<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>file001.txt
<DESCRIPTION>DEFINITIVE PROXY
<TEXT>
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
REALTY INCOME CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OMITTED]
March 28, 2002
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 7, 2002
at the California Center for the Arts Escondido, 340 North Escondido Boulevard,
Escondido, California 92025.
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
carefully review 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
THOMAS A. LEWIS
Vice Chairman of the Board,
Chief Executive Officer
<PAGE>
REALTY INCOME CORPORATION
220 West Crest Street
Escondido, California 92025-1707
-------------------------------
NOTICE OF ANNUAL MEETING TO BE HELD ON
May 7, 2002
-------------------------------
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 9:00 a.m., local time, on May 7,
2002 at the California Center for the Arts Escondido, 340 North Escondido
Boulevard, Escondido, California 92025, 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 7, 2002 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,
92025 at least ten days prior to the Annual Meeting.
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 promptly return 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,
March 28, 2002
/s/ GARY M. MALINO
Gary M. Malino
President, Chief Operating
Officer 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>
[LOGO OMITTED]
REALTY INCOME CORPORATION
220 West Crest Street
Escondido, California 92025-1707
---------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
May 7, 2002
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 7, 2002, 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 April 1, 2002.
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 1, Election of Directors."
On March 7, 2002, the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting, we had 33,241,489
shares of common stock, par value $1.00 per share ("Common Stock"),
outstanding. Each 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 this 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 voted in the discretion of
the designated proxy holders. A stockholder may revoke his or her proxy at any
time before 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.
1
<PAGE>
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, employees and agents
may solicit proxies by telephone, telegram or otherwise. Such directors,
officers and employees of the Company will not be additionally compensated for
the solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection with the solicitation. 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 7, 2002, the last reported sale price for
the Company's Common Stock on the NYSE was $31.90 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 28, 2002.
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 2002 Annual Meeting
of stockholders. As such, stockholders of record as of the close of business on
March 7, 2002 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 director nominees named below.
Although it is anticipated that each nominee will be able to serve as a
director, should any nominee become unable to serve or for a good cause will
not 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, each of whom is currently a director of Realty Income:
<TABLE>
<CAPTION>
Name Age Title Class
------------------------ ----- ---------- ------
<S> <C> <C> <C>
Donald R. Cameron 62 Director II
Willard H. Smith Jr. 65 Director II
</TABLE>
Donald R. Cameron has been a Director of the Company since August 1994. He
is a co-founder and President of Cameron, Murphy & Spangler, Inc., a securities
broker-dealer firm and registered investment advisor located in Pasadena,
California. 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). Mr. Cameron is chairman of the Compensation Committee and is a
member of the Audit Committee and the Corporate Governance Committee.
Willard H. Smith Jr. has been a Director of the Company since July 1996.
He was a 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 seven investment companies: Cohen & Steers Realty
Shares; Cohen & Steers Total Return Realty Fund; Cohen & Steers Special Equity
Fund, Inc.; Cohen & Steers Equity Income Fund; Cohen & Steers Institutional
Realty Shares, Inc.; Cohen & Steers Advantage Income Realty Shares and Cohen &
Steers Quality Income Realty Shares. He is also a member of the board of
directors of Essex Property Trust and Highwoods Property Trust. Mr. Smith also
serves as a director of Crest Net Lease, Inc., a subsidiary of Realty Income.
Mr. Smith is chairman of the Corporate Governance Committee and is a member of
the Audit Committee and the Compensation Committee.
3
<PAGE>
Incumbent Directors
<TABLE>
<CAPTION>
Name Age Title Class
----------------------------------- ----- ------------------------------------------ ------
<S> <C> <C> <C>
Roger P. Kuppinger ................ 61 Director I
Michael D. McKee .................. 56 Director I
William E. Clark .................. 64 Chairman of the Board of Directors III
Thomas A. Lewis ................... 49 Vice Chairman of the Board of Directors, III
and Chief Executive Officer
Kathleen R. Allen, Ph.D. .......... 56 Director III
</TABLE>
Roger P. Kuppinger has been a Director of the Company since August 1994.
He is a self-employed investment banker and financial advisor who is an active
investor in both private and public companies. Prior to March 1994, he was a
Managing Director at the investment banking firm of Sutro & Co. Inc. 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 and the Corporate
Governance Committee.
Michael D. McKee has been a Director of the Company since August 1994. He
is Vice Chairman (July 1999--present) and Chief Operating Officer
(2001--present) of The Irvine Company and was Chief Financial Officer
(1997--2001) and Executive Vice President (1994--1999) of The Irvine Company.
Prior to joining The Irvine Company, he was a partner in the law firm of Latham
& Watkins (1986--1994). 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. and Mandalay Resorts Group. Mr. McKee is a member of the Compensation
Committee, the Audit Committee and the Corporate Governance Committee.
