UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____________ to _______________
Commission File Number 1-14788
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Capital Trust, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 94-6181186
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Park Avenue, 14th Floor, New York, NY 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 655-0220
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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class A common stock, New York Stock Exchange
$0.01 par value ("class A common stock")
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes __ No X
MARKET VALUE
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The aggregate market value of the outstanding class A common stock held by
non-affiliates of the registrant was approximately $74,318,000 as of June 30,
2003 (the last business day of the registrant's most recently completed second
fiscal quarter) based on the closing sale price on the New York Stock Exchange
on that date.
OUTSTANDING STOCK
-----------------
As of March 2, 2004 there were 6,543,957 outstanding shares of class A common
stock. The class A common stock is listed on the New York Stock Exchange
(trading symbol "CT"). Trading is reported in many newspapers as "CapTr".
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None
EXPLANATORY NOTE
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We are filing this Amendment No. 1 on Form 10-K/A to our Annual Report on Form
10-K (the "Annual Report") filed on March 3, 2004 with the Securities and
Exchange Commission solely for the purpose of including information that was to
be incorporated by reference from our definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934. We will not file our
definitive proxy statement within 120 days of our fiscal year ended December 31,
2003 and therefore, we are amending and restating in their entirety, Items 10,
11, 12, 13 and 14 of Part III of the Annual Report. Except as described above,
no other amendments are being made to the Annual Report. This Form 10-K/A does
not reflect events occurring after the March 3, 2004 filing of our Annual Report
nor does it modify or update the disclosure contained in the Annual Report in
any way other than as required to reflect the amendments discussed above and the
reflected below.
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CAPITAL TRUST, INC.
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PART III
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Item 10. Directors and Executive Officers of the Registrant 1
Item 11. Executive Compensation 6
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 14
Item 14. Principal Accountant Fees and Services 15
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PART IV
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Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
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Signatures 18
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PART III
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Item 10. Directors and Executive Officers of the Registrant
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As of the date of our 2004 annual meeting of shareholders which will be
held on June 17, 2004, the number of directors that comprise our entire board of
directors will be fixed at nine. Eight directors will be proposed for election
at the annual meeting to hold office as directors until our next annual meeting
of shareholders and until their successors are elected and qualify. All eight
nominees currently serve on our board of directors.
In light of the provisions requiring a majority of independent directors
and other corporate governance requirements recently adopted by New York Stock
Exchange and the guidelines published by Institutional Shareholder Services
imposing limits on the maximum number of boards on which an individual may
concurrently serve, Sheli Z. Rosenberg resigned from our board and Gary R.
Garrabrant and Steven Roth agreed not to stand for re-election.
As of the annual meeting, our board of directors will appoint another
director who will meet the independence criteria set forth in the New York Stock
Exchange listing standards to fill the vacancy created by the election of only
eight directors at the annual meeting. The vacancy will be filled by board
appointment and no nominations from the floor at the annual meeting will be
considered or acted upon.
Our board of directors has determined that Messrs. Altman, Dobrowski and
Nassau and Dr. Sagalyn are independent under the criteria for independence set
forth in the listing standards of the New York Stock Exchange. With the
appointment of an additional independent director to fill the vacancy, we will
meet the New York Stock Exchange requirement for a majority of independent
directors serving on the board of directors.
Nominees for Election as Directors
The names, ages as of April 27, 2004, and existing positions with us of
the nominees, if any, are as follows:
Name Age Office or Position Held
---- --- -----------------------
Samuel Zell............... 62 Chairman of the Board of Directors
Jeffrey A. Altman......... 37 Director
Thomas E. Dobrowski....... 60 Director
Martin L. Edelman......... 62 Director
Craig M. Hatkoff.......... 50 Director
John R. Klopp............. 50 Director, Chief Executive Officer and
President
Henry N. Nassau........... 49 Director
Lynne B. Sagalyn.......... 56 Director
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The name, principal occupation for the last five years, selected
biographical information and the period of service as our director of each of
the nominees are set forth below.
Samuel Zell has been the chairman of our board of directors since 1997.
