<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities and 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
[X] Definitive Proxy Statement OF THE COMMISSION
[ ] Definitive Additional Materials ONLY (AS PERMITTED BY
[ ] Soliciting Material Pursuant to RULE 14a-6 (e)(2))
Rule 14a-11(c) or Rule 14a-12
REALTY INCOME CORPORATION
(Name of Registrant as Specified in its Charter)
Realty Income Corporation
(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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rune 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>
(Realty Income Corporation Letterhead)
March 30, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Realty Income Corporation to be held at 9:00 a.m., local
time, on May 5, 1999 at the California Center for the Arts Escondido,
340 North Escondido Boulevard, Escondido, California.
At the Annual Meeting, you will be asked to consider and vote upon
the election of two directors to the Board of Directors of the Company.
The election of the members of the Board of Directors of the
Company is more fully described in the accompanying Proxy Statement. We
urge you to review carefully the Proxy Statement.
The Company's Board of Directors recommends a VOTE FOR the election
of each nominee to the Board of Directors named in the accompanying
Proxy Statement.
YOUR VOTE IS IMPORTANT TO THE COMPANY, WHETHER YOU OWN FEW OR MANY
SHARES! Please complete, date and sign the enclosed proxy card and
return it in the accompanying postage paid envelope, even if you plan to
attend the Annual Meeting. If you attend the Annual Meeting, you may,
if you wish, withdraw your proxy and vote in person.
Sincerely,
/s/THOMAS A. LEWIS
---------------------------
Vice Chairman of the Board
and Chief Executive Officer
<PAGE>
REALTY INCOME CORPORATION
220 West Crest Street
Escondido, California 92025-1707
-------------------
NOTICE OF ANNUAL MEETING TO BE HELD ON
May 5, 1999
-------------------
To the Stockholders of
Realty Income Corporation:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of Realty Income Corporation, a Maryland corporation
(the "Company" or "Realty Income"), will be held at the California
Center for the Arts Escondido, 340 North Escondido Boulevard, Escondido,
California, 92025 at 9:00 a.m., local time, on May 5, 1999, to consider
and act upon:
1. The election of two members of the Board of Directors of
the Company; and
2. Such other business as may properly come before the
Annual Meeting or any adjournment or postponement
thereof.
The election of directors is more fully described in the
accompanying Proxy Statement, which forms a part of this Notice.
During the course of the Annual Meeting, management will report on
the current activities of Realty Income and comment on its future plans.
A discussion period is planned so that stockholders will have an
opportunity to ask questions and make appropriate comments.
The Board of Directors has fixed the close of business on
March 10, 1999 as the record date (the "Record Date") for the
determination of stockholders entitled to notice of and to vote at the
Annual Meeting or any adjournment or postponement thereof. Only
stockholders of record on the Record Date will be entitled to notice of
and to vote at the Annual Meeting or any adjournment or postponement
thereof. A list of stockholders will be available for inspection at the
offices of the Company at 220 West Crest Street, Escondido, California,
at least ten days prior to the Annual Meeting.
<PAGE>
If you plan to be present, please notify the undersigned so that
identification can be prepared for you. Whether or not you plan to
attend the Annual Meeting, please execute, date and return promptly the
enclosed proxy. A return envelope is enclosed for your convenience and
requires no postage for mailing in the United States. If you are
present at the Annual Meeting you may, if you wish, withdraw your proxy
and vote in person. Thank you for your interest and consideration.
Sincerely,
/s/ MICHAEL R. PFEIFFER
------------------------------
March 30, 1999 Senior Vice President, General
Counsel and Secretary
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED
PROXY AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE
<PAGE>
(Realty Income Corporation Letterhead)
REALTY INCOME CORPORATION
220 West Crest Street
Escondido, California 92025-1707
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
May 5, 1999
This Proxy Statement is furnished to the stockholders of Realty
Income Corporation, a Maryland corporation ("Realty Income", the
"Company", "we" or "our"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on May 5,
1999, at 9:00 a.m., local time, at the California Center for the Arts
Escondido, 340 North Escondido Boulevard, Escondido, California 92025,
and at any adjournment or postponement thereof. The approximate date on
which this proxy statement and form of proxy solicited on behalf of the
Board of Directors will first be sent to the Company's stockholders is
on or about March 30, 1999.
At the Annual Meeting, holders of record of shares of our Common
Stock will consider and vote upon (i) the election of two members of the
Board of Directors of the Company and (ii) such other business as may
properly come before the Annual Meeting or any adjournment or
postponement thereof. The Board of Directors recommends a vote FOR each
nominee to the Board of Directors named in this Proxy Statement. See
"Proposal to Elect Directors."
On March 10, 1999, the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting, we
had 26,822,326 shares of common stock, par value $1.00 per share (the
"Common Stock"), outstanding. Each such share of Common Stock is
entitled to one vote on each matter properly brought before the meeting.
Stockholders are not permitted to cumulate their shares of Common Stock
for the purpose of electing directors or otherwise. The presence at the
Annual Meeting, in person or by proxy, of stockholders entitled to cast
a majority of all the votes entitled to be cast at the meeting will
constitute a quorum.
Unless contrary instructions are indicated on the proxy, all shares
of Common Stock represented by valid proxies received pursuant to this
solicitation (and not revoked before they are exercised) will be voted
at the Annual Meeting FOR the election of each nominee to the Board of
Directors named in the Proxy Statement. With respect to any other
business which may properly come before the Annual Meeting and be
submitted to a vote of stockholders, proxies received by the Board of
Directors will be exercised in the discretion of the designated proxy
holders. A stockholder may revoke his or her proxy at any time before
Page 1
<PAGE>
exercise by delivering to the Secretary of the Company a written notice
of revocation, by filing with the Secretary of the Company a duly
executed proxy bearing a later date, or by voting in person at the
Annual Meeting. Attendance at the Annual Meeting will not by itself be
sufficient to revoke a proxy.
