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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
VORNADO OPERATING COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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VORNADO OPERATING COMPANY
------------
------------
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
2 0 0 1
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VORNADO OPERATING COMPANY
888 SEVENTH AVENUE
NEW YORK, NY 10019
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 30, 2001
------------------------
To our Stockholders:
The Annual Meeting of Stockholders of Vornado Operating Company, a Delaware
corporation (the "Company"), will be held at the Marriott Hotel, Interstate 80
and the Garden State Parkway, Saddle Brook, New Jersey 07663, on Wednesday, May
30, 2001, beginning at 10:00 a.m., local time, for the following purposes:
(1) The election of two persons to the Board of Directors of the Company,
each for a term of three years; and
(2) The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Pursuant to the By-laws of the Company, the Board of Directors of the
Company has fixed the close of business on April 20, 2001, as the record date
for determination of stockholders entitled to notice of and to vote at the
meeting.
Your attention is called to the attached proxy statement. Whether or not
you plan to attend the meeting, you are urged to complete and sign the enclosed
proxy and return it in the accompanying envelope to which no postage need be
affixed if mailed in the United States. If you attend the meeting in person, you
may revoke your proxy and vote your own shares.
By Order of the Board of Directors,
Larry Portal
Corporate Secretary
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VORNADO OPERATING COMPANY
888 SEVENTH AVENUE
NEW YORK, NY 10019
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 30, 2001
------------------------
The enclosed proxy is being solicited by the Board of Directors (the
"Board") of Vornado Operating Company, a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders of the Company to be held on
Wednesday, May 30, 2001, beginning at 10:00 a.m., local time at the Marriott
Hotel, Interstate 80 and the Garden State Parkway, Saddle Brook, New Jersey
07663 (the "Annual Meeting"). The proxy may be revoked by the stockholder at any
time prior to its exercise at the Annual Meeting by executing and delivering to
the Company at its principal office a written revocation or later dated proxy or
by attending the Annual Meeting and voting in person. The cost of soliciting
proxies will be borne by the Company. MacKenzie Partners, Inc. has been engaged
by the Company to solicit proxies, at a fee not to exceed $5,000. In addition to
solicitation by mail and by telephone, arrangements may be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to their principals and the Company may reimburse them for their
expenses in so doing.
Only stockholders of record at the close of business on April 20, 2001 are
entitled to notice of and to vote at the Annual Meeting. There were on such date
4,068,924 shares of common stock, par value $.01 per share ("Common Stock"), of
the Company outstanding, each entitled to one vote at the Annual Meeting.
The principal executive office of the Company is located at 888 Seventh
Avenue, New York, New York 10019. The accompanying notice of annual meeting of
stockholders, this proxy statement and the enclosed proxy will be mailed on or
about May 8, 2001 to the Company's stockholders of record as of the close of
business on April 20, 2001.
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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 III directors will expire at the annual meeting of
stockholders in 2001, the term of office of Class I directors will expire at the
annual meeting of stockholders in 2002 and the term of office of Class II
directors will expire at the annual meeting of stockholders in 2003, with each
class of directors to hold office until their successors have been duly elected
and qualified. At each annual meeting of stockholders, directors elected to
succeed the directors whose terms expire at such annual meeting shall be elected
to hold office for a term expiring at the annual meeting of stockholders in the
third year following the year of their election and until their successors have
been duly elected and qualified.
Unless otherwise directed in the proxy, each of the persons named in the
enclosed proxy, or his substitute, will vote such proxy for the election of the
two nominees listed below as directors for a three-year term and until their
respective successors are duly elected and qualified. If any nominee at the time
of election is unavailable to serve, a contingency not presently anticipated, it
is intended that the persons named in the proxy, or their substitutes, will vote
for an alternate nominee who will be designated by the Board. Proxies may be
voted only for the nominees named or such alternates.
Under the By-laws, the affirmative vote of a plurality of all the votes
cast at the Annual Meeting, assuming a quorum is present, is sufficient to elect
a director. Under Delaware law, proxies marked "withhold authority" will be
counted for the purpose of determining the presence of a quorum but such proxies
will not be counted as votes cast in the election
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of directors and thus will have no effect on the result of the vote.
Broker non-votes, if any, will be included in determining whether a quorum
is present, but will not be included in determining the number of votes cast in
a Director's favor. A broker non-vote occurs when a broker holding shares for a
beneficial owner does not vote on a particular matter because the broker has not
received instructions from the beneficial owner and does not have discretionary
voting power with respect to that matter.
The following table sets forth the nominees (both of whom are presently
members of the Board) and the other present members of the Board. With respect
to each such person, the table sets forth the age, principal occupation,
position presently held with the Company, and the year in which the person first
became a director of the Company.
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YEAR YEAR
PRINCIPAL OCCUPATION TERM FIRST
AND PRESENT POSITION WILL APPOINTED
NAME AGE WITH THE COMPANY EXPIRE AS DIRECTOR
---- --- ------------------------- ------ -----------
NOMINEES FOR ELECTION TO SERVE AS DIRECTORS
UNTIL THE ANNUAL MEETING IN 2004
------------------------------------------------------
Steven Roth(1) 59 Chairman of the Board and 2001 1998
Chief Executive Officer
of the Company; Managing
General Partner of
Interstate Properties
("Interstate")
Michael D.
Fascitelli(1) 44 President of the Company 2001 1998
PRESENT DIRECTORS ELECTED TO SERVE UNTIL THE
ANNUAL MEETING IN 2002
------------------------------------------------------
Douglas H.
Dittrick(2) 67 President and Chief 2002 1998
Executive Officer of
Douglas Communications
Corporation II
Richard West(2)(3) 63 Dean Emeritus, Leonard N. 2002 1998
Stern School of Business,
New York University
PRESENT DIRECTORS ELECTED TO SERVE UNTIL THE ANNUAL
MEETING IN 2003
------------------------------------------------------
Martin Rosen(2)(3) 59 President of United Yarn 2003 1998
Products Co., Inc.
Russell B. Wight,
Jr.(1) 61 A general partner of 2003 1998
Interstate
---------------
(1) Member of the Executive Committee of the Board of Directors of the Company.
