<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
VORNADO OPERATING COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
VORNADO OPERATING COMPANY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
VORNADO OPERATING COMPANY
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
1999
<PAGE> 3
VORNADO OPERATING COMPANY
PARK 80 WEST, PLAZA II
SADDLE BROOK, NEW JERSEY 07663
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 2, 1999
------------------------
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, June
2, 1999, beginning at 9:00 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 thereof.
Pursuant to the By-laws of the Company, the Board of Directors of the
Company has fixed the close of business on April 19, 1999, 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
Assistant Secretary
<PAGE> 4
VORNADO OPERATING COMPANY
PARK 80 WEST, PLAZA II
SADDLE BROOK, NEW JERSEY 07663
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 2, 1999
------------------------
The enclosed proxy is being solicited by the Board of Directors 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, June 2, 1999,
beginning at 9:00 a.m., local time (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
calls, 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 19, 1999 are
entitled to notice of and to vote at the Annual Meeting. There were on such date
4,068,310 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 principal executive office of the Company is located at Park 80 West,
Plaza II, Saddle Brook, New Jersey 07663. The accompanying notice of annual
meeting of stockholders, this proxy statement and the enclosed proxy will be
mailed on or about May 10, 1999 to the Company's stockholders of record as of
the close of business on April 19, 1999.
THE COMPANY
The Company was formed on October 30, 1997, as a wholly owned subsidiary of
Vornado Realty Trust, a Maryland real estate investment trust ("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 is intended to function 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
a REIT. See "Certain Relationships and Related Transactions" below.
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 will be 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 1999, the term of office of Class II directors will expire at the annual
meeting of stockholders in 2000 and the term of office of Class III directors
<PAGE> 5
will expire at the annual meeting of stockholders in 2001, 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, the person 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 qualify. If any nominee at the time
of election is unavailable to serve, a contingency not presently anticipated, it
is intended that the person 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 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
and failures to vote will not be counted as votes cast in the election of
directors and thus will have no effect on the result of the vote.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION YEAR TERM YEAR FIRST
AND PRESENT POSITION WILL APPOINTED
NAME AGE WITH THE COMPANY EXPIRE AS DIRECTOR
---- --- -------------------- --------- -----------
<S> <C> <C> <C> <C>
NOMINEES FOR ELECTION TO SERVE AS
DIRECTORS UNTIL THE ANNUAL MEETING IN
2002
Douglas H. Dittrick(2)................. 65 President and Chief Executive 1999 1998
Officer of Douglas Communications
Corporation II
Richard West(2)(3)..................... 61 Dean Emeritus, Leonard N. Stern 1999 1998
School of Business, New York
University
PRESENT DIRECTORS ELECTED TO SERVE
UNTIL THE ANNUAL MEETING IN 2000
Martin Rosen(3)........................ 57 President of United Yarn Products 2000 1998
Co., Inc.
Russell B. Wight, Jr.(1)............... 59 A general partner of Interstate 2000 1998
Properties ("Interstate")
PRESENT DIRECTORS ELECTED TO SERVE
UNTIL THE ANNUAL MEETING IN 2001
Steven Roth(1)......................... 57 Chairman of the Board and Chief 2001 1998
Executive Officer of the Company;
Managing General Partner of
Interstate
Michael D. Fascitelli(1)............... 42 President of the Company 2001 1998
</TABLE>
- ---------------
(1) Member of the Executive Committee of the Board of the Company.
(2) Member of the Audit Committee of the Board of the Company.
(3) Member of the Compensation Committee of the Board of the Company.
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, immediate past President of Phi Gamma Delta, an international
college fraternity, and the Chairman of the Board of Trustees of Valley
Hospital. Mr. Dittrick is also a director of Fleet Bank, N.A. and Zeta Consumer
Products Corp.
2
<PAGE> 6
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. Prior thereto, Mr. West was Dean of the Amos Tuck School of Business
Administration at Dartmouth College. Mr. West is also a director or a trustee of
Vornado, Alexander's, Inc. ("Alexander's"), Bowne & Co., Inc., and various
investment companies managed by Merrill Lynch Asset Management, Inc., or
Hotchkis & Wiley, both affiliates of Merrill Lynch & Co.