William E. Clark is the Chairman of the Board of Directors of the Company
and has served in this position since 1969. He served as Chief Executive
Officer of the Company from 1969 to May 1997. Mr. Clark was also co-founder of
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
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.
Thomas A. Lewis is Chief Executive Officer of Realty Income. He is also
Vice Chairman of the Board of Directors and has been a member of the Board
since September 1993. He joined the Company in 1987 and served in a variety of
executive positions including Vice President, Capital Markets until 1997 when
he was named Chief Executive Officer. In 2000--2001 he also held the position
of President. In September 2001, he relinquished the position of President.
Prior to joining Realty Income, he was an executive with Johnstown Capital, a
real estate management and syndication company (1982--1987), an Investment
Specialist with Sutro & Company, a member of the NYSE (1979--1982), and a
marketing executive with Procter & Gamble (1974--1979). Mr. Lewis serves as a
director and officer of Crest Net Lease, Inc., a subsidiary of Realty Income.
Kathleen R. Allen, Ph.D. has been a Director of the Company since February
2000. She is a Professor at the Marshall School of Business and the Managing
Director of the
4
<PAGE>
Technology Commercialization Alliance at the University of Southern California
(1991--present) and she is also the co-founder and Chairman of Gentech
Corporation (1994--present). She serves as a consultant to Microsoft
Corporation and two medical technologies ventures, and is the author of ten
books in the field of entrepreneurship and technology, a field in which she is
considered an expert. Dr. Allen is a member of the Audit Committee, the
Compensation Committee and the Corporate Governance Committee.
Committees of the Board of Directors
The Audit Committee of the Board of Directors is comprised of Dr. Allen
and Messrs. Cameron, Clark, Kuppinger (chairman), McKee and Smith. The Audit
Committee's principal responsibilities include recommending to the Board of
Directors the selection of 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 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 Dr.
Allen and Messrs. Cameron (chairman), Clark, Kuppinger, McKee and Smith. The
Compensation Committee's principal responsibilities include (i) establishing
remuneration levels for officers of the Company, (ii) reviewing management
organization and development, (iii) reviewing significant employee benefits
programs and (iv) 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 Corporate Governance Committee of the Board of Directors is comprised
of Dr. Allen and 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 14 times during 2001. In 2001, the Audit
Committee met four times, the Compensation Committee met three times and the
Corporate Governance Committee did not meet. All directors attended at least
75% of the aggregate of (i) the total number of meetings of the Board of
Directors while they were on the Board and (ii) the total number of meetings of
the committees of the Board of Directors 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 its
committees. Directors who are not officers of the Company receive the following
fees:
o $15,000 annual fee ($30,000 for the chairman of the Board);
o $1,000 for attending Board of Directors meetings in person ($1,500 for
the chairman of the Board);
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<PAGE>
o $500 for attending Board of Directors committee meetings in person
($1,000 for the chairman of the committee);
o $500 for attending Board of Directors meetings by telephone ($750 for
the chairman of the Board); and
o $250 for attending Board of Directors committee meetings by telephone
($500 for the chairman of the committee).
We may also reimburse directors for travel expenses incurred in connection
with their activities on behalf of the Company. Our stock incentive plan
provides that, upon 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 2,000 shares of restricted common stock of the Company, which vest
evenly over five years.
SENIOR OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Title Age
--------------------- ----------------------------------------------------------------- ----
<S> <C> <C>
Thomas A. Lewis ..... Vice Chairman of the Board and Chief Executive Officer 49
Gary M. Malino ...... President, Chief Operating Officer and Secretary 44
Paul M. Meurer ...... Executive Vice President, Chief Financial Officer and Treasurer 36
Kim S. Kundrak ...... Senior Vice President, Portfolio Acquisitions 45
Mark G. Selman ...... Senior Vice President, Portfolio Management 47
</TABLE>
Biographical information with respect to Mr. Lewis is set forth above
under Incumbent Directors.
Gary M. Malino is President, Chief Operating Officer and Secretary of
Realty Income. He joined the Company in 1985 and served in various executive
positions until 1994 when he was named Chief Financial Officer and Treasurer.
During 2001, Mr. Malino was promoted to President, Chief Operating Officer and
Secretary. Prior to joining Realty Income, he was a Certified Public Accountant
for a Los Angeles based accounting firm (1981--1985) and Assistant Controller
with McMillan Development Company, a real estate development company
(1979--1981).
Paul M. Meurer is Executive Vice President, Chief Financial Officer and
Treasurer of Realty Income. He joined the Company in 2001. Prior to joining
Realty Income, he was a Director in Merrill Lynch & Co.'s Real Estate
Investment Banking Group (1992--2001), a real estate consultant with General
Atlantic Partners (1991) and worked in the Real Estate Investment Banking
Department at Goldman Sachs & Co. (1987--1990).