The election inspector will treat shares represented by properly
signed and returned proxies marked WITHHOLD AUTHORITY as shares that are
present and entitled to vote for purposes of determining the presence of
a quorum. For purposes of the election of directors, withheld votes
will not be counted as votes cast and will have no effect on the result
of the vote.
If the Annual Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the Annual Meeting all proxies will be
voted in the same manner as such proxies would have been voted at the
original convening of the Annual Meeting (except for any proxies that
have theretofore effectively been revoked or withdrawn).
We will bear the cost of soliciting proxies from our stockholders.
In addition to solicitation by mail, our directors, officers and
employees may solicit proxies by telephone, telegram or otherwise. Such
directors, officers and employees of the Company will not be
additionally compensated for such solicitation, but may be reimbursed
for out-of-pocket expenses incurred in connection therewith. Brokerage
firms, fiduciaries and other custodians who forward soliciting material
to the beneficial owners of shares of Common Stock held of record by
them will be reimbursed for their reasonable expenses incurred in
forwarding such material.
Our Common Stock is traded on the New York Stock Exchange, Inc.
("NYSE") under the ticker symbol "O". On March 10, 1999, the last
reported sale price for the Company's Common Stock on the NYSE was
$21.75 per share.
No person is authorized to make any representation with respect to
the matters described in this Proxy Statement other than those contained
herein and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any other
person.
---------------------------
The date of this Proxy Statement is March 30, 1999.
Page 2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
General
Our Board of Directors currently consists of seven directors
divided into three classes, designated as Class I, Class II, and Class
III. Each class is elected to a three-year term and the election of
directors is staggered, so that only one class of directors is elected
at each annual meeting of stockholders. The Class II directors' terms
expire at the 1999 Annual Meeting of stockholders. As such,
stockholders of record as of March 10, 1999 will be entitled to vote on
the election of two Class II directors for three-year terms at the
Annual Meeting.
Vote Required; Board Recommendation
A plurality of all the votes cast at the Annual Meeting, assuming a
quorum is present, will be sufficient to elect each director.
Accordingly, withheld votes as to the election of directors will not
affect the result of the vote. Unless instructed to the contrary, the
shares represented by the proxies will be voted FOR the election of each
of the two director nominees named below. Although it is anticipated
that each nominee will be able to serve as a director, should any
nominee become unavailable to serve, the shares represented by the
proxies will be voted for another person or persons designated by our
Board of Directors. In no event will the proxies be voted for more than
two nominees.
Director Nominees
The following table sets forth certain information regarding the
Director nominees both of whom are current directors of Realty Income:
<TABLE>
Name Age Title Class
<S> <C> <C> <C> <C>
Donald R. Cameron 59 Director II
Willard H. Smith Jr. 62 Director II
</TABLE>
Donald R. Cameron has been a Director of the Company since August 1994
and is a co-founder and President of Cameron, Murphy & Spangler, Inc., a
securities broker-dealer firm located in Pasadena, California. He
graduated from the University of Glasgow, Scotland, B.Sc. Prior to
founding Cameron, Murphy & Spangler in 1975, he worked at the securities
brokerage firm of Glore Forgan Staats, Inc. and its successors (1969-
1975). He is currently a director of Ayr United Football and Athletic
Club, Ltd. Mr. Cameron is chairman of the Compensation Committee and is
a member of the Audit Committee, the Special Committee and the Corporate
Governance Committee.
Page 3
<PAGE>
Willard H. Smith Jr. has been a Director of the Company since July
1996 and was the Managing Director, Equity Capital Markets Division, of
Merrill Lynch & Co. from 1983 until his retirement in 1996. Prior to
joining Merrill Lynch in 1979, he was employed by F. Eberstadt & Co.
(1971 - 1979). Mr. Smith also serves on the boards of directors of five
investment companies: Cohen & Steers Realty Shares; Cohen & Steers
Realty Income Fund; Cohen & Steers Total Return Realty Fund; Cohen &
Steers Special Equity Fund, Inc., and Cohen & Steers Equity Income Fund.
Additionally, he is a member of the board of directors of Essex Property
Trust and Highwoods Property Trust, two NYSE-listed REITs, and Willis
Lease Finance Corporation, a NASDAQ-listed company. Mr. Smith is
chairman of the Corporate Governance Committee and is a member of the
Audit Committee, the Special Committee and the Compensation Committee.
Incumbent Directors
<TABLE>
Name Age Title Class
<S> <C> <C> <C>
Thomas A. Lewis 46 Vice Chairman of the Board III
and Chief Executive Officer
Richard J. VanDerhoff 45 President and Chief Operating Officer III
William E. Clark 61 Chairman of the Board III
Roger P. Kuppinger 58 Director I
Michael D. McKee 53 Director I
</TABLE>
Thomas A. Lewis has been Chief Executive Officer of the Company
since May 1997 and the Vice Chairman of the Board of Directors and a
Director of the Company since September 1993 and had been with R.I.C.
Advisor, Inc. ("R.I.C. Advisor") from 1987 until the merger of R.I.C.
Advisor with the Company on August 17, 1995 (the "Merger"). From
September 1993 to May 1997, he served as Vice President, Capital
Markets. Prior to joining R.I.C. Advisor, he served in various
capacities, including Senior Vice President with Johnstown Capital, a
real estate management and syndication company (1982-1987), an
Investment Specialist with Sutro & Co., a member of the New York Stock
Exchange (1979-1982), and was employed by the Procter & Gamble Company
(1974-1979). He graduated from Chaminade University of Hawaii, B.A.
