000 was outstanding
under the Revolving Credit Agreement.
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
10
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 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 ten days from the date of receipt of notice of the
opportunity or by allowing such ten-day period to lapse. As used herein,
"REIT-Qualified Investment" means an investment from which at least 95% of the
gross income 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 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
11
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 such services, the Company paid $330,000
for the year ended December 31, 2002.
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 under 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 the Chairman of the Board and Chief Executive
Officer of the Company and of Vornado, Mr. Fascitelli is the 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, 2002, 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. 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 interest therein. Interstate has the right to have
its limited partnership interest in Company L.P. redeemed by Company L.P. either
for (a) cash in an amount equal to the fair market value, at the time of
redemption, of 447,017 shares of Common Stock or (b) 447,017
12
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 12.9% of the common shares of beneficial interest of Vornado and
approximately 7.9% of the Company's Common Stock as of December 31, 2002.
AmeriCold Logistics
In October 1997, a partnership (the "Vornado REIT/Crescent REIT
Partnership" 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 and URS Logistics, Inc. In June and July 1998, the Vornado
REIT/Crescent REIT Partnership acquired the assets of Freezer Services, Inc. and
the Carmar Group.
On March 11, 1999, the Company and Crescent Operating, Inc. ("COPI") formed
the "Vornado Crescent Logistics Operating Partnership" (which does business
under the name "AmeriCold Logistics") to purchase all of the non-real estate
assets of the Vornado REIT/Crescent REIT Partnership for $48,723,000, of which
the Company's 60% share was $29,234,000. The purchase price was proposed by the
Landlord. The Boards of Directors of both the Company and COPI approved the
transaction after concluding that the price was the fair market value at the
time of the transaction. To fund its share of the purchase price, the Company
utilized $4,647,000 of cash and borrowed $18,587,000 under its Revolving Credit
Agreement with Vornado. The Company paid the balance of $6,000,000 on March 7,
2000.
Subject to confirmation of a plan of reorganization under Chapter 11 of the
United States Bankruptcy Code, COPI is expected to transfer its interest in
AmeriCold Logistics to an entity to be owned by the shareholders of Crescent.
The shareholders of COPI approved the plan of reorganization on March 6, 2003.
It is uncertain whether this plan will be confirmed and what effect, if any,
this plan and the proposed change in ownership will have on the operation and
management of AmeriCold Logistics.
AmeriCold Logistics, headquartered in Atlanta, Georgia, has approximately
6,100 employees and operates 101 temperature controlled warehouse facilities
nationwide with an aggregate of approximately 541 million cubic feet of
refrigerated, frozen and dry storage space. Of the 101 warehouses, AmeriCold
Logistics leases 88 temperature controlled warehouses with an aggregate of
approximately 442 million cubic feet of space from the Landlord, and manages 13
additional warehouses containing approximately 99 million cubic feet of space.
AmeriCold Logistics provides the food industry with refrigerated warehousing and
transportation management services. Refrigerated warehouses are comprised of
production, distribution and public facilities. Production facilities typically
serve one or a small number of customers, generally food processors which are
located nearby. These customers store large quantities of processed or partially
processed products in the facilities 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. Public
facilities generally serve the needs of local and regional customers under
short-term agreements. Food manufacturers and processors use these facilities to
store capacity overflow from their production facilities or warehouses.
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'
13
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 food manufacturers, distributors, retailers and service organizations
including H.J. Heinz & Co., ConAgra, Philip Morris Companies, Tyson Foods, Sara
Lee Corp., McCain Foods, General Mills, Flowers Industries, J.R. Simplot and
Farmland Industries.
On March 11, 1999, AmeriCold Logistics entered into leases with the
Landlord covering 88 of the warehouses used in this business. The leases, as
amended, generally have 15-year terms with two five-year renewal options and
provide for the payment of fixed base rent and percentage rent based on revenue
from customers. 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 $9,500,000
annually. AmeriCold Logistics has the right to defer the payment of 15% of
annual fixed base rent and all percentage rent until December 31, 2003 to the
extent that available cash, as defined in the leases, is insufficient to pay
such rent. Pursuant thereto, AmeriCold Logistics' deferred rent liability at
December 31, 2002 is $40,583,000 (of which the Company's share is $24,350,000).
The fixed base rent for each of the two five-year renewal options is equal,
generally, to the greater of the fair market rent and the fixed base rent for
the immediately preceding lease year plus 5%. On March 7, 2003, AmeriCold
Logistics and the Landlord extended the deferred rent period to December 31,
2004 from December 31, 2003.
On December 31, 2002, Vornado and Crescent formed a new joint venture in
which Vornado holds a 44% interest and Crescent holds a 56% interest. This new
joint venture acquired AmeriCold Logistics' Carthage, Missouri and Kansas City,
Kansas limestone quarries for $20,000,000, the appraised value. The purchase
price consisted of $8,929,000 in cash and the cancellation of $11,071,000 of
notes owed by AmeriCold Logistics to Crescent. AmeriCold Logistics used
$8,800,000 of the cash proceeds to repay a portion of its loans from the
Company. Additionally, AmeriCold Logistics entered into a management agreement
with the joint venture to manage and operate the quarries for an annual
management fee of approximately $200,000 plus all direct expenses incurred as
operator of the quarries. The agreement is for a term of one year and
automatically renews for additional one-year periods unless terminated by either
party. The Company used the $8,800,000 repayment from AmeriCold Logistics and
$700,000 of its cash to repay $7,685,000 of principal and $1,815,000 of interest
and commitment fees under the Revolving Credit Agreement with Vornado.