Kim S. Kundrak is Senior Vice President, Portfolio Acquisitions. He joined
the Company in 1996 and served as both a Director of Portfolio Acquisitions as
well as National Accounts Manager prior to being promoted to Senior Vice
President in 2000. Before joining Realty Income, he was Chief Financial Officer
and Vice President of Asset Management for Burnham Pacific Properties, a real
estate investment trust (1987--1995). He also served as General Manager of a
regional shopping mall for the Ernest W. Hahn Company (1982--1985).
Mark G. Selman is Senior Vice President, Portfolio Management. He joined
the Company in 1997 and served as both a Director and Vice President of
Portfolio Management before being promoted to Senior Vice President in 2000.
Prior to joining Realty Income, he was with the Real Estate Consulting Group of
KPMG Peat Marwick LLP (1989--1997) and was an investment advisor and registered
representative for the investment firms of Kidder Peabody (1986--1988) and
Wedbush, Noble, Cook (1983--1986).
6
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation
awarded to, earned by or paid to our Chief Executive Officer and to the other
four most highly compensated executive officers of the Company (the "Named
Executive Officers") and our former Executive Vice President, General Counsel
and Secretary Michael R. Pfeiffer for the fiscal years ended December 31, 2001,
2000 and 1999.
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Awards(1) Payouts
Annual Compensation --------------------- --------- All Other
------------------------------ Options Restricted LTIP Compensation
Name and Principal Position Year Salary Bonus (#) Stock (2) Payouts (3)
------------------------------------ ------ ----------- ----------- -------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Lewis .................... 2001 $350,000 $114,685 -- $882,000 -- $5,100
Vice Chairman of the Board and 2000 $300,000 $ 80,000 -- $472,625 -- $5,100
Chief Executive Officer 1999 $262,500 $ 75,000 40,000 $ 61,875 -- $4,800
Gary M. Malino ..................... 2001 $252,507 $ 50,809 -- $352,800 -- $5,100
President, Chief Operating Officer 2000 $200,000 $ 40,000 -- $186,563 -- $5,100
and Secretary 1999 $190,000 $ 30,000 20,000 $ 24,750 -- $4,800
Paul M. Meurer (4) ................. 2001 $ 23,804 -- -- $294,000 -- --
Executive Vice President, Chief
Financial Officer and Treasurer
Kim S. Kundrak ..................... 2001 $180,000 $ 17,327 -- $470,400 -- $5,100
Senior Vice President, Portfolio 2000 $155,000 $ 15,000 -- $ 99,500 -- $4,658
Acquisitions 1999 $145,000 $ 15,000 15,000 -- -- $4,800
Mark G. Selman ..................... 2001 $180,000 $ 19,031 -- $470,400 -- $5,100
Senior Vice President, Portfolio 2000 $150,000 $ 15,000 -- $124,375 -- $4,524
Management 1999 $120,000 $ 15,000 15,000 -- -- $4,049
Michael R. Pfeiffer (5) ............ 2001 $160,530 -- -- -- -- $5,100
Former Executive Vice President, 2000 $200,000 $ 40,000 -- $186,563 -- $5,100
General Counsel and Secretary 1999 $190,000 $ 30,000 20,000 $ 24,750 -- $4,800
</TABLE>
----------
(1) The options and restricted stock shown as compensation for 2001, 2000 and
1999 were granted on January 1, 2002, January 1, 2001 and January 1,
2000, 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) Restricted stock is awarded by the Compensation Committee of the Board of
Directors in accordance with the provisions of our stock incentive plan.
Restricted stock granted in 2001 and 2000 vests equally over ten years
and the restricted stock granted in 1999 vests equally over three years
on each anniversary of the grant date. Restricted stock is eligible to
receive distributions from the date of grant. At January 1, 2002, the
Named Executives held 117,390 shares of restricted stock valued at
$3,451,266, based upon a price per share of $29.40. For the three year
period ended December 31, 2001, 132,400 restricted shares were awarded to
the Named Executive Officers.
(3) 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 3% of the employee's compensation. Employees may
contribute up to 15% of their salary, subject to annual limits under the
IRS Code of 1986, as amended.
(4) Mr. Meurer employment began in October 2001.
(5) Michael R. Pfeiffer resigned from the Company in August 2001.
7
<PAGE>
Option Grants in Last Fiscal Year
No stock options were granted to the Named Executive Officers for 2001.
Aggregated Option Exercises in Last Fiscal Year 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, 2001 by each of the Named Executive
Officers and the 2001 fiscal year-end value of in-the-money exercisable and
unexercisable options.