Richard J. VanDerhoff has been President and Chief Operating
Officer of Realty Income since November 1994 and a Director of the
Company since July 1996 and had been with R.I.C. Advisor from 1987 until
the Merger. From August 1994 to November 1994, he served as general
counsel of the Company. Prior to 1987, he was employed as Vice
President, General Counsel and Secretary of FNCO Corporation, an owner
and operator of community newspaper companies located throughout the
midwest United States (1984-1987) and was in private law practice
specializing in real property and business law (1980-1984). He
graduated from Jacksonville University, B.S., and the University of San
Diego School of Law, J.D.
Page 4
<PAGE>
William E. Clark has been the Chairman of the Board of Directors
and a Director of the Company since September 1993 and served as Chief
Executive Officer of the Company from September 1993 to May 1997. He
was co-founder and had been a director and an officer of R.I.C. Advisor
from 1969 until the Merger with Realty Income Corporation. He has been
involved as a principal in commercial real estate acquisition,
development, management and sales for over 30 years. His involvement
includes land acquisition, tenant lease negotiations, construction and
sales of commercial properties for regional and national fast-food
restaurants, automotive and retail chain store operations throughout the
United States. Mr. Clark is a member of the Audit Committee, the
Compensation Committee and the Corporate Governance Committee.
Roger P. Kuppinger has been a Director of the Company since August
1994 and is a self-employed investment banker and financial advisor and
is an active investor in both private and public companies. Prior to
March 1994, he was a Managing Director at the investment banking firm
Sutro & Co. Inc. He graduated from Northwestern University, B.S. and
M.B.A., and from LaSalle University in Chicago, LL.B. Prior to joining
Sutro in 1969, he worked at First Interstate Bank, formerly named United
California Bank (1964-1969). He has served on over ten boards of
directors for both public and private companies, and currently serves on
the board of directors of BRE Properties, Inc. Mr. Kuppinger is
chairman of the Audit Committee and is a member of the Compensation
Committee, the Special Committee and the Corporate Governance Committee.
Michael D. McKee has been a Director of the Company since August
1994, has been Executive Vice President of The Irvine Company since
March 1994 and has served as Chief Financial Officer of The Irvine
Company since January 1997. Prior thereto, he was a partner in the law
firm of Latham & Watkins. He graduated from Azusa Pacific University,
B.A., University of Southern California, M.A., and University of
California at Los Angeles, J.D. His business and legal experience
includes numerous acquisition and disposition transactions, as well as a
variety of public and private offerings of equity and debt securities.
He is currently a member of the board of directors of The Irvine
Company, Health Care Property Investors, Inc., Circus Circus
Enterprises, Inc. and Irvine Apartment Communities, Inc. Mr. McKee is
chairman of the Special Committee and is a member of the Compensation
Committee, the Audit Committee and the Corporate Governance Committee.
Committees of the Board of Directors
The Audit Committee of the Board of Directors is comprised of
Messrs. Cameron, Clark, Kuppinger (chairman), McKee and Smith. The
Audit Committee's principal responsibilities include recommending to the
Board of Directors the selection of the our independent auditors,
approving any special assignments given to the independent auditors and
reviewing (i) the scope and results of the audit engagement with the
independent auditors and management, including the accountant's letter
Page 5
<PAGE>
of comments and management's responses thereto, (ii) the independence of
the independent auditors, (iii) the effectiveness and efficiency of our
internal accounting staff and (iv) any proposed significant accounting
changes.
The Compensation Committee of the Board of Directors is comprised
of Messrs. Cameron (chairman), Clark, Kuppinger, McKee and Smith. The
Compensation Committee's principal responsibilities include establishing
remuneration levels for officers of the Company, reviewing management
organization and development, reviewing significant employee benefits
programs and establishing and administering executive compensation
programs, including bonus plans, stock option and other equity-based
programs, deferred compensation plans and any other cash or stock
incentive programs.
The Special Committee of the Board of Directors is comprised of
Messrs. Cameron, Kuppinger, McKee (chairman) and Smith. The Special
Committee was formed in August 1994 to explore the advisability of the
combination of the Company and R.I.C. Advisor. On behalf of Realty
Income, the Special Committee negotiated the terms of the Merger on
behalf of Realty Income which was consummated on August 17, 1995. The
Special Committee currently attends to certain post-closing items
regarding the Merger.
The Corporate Governance Committee of the Board of Directors was
formed in November 1996 and is comprised of Messrs. Cameron, Clark,
Kuppinger, McKee and Smith (chairman). The Corporate Governance
Committee's principal purpose is to provide counsel to the Board of
Directors with respect to (i) organization, membership and function of
the Board of Directors, (ii) structure and membership of the committees
of the Board of Directors and (iii) succession planning for the
executive management of the Company.
The Board of Directors may from time to time establish certain
other committees to facilitate the management of the Company.
Meetings and Attendance
The Board of Directors met 13 times during the fiscal year ended
December 31, 1998. The Audit Committee, Compensation Committee,
Corporate Governance Committee and Special Committee met 2, 4, 0 and 1
times in 1998, respectively. All directors attended at least 75% of the
aggregate of (i) the total number of meetings of the Board while they
were on the Board and (ii) the total number of meetings of the
committees of the Board on which such directors served.
Compensation of the Company's Directors
No officer of the Company receives or will receive any compensation
for serving the Company as a member of the Board of Directors or any of
Page 6
<PAGE>
its committees. Directors who are not officers of the Company receive
the following fees:
- - $15,000 annual fee, the chairman of the Board of Directors receives
an annual fee of $30,000;
- - $1,000 for attending Board of Directors meetings in person ($1,500
for the chairman of the Board);
- - $500 for attending Board of Directors committee meetings in person
($1,000 for the chairman of the committee);
- - $500 for attending Board of Directors meetings by telephone ($750
for the chairman of the Board);
- - $250 for attending Board of Directors committee meetings by
telephone ($500 for the chairman of the committee).