(2) Member of the Audit Committee of the Board of Directors of the Company.
(3) Member of the Compensation Committee of the Board of Directors of the
Company.
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Mr. Roth is Chairman of the Board and Chief Executive Officer of the
Company. Mr. Roth has been Chairman of the Board and Chief Executive Officer of
Vornado Realty Trust ("Vornado") since May 1989 and Chairman of the Executive
Committee of the Board of Vornado since April 1988. Since 1968, he has been a
general partner of Interstate and more recently he has been Managing General
Partner. On March 2, 1995, he became Chief Executive Officer of Alexander's,
Inc. ("Alexander's"). Mr. Roth is also a director of Alexander's and of Capital
Trust, Inc.
Mr. Fascitelli is President of the Company. Mr. Fascitelli has been
President and a trustee of Vornado, and a director of Alexander's since December
2, 1996. Mr. Fascitelli has been president of Alexander's since August 1, 2000.
From December 1992 to December 1996, Mr. Fascitelli was a partner at Goldman,
Sachs & Co. in charge of its real estate practice and was a vice president prior
to 1992.
Mr. Rosen has been the President of United Yarn Products Co., Inc. (a
manufacturer of synthetic fiber) since 1970. Mr. Rosen is a former director of
First National Bank of North Jersey, and a former director of First Fidelity
North, N.A. Mr. Rosen is a board member and past president of the YM-YWHA of
North Jersey, a board member of the Daughters of Miriam Home for the Aged
Foundation, and Chairman of the Counsel for the Arts at Massachusetts Institute
of Technology.
Mr. Wight has been a general partner of Interstate since 1968. Mr. Wight is
also a trustee of Vornado and a director of Alexander's.
Mr. Dittrick has been the President and Chief Executive Officer of Douglas
Communications Corporation II (cable television) since July 1986. Prior to July
1986, Mr. Dittrick was the President and Chief Executive Officer of Tribune
Cable Communications, a cable television subsidiary of Tribune Company, which
was sold in 1986. Mr. Dittrick is Chairman of the Board of Trustees of Ohio
Wesleyan University, past President of Phi Gamma Delta, an international college
fraternity, and the Chairman of the Board of Trustees of Valley Hospital.
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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 trustee of Vornado and a
director of Alexander's, Bowne & Co., Inc., and various investment companies
managed by Merrill Lynch Asset Management, Inc. or Hotchkis and Wiley, both
affiliates of Merrill Lynch & Co.
The Company is not aware of any family relationships among any directors or
executive officers of the Company. Messrs. Roth and Wight are affiliated with
each other as general partners of Interstate and in other businesses.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Executive Committee, an Audit Committee and a Compensation
Committee.
The Board held three meetings during 2000. Each director attended at least
80% of the combined total of the meetings of the Board and all committees on
which he served during 2000.
Executive Committee
The Executive Committee possesses and may exercise all the authority and
powers of the Board in the management of the business and affairs of the
Company, except those reserved to the Board by the Delaware General Corporation
Law. The Executive Committee consists of three members, Messrs. Roth, Fascitelli
and Wight. Mr. Roth is Chairman of the Executive Committee. The Executive
Committee did not meet in 2000.
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Audit Committee
The purposes of the Audit Committee are to assist the Board: (i) in its
oversight of the Company's accounting and financial reporting principles and
policies and internal controls and procedures; (ii) in its oversight of the
Company's financial statements and the independent audit thereof; (iii) in
selecting, evaluating and, where deemed appropriate, replacing the outside
auditors; and (iv) in evaluating the independence of the outside auditors. The
function of the Audit Committee is oversight. The management of the Company is
responsible for the preparation, presentation and integrity of the Company's
financial statements and for maintaining appropriate accounting and financial
reporting principles and policies and internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. The outside auditors are responsible for planning and carrying out
a proper audit and reviews, including review of the Company's quarterly
financial statements prior to the filing of each quarterly report on Form 10-Q,
and other procedures. A copy of the Audit Committee's charter is attached as
Annex A to this Proxy Statement. The Audit Committee, which held four meetings
during 2000, consists of three members, Messrs. West, Rosen and Dittrick. Mr.
Rosen was appointed to the Audit Committee at the March 2, 2000 meeting of the
Board of Directors. Effective March 2, 2000, Mr. Dittrick became the Chairman of
the Audit Committee. Prior thereto, Mr. West was the Chairman of the Audit
Committee.
Compensation Committee
The Compensation Committee is responsible for establishing the terms of the
compensation of the executive officers and the granting of awards under the 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. The Compensation Committee held one
meeting in 2000.
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COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board is responsible for establishing the
terms of the compensation of the executive officers and the granting of awards
under the Company's Omnibus Stock Plan.
The only executive officer of the Company that has received cash
compensation from the Company is Emanuel Pearlman, the Company's Chief Operating
Officer. Mr. Pearlman's base salary is $300,000 in accordance with his
employment agreement. None of the Company's other executive officers has
received compensation from or on behalf of the Company since its formation on
October 30, 1997, except that in connection with the formation of the Company,
options and Stock Appreciation Rights ("SARs") were granted to Vornado employees
who held Vornado options, including executive officers of the Company.
The Company has an employment agreement with Mr. Pearlman which commenced
on June 15, 2000. Mr. Pearlman's employment agreement provides for an annual
base salary of not less than $300,000. In addition, Mr. Pearlman was granted
options to purchase 175,000 shares of common stock, exercisable at the current
market price on the date the options were granted.
The factors and criteria which the Compensation Committee utilizes in
establishing the compensation of the Company's executive officers include an
evaluation of the Company's overall financial and business performance, the
officer's overall leadership and management and contributions by the officer to
the Company's acquisitions or investments. The Compensation Committee also
considers the compensation provided in the prior year and estimates of
compensation to be provided by similar companies in the current year. The
primary objective of the Compensation Committee in establishing the terms of the
executive officers' compensation is to provide strong financial incentives
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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
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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
2000. The graph assumes that $100 was invested on October 16, 1998 in each of
the Company's Common Stock, the Russell 2000 Index and the NASDAQ Industrial
Index, and that all dividends were reinvested. THERE CAN BE NO ASSURANCE THAT
PERFORMANCE OF THE COMPANY'S SHARES WILL CONTINUE IN LINE WITH THE SAME OR
SIMILAR TRENDS DEPICTED IN THE GRAPH BELOW.