Mr. Zell is chairman of Equity Group Investments, L.L.C., a privately-held
investment company. He is chairman of the board of trustees of Equity
Residential, a REIT specializing in the ownership and management of multi-family
housing, and of Equity Office Properties Trust, a REIT specializing in the
ownership and management of office buildings. He also serves as chairman of the
board of Anixter International Inc., a provider of integrated network and
cabling systems; Manufactured Home Communities, Inc., a REIT specializing in the
ownership and management of manufactured home communities; and Rewards Network,
Inc., an administrator of consumer loyalty rewards programs. Additionally, he
serves as chairman of Danielson Holding Corporation, a holding company for
insurance, marine transportation and waste-to-energy businesses. Since July
2002, Mr. Zell has been chief executive officer of Danielson. Mr. Zell has
announced his intention to step down as chief executive officer and as a
director of Danielson prior to December 31, 2004.
Jeffrey A. Altman has been a director since 1997. Mr. Altman is the sole
managing partner of Owl Creek Asset Management, L.P., a manager of distressed
securities and value equities hedge funds, which he founded in February 2002.
Mr. Altman previously served from November 1996 to 2001 as a senior vice
president of Franklin Mutual Advisers, Inc., formerly Heine Securities
Corporation, a registered investment adviser, and a vice president of Franklin
Mutual Series Fund Inc., a mutual fund with assets in excess of $20 billion,
advised by Franklin Mutual Advisers. From August 1988 to October 1996, Mr.
Altman was an analyst with Franklin Mutual Advisers.
Thomas E. Dobrowski has been a director since 1998. Mr. Dobrowski is the
managing director of Real Estate and Alternative Investments for General Motors
Asset Management, an investment manager for several pension funds of General
Motors Corporation and its subsidiaries, as well as for several third party
clients. Mr. Dobrowski is a trustee of Equity Office Properties Trust and a
director of Manufactured Home Communities, Inc.
Martin L. Edelman has been a director since 1997. Mr. Edelman has been
of counsel to Paul, Hastings, Janofsky & Walker LLP, and prior thereto Battle
Fowler LLP, each a law firm that has provided services to us. Mr. Edelman was a
partner with Battle Fowler LLP from 1972 to 1993. He has been a director of
Cendant Corporation and a member of the executive committee of that
corporation's board of directors since November 1993. Mr. Edelman also serves as
a director of Ashford Hospitality Trust.
Craig M. Hatkoff has been a director since 1997. From 1997 to 2000, Mr.
Hatkoff served as our vice chairman. Mr. Hatkoff is chairman of Turtle Pond
Publications LLC, which is active in children's publishing and entertainment,
and is a private investor in other entrepreneurial ventures. Mr. Hatkoff was a
founder and a managing partner of Victor Capital Group, L.P., or Victor Capital,
from 1989 until our acquisition of Victor Capital in July 1997. Mr. Hatkoff was
a managing director and co-head of Chemical Realty Corporation, the real estate
investment banking arm of Chemical Banking Corporation, from 1982 until 1989.
From 1978 to 1982, Mr. Hatkoff was the head of new product development in
Chemical Bank's Real Estate Division, where he previously served as a loan
officer. Mr. Hatkoff is a trustee of the New York City Construction Authority,
an agency responsible for the construction of all public schools in New York
City.
John R. Klopp has been a director since 1997, and our chief executive
officer and president since 1997 and 1999, respectively. Mr. Klopp was a founder
and a managing partner of Victor Capital from 1989 until the acquisition of
Victor Capital by us in July 1997. Mr. Klopp was a managing director and co-head
of Chemical Realty Corporation from 1982 until 1989. From 1978 to 1982, Mr.
Klopp held
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various positions with Chemical Bank's Real Estate Division, where he was
responsible for originating, underwriting and monitoring portfolios of
construction and permanent loans.
Henry N. Nassau has been a director since 2003. Mr. Nassau was the chief
operating officer of Internet Capital Group, Inc., an internet holding company,
from December 2002 until June 2003 having previously served as managing
director, general counsel and secretary since May 1999. Since September 2003,
Mr. Nassau has been a partner at the law firm, Dechert LLP. Mr. Nassau was
previously a partner at Dechert LLP from September 1987 to May 1999 and was
chair of the firm's Business Department from January 1988 to May 1999. At
Dechert LLP, Mr. Nassau engages in the practice of corporate law, concentrating
on mergers and acquisitions, public offerings, private equity, and venture
capital financing.