We may also reimburse such directors for travel expenses incurred
in connection with their activities on behalf of the Company. In
addition, under our stock incentive plan, upon his or her initial
election to the Board of Directors and at each Annual Meeting of
Stockholders thereafter, if the Director is still serving as a Director,
each Director who is not an officer of the Company is automatically
granted options to purchase 5,000 shares of Realty Income Common Stock
at the then current market price. These options vest during the
Director's continued service period on the first anniversary of the date
of the grant.
As of March 10, 1999, the following options were held:
<TABLE>
Options Options Exercise
Held Exercisable Price
<S> <C> <C> <C>
William E. Clark 5,000 5,000 $25.3750
5,000 5,000 (1) $26.0625
Donald R. Cameron 10,000 10,000 $20.0000
5,000 5,000 $25.3750
5,000 5,000 (1) $26.0625
Michael D. McKee 10,000 10,000 $20.0000
5,000 5,000 $25.3750
5,000 5,000 (1) $26.0625
Roger P. Kuppinger 10,000 10,000 $20.0000
5,000 5,000 $25.3750
5,000 5,000 (1) $26.0625
Willard H. Smith Jr. 10,000 5,000 $21.6250
5,000 5,000 $25.3750
5,000 5,000 (1) $26.0625
</TABLE>
(1) Options vest on May 5, 1999.
Page 7
<PAGE>
SENIOR OFFICERS OF THE COMPANY
<TABLE>
Name Title Age
- ------------------- --------------------------------------- ---
<S> <C> <C>
Thomas A. Lewis Vice Chairman of the Board 46
and Chief Executive Officer
Richard J. VanDerhoff Director and President and 45
Chief Operating Officer
Gary M. Malino Senior Vice President, 41
Chief Financial Officer and Treasurer
Michael R. Pfeiffer Senior Vice President, General Counsel 38
and Secretary
Richard G. Collins Senior Vice President, Portfolio 50
Acquisitions
</TABLE>
Biographical information with respect to Messrs. Lewis and
VanDerhoff is set forth above under Incumbent Directors.
Gary M. Malino has been Senior Vice President of the Company since
August 1997, the Treasurer of the Company since August 1995, the Chief
Financial Officer of the Company since August 1994 and had been with
R.I.C. Advisor from 1985 until the Merger. He also held the position of
Vice President of the Company from August 1995 to August 1997, when his
title was changed to Senior Vice President. Prior to joining R.I.C.
Advisor in 1985, he was a Certified Public Accountant with Kendall &
Forman, an accountancy corporation (1981-1985), and Assistant Controller
with McMillin Development Company, a real estate development company
(1979-1981). He graduated from San Diego State University, B.S.
Michael R. Pfeiffer has been Senior Vice President of the Company
since August 1997 and the General Counsel and Secretary of the Company
since August 1995 and had been with R.I.C. Advisor from 1990 until the
Merger. He also served as Vice President of the Company from August
1995 to August 1997, when his title was changed to Senior Vice
President. Prior to joining R.I.C. Advisor he was in private practice
specializing in real estate transactional law (1987-1990), and was
employed as Associate Counsel with First American Title Insurance
Company (1986-1987). He graduated from the University of Rhode Island,
B.S., and the University of San Diego School of Law, J.D. He is a
licensed attorney and member of the State Bar of California and the
State Bar of Florida.
Richard G. Collins has been Senior Vice President, Portfolio
Acquisitions of the Company since August 1997 and had been with R.I.C.
Advisor from 1990 until the Merger. He also served as Vice President,
Portfolio Acquisitions of the Company from June 1997 to August 1997,
when his title was changed to Senior Vice President, Portfolio
Acquisitions. From August 1995 to June 1997, he served as Vice
President, Portfolio Management of the Company. Prior to joining R.I.C.
Advisor, he was involved as a principal in the acquisition and sale of
Page 8
<PAGE>
land and commercial real estate and a general partner for land and
commercial real estate partnerships (1979-1990) and a leasing and sales
specialist in the Office Properties Division for Grubb & Ellis
Commercial Real Estate Services (1974-1979). He graduated from San
Diego State University, B.S.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the
compensation awarded to, earned by or paid during the fiscal years ended
December 31, 1998, 1997 and 1996 to our Chief Executive Officer and to
the other four most highly compensated executive officers of the Company
for the fiscal years ended December 31, 1998, 1997 and 1996 (the "Named
Executive Officers").