[PERFORMANCE GRAPH]
VORNADO OPERATING
COMPANY RUSSELL 2000 INDEX NASDAQ INDUSTRIAL INDEX
----------------- ------------------ -----------------------
10/16/98 100.00 100.00 100.00
12/31/98 101.00 112.00 129.00
12/31/99 75.00 136.00 187.00
12/31/00 26.00 132.00 156.00
------------------------------------------------------------------------
10/16/98 12/31/98 12/31/99 12/31/2000
------------------------------------------------------------------------
Vornado Operating
Company 100 101 75 26
Russell 2000 Index 100 112 136 132
NASDAQ Industrial Index 100 129 187 156
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PRINCIPAL SECURITY HOLDERS
The following table sets forth the number of shares of Common Stock and
units of limited partnership interest ("Units") in Vornado Operating L.P., a
Delaware limited partnership (the "Company L.P."), beneficially owned by (i)
each person who holds more than a 5% interest in the Company, (ii) directors of
the Company, (iii) executive officers of the Company, and (iv) the directors and
executive officers of the Company as a group. In addition, unless otherwise
noted, the address of all such persons is c/o Vornado Operating Company, 888
Seventh Avenue, New York, New York 10019.
NUMBER OF
SHARES OF
COMMON STOCK PERCENT OF
AND UNITS PERCENT OF ALL SHARES
BENEFICIALLY ALL SHARES AND UNITS
NAME OF BENEFICIAL OWNER OWNED(1) (1)(2) (1)(2)
------------------------ ------------ ---------- ----------
NAMED EXECUTIVE OFFICERS AND
DIRECTORS
Steven Roth(3)(4).............. 776,545 8.0% 17.0%
Russell B. Wight, Jr.(3)(5).... 685,140 5.8% 15.1%
Michael D. Fascitelli.......... 179,977 4.3% 3.9%
Douglas H. Dittrick............ 17,500 * *
Martin N. Rosen................ 10,500 * *
Richard West(6)................ 21,550 * *
Joseph Macnow.................. 17,150 * *
Emanuel Pearlman............... 138,970 3.4% 3.1%
All executive officers and
directors as a group (10
persons)..................... 745,275 17.3% 25.1%
OTHER BENEFICIAL OWNERS
David Mandelbaum(3)............ 663,099 5.3% 14.7%
Interstate(3).................. 647,150 4.9% 14.3%
Gotham Partners, L.P., Gotham
Partners III, L.P., Gotham
International Advisors,
L.L.C., Gotham Holdings II,
L.L.C. and Gotham Holdings
III, L.L.C.(7)............... 409,925 10.1% 9.1%
---------------
* Less than 1%.
(1) Unless otherwise indicated, each person is the direct owner of, and has sole
voting power and sole investment power with respect to, such Common Stock.
Numbers and percentages in the table are based on 4,068,924 shares of Common
Stock and 447,017 Units outstanding as of April 20, 2001.
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(2) The total number of shares outstanding used in calculating this percentage
assumes that all shares that each person has the right to acquire within 60
days pursuant to the exercise of options or upon the redemption of Units for
shares are deemed to be outstanding, but are not deemed to be outstanding
for the purpose of computing the ownership percentage of any other person.
(3) Interstate, a partnership of which Messrs. Roth, Wight and Mandelbaum are
the general partners, owns 200,133 shares of Common Stock and also owns a
9.9% limited partnership interest in Company L.P. Interstate has the right
to have its Units in Company L.P. redeemed by Company L.P. either (a) for
cash in an amount equal to the fair market value, at the time of redemption,
of 447,017 shares of Common Stock or (b) for 447,017 shares of Common Stock,
in each case as selected by the Company and subject to customary
anti-dilution provisions.
(4) Includes 1,720 shares owned by the Daryl and Steven Roth Foundation, over
which Mr. Roth holds sole voting power and investment power. Does not
include 1,800 shares owned by Mr. Roth's wife, as to which Mr. Roth
disclaims any beneficial interest.
(5) Includes 3,340 shares owned by the Wight Foundation, over which Mr. Wight
holds sole voting power and investment power.
(6) Mr. West and his wife own 10,150 shares jointly. Mr. West holds 900 shares
in self-directed Keogh accounts.
(7) Based on Schedule 13G filed on February 14, 2001, Gotham Partners, L.P.,
Gotham Partners III, L.P., Gotham International Advisors, L.L.C., Gotham
Holdings II, L.L.C. and Gotham Holdings III, L.L.C. have the sole power to
vote or to direct the vote of, and the sole power to dispose or to direct
the disposition of, 155,034 shares, 24,185 shares, 185,420 shares, 24,391
shares and 20,895 shares respectively. The address of Gotham Partners, L.P.,
Gotham Partners III, L.P., Gotham International Advisors, L.L.C., Gotham
Holdings II, L.L.C. and Gotham Holdings III, L.L.C. is 110 East 42nd Street,
18th Floor, New York, New York 10017.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation during each of the past
three fiscal years for each of the executive officers of the Company whose total
compensation aggregated $100,000 or more in 2000 ("Covered Executives"). Only
Emanuel Pearlman, the Company's Chief Operating Officer, received cash
compensation from the Company since its formation. None of the Company's other
executive officers has received cash compensation from or on behalf of the
Company since its formation. Although the Company does not currently pay a
salary or other compensation to any executive officer other than to Mr. Pearlman
(except that options or SARs have been granted to executive officers), the
Company expects that it will pay salaries and other compensation to all of its
executive officers when it begins conducting business operations material enough
to warrant such compensation.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND -------------------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) OPTIONS(2) ($)(3)
------------------ ---- --------- -------- -------- ------------ ------------
Steven Roth.......... 2000 -- -- 0 -- --
Chairman and 1999 -- -- 0 -- --
Chief Executive 1998 -- -- 0 205,000 --
Officer
Michael D.