Lynne B. Sagalyn has been a director since 1997. Dr. Sagalyn is
Professor of Real Estate Development and Planning at the University of
Pennsylvania, with appointments at both the Department of City Planning and the
Wharton School's Real Estate Department. From 1992 until her appointments at the
University of Pennsylvania in 2004, Dr. Sagalyn served as a professor and the
Earl W. Kazis and Benjamin Schore Director of the MBA Real Estate Program and
Paul Milstein Center for Real Estate at the Columbia University Graduate School
of Business. She also serves on the faculty of the Weimer School for Advanced
Studies in Real Estate and Land Economics. Dr. Sagalyn is a director of United
Dominion Realty Trust, a self-administered REIT in the apartment communities
sector and serves as its audit committee chairperson. Additionally, Dr. Sagalyn
is a board member of J.P. Morgan U.S. Real Estate Income and Growth Fund and has
served on the New York City Board of Education Chancellor's Commission on the
Capital Plan.
Audit Committee
The audit committee is currently comprised of Messrs. Dobrowski and
Nassau and Dr. Sagalyn with Dr. Sagalyn serving as the committee's chairperson.
All audit committee members meet the independence criteria and have the
qualifications set forth in the listing standards of the New York Stock Exchange
and Rule 10A-3 under the Securities Exchange Act of 1934. Each of Messrs.
Dobrowski and Nassau is qualified as an audit committee financial expert within
the meaning of Item 401(h) of Regulation S-K under the Securities Exchange Act
of 1934 and our board of directors has determined that they have the accounting
and related financial management expertise within the meaning of the listing
standards of the New York Stock Exchange. The SEC has determined that the audit
committee financial expert designation does not impose on the person with that
designation any duties, obligations or liability that are greater than the
duties, obligations or liability imposed on such person as a member of the audit
committee of the board of directors in the absence of such designation. The
audit committee appoints our independent auditors, oversees the quality and
integrity of our financial reporting and the audits of our financial statements
by our independent auditors and in fulfilling its oversight function, reviews
with our management and independent auditors the scope and result of the annual
audit, our auditors' independence and our accounting policies. Our board of
directors has adopted a written charter under which the audit committee will
operate following the annual meeting. This charter will be posted on our
corporate website at www.capitaltrust.com as of the annual meeting.
The audit committee has adopted complaint procedures for accounting,
internal control and auditing matters in accordance with Rule 10A-3 under the
Securities Exchange Act of 1934. The full text of these complaint procedures
will be available on our corporate website at www.capitaltrust.com as of the
annual meeting.
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Compensation of Directors
Generally, our non-employee directors are not paid any cash fees for
their services as such, but rather are compensated with an annual award of stock
units under our 1997 amended and restated non-employee director stock plan with
a value equal to $30,000. However, two of our non-employee directors have
elected and will continue to be paid an annual cash retainer of $30,000. The
number of stock units awarded to each director, which are convertible into an
equal number of shares of class A common stock according to individual schedules
set by each director, is determined quarterly in arrears by dividing one-quarter
of the annual retainer amount ($7,500) by the average closing price of the class
A common stock for the quarter. The stock units vest when issued. There is
currently no separate compensation for service on committees of the board of
directors. All directors are also reimbursed for travel expenses incurred in
attending board and committee meetings.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of directors was comprised
during 2003 of Messrs. Altman, Edelman and Klopp, Ms. Rosenberg and Dr. Sagalyn.
Other than Mr. Klopp, none of the committee's members was employed by us as an
officer or employee during 2003. No committee member had any interlocking
relationships requiring disclosure under applicable rules and regulations.
For a description of certain relationships and transactions with members
of the board of directors or their affiliates, see "-Certain Relationships and
Related Transactions" beginning on page 14.
Executive and Senior Officers
The following sets forth the positions, ages as of April 27, 2004 and
selected biographical information for our executive and senior officers who are
not directors.
Jeremy FitzGerald, age 40, has served as a managing director since 1997.
Ms. FitzGerald is responsible for originating, structuring and negotiating high
yield investments. Prior to that time, she served as a principal of Victor
Capital Group and had been employed in various positions at such firm since May
1990. She was previously employed in various positions at PaineWebber
Incorporated.
Peter S. Ginsberg, age 41, has served as a managing director since 2003.