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 is Chairman of the Counsel for the Arts at Massachusetts
Institute of Technology.
Mr. Wight has been a general partner of Interstate Properties
("Interstate") since 1968. Mr. Wight is also a director of Alexander's and a
trustee or director of Vornado and Insituform Technologies, Inc.
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 1980. Since 1968, he has been a general partner of
Interstate and more recently, Managing General Partner. On March 2, 1995, he
became Chief Executive Officer of 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. 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.
The Company is not aware of any family relationships between 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.
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. For the two months
ending December 31, 1998 that the Company was active the Executive Committee
held no meetings.
Audit Committee
The Audit Committee's functions include reviewing annual and quarterly
reports and proxy statements sent to stockholders and filed with the Securities
and Exchange Commission (the "Commission"), recommending to the Board the
engaging of the independent auditors, reviewing with the independent auditors
the plan and results of the auditors' engagement and other matters of interest
to the Audit Committee, including the effectiveness of the Company's internal
controls and the results of its operations. The Audit Committee consists of two
members, Messrs. West and Dittrick. Mr. West is the Chairman of the Audit
Committee. For the two months ending December 31, 1998 that the Company was
active the Audit Committee held no meetings.
3
<PAGE> 7
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 1998
Omnibus Stock Plan of Vornado Operating Company (the "Omnibus Stock Plan"). The
Committee consists of two members, Messrs. West and Rosen. Mr. West is the
Chairman of the Compensation Committee. For the two months ending December 31,
1998 that the Company was active the Compensation Committee held no meetings,
but took action by unanimous written consent one time.
For the two months ending December 31, 1998 that the Company was active the
Board met twice. Each director attended all of the meetings of the Board and
committees on which he served during 1998.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
REPORT ON EXECUTIVE COMPENSATION
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 Omnibus Stock Plan.
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation
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. Although the Company
currently has no employment agreements with any person and does not currently
pay a salary or other compensation to any executive officer for his services in
such capacity, the Company expects that it will pay salaries and other
compensation to its executive officers when it begins conducting business
operations material enough to warrant such compensation.
The factors and criteria which the Compensation Committee expects to
utilize in establishing the compensation of the Company's executive officers
(including Mr. Roth) 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 expects to consider 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 will be 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.
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
4
<PAGE> 8
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
1998. The graph assumes that $100 was invested on October 16, 1998 in the
Company's Common Stock, the Russell 2000 Index and the peer group index, and
that all dividends were reinvested. As the Company has only a limited operating
history, the Company believes that the information provided below has limited
relevance to an assessment of the Company's compensation policies or strategy.
<TABLE>
<CAPTION>
VORNADO OPERATING
COMPANY RUSSELL 2000 INDEX NASDAQ INDUSTRIAL INDEX
----------------- ------------------ -----------------------
<S> <C> <C> <C>
10/16/98 100.00 100.00 100.00
12/31/98 101.00 123.00 131.00
</TABLE>
5
<PAGE> 9
PRINCIPAL SECURITY HOLDERS
The following table sets forth the number of shares of Common Stock
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. In
addition, unless otherwise noted, the address of all such persons is c/o Vornado
Operating Company, Park 80 West, Plaza II, Saddle Brook, New Jersey 07663.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF ALL
NAME OF BENEFICIAL OWNER OWNED(1) SHARES(1)(2)
------------------------ ------------------- --------------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Steven Roth(3)(4)........................................... 279,278 6.9
Michael D. Fascitelli....................................... 45,977 1.1
Russell B. Wight, Jr.(3)(5)................................. 227,623 5.6
Douglas H. Dittrick......................................... 2,000 *
Richard West(6)............................................. 1,050 *
Martin N. Rosen............................................. 0 *
Joseph Macnow............................................... 3,750 *
Irwin Goldberg.............................................. 100 *
All executive officers and directors as a group (8
persons).................................................. 357,645 8.8
OTHER BENEFICIAL OWNERS
David Mandelbaum(3)......................................... 216,082 5.3
Interstate(3)............................................... 200,133 4.9
Cohen & Steers Capital Management, Inc.(7).................. 422,710 11.3
Gotham Partners, L.P., Gotham Partners III, L.P., Gotham
International Advisors, L.L.C.(8)......................... 356,925 8.8
</TABLE>
- ---------------
* 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 the number of shares of
Common Stock outstanding as of April 19, 1999.