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Options In-the-Money
Shares At FY-End Options at FY-End
Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable (1)
----------------------------- ------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Thomas A. Lewis ............. 128,566 $574,105 29,200/13,334 $188,795/117,006
Gary M. Malino .............. 71,800 $337,227 12,634/6,666 $ 85,504/58,494
Paul M. Meurer .............. -- -- --/-- --/--
Kim S. Kundrak .............. 14,980 $ 89,006 9,726/6,589 $ 64,664/50,171
Mark G. Selman .............. 9,612 $ 48,852 7,178/5,767 $ 53,443/46,914
Michael R. Pfeiffer ......... 57,200 $240,088 --/-- --/--
</TABLE>
----------
(1) Market value of underlying Common Stock on date of fiscal year-end minus
the exercise price for in-the-money options. The price per share as of
December 31, 2001 was $29.40.
Employment Agreements
Effective January 1, 2002, each of the Named Executive Officers has
entered into an employment agreement with the Company. In 2002, under these
agreements Mr. Lewis receives a base salary of $350,000, Mr. Malino receives a
base salary of $280,000, Mr. Meurer receives a base salary of $237,000, Mr.
Kundrak receives a base salary of $180,000 and Mr. Selman receives a base
salary of $180,000. In addition, each of the Named Executive Officers has 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. Each of
Messrs. Lewis, Malino, and Meurer is entitled to receive severance payments
equal to one year's base salary, payable over 12 months, and each of Messrs.
Kundrak and Selman is entitled to receive severance payments equal to six
months' base salary, payable over six months. The amount of severance
compensation is increased by 50% in the event of a termination resulting from a
change in control of the Company. In addition, in the event of a change of
control of the Company, all unvested options and restricted stock become
vested.
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 of Directors. This restriction does not prevent the employee from making
passive investments, 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.
8
<PAGE>
CERTAIN TRANSACTIONS
We created Crest Net Lease, Inc. ("Crest Net") in January 2000 to buy, own
and sell properties, primarily to buyers using tax-deferred exchanges under
Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). In
order to comply with the REIT qualification requirements in force when we
created Crest Net, 5% of the common stock of Crest Net, which represented 100%
of the voting stock ("Class B Stock"), was not owned by the Company. Messrs.
Lewis, Malino, Kundrak and Selman invested $315,000 and acquired a portion of
Crest Net's Class B Stock, representing 3.5% of Crest Net's common stock.
Effective for 2001, the Code was modified to allow a REIT to own up to 100% of
the voting stock and/or value of a corporation that elects with the REIT and
qualifies to be treated as a taxable REIT subsidiary. Following the change in
the Code, Realty Income and Crest Net jointly elected to treat Crest Net as a
taxable REIT subsidiary, effective January 1, 2001, and in May 2001 we acquired
Crest Net's Class B Stock representing 5% of Crest Net's outstanding common
stock owned by certain members of our management and the management of Crest
Net for $507,000. The acquisition of the 5% of common stock was accounted for
under the purchase method of accounting. The disinterested members of our Board
of Directors approved this transaction. Crest Net originally issued this stock
for $450,000. Realty Income also received rights to the undistributed earnings
on the stock, which totaled $81,200. After this transaction, Realty Income owns
100% of Crest Net's stock.
In 2000, the Company loaned the principal amount of $112,500 to Mr. Lewis
and $67,500 each to Messrs. Malino, Kundrak and Selman to finance their
investment in Crest Net, represented by promissory notes to the Company. The
principal and interest on the promissory notes were paid in full in May 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In 2001, the Compensation Committee was comprised of six independent
non-employee directors. The Compensation Committee is responsible for, among
other things, establishing remuneration levels for officers (including the
Named Executive 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.
A compensation program that seeks to align the financial interests of the
executive officers with those of our stockholders.
9
<PAGE>
A compensation program that is reasonable, performance-based, and
consistent with the Company's overall compensation objectives designed to
retain key members of management.
An annual incentive plan that supports a performance-oriented environment
and which generates a portion of compensation based on the achievement of
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.
Base Salary of Executive Officers (other than the Chief Executive Officer)
In approving the base annual salary for Messrs. Malino, Meurer, Kundrak,
Selman and Pfeiffer, the Compensation Committee considered several factors,
including the scope of the individual's responsibilities, comparable base
salaries for similar positions in the real estate, REIT and financial services
industries, the cost of living, the historical financial results of the Company
and the anticipated financial performance of the Company.
Annual Cash Bonus
The annual cash incentive is designed to supplement the pay of executive
officers (and other key management personnel) so that overall total cash
compensation (salary and bonus) is competitive in the industry and properly
rewards the executive officers for their efforts in achieving their objectives.
The Summary Compensation Table shows cash incentive bonuses paid to the named
executive officers for 2001 based on such performance.
Long-Term Incentive Compensation Awards
The Compensation Committee awards grants of restricted stock that vest
over ten years. Restricted stock grants are designed to increase senior
management's stock ownership in the Company, motivate executives to improve
long-term stock price and dividend performance, encourage long-term dedication
to the Company, and to operate as an executive retention mechanism for the
Company's key members of management. The restricted stock granted for 2001
vests evenly over ten years. Dividends are paid on the entirety of the grant.