Mr. Ginsberg is responsible for originating, structuring and negotiating high
yield investments. He has been employed by us in various positions since 1997.
He was previously employed as a senior associate at a New York City law firm
focusing on real estate finance and investments.
Geoffrey G. Jervis, age 32, has served as our director of capital
markets since 2004 and previously served as our vice president since 2003. He
has been employed by us in various positions since 1999. Mr. Jervis is
responsible for our capital markets activities that include the structuring,
marketing and management of our equity and liability structures for our balance
sheet and on behalf of our funds under management. Prior to joining us, Mr.
Jervis was the Chief of Staff to the New York City Economic Development
Corporation under the Giuliani Administration.
Brian H. Oswald, age 43, has served as our chief financial officer since
2003. Mr. Oswald joined us in 1997 as our director of finance and accounting and
chief accounting officer. Prior to joining us, Mr. Oswald was employed for 10
years at KPMG Peat Marwick where he held various positions, including senior
manager in the financial institutions group. After leaving KPMG, he was employed
as the president of a savings and loan association, director of financial
reporting and subsidiary accounting
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for a $1.5 billion bank and corporate controller for an international computer
software company. Mr. Oswald is a certified public accountant and certified
management accountant.
Stephen D. Plavin, age 44, has served as our chief operating officer
since 1998. Prior to that time, Mr. Plavin was employed for fourteen years with
the Chase Manhattan Bank and its securities affiliate, Chase Securities Inc. Mr.
Plavin held various positions within the real estate finance unit of Chase,
including the management of: loan origination and execution, loan syndications,
portfolio management, banking services and real estate owned sales. He served as
a managing director responsible for real estate client management for Chase's
major real estate relationships and in 1997 he became co-head of Global Real
Estate for Chase. Mr. Plavin serves as a director of Omega Healthcare Investors,
Inc., a skilled nursing real estate investment trust.
Thomas C. Ruffing, age 43, has served as our director of asset
management since 2001. Mr. Ruffing is responsible for the asset management of
our investment portfolios. Prior to joining us in 2001, Mr. Ruffing was employed
by JP Morgan Chase serving in its real estate and lodging investment banking
group since 1990. In various roles at the bank, his responsibilities included
structured corporate real estate finance transactions, major asset property
sales, and the restructuring and workout of problem real estate loans.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our officers and
directors, and persons who own, or are part of a group that owns, more than ten
percent of a registered class of our equity securities, to file reports of
ownership and changes in ownership with the SEC and the NYSE. Officers,
directors and greater than ten percent shareholders are required by regulation
of the SEC to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of Forms 3, 4 and 5 and amendments thereto
available to us and other information obtained from our directors and officers
and certain 10% shareholders or otherwise available to us, except as described
below, we believe that no director, officer or beneficial owner of more than 10%
of our class A common stock failed to file on a timely basis reports required
pursuant to Section 16(a) of the Securities Exchange Act with respect to 2003.
Form 4s required to be filed in October 2003 by Stephen D. Plavin and Brian H.
Oswald as a result of grants of restricted stock were filed late in March 2004.
In addition, to our knowledge, Rodney F. Dammeyer, a shareholder who was never
an employee, officer or director of Capital Trust, failed to file reports with
respect to three changes in his beneficial ownership of our class A common stock
occurring on or before his remaining shares were sold in March 2002.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to
all of our employees, including our principal executive officer, principal
financial officer and principal accounting officer. This code of business
conduct and ethics is designed to comply with SEC regulations and New York Stock
Exchange corporate governance rules related to codes of conduct and ethics and
will be posted on our corporate website at www.capitaltrust.com as of the annual
meeting. A copy of our code of business conduct and ethics is available free of
charge, upon request directed to Investor Relations, Capital Trust, Inc., 410
Park Avenue, 14th Floor, New York, NY 10022.
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Item 11. Executive Compensation
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Executive Compensation
The following table sets forth for the years indicated the annual
compensation of the chief executive officer and our other executive officers who
earned annual salary and bonus in excess of $100,000, which we refer to as the
named executive officers.