(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 exchange 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 Vornado Operating L.P., a Delaware
limited partnership ("Company LP"). At any time after October 16, 1999,
Interstate will have 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 provisions.
Although shares of Common Stock that are owned by Interstate are reflected
in the numbers and percentages set forth in this table for Interstate and
for each of Messrs. Roth, Wight and Mandelbaum (who share voting and
investment power with respect thereto), neither Interstate's 9.9% limited
partnership interest in Company L.P. nor the shares for which that interest
may be redeemed are reflected in such numbers or percentages. If the shares
for which such interest may be redeemed were reflected in such numbers and
percentages, the percentages to be owned would increase to 16.1%, 14.9%,
14.7% and 14.3% for Messrs. Roth, Wight and Mandelbaum and Interstate,
respectively.
6
<PAGE> 10
(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 4,690 shares owned by the Wight Foundation, over which Mr. Wight
holds sole voting power and investment power.
(6) Mr. West and his wife own 150 shares jointly. Mr. West holds 900 shares in
self-directed Keogh accounts.
(7) Based on Schedule 13G dated February 8, 1999, Cohen & Steers Capital
Management, Inc. has the sole power to vote or to direct the vote of 371,015
shares and has the sole power to dispose or to direct the disposition of
422,710 shares. The address of this beneficial owner is 757 Third Avenue,
New York, New York 10017.
(8) Based on Schedule 13G dated December 31, 1998, Gotham Partners, L.P., Gotham
Partners III, L.P. and Gotham International Advisors, L.L.C. has the sole
power to vote or to direct the vote of, and the sole power to dispose or to
direct the disposition of, 229,075 shares, 4,135 shares and 123,715 shares,
respectively. The address of Gotham Partners, L.P. and Gotham Partners III,
L.P. is 110 East 42nd Street, 18th Floor, New York, New York 10017. The
address of Gotham International Advisors, L.L.C. is c/o Goldman Sachs
(Cayman) Trust, Limited, Harbour Centre, 2nd Floor, P.0. Box 896, George
Town, Grand Cayman, Cayman Islands, British West Indies.
EXECUTIVE COMPENSATION
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation.
Although the Company currently has no employment agreements with any person and
does not currently pay a salary or other compensation to any executive officer
for his services in such capacity (except that options or SARs have been granted
to executive officers), the Company expects that it will pay salaries and other
compensation to its executive officers when it begins conducting business
operations material enough to warrant such compensation.
The following table lists all grants of share options or SARs to the
Company's named executive officers made during 1998 and their potential
realizable values, assuming annualized rates of share price appreciation of 5%
and 10% over the term of the grant. All of such grants were made in 1998. The
Company has not, to date, granted any performance shares or restricted stock
under the Omnibus Stock Plan.
OPTION/SAR GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
--------------------------------- ASSUMED ANNUAL RATES OF
NUMBER OF SHARES % OF TOTAL EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS/SARS OR BASE OPTION/SAR TERM(2)
OPTIONS/SARS GRANTED PRICE PER EXPIRATION ------------------------------
NAME GRANTED IN FISCAL 1998 SHARE(1) DATE 5% 10%
- ---- ---------------- -------------- --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Steven Roth.......... 205,000 36.8% $5.54 10/9/2008 $714,236 $1,810,013
Michael D.
Fascitelli......... 200,000 35.9% $5.54 10/9/2008 $696,400 $1,764,814
Joseph Macnow........ 20,000 3.6% $5.54 10/9/2008 $ 69,640 $ 176,481
Irwin Goldberg....... 3,000 0.5% $5.54 10/9/2008 $ 10,446 $ 26,472
</TABLE>
- ---------------
(1) The exercise or base price per share is equal to the book value per share as
of October 9, 1998 (the date of grant), which the Company's Board of
Directors has determined represents the fair market value as of the date of
grant.