Chief Executive Officer Compensation
The compensation for our chief executive officer for 2001 was determined
on the same general basis as discussed above for the executive officers. In
addition, our chief executive officer is evaluated on the basis of the
Company's financial and non-financial achievements. These performance measures
include funds from operations performance, total return to shareholders,
portfolio stability and diversification, lease rollovers, financing strategies
and new investment activity.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") limits the deductibility of compensation paid to the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company. To qualify for deductibility under Section 162(m), compensation
(including base salary, annual bonus, stock option exercises, compensation
attributable to restricted stock vesting and nonqualified benefits) in excess
of $1,000,000 per year paid to these executive officers generally must be
"performance-based" compensation as determined under Section 162(m). While the
10
<PAGE>
Committee's intention is, to the greatest extent reasonable, to structure
compensation so that it satisfies the "performance based" compensation
requirements under Section 162(m), the Committee will balance the costs and
burdens involved in doing so against the value to the Company and its
stockholders of the tax benefits to be obtained by the Company. Accordingly,
the Committee reserves the right to design programs that recognize a full range
of performance criteria important to Company's success, even where the
compensation paid under such programs may not be deductible as a result of
Section 162(m).
Despite the fact that the Company's incentive bonuses and stock-related
awards are determined based on the evaluation of the Company's performance and
take into consideration certain financial and strategic goals, the Committee
does not apply these factors on a strict formulaic basis. As a result, the
Company's incentive bonuses and stock-related awards may not satisfy the
"performance based" compensation requirements of Section 162(m). The Committee
believes that because the Company qualifies as a REIT under the Code and
generally is not subject to Federal income taxes, the payment of compensation
that does not satisfy the requirements of Section 162(m) does not have a
material adverse consequence to the Company, provided the Company continues to
distribute at least 100% of its taxable income.
Submitted on March 28, 2002 by the members of the Compensation Committee
of the Company's Board of Directors.
Donald R. Cameron, Chairman
Kathleen R. Allen, Ph.D.
William E. Clark
Roger P. Kuppinger
Michael D. McKee
Willard H. Smith Jr.
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.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Allen and Messrs. Cameron, Clark, Kuppinger, McKee and Smith each
served on the Compensation Committee during 2001. None of Dr. Allen and Messrs.
Cameron, Kuppinger, McKee and Smith is or has been an officer or employee of
the Company. Mr. Clark was formerly the Chief Executive Officer of the Company
until May 1997. None of the members of the Compensation Committee have any
financial relationship with the Company other than disclosed herein.
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors is comprised of
independent directors as required by the listing standards of the NYSE. The
Audit Committee operates pursuant to a written charter as required by the NYSE
and the rules and regulations of the Securities and Exchange Commission (the
"Commission") and adopted by the Board of Directors. A copy of our Charter is
attached to this Proxy Statement as Appendix A.
The role of the Audit Committee is to oversee the Company's financial
reporting process on behalf of the Board of Directors. Management of the
Company has the primary responsibility for the Company's financial statements
as well as the Company's financial reporting process, principles and internal
controls. The independent auditors are responsible for performing an audit of
the Company's financial statements and expressing an opinion as to the
conformity of such financial statements with accounting principles generally
accepted in the United States of America.
In this context, the Audit Committee has reviewed and discussed the
audited financial statements of the Company as of and for the year ended
December 31, 2001 with management and the independent auditors. The Audit
Committee has 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. In addition, the Audit Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), as currently in effect, and it has
discussed with the auditors their independence from the Company. The Audit
Committee has also considered whether the independent auditors' provision of
tax preparation, tax consulting services and other non-audit services to the
Company is compatible with maintaining the auditors' independence.
Based on the reports and discussions described above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, for filing with the Commission.
Submitted on March 28, 2002 by the members of the Audit Committee of the
Company's Board of Directors.
Roger P. Kuppinger, Chairman
Kathleen R. Allen, Ph.D.
Donald R. Cameron
William E. Clark
Michael D. McKee
Willard H. Smith Jr.
12
<PAGE>
STOCK PERFORMANCE GRAPH
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 for
the five-year period from January 1, 1997 through December 31, 2001. The chart
assumes an investment of $100 on December 31, 1996, 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
Commercial Net Lease Realty, Capital Automotive REIT, Entertainment Properties
Trust SBI, Getty Realty Corporation, Lexington Corporate Properties, Inc.,
National Golf Properties and U.S. Restaurant Properties, Inc.