Summary Compensation Table
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Annual Compensation (1) Long Term Compensation
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Name and Principal Restricted Securities
------------------ Stock Underlying Other
Position Year Salary($) Bonus($) Award($) Options (#) Compensation ($)(7)
-------- ---- --------- -------- -------- ----------- -------------------
John R. Klopp 2003 600,000 1,000,000 -- -- 6,000
Chief Executive 2002 600,000 1,100,000 -- 83,334 6,000
Officer and 2001 600,000 1,400,000 400,000(2) 33,334 20,200
President
Stephen D. Plavin 2003 371,671 650,000 203,500(3) -- 6,000
Chief Operating 2002 371,671 600,000 312,500(4) -- 6,000
Officer 2001 380,728 1,000,000 625,000(4) 50,000 20,000
Brian H. Oswald 2003 210,000 250,000 50,875(6) -- 6,000
Chief Financial
Officer, Secretary
and Treasurer (5)
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(1) The annual compensation presented for 2003 represents the annual base salary
paid during the fiscal year ended December 31, 2003 and the annual bonus
compensation that was paid in February 2004 and accrued as an expense by us for
the fiscal year ended December 31, 2003. As permitted by rules established by
the SEC, no amounts are shown with respect to certain "perquisites" where such
amounts do not exceed, in the aggregate, the lesser of 10% of bonus plus salary
or $50,000.
(2) Represents the value of 29,630 shares of class A common stock awarded to Mr.
Klopp in February 2001 (based on the $13.50 per share closing price on the date
of the grant). The value of such restricted stock award to Mr. Klopp at December
31, 2003 was $672,601 (based on the $22.70 per share New York Stock Exchange
closing price on such date).
(3) Represents the value of 10,000 shares of class A common stock awarded to Mr.
Plavin on October 22, 2003 (based on the $20.35 per share closing price on the
date of the grant). The value of this restricted stock award to Mr. Plavin at
December 31, 2003 was $227,000 (based on the $22.70 per share closing price on
such date).
(4) Represents the value of 16,667 and 33,334 shares of class A common stock
granted to Mr. Plavin on August 31, 1998 and issued during 2002 and 2001,
respectively (based on the $18.75 per share closing price on the date of the
grant). The value of these restricted stock awards to Mr. Plavin at December 31,
2003 was $1,135,023 (based on the $22.70 per share closing price on such date).
(5) Mr. Oswald was appointed chief financial officer on February 13, 2003.
(6) Represents the value of 2,500 shares of class A common stock awarded to Mr.
Oswald on October 22, 2003 (based on the $20.35 per share closing price on the
date of the grant). The value of this restricted award to Mr. Oswald at December
31, 2003 was $56,750 (based on the $22.70 per share closing price on such date).
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(7) Represents contributions made by us to our 401(k) profit sharing plan.
Employment Agreement
John R. Klopp serves as our chief executive officer and president
pursuant to an employment agreement entered into on July 15, 1997, which will
terminate effective July 15, 2004, the effective date of his new employment
agreement that was entered into on February 24, 2004. The new employment
agreement provides for Mr. Klopp's employment through December 31, 2008 (subject
to earlier termination under certain circumstances as described below).
Under the new employment agreement, Mr. Klopp will receive a base salary
of $600,000 per year, subject to possible increase by our board of directors.
The agreement provide for annual performance compensation awards, pursuant to
our 2004 long-term incentive plan, referred to as the 2004 Plan, tied to the
achievement of threshold, target or maximum performance criteria set by the
compensation committee of the board each year after consultation with Mr. Klopp.
Under these awards, Mr. Klopp can earn an annual cash bonus ranging from 100% of
base salary at threshold performance, 150% of base salary at target performance
to 200% at maximum performance. The agreement also provide for an annual
performance compensation award of restricted shares ranging from $250,000 at
threshold performance, $500,000 at target performance to $750,000 at maximum
performance. The restricted share awards will be subject to further vesting: 50%
of the award will vest in equal installments over the three year period from the
date of grant and 50% of the award will vest on the fourth anniversary from the
date of grant provided the total shareholder return during the vesting period is
at least 13% per annum.
Pursuant to the agreement, Mr. Klopp will be granted as of the effective
date pursuant to the 2004 Plan an initial award of 218,818 restricted shares,
50% of which will be subject to time vesting in 24 equal monthly increments
commencing on the 36th month from the date of grant and 50% of which will be
issued as a performance compensation award and will vest on December 31, 2008 if
the total shareholder return, measured from January 1, 2004 through December 31,
2008, is at least 13% per annum. Mr. Klopp will also be awarded as of the
effective date pursuant to the 2004 Plan performance compensation awards tied to
the amount of cash we receive as incentive management fees, if any, from CT
Mezzanine Partners III, Inc. The agreement provides for an award entitling Mr.