Fascitelli.......... 2000 -- -- 0 -- --
President 1999 -- -- 0 -- --
1998 -- -- 0 200,000 --
Emanuel Pearlman..... 2000 156,108(1) 175,000 0 175,000 4,283
Chief Operating
Officer
Joseph Macnow........ 2000 -- -- 0 -- --
Executive Vice 1999 -- -- 0 -- --
President -- 1998 -- -- 0 20,000 --
Finance and
Administration
Irwin Goldberg....... 2000 -- -- 0 -- --
Vice President -- 1999 -- -- 0 -- --
Chief Financial 1998 -- -- 0 3,000 --
Officer(4)
---------------
(1) Mr. Pearlman's employment with the Company commenced on June 15, 2000.
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(2) Options and SARs are exercisable 34% twelve months after grant, and 33%
after each of the following two twelve-month periods.
(3) Represents annual amounts of (i) employer paid contributions to the
Company's 401(k) retirement plan and (ii) Company paid whole life insurance
premiums. Employer contributions to the Company's 401(k) retirement plan
become vested 100% after the completion of five years of eligible service.
The whole life insurance policies provide coverage in an amount equal to the
excess of the amount covered under the Company's non-discriminatory group
term life insurance benefit for all full time employees (i.e., two times
salary) over the benefit cap imposed by the term insurance carrier.
(4) Mr. Goldberg retired from the Company on March 2, 2001.
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The following table lists all grants of stock options to the Covered
Executives made in 2000 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 2000.
OPTION GRANTS IN 2000
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------- ASSUMED ANNUAL
% OF TOTAL RATES OF
NUMBER OF OPTIONS SHARE PRICE
SHARES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED YEAR SHARE(1) DATE 5% 10%
---- ---------- ---------- --------- ---------- -------- ----------
Emanuel Pearlman 175,000 100% $6.71875 5/19/2010 $739,443 $1,873,893
---------------
(1) The exercise or base price per Share is equal to the current market price on
the date the option was granted.
(2) Potential Realizable Value is based on the assumed annual growth rates for
the market value of the Shares shown over their ten-year term. For example,
a 5% growth rate, compounded annually, results in a price of $10.94 per
share of Common Stock and a 10% growth rate, compounded annually, results in
a price of $17.43 per share of Common Stock. These Potential Realizable
Values are listed to comply with the regulations of the Securities and
Exchange Commission, and the Company cannot predict whether these values
will be achieved. Actual gains, if any, on stock option exercises are
dependent on the future performance of the shares of Common Stock.
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The following table summarizes all exercises of options during 2000, and
the number and value of options held at December 31, 2000, by the Covered
Executives.
AGGREGATED OPTION AND SAR EXERCISES IN 2000 AND
YEAR END OPTION AND SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED AT 12/31/00 AT 12/31/00
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- -------------- -------------
Steven Roth -- $-- 168,929/36,071 0/0
Michael D. Fascitelli -- -- 134,000/66,000 0/0
Emanuel Pearlman -- -- 0/175,000 0/0
Joseph Macnow -- -- 13,400/6,600 0/0
Irwin Goldberg -- -- 2,010/990 0/0
EMPLOYMENT CONTRACTS
Emanuel Pearlman
Mr. Pearlman has an employment agreement which commenced on June 15, 2000
pursuant to which he serves as Chief Operating Officer of the Company. The
employment agreement provides for an annual base salary of not less than
$300,000. In June 2000, Mr. Pearlman was granted options to purchase 175,000
Shares, exercisable at the current market price on the date of grant.
The employment agreement provides that each party shall notify the other
party, at least 90 days prior to June 15, 2003, of its intention either (i) to
negotiate an extension thereof on at least the same terms, conditions and
compensation as then in effect or (ii) that the employment period shall expire.
The employment agreement may be sooner terminated by either party by prior
written notice of termination. If Mr. Pearlman's employment is terminated by the
Company without cause or by Mr. Pearlman for a material breach of the agreement
by the Company or upon a change of control, he will receive (A) his base salary
accrued through the date of termination; (B) (i) a lump-sum payment equal to his
then current base salary, if the termination occurs prior to June 15, 2001, or
(ii) a lump-sum payment equal to one and one-half times his then current base
salary,
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if the termination occurs on or after June 15, 2001; (C) continued provision of
benefits to him and his family for 12 months following the termination; and (D)
options granted to him will become fully exercisable. The agreement further
provides that if Mr. Pearlman's employment is terminated by the Company for
cause or by him without a material breach by the Company, the payment of salary
will cease upon the date of termination.
COMPENSATION OF DIRECTORS
Messrs. Roth, Fascitelli and Wight each receive from the Company
compensation at a rate of $25,000 per year for serving as a director of the
Company and Messrs. West, Dittrick and Rosen each receive from the Company
compensation at a rate of $50,000 per year for serving as a director of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
On October 16, 1998 Vornado Realty L.P. (the "Operating Partnership"), a
subsidiary of Vornado, made a distribution (the "Distribution") of one share of
Common Stock of the Company for each 20 units of limited partnership interest of
the Operating Partnership (including the units owned by Vornado) held of record
as of the close of business on October 9, 1998 (the "Record Date"), and Vornado
in turn made a distribution of the Common Stock it received to the holders of
its common shares of beneficial interest.
The Company was formed on October 30, 1997, as a wholly owned subsidiary of
Vornado. In order to maintain its status as a real estate investment trust
("REIT") for federal income tax purposes, Vornado is required to focus
principally on investments in real estate assets. Accordingly, Vornado is
prevented from owning certain assets and conducting certain activities that
would be inconsistent with its status as a REIT. The Company was formed to own
assets that Vornado could not itself own and conduct activities that Vornado
could not itself conduct. The Company functions principally as an operating
company, in contrast to Vor-
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21
nado's principal focus on investments in real estate assets. The Company is able
to do so because it is taxable as a regular "C" corporation rather than as a
REIT.