(2) Potential Realizable Value is based on the assumed annual growth rates for
the market value of the Common Stock shown over their ten-year term
(assuming the per share market value as of the date of grant equals the book
value per share after giving effect to the Interstate Exchange). For
example, a 5% growth rate, compounded annually, results in a stock price of
$9.02 per share and a 10% growth rate, compounded annually, results in a
stock price of $14.36 per share. These Potential Realizable Values are
listed to comply with the regulations of the Commission, and the Company
cannot predict whether these values will be achieved. Actual gains, if any,
on stock option and SAR exercises are dependent on the future performance of
the Common Stock.
7
<PAGE> 11
The following table summarizes all exercises of options and SARs during
1998, and the options and SARs held at December 31, 1998, by the Covered
Executives.
AGGREGATED OPTION AND SAR EXERCISES IN 1998 AND YEAR END OPTION AND SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
SHARES 12/31/98 SARS AT 12/31/98
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Steven Roth................... -- $ -- 0/205,000 $0/517,112
Michael D. Fascitelli......... -- -- 0/200,000 0/504,500
Joseph Macnow................. -- -- 0/20,000 0/50,450
Irwin Goldberg................ -- -- 0/3,000 0/7,567
</TABLE>
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. Each of Messrs. Dittrick, Rosen, West and Wight was granted options to
purchase 15,000 shares of Common Stock at an exercise price of $5.54 per share.
These options expire on October 9, 2008. For information about the grants of
options or SARs to Messrs. Roth and Fascitelli, see "Executive Compensation" on
the preceding page.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
On October 16, 1998 Vornado Realty L.P. (the "Operating Partnership"), a
subsidiary of Vornado Realty Trust together with its consolidated subsidiaries
("Vornado"), made a distribution (the "Distribution") of one share of common
stock, par value $.01 per share (the "Common Stock"), of the Company for 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. While no Common Stock was distributed in respect of Vornado's $3.25
Series A Convertible Preferred Shares, Vornado adjusted the conversion price to
take into account the Distribution.
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 is intended to function 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 a REIT.
The Company will seek to become the operator of businesses conducted at
properties it leases from Vornado, as contemplated by the Intercompany Agreement
between the Company and Vornado, as described under "-- The Intercompany
Agreement" below. The Company expects to rely exclusively 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 million unsecured
five-year revolving credit facility from Vornado. Borrowings under the Revolving
Credit Agreement bear interest at a floating rate per annum equal to LIBOR plus
3%. Commencing January 1, 1999 the Company pays Vornado a commitment fee equal
to 1% per annum on the average daily unused portion of the facility. Amounts may
be borrowed under the
8
<PAGE> 12
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 million). Only interest and commitment fees are payable under the
Revolving Credit Agreement until it expires. 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.
Intercompany Agreement
The Company and Vornado have entered into the Intercompany 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 unless it first offers Vornado the opportunity
to make such investment and Vornado has rejected that opportunity.
More specifically, the Intercompany 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) are leased to a single lessee. Under the Intercompany
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 Intercompany 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 Intercompany 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 Intercompany Agreement, Vornado has agreed to provide the Company
with certain administrative, corporate, accounting, financial, insurance, legal,
tax, data processing, human resources and operational services. For these
services, the Company will compensate 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 will reimburse Vornado for certain costs
incurred and paid to third parties on behalf of the
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Company. For the period from October 16, 1998 (commencement date) to December
31, 1998, approximately $50,000 of compensation for such services was charged
pursuant to the Intercompany Agreement.
Vornado and the Company each have the right to terminate the Intercompany
Agreement if the other party is in material default of the Intercompany
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
Intercompany Agreement upon a change in control of the Company.
The Company restated certificate of incorporation (the "Charter") specifies
that one of its corporate purposes is to perform the Intercompany Agreement and,
for so long as the Intercompany 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 Intercompany Agreement.