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
Period Ending
----------------------------------------------------------------------------
Index 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
----------------------------------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Realty Income Corporation ......... 100.00 114.70 121.14 110.12 146.12 187.20
S&P 500 ........................... 100.00 133.37 171.44 207.52 188.62 166.22
Realty Income Peer Group .......... 100.00 120.22 108.61 84.99 97.29 141.54
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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,
2001, or written representations from certain reporting persons that no Forms 5
were required to be filed by those persons,
13
<PAGE>
we believe that during the year ended December 31, 2001, all filing
requirements were complied with by our 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 7, 2002 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 the beneficial owners of shares of our
Common Stock listed below, based on information furnished by those owners, have
sole voting and investment power with respect to their shares.
<TABLE>
<CAPTION>
Shares of Beneficial
Ownership of Common
Name of Beneficial Owner Stock of the Company Percent of Class
--------------------------------------------------------- ---------------------- -----------------
<S> <C> <C>
William E. Clark (1) .................................... 526,252 1.6%
Thomas A. Lewis (2) ..................................... 165,123 0.5
Gary M. Malino (3) ...................................... 99,543 0.3
Donald R. Cameron (4) ................................... 39,500 0.1
Michael D. McKee (5) .................................... 31,000 0.1
Willard H. Smith Jr. (6) ................................ 30,000 0.1
Roger P. Kuppinger (7) .................................. 29,950 0.1
Mark G. Selman .......................................... 21,000 0.1
Kim S. Kundrak .......................................... 20,100 0.1
Paul M. Meurer .......................................... 10,000 *
Kathleen R. Allen, Ph.D. (8) ............................ 9,000 *
All directors and executive officers of the Company, as a
group (11 persons) (9) ................................. 981,568 3.0%
</TABLE>
----------
* Less than one-tenth of one percent
(1) Mr. Clark's total includes 521,774 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. Lewis' total includes 29,200 shares subject to options that are
exercisable within 60 days of March 7, 2002.
(3) 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 12,634 shares subject to
options that are exercisable within 60 days of March 7, 2002.
(4) Mr. Cameron's total includes 10,900 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 10,900 shares,
10,000 shares are in the account of Mr. Cameron, 500 shares are in the
account of Fiona Cameron, 200 shares are in the account of Lachlan
Cameron and 200 shares are in the account of Gwen Jenkins. Mr. Cameron's
total includes 25,000 shares subject to options that are exercisable
within 60 days of March 7, 2002. Mr. Cameron disclaims beneficial
ownership of the 900 shares owned by the Cameron, Murphy and Spangler,
Inc. Amended and Restated Pension Trust in the accounts of Fiona Cameron,
Lachlan Cameron and Gwen Jenkins.
(5) Mr. McKee's total includes 25,000 shares subject to options that are
exercisable within 60 days of March 7, 2002.
14
<PAGE>
(6) Mr. Smith's total includes 15,000 shares subject to options that are
exercisable within 60 days of March 7, 2002.
(7) Mr. Kuppinger's total includes 25,000 shares subject to options that are
exercisable within 60 days of March 7, 2002.
(8) Dr. Allen's total includes 5,000 shares subject to options that are
exercisable within 60 days of March 7, 2002.
(9) See notes (1) though (8)
The following table sets forth as of March 7, 2002 certain information
with respect to the beneficial ownership of shares of our Class B Preferred
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 Class B
Preferred Stock. Except as otherwise noted, we believe the beneficial owners of
shares of our Class B Preferred Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
Shares of Beneficial
Ownership of
Class B Preferred Stock
Name of Beneficial Owner of the Company Percent of Class
--------------------------------------------------------- ------------------------ -----------------
<S> <C> <C>
Donald R. Cameron (1) ................................... 4,000 0.1
All directors and executive officers of the Company, as a
group (11 persons) (1) ................................. 4,000 0.1
</TABLE>
----------
(1) Mr. Cameron's total includes 4,000 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. The 4,000 shares are in the account
of Mr. Cameron.
AUDITORS
Subject to its discretion to appoint other auditors if it deems such
action appropriate, upon the recommendation of the Audit Committee, 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.
15
<PAGE>
FEE DISCLOSURE
Fees Paid to Independent Auditor
The fees paid to KPMG LLP, the Company's independent auditor, relating to
2001 were as follows:
<TABLE>
<CAPTION>
Fees Paid
----------
<S> <C>
Audit fees (1) ................................................. $ 88,500
========
Financial information systems design and implementation fees (2) $ 0
========
All other fees
Audit related fees (3) ....................................... $ 48,550
Other non-audit services (4) ................................. 80,352
--------
Total of all other fees ........................................ $128,902
========
</TABLE>
----------
(1) Includes the aggregate fees billed by KPMG LLP for the audit of the
Company's annual financial statements for 2001 and the reviews of the
financial statements included in the Company's Quarterly Reports on Form
10-Q for 2001.
(2) Includes the aggregate fees billed by KPMG LLP for the provision of
information technology services of the type described in Rule
2-01(c)(4)(ii) of Regulation S-X.