The Company operates businesses conducted at properties it leases from
Vornado, as contemplated by the agreement between the Company and Vornado, as
described under "Vornado Agreement" below. The Company expects to rely on
Vornado to identify business opportunities and currently expects that those
opportunities will relate in some manner to Vornado and its real estate
investments rather than to unrelated businesses.
Capital Contribution and Revolving Credit Agreement
As part of its formation, the Company obtained a $75,000,000 unsecured
five-year revolving credit facility from Vornado ("Revolving Credit Agreement")
which expires on December 31, 2004. Borrowings under the Revolving Credit
Agreement bear interest at LIBOR plus 3% (9.56% at December 31, 2000). The
Company pays Vornado a commitment fee equal to 1% per annum on the average daily
unused portion of the facility. For the year ended December 31, 2000, the
Company paid Vornado $629,833. Amounts may be borrowed under the Revolving
Credit Agreement, repaid and reborrowed from time to time on a revolving basis
(so long as the principal amount outstanding at any time does not exceed
$75,000,000). Principal payments are not required under the Revolving Credit
Agreement during its term. The Revolving Credit Agreement prohibits the Company
from incurring indebtedness to third parties (other than certain purchase money
debt and certain other exceptions) and prohibits the Company from paying
dividends. Debt under the Revolving Credit Agreement is fully recourse against
the Company. At December 31, 2000, $19,781,538 was outstanding under the
Revolving Credit Agreement, which was the largest outstanding balance under the
agreement during the last fiscal year.
Vornado Agreement
The Company and Vornado have entered into an agreement (the "Vornado
Agreement") pursuant to which,
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22
among other things, (a) Vornado will under certain circumstances offer the
Company an opportunity to become the lessee of certain real property owned now
or in the future by Vornado (under mutually satisfactory lease terms) and (b)
the Company will not make any real estate investment or other REIT-Qualified
Investment (as defined below) unless it first offers Vornado the opportunity to
make such investment and Vornado has rejected that opportunity.
More specifically, the Vornado Agreement requires, subject to certain
terms, that Vornado provide the Company with an opportunity (a "Tenant
Opportunity") to become the lessee of any real property owned now or in the
future by Vornado if Vornado determines in its sole discretion that, consistent
with Vornado's status as a REIT, it is required to enter into a "master" lease
arrangement with respect to such property and that the Company is qualified to
act as lessee thereof. In general, a master lease arrangement is an arrangement
pursuant to which an entire property or project (or a group of related
properties or projects) is leased to a single lessee. Under the Vornado
Agreement, the Company and Vornado will negotiate with each other on an
exclusive basis for 30 days regarding the terms and conditions of the lease in
respect of each Tenant Opportunity. If a mutually satisfactory agreement cannot
be reached within the 30-day period, Vornado may for a period of one year
thereafter enter into a binding agreement with respect to such Tenant
Opportunity with any third party on terms no more favorable to the third party
than the terms last offered to the Company. If Vornado does not enter into a
binding agreement with respect to such Tenant Opportunity within such one-year
period, Vornado must again offer the Tenant Opportunity to the Company in
accordance with the procedures specified above prior to offering such Tenant
Opportunity to any other party.
In addition, the Vornado Agreement prohibits the Company from making (i)
any investment in real estate (including the provision of services related to
real estate, real estate mortgages, real estate derivatives or entities that
invest in the foregoing) or (ii) any other REIT-Qualified Investment, unless it
has provided written notice to Vornado
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23
of the material terms and conditions of the investment opportunity and Vornado
has determined not to pursue such investment either by providing written notice
to the Company rejecting the opportunity within 10 days from the date of receipt
of notice of the opportunity or by allowing such 10-day period to lapse. As used
herein, "REIT-Qualified Investment" means an investment, at least 95% of the
gross income from which would qualify under the 95% gross income test set forth
in Section 856(c)(2) of the Internal Revenue Code of 1986, as amended (the
"Code") (or could be structured to so qualify), and the ownership of which would
not cause Vornado to violate the asset limitations set forth in Section
856(c)(4) of the Code (or could be structured not to cause Vornado to violate
the Section 856(c)(4) limitations); provided, however, that "REIT-Qualified
Investment" does not include an investment in government securities, cash or
cash items (as defined for purposes of Section 856(c)(4) of the Code), money
market funds, certificates of deposit, commercial paper having a maturity of not
more than 90 days, bankers' acceptances or the property transferred to the
Company by the Operating Partnership. The Vornado Agreement also requires the
Company to assist Vornado in structuring and consummating any such investment
which Vornado elects to pursue, on terms determined by Vornado. In addition, the
Company has agreed to notify Vornado of, and make available to Vornado,
investment opportunities developed by the Company or of which the Company
becomes aware but is unable or unwilling to pursue.
Under the Vornado Agreement, Vornado provides the Company with certain
administrative, corporate, accounting, financial, insurance, legal, tax, data
processing, human resources and operational services. Also, Vornado makes
available to the Company, at Vornado's offices, space for the Company's
principal corporate office. For these services, the Company compensates Vornado
in an amount determined in good faith by Vornado as the amount an unaffiliated
third party would charge the Company for comparable services and reimburses
Vornado for certain costs incurred and paid to third parties on behalf of the
Company.
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24
For the year ended December 31, 2000, approximately $330,000 for such services
was charged pursuant to the Vornado Agreement.
Vornado and the Company each have the right to terminate the Vornado
Agreement if the other party is in material default of the Vornado Agreement or
upon 90 days written notice to the other party at any time after December 31,
2003. In addition, Vornado has the right to terminate the Vornado Agreement upon
a change in control of the Company.
The Company's Charter specifies that one of its corporate purposes is to
perform the Vornado Agreement and, for so long as the Vornado Agreement remains
in effect, prohibits the Company from making any real estate investment or other
REIT-Qualified Investment without first offering the opportunity to Vornado in
the manner specified in the Vornado Agreement.
The Company's Management
Messrs. Roth, Fascitelli, West and Wight are directors of 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 Company L.P.
The Company is the sole general partner of, and as of December 31, 2000 owned a
90.1% partnership interest in, Company L.P. All references to the Company refer
to Vornado Operating Company and its subsidiaries including Company L.P.