<TABLE>
Annual Compensation Long-Term Compensation
------------------------- ----------------------
Awards (1)
---------------------
Name and Bonus Options Restricted
Principal Position Year Salary (2) (#) Stock (3)
- -------------------- ------ -------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Thomas A. Lewis
Vice Chairman of the 1998 $250,000 $53,100 47,600 2,100
Board and Chief 1997 $231,917 -- 63,800 3,400
Executive Officer 1996 $200,000 -- 14,900 1,400
Richard J. VanDerhoff
President, Chief 1998 $225,000 $27,405 24,600 1,100
Operating Officer 1997 $225,000 -- 62,000 3,300
1996 $225,000 -- 17,000 1,600
Gary M. Malino
Senior Vice President, 1998 $175,000 $19,924 17,900 800
Chief Financial 1997 $175,000 -- 37,600 2,000
Officer, Treasurer 1996 $175,000 -- 11,400 1,100
Michael R. Pfeiffer
Senior Vice President, 1998 $145,000 $17,324 15,500 700
General Counsel, 1997 $145,000 -- 31,200 1,700
Secretary 1996 $137,500 -- 6,800 700
Richard G. Collins
Senior Vice President, 1998 $145,000 $15,693 14,100 600
Portfolio 1997 $137,945 -- 29,500 1,600
Acquisitions 1996 $115,000 -- 5,000 500
(table continued on next page)
Page 9
<PAGE>
(continued) Long-Term Compensation
-----------------------
All Other
Name and LTIP Compensation
Principal Position Year Payouts (4)
- -------------------- ------ ------- ------------
Thomas A. Lewis
Vice Chairman of the 1998 -- $4,800
Board and Chief 1997 -- $4,750
Executive Officer 1996 -- $4,750
Richard J. VanDerhoff
President, Chief 1998 -- $4,800
Operating Officer 1997 -- $4,750
1996 -- $4,750
Gary M. Malino
Senior Vice President, 1998 -- $4,800
Chief Financial 1997 -- $4,750
Officer, Treasurer 1996 -- $4,750
Michael R. Pfeiffer
Senior Vice President, 1998 -- $4,800
General Counsel, 1997 -- $4,397
Secretary 1996 -- $4,125
Richard G. Collins
Senior Vice President, 1998 -- $ --
Portfolio 1997 -- $ 750
Acquisitions 1996 -- $1,198
</TABLE>
[FN]
(1) The options and restricted stock shown as compensation for 1998,
1997 and 1996 were granted on January 1, 1999, January 1, 1998 and
January 1, 1997, respectively. We grant options and restricted
stock from time to time to executive officers based on performance
during a fiscal year and, since such performance often cannot be
measured until after the end of a fiscal year, the options and
restricted stock grants may be made in the subsequent fiscal year.
(2) The 1998 bonus' were granted in January 1999 as compensation for
performance during 1998.
(3) Restricted Stock is awarded pursuant to our management incentive
plan. All awards granted under the management incentive plan are
made in accordance with the provisions of our stock incentive plan.
Restricted Stock vests over three years. Restricted Stock is
eligible to receive distributions from the date of grant.
(4) Represents the amount we contribute pursuant to a 401(k) retirement
plan. Under the terms of this plan, we match 50% of the employee's
contribution to the plan, up to 6% of the employee's salary.
Employees may contribute up to 15% of their salary, capped at
$10,000, with the maximum amount of our contribution being $4,800.
</FN> Page 10
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information on options granted to the Named
Executive Officers on January 1, 1999 (as compensation for performance
in 1998).
<TABLE>
Individual Grants
- ----------------------------------------------------------------------
Percentage
of Total
Number of Options
Shares Granted to
Year Underlying Employees Exercise Expir-
of Options in Fiscal Price ation
Name Award Granted(1) Year (2) Per Share Date
- ------------------- ----- ---------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Thomas A. Lewis 1998 47,600 24.4% 24.875 12/31/08
Richard J. VanDerhoff 1998 24,600 12.6% 24.875 12/31/08
Gary M. Malino 1998 17,900 9.2% 24.875 12/31/08
Michael R. Pfeiffer 1998 15,500 7.9% 24.875 12/31/08
Richard G. Collins 1998 14,100 7.2% 24.875 12/31/08
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Year Option Term(3)
of -------------------------------
Name Award 5% 10%
- ------------------- ----- ------------- --------------
Thomas A. Lewis 1998 $ 744,643 $1,887,071
Richard J. VanDerhoff 1998 $ 384,836 $ 975,251
Gary M. Malino 1998 $ 280,023 $ 709,634
Michael R. Pfeiffer 1998 $ 242,478 $ 614,487
Richard G. Collins 1998 $ 220,577 $ 558,985
</TABLE>
[FN]
(1) These options were granted on January 1, 1999 as compensation for
performance during 1998. All such options vest ratably over three
years. Options are granted for a term of 10 years, subject to
earlier termination in certain events related to termination of
employment. The option exercise price is equal to the fair market
value of the shares on the date of grant.
(2) Percentages shown for 1998 represent the percentage of total
options granted to employees as compensation for performance in
1998 that were granted on January 1, 1999, respectively.
(3) Assumed annual rates of stock price appreciation for illustrative
purposes only. Actual stock prices will vary from time to time
based upon market factors and our financial performance. No
assurance can be given that these appreciation rates will be
achieved.
</FN> Page 11
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table provides information related to the exercise of
stock options during the year ended December 31, 1998 by each of the
Named Executive Officers and the 1998 fiscal year-end value of
unexercised options.
<TABLE>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options Options at
Acquir- at FY-End FY- End
ed on Value Exercisable/ Exerciseable/
Exer- Real- Unexercisable Unexercisable
Name cise ized (1) (1) (2)
- --------------------- ------ ----- -------------- ---------------
<S> <C> <C> <C> <C>
Thomas A. Lewis -- -- 36,000 / 47,500 $17,067 / 123,554
Richard J. VanDerhoff -- -- 38,300 / 47,000 $20,910 / 140,967
Gary M. Malino -- -- 24,333 / 28,867 $13,979 / 94,525
Michael R. Pfeiffer -- -- 17,133 / 23,067 $ 7,805 / 56,392
Richard G. Collins 2,933 $7,771 12,133 / 21,334 $ 2,564 / 41,467
</TABLE>
[FN]
(1) Excludes options granted on January 1, 1999 as compensation for
1998 (See "Executive Compensation-Summary Compensation Table").
(2) Market value of underlying Common Stock on date of fiscal year-
end minus the exercise price. The share price as of December 31,
1998 was $24.875.