The Company's Management
Messrs. Roth, Fascitelli, West and Wight are directors of Vornado. Mr. Roth
is also Chairman of the Board and Chief Executive Officer of Vornado, Mr.
Fascitelli is also President of Vornado and certain 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 Vornado
Operating L.P., a Delaware limited partnership ("Company L.P."). The Company is
the sole general partner of, and as of December 31, 1998 owned a 90.1%
partnership interest in, Company L.P. All references to the Company refer to
Vornado Operating Company and its subsidiaries including the Company L.P.
Interstate Properties, a New Jersey general partnership ("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 stock
appreciation rights ("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 is treated, either directly or under the
applicable attribution rules, as owning 10% or more of the Common Stock of the
Company. Vornado will be treated as owning, under the applicable attribution
rules, 10% or more of the Common Stock at any time that Interstate and its
partners own, directly or under the applicable attribution rules, (a) Vornado
shares with a value equal to 10% or more of the total value of Vornado's
outstanding shares and (b) 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. At any time after October 16, 1999, Interstate will have 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 18.1% of the shares of Vornado as of March 31, 1999.
Acquisition of Interest in Charles E. Smith Commercial Realty L.P.
On December 31, 1998, the Company purchased from a subsidiary of Vornado
approximately 1.7% of the outstanding partnership units of Charles E. Smith
Commercial Realty L.P. ("CESCR"), a Delaware limited partnership that owns
interests in and manages approximately 10.7 million square feet of office
properties in
10
<PAGE> 14
Crystal City, Arlington, Virginia, a suburb of Washington, D.C., and manages an
additional 14.6 million square feet of office and other commercial properties in
the Washington, D.C. area, for an aggregate purchase price of approximately
$12.9 million, or $34 per unit (which is the price at which CESCR issued
partnership units in October 1998 in connection with a significant "roll-up"
transaction). The purchase price was funded out of the Company's working
capital. In connection with this purchase, the Company was granted an option to
require Vornado to repurchase all of the CESCR units at the price at which the
Company purchased the CESCR units from Vornado, plus a cumulative return on such
amount at a rate of 10% per annum. This option may be exercised at any time
prior to December 31, 1999. On March 4, 1999, the Company exercised such option
and Vornado reacquired the CESCR units from the Company for $13.2 million.
The Cold Storage Companies
On October 31, 1997, partnerships (the "Vornado/Crescent Partnerships") 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 (Americold, URS, Freezer Services, Inc. and the Carmar
Group, collectively, the "Cold Storage Companies").
On March 12, 1999, the Company and Crescent Operating Inc. ("Crescent
Operating") formed a new partnership that has purchased all of the non-real
estate assets of the Cold Storage Companies which do business under the name
"AmeriCold Logistics" encompassing the operations of the cold storage business
for approximately $48 million from the Vornado/Crescent Partnerships. The new
partnership leases 88 cold storage warehouses used in this business from the
Vornado/Crescent Partnerships, which continue to own the real estate. In
addition to the leased warehouses, AmeriCold Logistics manages 13 additional
warehouses.
To fund its share of the purchase price, the Company utilized $4.6 million
of cash and borrowed $18.6 million under its revolving credit facility with
Vornado. Further, the Company will pay $6 million to close the warehousing
operation of one of the leased facilities.
The purchase price of the cold storage operating assets was proposed by the
partnership of Vornado and Crescent (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.
The acquired business has 5,500 employees and operates 101 warehouse
facilities nationwide with an aggregate of approximately 530 million cubic feet
of refrigerated, frozen and dry storage space under the name AmeriCold
Logistics. AmeriCold Logistics has its headquarters in Atlanta, Georgia.
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 primarily services the surrounding regional market.
AmeriCold Logistics offers transportation management services including freight
routing, dispatching, freight rate negotiation, backhaul coordination 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, Inc., Tyson Foods, H.J. Heinz & Co., McCain
Foods, Pillsbury, Sara Lee, Philip Morris, J.R. Simplot, Farmland Industries and
Unilever.