Interstate and its three partners -- Steven Roth (Chairman of the Board and
Chief Executive Officer of Vornado and the Company), David Mandelbaum (a trustee
of Vornado) and Russell B. Wight, Jr. (a trustee of Vornado and a director of
the Company) -- beneficially owned, in the aggregate, 17.0% of the Company's
Common Stock immedi-
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25
ately after the Distribution (excluding shares underlying SARs and options held
by Messrs. Roth and Wight for this purpose). Under applicable provisions of the
Code, Vornado will not continue to be treated as a REIT unless it satisfies,
among other things, requirements relating to the sources of its gross income.
Rents received or accrued by Vornado from the Company will not be treated as
qualifying rent for purposes of these requirements if Vornado owns, either
directly or under the applicable attribution rules, 10% or more of the Common
Stock of the Company. Thus, in order to enable rents received or accrued by
Vornado from the Company to be treated as qualifying rent for purposes of the
REIT gross income requirements and to achieve certain other purposes, pursuant
to the Exchange Agreement, dated as of October 16, 1998, between the Company and
Interstate, (i) Interstate exchanged 447,017 shares of Common Stock for a 9.9%
undivided interest in all of the Company's assets and (ii) Interstate and the
Company contributed all of their interests in such assets to Company L.P. and in
return Interstate received a 9.9% limited partnership interest and the Company
received a 90.1% partnership interest therein. Interstate has the right to have
its limited partnership interest in Company L.P. redeemed by Company L.P. either
(a) for cash in an amount equal to the fair market value, at the time of
redemption, of 447,017 shares of Common Stock or (b) for 447,017 shares of
Common Stock, in each case as selected by the Company and subject to customary
anti-dilution adjustments. Interstate and its partners owned approximately 17.7%
of the shares of Vornado and approximately 7.9% of the Company's shares as of
December 31, 2000.
The Temperature Controlled Logistics Business and Related Leases
In October 1997, partnerships (the "Vornado/Crescent Partnerships" or the
"Landlord") in which Vornado has a 60% interest and Crescent Real Estate
Equities Company ("Crescent") has a 40% interest acquired each of Americold
Corporation ("Americold") and URS Logistics, Inc. ("URS"). In June 1998,
Vornado/Crescent Partner-
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ships acquired the assets of Freezer Services, Inc. and in July 1998 acquired
the Carmar Group.
In March 1999, the Company and Crescent Operating Inc. ("Crescent
Operating") formed a new partnership -- the "Vornado Crescent Logistics
Operating Partnership" (which does business under the name "AmeriCold
Logistics") that purchased all of the non-real estate assets of the
Vornado/Crescent Partnerships for $48,700,000, of which the Company's share was
$29,200,000. The purchase price was proposed by the Vornado/Crescent
Partnerships (the Sellers). The Board of Directors of both the Company and
Crescent Operating reviewed and approved the transaction after concluding that
the price was fair market value at the time of the transaction. To fund its
share of the purchase price, the Company utilized $4,600,000 of cash, borrowed
$18,600,000 under the Revolving Credit Facility and paid the balance of
$6,000,000 in March 2000.
AmeriCold Logistics, headquartered in Atlanta, Georgia, has 6,700 employees
and operates 99 temperature controlled warehouse facilities nationwide with an
aggregate of approximately 518 million cubic feet of refrigerated, frozen and
dry storage space. Of the 99 warehouses, AmeriCold Logistics leases 88
temperature controlled warehouses with an aggregate of approximately 439 million
cubic feet from the Vornado/Crescent Partnership, and manages 11 additional
warehouses containing approximately 79 million cubic feet of space. AmeriCold
Logistics provides the frozen food industry with refrigerated warehousing and
transportation management services. Refrigerated warehouses are comprised of
production and distribution facilities. Production facilities typically serve
one or a small number of customers, generally food processors, located nearby.
These customers store large quantities of processed or partially processed
products in the facility until they are shipped to the next stage of production
or distribution. Distribution facilities primarily warehouse a wide variety of
customers' finished products until future shipment to end-users. Each
distribution facility generally services the surrounding regional market.
AmeriCold Logistics' transportation management services include freight routing,
dispatching, freight
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27
rate negotiation, backhaul coordination, freight bill auditing, network flow
management, order consolidation and distribution channel assessment. AmeriCold
Logistics' temperature controlled logistics expertise and access to both frozen
food warehouses and distribution channels enable its customers to respond
quickly and efficiently to time-sensitive orders from distributors and
retailers.
AmeriCold Logistics' customers consist primarily of national, regional and
local frozen food manufacturers, distributors, retailers and food service
organizations including Con-Agra, Tyson Foods, H.J. Heinz & Co., McCain Foods,
Sara Lee, J.R. Simplot, Diageo, Pro-Fac Cooperative, Flowers Industries and
Norpac Foods.
On March 11, 1999, AmeriCold Logistics entered into leases covering the
warehouses used in this business. The leases, prior to the amendments below,
generally have a 15-year term with two five-year renewal options and provide for
the payment of fixed base rent and percentage rent based on customer revenues.
AmeriCold Logistics is required to pay for all costs arising from the operation,
maintenance and repair of the properties, including all real estate taxes and
assessments, utility charges, permit fees and insurance premiums, as well as
property capital expenditures in excess of $5,000,000 annually. AmeriCold
Logistics recognized $164,464,000 of rent expense for the year ended December
31, 2000. AmeriCold Logistics has the right to defer the payment of 15% of fixed
base rent and all percentage rent for up to three years beginning on March 11,
1999 to the extent that available cash, as defined in the leases, is
insufficient to pay such rent, and pursuant thereto, $19,011,000 (of which the
Company's share was $11,406,600) was deferred for the period ended December 31,
2000. The fixed rent for each of the two five-year renewal options is equal to
the greater of the then fair market value rent and the fixed rent for the
immediately preceding lease year plus 5%.