(3) Includes the aggregate fees billed by KPMG LLP for audit related
services. Audit related services consisted of issuances of letters to
underwriters and review of registration statements and issuance of
consents.
(4) Represents the aggregate fees for other non-audit services consisting of
tax return preparation and tax compliance. Includes estimated amounts for
services related to 2001 that have been or will be rendered in 2002.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
In order for stockholder proposals otherwise satisfying the eligibility
requirements of Commission 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 2, 2002.
In addition, if a stockholder desires to bring business (including
director nominations) before our 2003 Annual Meeting that is not the subject of
a proposal timely submitted for inclusion in our Proxy Statement, written
notice of such business, as currently prescribed in our Bylaws, must be
received by our Secretary between February 6, 2003 and March 8, 2003. 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, the proposal will be excluded from consideration at the meeting.
YOUR PROXY IS IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES
Please date, sign and mail the enclosed Proxy Card today.
16
<PAGE>
APPENDIX A
AUDIT COMMITTEE CHARTER OF
REALTY INCOME CORPORATION
Purpose
The purpose of the Audit Committee (the "Committee") is to provide
assistance to the Board of Directors (the "Board") of Realty Income Corporation
(the "Company") in fulfilling the Board's oversight responsibilities regarding
the Company's accounting and system of internal controls, the quality and
integrity of the Company's financial reports and the independence and
performance of the Company's outside auditor. In so doing, the Committee should
endeavor to maintain free and open means of communication between the members
of the Committee, other members of the Committee, other members of the Board,
the outside auditor and the financial management of the Company.
Membership
The Committee shall consist of at least three members of the Board. The
members shall be appointed by action of the Board and shall serve at the
discretion of the Board. Each Committee member shall be "financially literate"
as determined by the Board in its business judgment and shall satisfy the
"independence" requirements of the New York Stock Exchange. At least one member
of the Committee shall have "accounting or related financial management
expertise," as determined by the Board in its business judgment.
Committee Organization and Procedures
1. The members of the Committee shall appoint a Chairman of the Committee
by majority vote. The Chairman (or in his or her absence, a member
designated by the Chairman) shall preside at all meetings of the
Committee.
2. The Committee shall have the authority to establish its own rules and
procedures consistent with the bylaws of the Company for notice and
conduct of its meetings, should the Committee, in its discretion, deem
it desirable to do so.
3. The Committee shall meet at least three times in each fiscal year, and
more frequently as the Committee in its discretion deems desirable.
4. The Committee may, in its discretion, include in its meetings, members
of the Company's financial management, representatives of the outside
auditor and other financial personnel employed or retained by the
Company. The Committee may meet with the outside auditor in separate
executive sessions to discuss any matters that the Committee believes
should be addressed privately, without management's presence. The
Committee likewise may meet privately with management, as it deems
appropriate.
5. The Committee may, in its discretion, utilize the services of the
Company's regular corporate legal counsel with respect to legal matters
or, at its discretion, retain other legal counsel if it determines that
such counsel is necessary or appropriate under the circumstances.
6. The Committee may, in its discretion, conduct or authorize
investigations into matters within the Committee's scope of
responsibilities. The Committee is authorized to retain independent
accountants or others it needs to assist in an investigation.
A-1
<PAGE>
Responsibilities
Outside Auditor
7. The outside auditor of the Company shall be ultimately accountable to
the Committee and the Board in connection with the audit of the
Company's annual financial statements and related services. In this
regard, the Committee shall select and periodically evaluate the
performance of the outside auditor and, if necessary, recommend that the
Board replace the outside auditor.
8. The Committee shall approve the fees to be paid to the outside auditor
and any other terms of the engagement of the outside auditor.
9. The Committee shall receive from the outside auditor, at least
annually, a written statement delineating all relationships between the
outside auditor and the Company. The Committee will take appropriate
action in response to the outside auditor's report to satisfy itself of
the outside auditor's independence.
10. The Committee shall consider such other matters in relation to the
financial affairs of the Company and its accounts, and in relation to
the external audit of the Company as the Committee may, in its
discretion, determine to be advisable.
Annual Audit
11. The Committee shall meet with the outside auditor and management of
the Company in connection with each annual audit to discuss the scope of
the audit and the procedures to be followed.
12. The Committee shall discuss the financial results of operations for the
year under audit with the outside auditor and management prior to the
public release of this information and shall also discuss with the
outside auditor any additional matters that are deemed appropriate.
13. The Committee shall review and discuss the audited financial statements
with the management of the Company.
14. The Committee shall discuss with the outside auditor the auditor's
qualitative judgments about the appropriateness, not just the
acceptability, of accounting principles and financial disclosures and
how aggressive or conservative the accounting principles and underlying
estimates are.