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<PAGE> 15
Leases for the cold storage warehouse properties
AmeriCold Logistics entered into six leases covering the warehouses used in
this business. The leases have a 15-year term with two-five year renewal options
and provide for the payment of fixed base rent and percentage rent based on
revenues AmeriCold receives from its customers. Fixed rent is approximately $123
million per annum through 2003, $126 million per annum from 2004 through 2008
and $130 million per annum from 2009 through 2014. Percentage rent for each
lease is based on a specified percentage of revenues in excess of a specified
base amount. The aggregate base revenue amount under five of the six leases is
approximately $321 million, and the weighted average percentage rate is 36.5%
for the initial five-year period, 39.1% for the period from 2004 through 2008
and 40.7% for the period from 2009 through February 28, 2014. The aggregate base
revenue amount under the sixth lease is approximately $32 million, and the
percentage rate is 24% for the initial two-year period, 37.5% for the period
from 2002 through 2006, 40% from 2007 through 2011 and 41% from 2012 through
February 28, 2014. Fixed base rent and percentage rent for the initial year are
projected to be approximately $151,000,000.
AmeriCold Logistics has the right to defer the payment of 15% of fixed rent
and all percentage rent for up to three years beginning on March 12, 1999 to the
extent that available cash, as defined in the leases, is insufficient to pay
such rent.
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%.
AmeriCold Logistics is required to pay 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.
Terms of the new partnership
Vornado is the day-to-day liaison to the management of AmeriCold Logistics.
The new partnership will pay Vornado an annual fee of $487,000, which is based
on the cold storage operating assets acquired by the new partnership on March
12, 1999. The fee increases by an amount equal to 1% of the cost of new
acquisitions, including transaction costs. The new partnership will provide
financial statement preparation, tax and similar services to the
Vornado/Crescent real estate partnership (the lessor of the Cold Storage
warehouse properties) for an annual fee of $250,000 increasing 2% each year.
INFORMATION RESPECTING THE COMPANY'S
INDEPENDENT AUDITORS
The Board has retained Deloitte & Touche LLP to act as independent auditors
for the fiscal year ending December 31, 1999. The firm of Deloitte & Touche LLP
was engaged as independent auditors for the 1998 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.
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 person 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 a meeting of
stockholders to be delivered to the Secretary of the Company not less than 60
nor more than
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<PAGE> 16
90 days prior to the date of the meeting. 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.
Stockholders interested in presenting a proposal for consideration at the
Company's annual meeting of stockholders in 2000 may do so by following the
procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934
and the Company's By-laws. To be eligible for inclusion, stockholder proposals
must be received at the principal executive office of the Company, Park 80 West,
Plaza II, Saddle Brook, New Jersey 07663, Attention: Secretary, not later than
60 days before the date of the annual meeting of stockholders in 2000; provided,
however, that if the date of the meeting is first publicly announced or
disclosed (in a public filing or otherwise) less than 70 days before the date of
the meeting, such advance notice must be given not more than ten days after that
date is first so announced or disclosed.
By order of the Board of Directors,
Larry Portal
Assistant Secretary
May 10, 1999
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.
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<PAGE> 17
VORNADO OPERATING COMPANY
PROXY
The undersigned, revoking all prior proxies, hereby appoints Steven Roth
proxy, 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, June 2, 1999 at 9:00 A.M.,
local time, upon any and all business as may properly come before the meeting
and all postponements or adjournments thereof. Said 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 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 PROXY.
(Continued and to be Executed, on Reverse side)
<PAGE> 18
(Continued from other side)
<TABLE>
<S> <C>
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
Nominees: Richard West
Douglas H. Dittrick
(each for a term ending at the Annual Meeting of
Stockholders in 2002)
[ ] WITHHOLD AUTHORITY to vote for all nominees
To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
------------------------------------------------------------
</TABLE>
[ ] 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
------------------------------------------------------------------------,
1999
--------------------------------
Signature(s) of Stockholder(s)
VOTES MUST BE INDICATED (X) IN
BLACK OR BLUE INK. [X]
PLEASE VOTE, DATE AND SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