</FN>
Employment Agreements
Effective January 1, 1999, each of Messrs. Lewis, VanDerhoff,
Malino, Pfeiffer and Collins has entered into employment agreements with
the Company pursuant to which each employee receives a base salary of
$262,500, $225,000, $190,000, $190,000, and $155,000, respectively, and
the right to receive severance compensation upon the occurrence of
certain events as specified in the agreements. The employee may
terminate the agreement at any time upon two weeks' written notice to
the Company. The Company may terminate the agreement without cause at
any time upon written notice to the employee. The employment agreements
provide that upon termination by the Company, including termination
resulting from a change in control of the Company, the employee will be
entitled to receive monthly severance payments in an amount equal to the
employee's base salary, payable in monthly installments. Each of
Messrs. Lewis, VanDerhoff, Malino, and Pfeiffer is entitled to receive
severance payments for 12 months following termination, and Mr. Collins
is entitled to receive severance payments for six months following
termination. The amount of severance compensation is increased by 50%
in the event of a termination resulting from a change in control of the
Company.
Page 12
<PAGE>
The employment agreements provide that the employee must devote his full
time, attention and energy to the business of the Company and may not
engage in any other business activity which would interfere with the
performance of his duties or be competitive with the Company, unless
specifically permitted by the Board. This restriction does not prevent
the employee from making passive investments in a business not in
competition with the Company, so long as the investment does not require
the employee's services in a manner that would impair the performance of
his duties under the employment agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is comprised of five independent
non-employee directors, is responsible for, among other things,
establishing remuneration levels for officers of the Company and
establishing and administering executive compensation programs.
Our compensation policies have been structured to link the
compensation of our executive officers with enhanced stockholder value.
Through the establishment of short- and long-term incentive plans, we
seek to align the financial interests of the executive officers with
those of our stockholders.
Executive Compensation Philosophy
In designing our compensation programs, we have followed our belief
that compensation should reflect the value created for stockholders
while supporting the business strategies and long-range plans of the
Company and the markets the Company serves. In doing so, the
compensation programs reflect the following themes:
A compensation program that stresses our financial
performance and the executive officers' individual performance.
A compensation program that strengthens the relationship
between pay and performance by providing variable, at-risk
compensation that is reflective of current market practices and
comparable executive rates and is dependent upon the level of
success in meeting specified Company and individual performance
goals.
An annual incentive plan that supports a performance-
oriented environment and which generates a portion of
compensation based on the achievement of specific performance
goals, with superior performance resulting in total annual
compensation above competitive levels.
A long-term incentive plan that is designed to reward
executive officers for long-term strategic management of the
Company and the enhancement of stockholder value.
Page 13
<PAGE>
The Compensation Committee will review and determine the
compensation of our executive officers with this philosophy on
compensation as its basis.
Executive Compensation Components
Our executive compensation is based on two components, each of
which is intended to serve the overall compensation philosophy.
Base Salary. Base salary is set at a level competitive with
amounts paid to executive officers of comparable companies with similar
business structure, size and marketplace orientation. In determining
appropriate salary levels, the Compensation Committee considers the
individual's scope of responsibility, experience and performance. In
addition, the Compensation Committee reviews competitive market and
industry data compiled by independent compensation consultants. The
data provided compares our compensation practices to a group of
comparable companies which tend to have similar business structure, size
and marketplace orientation.
Salaries for executive officers are reviewed by the Compensation
Committee on an annual basis. Increases to base salaries will be driven
primarily by individual performance. Base salaries allow executives to
be rewarded for individual performance based on our evaluation process
which encourages the development of executives and sustained levels of
contribution to the Company. Base salaries also offer security to
executives and allow the Company to attract competent executive talent
and maintain a stable management team.
Executive Incentive Compensation. We have adopted a management
incentive plan which is linked to the long-term performance of the
Company. Executive officers are eligible to receive annual grants of
incentive stock options and restricted stock based upon the achievement
by the executive officers of annual financial criteria stated in terms
of target and maximum goals as determined by the Compensation Committee
at the beginning of the fiscal year and the following three factors:
(a) growth in our funds from operations ("FFO"), which is a common
statistical benchmark in the real estate investment trust ("REIT")
industry, (b) our performance compared to a peer group of comparable
companies, and (c) the executive's individual performance.
In keeping with our commitment to provide a total compensation
package which emphasizes at-risk components of compensation, awards
granted under the plan are intended to retain and motivate executive
officers to improve long-term stock market performance.
Chief Executive Officer Compensation. In accordance with the terms
of the Management Incentive Plan, the Compensation Committee established
an FFO performance target at the beginning of the 1998 fiscal year. In
1998, Mr. Lewis received base compensation of $250,000. Mr. Lewis' award
Page 14
<PAGE>
under the Management Incentive Plan was attributable 60% to FFO
performance, 20% to total stockholder return as compared to the
Company's peer group and 20% to personal evaluation. The restricted
stock and the stock options vest one-third each year.
Under section 162(m) of the Internal Revenue Code (the "Code"),
income tax deductions of publicly-traded companies in tax years
beginning on or after January 1, 1994 may be limited to the extent total
compensation (including base salary, annual bonus, stock option
exercises, and non-qualified benefits) for certain executive officers
exceeds $1 million (less the amount of any "excess parachute-payments"
as defined in Section 280G of the Code) in any one year. To the extent
that compensation paid by the Company to any employee exceeds $1 million
in any one year, all or a portion of such excess amount may not be
deductible by the Company under section 162(m) of the Code. The
Compensation Committee has designed our compensation so that total
compensation paid to any employee will not exceed $1 million in any one
year, except for compensation payments that are related to increases in
the price of our common stock. We may also pay compensation which is
not deductible in other limited circumstances when sound management of
the Company so requires.