Klopp to cash payments equal to 8% of incentive management fees, if any,
received by us. The agreement provides for an additional award on or before
April 19, 2005 as determined by the compensation committee in its discretion up
to an additional 10% of incentive management fees, if any, received by us. These
awards vest 65% on the expiration of the investment period for the fund and 35%
upon our receipt of the incentive management fees.
We may terminate Mr. Klopp's employment upon his death, upon disability
that has incapacitated him for 180 consecutive days, or for conduct defined as
"cause" in the agreement. Mr. Klopp has the right to terminate the agreement for
"good reason" as defined in the agreement, which includes the assignment of
materially inconsistent duties, responsibilities and title and change in
control. In the event of our termination of Mr. Klopp's employment without
"cause" or by Mr. Klopp for "good reason," Mr. Klopp is entitled to certain post
termination benefits, including: a lump sum cash payment equal to the greater of
(i) the sum of base salary and target performance bonuses for the balance of the
term of the agreement assuming satisfaction of the performance criteria or (ii)
twice current base salary and the highest annual cash bonus earned during the
term of the agreement; the accelerated granting and vesting in full of all
annual restricted share grants made prior thereto and the initial restricted
share grant; the granting and vesting in full of all incentive management fee
performance compensation awards; vested options may be exercised for the later
of one year following termination or the expiration of the options; and we shall
pay medical insurance coverage premiums for the earlier of 18 months following
termination or the date Mr. Klopp receives comparable coverage from another
employer. If Mr. Klopp is terminated upon expiration
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of the agreement, he receives the same post termination benefits, except he will
be paid a lump sum cash payment equal to his base salary, earned unpaid bonus at
target performance and all awards previously granted will continue to vest for
an additional year following termination. The agreement also provides specified
benefits upon death or disability.
Mr. Klopp's employment agreement contains provisions relating to
non-competition during the term of employment, protection of our confidential
information and intellectual property, and non-solicitation of our employees.
Stock Options and Long Term Incentive Plan
No stock option grants were made to any named executive officer in 2003.
The following table shows the 2003 year-end value of the stock options
held by the named executive officers. None of the named executive officers
exercised stock options during 2003.
Year End 2003 Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at Year End Options/SARs at Year End (1)
----------------------------------- -------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
John R. Klopp 141,668 66,668 $667,502 $480,011
Stephen D. Plavin 44,445 5,556 85,555 42,781
Brian H. Oswald 32,224 2,778 176,334 25,558
-----------------------------
(1) Amounts shown reflect the excess of the market value of the underlying class
A common stock at year end based upon the $22.70 per share closing price
reported on the New York Stock Exchange on December 31, 2003 over the exercise
prices for the stock options. The actual value, if any, an executive may realize
is dependent upon the amount by which the market price of class A common stock
exceeds the exercise price when the stock options are exercised.
The following table provides information with respect to a long term
incentive plan award made to three named executive officers in 2003.
Long Term Incentive Plans - Awards in Last Fiscal Year
Performance or
Number of Other Period
Shares, Units Until Maturation Estimated Future Payouts under
Name or Other Rights of Payment Non-Stock Price-Based Plans
------------------------------------------------------------------------------------------------
Threshold($) Target($) Maximum($)
John R. Klopp 6.250% (1) -- (2) -- (3) 623,844 -- (3)
Stephen D. Plavin 1.875% (1) -- (2) -- (3) 187,153 -- (3)
Brian H. Oswald 0.625% (1) -- (2) -- (3) 62,384 -- (3)
-----------------------------
(1) Represents rights to receive cash payments pursuant to incentive bonus
agreements based on the distributions, if any, received by us from our incentive
interest in CT Mezzanine Partners II LP, which we refer to as Fund II.
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During 2003, Messrs. Klopp, Plavin and Oswald were each granted a right to
receive cash payments equal to the specified percentages of incentive
distributions to be received by us from Fund II. These rights vest in equal
increments of 50% upon the date of grant and 50% upon our receipt of incentive
distributions from Fund II. Including these grants, incentive bonus agreements
representing rights to receive cash payments equal to 25% of our total incentive
distributions, if any, from Fund II have been granted to various employees.