15. The Committee shall, based upon its review and based upon the
disclosures received from the outside auditor regarding its independence
and discussions with the auditor regarding such independence, recommend
to the Board whether the audited financial statements should be included
in the Company's Annual Report on Form 10-K for the fiscal year subject
to the audit.
Quarterly Review
16. The outside auditor is required to review the interim financial
statements to be included in any Form 10-Q of the Company using
professional standards and procedures for conducting such reviews, as
established by generally accepted auditing standards as modified or
supplemented by the Securities and Exchange Commission, prior to the
filing of the Form 10-Q. The outside auditor shall contact the chairman
of the Committee prior to the filing of the Form 10-Q if the outside
auditor determines in their judgment that there are any matters that
they deem appropriate for discussion.
A-2
<PAGE>
Internal Controls
17. The Committee shall discuss with the outside auditor and the Chief
Financial Officer, at least annually, the adequacy and effectiveness of
the accounting and financial controls of the Company, and consider any
recommendations for improvement of such internal control procedures.
18. The Committee shall discuss with the outside auditor and with
management any management letter provided by the outside auditor and any
other significant matters brought to the attention of the Committee by
the outside auditor as a result of its annual audit. The Committee
should allow management adequate time to consider any such matters
raised by the outside auditor.
Other Responsibilities
19. The Committee shall review and reassess the Committee's charter at
least annually and submit any recommended changes to the Board for its
consideration.
20. The Committee shall provide the report for inclusion in the Company's
Annual Proxy Statement required by the Securities and Exchange
Commission.
21. The Committee, through its Chairman, shall report periodically, as
deemed necessary or desirable by the Committee, but at least annually,
to the full Board regarding the Committee's actions and recommendations,
if any.
22. The Committee shall maintain minutes or other records of meetings and
activities of the Committee.
A-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[LOGO OMITTED] VOTE BY INTERNET - www.proxyvote.com
REALTY INCOME CORPORATION -----------------
220 WEST CREST STREET Use the Internet to transmit your proxy and voting
ESCONDIDO, CA 92025-1725 instructions and for electronic delivery of information
up until 11:59P.M. Eastern Time on May 6, 2002. Have
your proxy card in hand when you access the web site.
Number which is located below to obtain your records
and to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your proxy
and voting instructions up until 11:59 P.M. Eastern Time
on May 6, 2002. Have your proxy card in hand when you
call. You will be prompted to enter your 12-digit Control
Number which is located below and then follow the
simple instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid Corporation, c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
</TABLE>
YOUR VOTE IS IMPORTANT TO THE COMPANY
WHETHER YOU OWN FEW OR MANY SHARES. Please complete, date and
sign the attached 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.
<TABLE>
<CAPTION>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: RLTY01 KEEP THIS PORTION FOR YOUR RECORDS
------------------------------------------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
------------------------------------------------------------------------------------------------------------------------------------
REALTY INCOME CORPORATION
<S> <C> <C> <C> <C>
The Board of Directors recommends a vote FOR For Withhold For All To withhold authority to vote for an individual
Proposal 1. Election of Directors All All Except nominee, mark "For All Except" and write the
nominee's number on the line below.
Nominees: 01) Donald R. Cameron and 02) Willard H. Smith Jr. [ ] [ ] [ ]
-----------------------------------------------
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.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE. IF YOUR ADDRESS IS
INCORRECTLY SHOWN, PLEASE PRINT CHANGES.
Change of Address and or Comments Mark Here [ ]
(Make changes of address or comments on the reverse side.)
Please date this proxy and sign it exactly as your name appears. When
shares are held jointly, each holder must 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.
----------------------------------------------------- -----------------------------------------------------
| | | | | |
----------------------------------------------------- -----------------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature [PLEASE SIGN WITHIN BOX] Date
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
YOUR VOTE IS IMPORTANT TO THE COMPANY WHETHER YOU OWN FEW OR MANY SHARES.
Please complete, date and sign the attached 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.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
[LOGO OMITTED]
ANNUAL MEETING OF STOCK HOLDERS
MAY 7, 2002
The undersigned hereby appoints Gary M. Malino or Paul M. Meurer as a proxy,
with full power of substitution, and hereby authorizes them to represent and to
vote, as designated on the reverse side of this proxy, all of the shares of
Common Stock of Realty Income Corporation that the undersigned is entitled to
vote at the Annual Meeting of Stockholders to be held at 9:00 A.M. (local time)
on May 7, 2002, at the Center for the Arts, 340 North Broadway, Escondido,
California 92025, and any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF
DIRECTORS.
YOUR VOTE IS IMPORTANT TO THE COMPANY WHETHER YOU OWN FEW OR MANY SHARES. Please
complete, date and sign the attached 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.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE
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Address Change/Comments:
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(If address change/comments have been noted above, please mark (the
corresponding box on the reverse side.)
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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</TEXT>
</DOCUMENT>