Donald R. Cameron, Chairman
William E. Clark
Roger P. Kuppinger
Michael D. McKee
Willard H. Smith Jr.
Date: March 30, 1999
The above report of the Compensation Committee will not be deemed to be
incorporated by reference into any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates the same by
reference.
Page 15
<PAGE>
STOCK PERFORMANCE GRAPH
As a part of the rules concerning executive compensation
disclosure, we are obligated to provide a chart comparing the yearly
percentage change in the cumulative total stockholder return on our
Common Stock over a five-year period. However, since our Common Stock
has been publicly traded only since October 18, 1994, such information
is provided from this date through December 31, 1998.
The chart below compares the performance of our Common Stock with
the performance of an index including all securities for U.S. companies
listed on Standard & Poor's 500 Total Return Index (the "S&P 500 Total
Return Index") and of a peer group of companies, measuring the changes
in common stock prices from October 18, 1994 through December 31, 1998.
The chart assumes an investment of $100 on October 18, 1994, and as
required by the Commission, all values shown assume the reinvestment of
all distributions, if any, and, in the case of the peer group, are
weighted to reflect the market capitalization of the component
companies. The peer group consists of Franchise Finance Corporation of
America, Lexington Corporate Properties, Inc., Commercial Net Lease
Realty and Tri-Net Corporate Realty Trust.
<TABLE>
TOTAL RETURN PERFORMANCE
[GRAPH]
Period Ending
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Index 10/18/94 12/31/94 06/30/95 12/31/95 6/30/96
- ------------- -------- -------- -------- -------- -------
Realty Income
Corporation 100.00 110.02 142.36 159.69 152.86
S&P 500 100.00 98.83 118.80 135.96 149.68
Realty Income
Corporation
Peer Group 100.00 102.73 121.88 130.31 141.05
Period Ending
----------------------------------------------------
Index 12/31/96 06/30/97 12/31/97 6/30/98 12/31/98
- ------------- -------- -------- -------- ------- --------
Realty Income
Corporation 183.27 209.22 210.21 226.09 222.01
S&P 500 167.05 201.47 222.79 262.26 286.46
Realty Income
Corporation
Peer Group 175.92 172.34 196.98 188.69 169.21
</TABLE>
Page 16
<PAGE>
COMPLIANCE WITH FEDERAL SECURITIES LAWS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our officers and directors, and persons who own more than 10%
of a registered class of our equity securities (collectively,
"Insiders"), to file with the Commission initial reports of ownership
and reports of changes in ownership of our Common Stock and other equity
securities of the Company. Insiders are required by regulation of the
Commission to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on our review of copies of Forms 3, 4, and 5, and the
amendments thereto, received by the Company for the year ended
December 31, 1998, or written representations from certain reporting
persons that no Forms 5 were required to be filed by those persons, we
believe that during the period ended December 31, 1998, all filings
requirements were complied with by its executive officers, directors and
beneficial owners of more than ten percent of our stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 10, 1999 certain
information with respect to the beneficial ownership of shares of our
Common Stock by (i) each director and Named Executive Officer and (ii)
all directors and executive officers of the Company as a group. We do
not know of any person who beneficially owns 5% or more of the
outstanding shares of our Common Stock. Except as otherwise noted, we
believe that the beneficial owners of shares of our Common Stock listed
below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares.
<TABLE>
Shares of Realty Income
Common Stock
Beneficially Owned
-----------------------
<S> <C> <C>
Name Number Percent
- ------------------------- ------- -------
William E. Clark (1)(7)(8) 538,532 2.0%
Richard J. VanDerhoff (2) 121,648 *
Thomas A. Lewis (3) 119,923 *
Gary M. Malino (4) 90,542 *
Donald R. Cameron (5)(6)(7)(8) 31,937 *
Michael D. McKee (6)(7)(8) 22,000 *
Roger P. Kuppinger (6)(7)(8) 20,950 *
Michael R. Pfeiffer (10) 20,533 *
Willard H. Smith Jr. (7)(8)(11) 16,000 *
Richard G. Collins (12) 14,258 *
All directors and named executive officers of
the Company, as a group (10 persons)(13) 996,323 3.7%
- ----------------------
*Less than one percent
</TABLE> Page 17
<PAGE>
[FN]
(1) Mr. Clark's total includes 527,654 shares owned of record by The
William E. Clark, Jr. and Evelyn J. Clark Family Trust (the
"Clark Family Trust"), of which he is a trustee and 449 shares
owned of record by his wife. Mr. Clark disclaims beneficial
ownership of the shares owned of record by his wife.
(2) Mr. VanDerhoff's total includes 2,440 shares owned of record by
his wife and 2,100 shares subject to options that became
exercisable on January 1, 1997, and 7,767 shares subject to
options that became exercisable on January 1, 1998 and 28,433
shares subject to options that became exercisable on January 1,
1999.
(3) Mr. Lewis' total includes 1,600 shares subject to options that
became exercisable on January 1, 1997, and 6,567 shares subject
to options that became exercisable on January 1, 1998 and 27,833
shares subject to options that became exercisable on January 1,
1999.
(4) Mr. Malino's total includes 206 shares owned of record by his
wife, as to which he disclaims beneficial ownership, and 1,043
shares owned of record jointly with his wife, as to which he
shares voting and disposition power with his wife. Mr. Malino's
total includes 1,400 shares subject to options that became
exercisable on January 1, 1997, 5,200 shares that became
exercisable on January 1, 1998 and 17,733 shares that became
exercisable on January 1, 1999.