On February 22, 2001, the Landlord restructured the Americold Logistics
leases to, among other things, (i) reduce 2001's contractual rent to
$146,000,000,
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28
(ii) reduce 2002's contractual rent to $150,000,000 (plus contingent rent in
certain circumstances), (iii) increase the Landlord's share of annual
maintenance capital expenditures by $4,500,000 to $9,500,000 effective January
1, 2000 and (iv) extend the deferred rent period to December 31, 2003 from March
11, 2002.
Management of AmeriCold Logistics
Vornado is the day-to-day liaison to the management of AmeriCold Logistics.
AmeriCold Logistics pays Vornado an annual fee of $487,000, which is based on
the non-real estate assets acquired by Americold Logistics in March 1999. The
fee increases by an amount equal to 1% of the cost of new acquisitions,
including transaction costs. AmeriCold Logistics provides financial statement
preparation, tax and similar services to the Vornado/Crescent Partnerships for
an annual fee of $255,000 increasing 2% each year.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee's purpose is to assist the Board of Directors in its
oversight of the Company's internal controls and financial statements and the
audit process. The Board of Directors, in its business judgment, has determined
that all members of the Committee are "independent", as required by applicable
listing standards of the American Stock Exchange. The Committee operates
pursuant to a Charter that was adopted by the Board on May 31, 2000; a copy of
the current Charter is attached to this proxy statement as Annex A.
Management is responsible for the preparation, presentation and integrity
of the Company's financial statements, accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors, Deloitte & Touche LLP, are responsible for performing an independent
audit of the consolidated financial statements in accordance with generally
accepted auditing standards.
In performing its oversight role, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Committee has also discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. The Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board No. 1, Independence Discussions with
Audit Committees, as currently in effect. The Committee has also considered
whether the provision of non-audit services provided by the independent auditors
is compatible with maintaining the auditors' independence and has discussed with
the auditors the auditors' independence.
Based on the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred to
below and in the Charter, the Audit Committee recommended to the Board of
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30
Directors that the audited financial statements be included in the Annual Report
on Form 10-K for the fiscal year ended December 31, 2000.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Committee rely without independent verification on the information provided
to them and on the representations made by management and the independent
auditors. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not assure that the audit of
the Company's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
Deloitte & Touche LLP is in fact "independent".
RICHARD WEST
DOUGLAS DITTRICK
MARTIN ROSEN
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INFORMATION RESPECTING THE COMPANY'S
INDEPENDENT AUDITORS
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP, the Company's
independent auditors for the year ended December 31, 2000, for professional
services rendered for the audit of the Company's annual financial statements for
that fiscal year and for the reviews of the financial statements included in the
Company's quarterly reports on Form 10-Q for that fiscal year were $70,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed to the Company by Deloitte & Touche LLP for
professional services rendered for information technology services relating to
financial information systems design and implementation for the year ended
December 31, 2000.
ALL OTHER FEES
There were no other fees billed for services rendered to the Company by
Deliotte and Touche LLP for the year ended December 31, 2000, other than those
described above.
RETENTION OF INDEPENDENT AUDITORS FOR THE YEAR 2001
The Board has retained Deloitte & Touche LLP to act as independent auditors
for the fiscal year ending December 31, 2001. The firm of Deloitte & Touche LLP
was engaged as independent auditors for the 2000 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.
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32
ADDITIONAL MATTERS TO COME BEFORE
THE MEETING
The Board does not intend to present any other matter, nor does it have any
information that any other matter will be brought before the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote said proxy in
accordance with his discretion on such matters.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS AND PROPOSALS OF NEW BUSINESS
The By-laws of the Company generally require notice of any proposal to be
presented by any stockholder or of the name of any person to be nominated by any
stockholder for election as a director of the Company at a meeting of
stockholders to be delivered to the Secretary of the Company at the principal
executive office of the Company, 888 Seventh Avenue, New York, New York, 10019
between December 31, 2001, and January 30, 2002. Accordingly, failure by a
stockholder to act in compliance with the notice provisions will mean that the
stockholder will not be able to nominate directors or propose new business for
consideration at the 2002 meeting.
Stockholders interested in presenting a proposal for inclusion in the proxy
statement for the Company's annual meeting of stockholders in 2002 may do so by
following the procedures prescribed in Rule 14a-8 under the Securities Exchange
Act of 1934. To be eligible for inclusion, stockholder proposals must be
received at the principal executive office of the Company, 888 Seventh Avenue,
New York, New York 10019, Attention: Secretary, not later January 8, 2002.
By order of the Board of Directors,
Larry Portal
Corporate Secretary
May 8, 2001
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33
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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34
ANNEX A
AUDIT COMMITTEE CHARTER
VORNADO OPERATING COMPANY
I. Composition of the Audit Committee: The Audit Committee of the Board
of Directors of Vornado Operating Company (the "Company") shall be comprised of
at least three directors, each of whom shall not be an officer of the Company
and is, in the view of the Board of Directors, free of any relationship that
would interfere with the exercise of independent judgment and shall otherwise
satisfy the applicable membership requirements under the rules of the American
Stock Exchange LLC, as such requirements are interpreted by the Board of
Directors in its business judgment.
II. Purposes of the Audit Committee: The purposes of the Audit Committee
are to assist the Board of Directors:
1. in its oversight of the Company's accounting and financial
reporting principles and policies and internal controls and procedures;
2. in its oversight of the Company's financial statements and the
independent audit thereof;
3. in selecting (or nominating the outside auditors to be proposed for
stockholder approval in any proxy statement), evaluating and, where deemed
appropriate, replacing the outside auditors; and
4. in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. The management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements. Management of the Company is responsible for
maintaining appropriate accounting and financial reporting principles and
policies and internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. The outside auditors
are responsible for planning and carrying out a proper audit
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35
and reviews, including reviews of the Company's quarterly financial statements
prior to the filing of each quarterly report on Form 10-Q, and other procedures.
In fulfilling their responsibilities hereunder, it is recognized that members of
the Audit Committee are not full-time employees of the Company and are not, and
do not represent themselves to be, accountants or auditors by profession or
experts in the fields of accounting or auditing. As such, it is not the duty or
responsibility of the Audit Committee or its members to conduct "field work" or
other types of auditing or accounting reviews or procedures, and each member of
the Audit Committee shall be entitled to rely on (i) the integrity of those
persons and organizations within and outside the Company that it receives
information from and (ii) the accuracy of the financial and other information
provided to the Audit Committee by such persons or organizations absent actual
knowledge to the contrary (which shall be promptly reported to the Board of
Directors).