(2) The incentive bonus agreements do not provide for any specified timeframe
during which cash payments are to be made. Cash payments pursuant to incentive
bonus agreements will be made when we receive incentive distributions, if any,
from Fund II. We currently expect to receive incentive distributions from Fund
II in 2006 and 2007.
(3) The incentive bonus agreements do not provide for minimum or maximum cash
payments to the recipients. Cash payments will depend on the amount of incentive
distributions, if any, we receive from Fund II. Our incentive distributions will
depend on whether the investors in Fund II receive a return of 100% of their
invested capital and a minimum return of 10% per annum on invested capital. The
"Target" amounts shown in the table are based on numerous assumptions, including
that all of Fund II's investments continue to perform and pay off in full by
December 31, 2007. There can be no assurance that Fund II will perform in
accordance with the foregoing assumptions and produce returns that will be
sufficient to generate incentive distributions.
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Item 12. Security Ownership of Certain Beneficial Owners and Management
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 27, 2004, certain information
with respect to the beneficial ownership of our class A common stock, by:
o each person known to us to be the beneficial owner of more than 5% of
our outstanding class A common stock,
o each director, director nominee and named executive officer currently
employed by us, and
o all of our directors and executive officers as a group.
Such information (other than with respect to our directors and executive
officers) is based on a review of statements filed with the SEC pursuant to
Sections 13(d), 13(f) and 13(g) of the Securities Exchange Act of 1934 with
respect to our class A common stock.
Name of Beneficial Owner Number of Shares Percent of Class
----------------------- Beneficially Owned (1) ----------------
---------------------
Veqtor Finance Company, L.L.C. (2) 897,429 13.5%
EOP Operating Limited Partnership (3) 1,424,474(4) 17.7
Vornado Realty, L.P. (5) 1,424,474(4) 17.7
JPMorgan Chase Bank, as trustee for General 99,713(7) 1.5
Motors Employe Global Group Pension Trust (6)
JPMorgan Chase Bank, as trustee for GMAM 1,324,761(8) 16.6
Group Pension Trust II (6)
Lend Lease Rosen Real Estate Securities LLC (9) 340,000 5.1
Jeffrey A. Altman -- --
Thomas E. Dobrowski --(10) --
Martin L. Edelman 38,230(11) *
Gary R. Garrabrant 24,896(11) *
Craig M. Hatkoff 669,701(12)(13) 10.0
John R. Klopp 835,446(12)(13) 12.3
Henry N. Nassau 11,377(14) *
Brian H. Oswald 55,507(15) *
Stephen D. Plavin 170,942(15) 2.6
Steven Roth --(16) --
Lynne B. Sagalyn 21,563(11) *
Samuel Zell 82,229(11)(17) 1.2
All executive officers and directors as a group 1,905,891 26.9
(12 persons)
-----------------------------
* Represents less than 1%.
(1) The number of shares are those beneficially owned, as determined under the
rules of the SEC, and such information is not necessarily indicative of
beneficial ownership for any other purpose. Under
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such rules, beneficial ownership includes any shares as to which a person
has sole or shared voting power or investment power and any shares which
the person has the right to acquire within 60 days through the exercise of
any option, warrant or right, through conversion of any security or
pursuant to the automatic termination of a power of attorney or revocation
of a trust, discretionary account or similar arrangement.
(2) Zell General Partnership, Inc. is the sole managing member of Veqtor
Finance Company, L.L.C. The sole shareholder of Zell General Partnership
is the Sam Investment Trust, a trust established for the benefit of the
family of Samuel Zell. Chai Trust Company, L.L.C. serves as trustee of the
Sam Investment Trust. Veqtor Finance Company, L.L.C. is located at c/o
Equity Group Investments, L.L.C., Two North Riverside Plaza, Chicago,
Illinois 60606.
(3) Beneficial ownership information is based on a statement filed pursuant to
Section 13(d) of the Securities Exchange Act of 1934 by EOP Operating
Limited Partnership. The address of EOP Operating Limited Partnership is
Two North Riverside Plaza, Chicago, Illinois 60606.