(5) Mr. Cameron's total includes 10,200 shares owned of record by the
Cameron, Murphy and Spangler, Inc. Amended and Restated Pension
Trust dated April 1, 1984, of which he is the trustee. Of the
10,200 shares, 10,000 shares are in the account of Mr. Cameron and
200 shares in the account of Lachlan Cameron. Mr. Cameron's total
also includes 1,500 shares owned of record by his son, Donald
Cameron. Mr. Cameron disclaims beneficial ownership 1,500 shares
owned by his son and the 200 shares owned by the Cameron, Murphy
and Spangler, Inc. Amended and Restated Pension Trust in the
account of Lachlan Cameron.
(6) For each of Messrs. Cameron, McKee and Kuppinger the total
includes 10,000 shares subject to options, 2,500 that became
exercisable on each of August 24, 1995, 1996, 1997 and 1998.
(7) For each of Messrs. Clark, Cameron, McKee, Kuppinger and Smith the
total includes 5,000 shares subject to options that became
exercisable on June 12, 1998.
(8) For each of Messrs. Clark, Cameron, McKee, Kuppinger and Smith the
total includes 5,000 shares subject to options that became
exercisable on May 5, 1999.
Page 18
<PAGE>
(9) Mr. Kuppinger's total includes 950 shares owned of record jointly
with his wife, as to which he shares voting and disposition power
with his wife.
(10) Mr. Pfeiffer's total includes 733 shares subject to options that
became exercisable on January 1, 1997, 3,001 shares subject to
options that became exercisable on January 1, 1998 and 13,399
shares subject to options that became exercisable on January 1,
1999.
(11) Mr. Smith's total includes 10,000 shares subject to options,
2,500 that became exercisable on each of August 19, 1997 and 1998.
(12) Mr. Collins' total includes 12,134 shares subject to options that
became exercisable on January 1, 1999.
(13) See notes (1) through (12).
</FN>
AUDITORS
Subject to its discretion to appoint alternative auditors if it
deems such action appropriate, the Board of Directors has retained KPMG
LLP as our auditors for the current fiscal year. The Board of Directors
has been advised that KPMG LLP is independent with respect to the
Company and its subsidiaries within the meaning of the Securities Act
and the applicable published rules and regulations thereunder.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting and will have the opportunity to make statements if they desire
and to respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
In order for stockholder proposals otherwise satisfying the
eligibility requirements of SEC Rule 14a-8 to be considered for
inclusion in our Proxy Statement, they must be received by us at our
principal office in Escondido, California, on or before December 1,
1999.
In addition, if a stockholder desires to bring business (including
director nominations) before our 2000 Annual Meeting that is or is not
the subject of a proposal timely submitted for inclusion in our Proxy
Statement, written notice of such business, as prescribed in our Bylaws,
must be received by our Secretary between February 5, 2000 and March 6,
2000. For additional requirements, a stockholder may refer to our
Bylaws, Section 12, "Nominations and Stockholder Business," a copy of
which may be obtained from the Company's Secretary. If we do not
receive timely notice pursuant to our Bylaws, any proposal will be
excluded from consideration at the meeting, regardless of any earlier
notice provided in accord with SEC Rule 14a-8.
Page 19
<PAGE>
YOUR PROXY IS IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES
Please date, sign and mail the enclosed Proxy Card today.
REALTY INCOME CORPORATION
ANNUAL MEETING OF STOCKHOLDERS-MAY 5, 1999
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
Please mark your [ X ]
votes as indicated
in this example
YOUR VOTE IS IMPORTANT TO THE COMPANY WHETHER YOU OWN FEW OR MANY
SHARES! Please complete, date and sign the enclosed proxy card and
return it in the accompanying postage-paid envelope, even if you plan to
attend the Annual Meeting. If you attend the Annual Meeting, you may,
if you wish, withdraw your proxy and vote in person.
The undersigned stockholder of Realty Income Corporation, a
Maryland corporation (the "Company"), hereby appoints Richard J.
VanDerhoff and Michael R. Pfeiffer, or either of them, as proxies for
the undersigned, with full power of substitution in each of them, to
attend the Annual Meeting of the Stockholders of the Company to be held
at the California Center for the Arts, 340 North Escondido Boulevard,
Escondido, California, 92025, on May 5, 1999 at 9:00 a.m. Local Time,
and any adjournment or postponement thereof, to cast on behalf of the
undersigned all votes that the undersigned is entitled to cast at such
meeting and otherwise to represent the undersigned at the meeting with
all powers possessed by the undersigned if personally present at the
meeting. The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and of the accompanying Proxy Statement
and revokes any proxy heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as
instructed below. If this proxy is executed but no instruction is
given, the votes entitled to be cast by the undersigned will be cast
"for" the following proposals:
Page 20
<PAGE>
Proposal 1.- ELECTION OF DIRECTORS
The Board of Directors recommends a vote FOR Election of Directors.
Nominees:
FOR all nominees WITHHOLD AUTHORITY to vote
listed below for all nominees listed below
[ ] [ ]
Nominees: Donald R. Cameron and Willard H. Smith Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike through that nominee's name above.)
Proposal 2.- IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL 1.
All other proxies heretofore given by the undersigned to vote shares of
stock of the Company, which the undersigned would be entitled to vote if
personally present at the Annual Meeting or any adjournment or
postponement thereof, are hereby expressly revoked.
Please date this proxy and sign it exactly as your name or names appear.
When shares are held jointly, each holder should sign. When signing as
an attorney, executor, administrator, trustee or guardian, please give
full title as such. If shares are held by a corporation, please sign in
full corporate name by the president or other authorized officer. If
shares are held by a partnership, please sign in partnership name by an
authorized person.
Dated: _________________, 1999
Signature(s) _________________________________________________________
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT
CHANGES.
Page 21
<PAGE>