The outside auditors for the Company are ultimately accountable to the
Board of Directors (as assisted by the Audit Committee). The Board of Directors,
with the assistance of the Audit Committee, has the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditors (or to nominate the outside auditors to be proposed for stockholder
approval in the proxy statement).
The outside auditors shall submit to the Company annually a formal written
statement delineating all relationships between the outside auditors and the
Company ("Statement as to Independence"), addressing at least the matters set
forth in Independence Standards Board No. 1.
III. Meetings of the Audit Committee: In addition to such meetings of the
Audit Committee as may be required to discuss the matters set forth in Article
IV, the Audit Committee should meet separately at least annually with management
and the outside auditors to discuss any matters that the Audit Committee or any
of these persons or firms believe should be discussed privately. The Audit
Committee may request any officer or employee of the Company or the
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36
Company's outside counsel or outside auditors to attend a meeting of the Audit
Committee or to meet with any members of, or consultants to, the Audit
Committee. Members of the Audit Committee may participate in a meeting of the
Audit Committee by means of conference call or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
IV. Duties and Powers of the Audit Committee: To carry out its purposes,
the Audit Committee shall have the following duties and powers:
1. with respect to the outside auditor,
(i) to provide advice to the Board of Directors in selecting,
evaluating or replacing outside auditors;
(ii) to review the fees charged by the outside auditors for audit
and non-audit services;
(iii) to ensure that the outside auditors prepare and deliver
annually a Statement as to Independence (it being understood that the
outside auditors are responsible for the accuracy and completeness of
this Statement), to discuss with the outside auditors any
relationships or services disclosed in this Statement that may affect
the objectivity and independence of the Company's outside auditors and
to recommend that the Board of Directors take appropriate action in
response to this Statement to satisfy itself of the outside auditors'
independence; and
(iv) to instruct the outside auditors that the outside auditors
are ultimately accountable to the Board of Directors (as assisted by
the Audit Committee);
2. with respect to financial reporting principles and policies and
internal controls and procedures,
(i) to advise management and the outside auditors that they are
expected to provide to the Audit
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Committee a timely analysis of significant financial reporting issues
and practices;
(ii) to consider any reports or communications (and management's
responses thereto) submitted to the Audit Committee by the outside
auditors required by or referred to in SAS 61 (as codified by AU
Section 380), as may be modified or supplemented;
(iii) to meet with management and/or the outside auditors:
- to discuss the scope of the annual audit;
- to discuss the audited financial statements;
- to discuss any significant matters arising from any audit or
report or communication referred to in item 2(ii) above,
whether raised by management or the outside auditors, relating
to the Company's financial statements;
- to review the form of opinion the outside auditors propose to
render to the Board of Directors and stockholders;
- to discuss significant changes to the Company's auditing and
accounting principles, policies, controls, procedures and
practices proposed or contemplated by the outside auditors or
management; and
- to inquire about significant risks and exposures, if any, and
the steps taken to monitor and minimize such risks;
(iv) to obtain from the outside auditors assurance that the audit
was conducted in a manner consistent with Section 10A of the
Securities Exchange Act of 1934, as amended, which sets forth certain
procedures to be followed in any audit of financial statements
required under the Securities Exchange Act of 1934; and
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(v) to discuss with the Company's outside counsel any significant
legal matters that may have a material effect on the financial
statements and the Company's compliance policies, including material
notices to or inquiries received from governmental agencies; and
3. with respect to reporting and recommendations,
(i) to prepare any report, including any recommendation of the
Audit Committee, required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement;
(ii) to review this Charter at least annually and recommend any
changes to the full Board of Directors; and
(iii) to report its activities to the full Board of Directors on
a regular basis and to make such recommendations with respect to the
above and other matters as the Audit Committee may deem necessary or
appropriate.
V. Resources and Authority of the Audit Committee: The Audit Committee
shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for special
audits, reviews and other procedures and to retain special counsel and other
experts or consultants.
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VORNADO OPERATING COMPANY
PROXY
The undersigned stockholder, revoking all prior proxies, hereby appoints
Steven Roth and Michael Fascitelli, and each of them, as proxies, each with full
power of substitution, to attend, and to cast all votes which the undersigned
stockholder is entitled to cast at the Annual Meeting of Stockholders of Vornado
Operating Company, a Delaware corporation (the "Company"), to be held at the
Marriott Hotel, Interstate 80 and the Garden State Parkway, Saddle Brook, New
Jersey 07663 on Wednesday, May 30, 2001 at 10:00 A.M., local time, upon any and
all business as may properly come before the meeting and all postponements or
adjournments thereof. Said proxies are authorized to vote as directed on the
reverse side hereof upon the proposals which are more fully set forth in the
Proxy Statement and otherwise in his discretion upon such other business as may
properly come before the meeting and all postponements or adjournments thereof,
all as more fully set forth in the Notice of Meeting and Proxy Statement,
receipt of which is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. WHEN
PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS EXECUTED BUT NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND OTHERWISE IN THE
DISCRETION OF THE PROXIES.
(Continued and to be Executed, on Reverse side)
40
(Continued from other side)
1. ELECTION OF DIRECTORS:
The Board of Directors recommends a Vote "FOR" Election of
the nominees for Directors listed below.
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees
Nominees: Steven Roth
Michael D. Fascitelli
(each for a term ending at the Annual Meeting of
Stockholders in 2004)
To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
------------------------------------------------------------
Address Change and/or Comments [ ]
Please date and sign as your
name or names appear hereon.
Each joint owner must sign.
(Officers, Executors,
Administrators, Trustees, etc.,
will kindly so indicate when
signing.)
Dated -----------, 2001
--------------------------------
Signature(s) of Stockholder(s)
INDICATE YOUR VOTE (X) IN BLACK
OR BLUE INK. [X]
PLEASE VOTE, DATE AND SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.