On December 31, 2002, AmeriCold Logistics sold, without recourse, accounts
receivable of $5,720,000 to Vornado and Crescent's new joint venture for
$5,600,000 in cash. AmeriCold Logistics also agreed to act as agent to collect
the accounts receivable. These receivables have been collected. On March 28,
2003, AmeriCold Logistics sold, without recourse, accounts receivable of
$6,640,000 to Vornado and Crescent's new joint venture for $6,500,000 in cash.
AmeriCold Logistics also agreed to act as agent to collect the accounts
receivable. Although the terms and conditions of the receivables sales were not
negotiated at arm's length, the Company believes that the terms and conditions
were fair to AmeriCold Logistics.
14
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 temperature controlled logistics operating assets acquired by AmeriCold
Logistics on March 11, 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 REIT/Crescent REIT Partnership for an annual fee of $273,000 in 2002
increasing 2% each year.
15
REPORT OF THE AUDIT COMMITTEE
The Audit Committee's purpose is to assist the Board in its oversight of
the Company's internal controls and financial statements and the audit process.
The Board, in its business judgment, has determined that all members of the
Audit Committee are "independent", as required by applicable listing standards
of the American Stock Exchange. The Audit Committee operates pursuant to an
Audit Committee Charter that was adopted by the Board on May 31, 2000; a copy of
the current Audit Committee 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 consolidated 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 annual audit of the consolidated financial statements in accordance
with auditing standards generally accepted in the United States of America.
In performing its oversight role, the Audit Committee has considered and
discussed the audited consolidated financial statements with management and the
independent auditors. The Audit 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 Audit Committee has received the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, as currently in effect.
The Audit 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 independent 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 Audit Committee
referred to below and in the Audit Committee Charter, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
Members of the Audit 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 consolidated financial statements has been carried
out in accordance with auditing standards generally accepted in the United
States of America, that the consolidated financial statements are presented in
accordance with accounting principles generally accepted in the United States of
America or that Deloitte & Touche LLP is in fact "independent".
DOUGLAS H. DITTRICK
RICHARD WEST
MARTIN N. ROSEN
16
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, 2002, for professional
services rendered for the audit of the Company's annual consolidated financial
statements for that fiscal year and for the reviews of the consolidated
financial statements included in the Company's Quarterly Reports on Form 10-Q
for that fiscal year were $98,000.
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, 2002.
All Other Fees
There were no fees billed to the Company 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, 2002.
Retention of Independent Auditors for the Year 2003
The Board has retained Deloitte & Touche LLP to act as independent auditors
for the fiscal year ending December 31, 2003. Deloitte & Touche LLP was engaged
as independent auditors for the 2002 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.
17
INCORPORATION BY REFERENCE
To the extent this Proxy Statement is incorporated by reference into any
other filing by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, the sections entitled "Compensation Committee Report on
Executive Compensation", "Report of the Audit Committee" (to the extent
permitted by the rules of the SEC) and "Performance Graph" will not be
incorporated unless provided otherwise in such filing.
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 each 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 STOCKHOLDER PROPOSALS
The Bylaws of the Company provide that in order for a stockholder to
nominate a candidate for election as a director at an Annual Meeting of
Stockholders or propose business for consideration at such meeting, notice must
be given to the Secretary of the Company no more than 150 days nor less than 120
days prior to the first anniversary of the preceding year's Annual Meeting. As a
result, any notice given by or on behalf of a stockholder pursuant to the
provisions of our Bylaws must 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, 2003 and January 29, 2004.
Stockholders interested in presenting a proposal for inclusion in the Proxy
Statement for the Company's Annual Meeting of Stockholders in 2004 may do so by
following the procedures 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
York, 10019, Attention: Secretary, not later than December 31, 2003.
By Order of the Board of
Directors,
Paul F. Larner
Corporate Secretary
April 30, 2003
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.
18
VORNADO OPERATING COMPANY
PROXY
The undersigned stockholder, revoking all prior proxies, hereby appoints
Steven Roth and Michael D. Fascitelli, or either of them, as proxies, each with
full power of substitution, to attend 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 28, 2003 at 10:00 A.M., local time, and any
postponements or adjournments thereof, to cast on behalf of the undersigned all
votes that the undersigned is entitled to cast at such meeting and otherwise
represent the undersigned at the meeting with all powers possessed by the
undersigned if personally present at the meeting. Each proxy is 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 Annual
Meeting of Stockholders 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
[ ] FOR all nominees except the following:
------------------------------------
Nominees: Martin N. Rosen
Russell B. Wight, Jr.
(each for a term ending at the Annual Meeting of
Stockholders in 2006 and until their successors are duly
elected and qualified)
Address Change and/or
Comments [ ]
Please date and sign exactly as
your name or names appear
hereon. Each joint owner must
sign (Officers, Executors,
Administrators, Trustees, etc.,
will kindly so indicate when
signing).
Dated
-------------------------------------------------------------------------,
2003
-------------------------------
Signature of Stockholder
-------------------------------
Signature, if held jointly
INDICATE YOUR AUTHORIZATION IN
BLACK OR BLUE INK. [X]
PLEASE AUTHORIZE YOUR PROXY, DATE AND SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.