(4) Represents shares which may be obtained upon conversion of $29,914,000 in
convertible amount of variable step up convertible trust preferred
securities issued by our consolidated Delaware statutory business trust
subsidiary, CT Convertible Trust I.
(5) Beneficial ownership information is based on a statement filed pursuant to
Section13(d) of the Securities Exchange Act of 1934 by Vornado Realty,
L.P. The address of Vornado Realty is c/o Vornado Realty Trust, Park 80
West, Plaza II, Saddle Brook, New Jersey 07663.
(6) Each trust is a pension trust formed pursuant to the laws of the State of
New York for the benefit of certain employee benefit plans of General
Motors Corporation, its subsidiaries and unrelated employers. These shares
may be deemed to be owned beneficially by General Motors Asset Management,
a wholly-owned subsidiary of General Motors. General Motors Asset
Management is registered as an investment adviser under the Investment
Advisers Act of 1940. General Motors Asset Management's principal business
involves investment advice and investment management services with respect
to the assets of certain employee benefit plans of General Motors, its
subsidiaries and unrelated employers and with respect to the assets of
certain direct and indirect subsidiaries of General Motors and associated
entities. General Motors Asset Management is serving as investment manager
with respect to these shares and in that capacity it has the sole power to
direct the trustee as to the voting and disposition of these shares.
Because of the trustee's limited role, beneficial ownership of the shares
by the trustee is disclaimed.
(7) Represents shares which may be obtained upon conversion of $2,093,980 in
convertible amount of variable step up convertible trust preferred
securities issued by our consolidated Delaware statutory business trust
subsidiary, CT Convertible Trust I.
(8) Represents shares which may be obtained upon conversion of $27,820,020 in
convertible amount of variable step up convertible trust preferred
securities issued by our consolidated Delaware statutory business trust
subsidiary, CT Convertible Trust I.
(9) Beneficial ownership information is based on a statement filed pursuant to
Section 13(g) of the Exchange Act by Lend Lease Rosen Real Estate
Securities LLC. The address of Lend Lease Rosen Real Estate Securities LLC
is 1995 University Avenue, Suite 550, Berkeley, CA 94704.
(10) Does not include the shares that may be deemed beneficially owned by
General Motors Asset Management, as to which Mr. Dobrowski disclaims
beneficial ownership.
(11) In the case of Mr. Zell, Mr. Edelman, Mr. Garrabrant and Dr. Sagalyn,
includes 13,229 shares obtainable by each upon conversion of vested stock
units. In the case of Mr. Zell, Mr. Edelman, Mr. Garrabrant and Dr.
Sagalyn, includes 40,000, 25,001, 11,667 and 8,334 shares issuable upon
the exercise of vested stock options.
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(12) Includes, in the case of Mr. Hatkoff, the 610,044 shares owned by CMH
Investment Partnership LP, a family partnership for which Mr. Hatkoff
serves as a general partner. Includes, in the case of Mr. Klopp, 600,044
shares owned by JRK Investment Partnership LP, a family partnership for
which Mr. Klopp serves as general partner.
(13) Includes 180,558 and 47,223 shares issuable upon the exercise of vested
stock options held by each of Messrs. Klopp and Hatkoff. Includes 21,882
shares for Mr. Klopp that are the subject of restricted stock awards for
which he retains voting rights. Includes for Mr. Hatkoff 6,434 shares that
may be obtained upon conversion of vested stock units.
(14) Includes 1,377 shares obtainable upon conversion of vested stock units.
Includes 400 shares held by members of Mr. Nassau's family, as to which
Mr. Nassau disclaims beneficial ownership except to the extent of his
pecuniary interest therein.
(15) Includes 35,002 and 50,001 shares issuable upon the exercise of vested
stock options held by Mr. Oswald and Mr. Plavin, respectively. Includes
6,876 and 20,941 shares for Mr. Oswald and Mr. Plavin, respectively, that
are the subject of restricted stock awards for which they retain voting
rights.
(16) Does not include the shares that may be deemed beneficially owned by
Vornado Realty, L.P., as to which Mr. Roth disclaims beneficial ownership.
(17) Does not include the shares that may be deemed beneficially owned by
Equity Office Properties Trust, as to which Mr. Zell disclaims beneficial
ownership. 25,000 of such shares are held by Samstock, L.L.C. The sole
member of Samstock is SZ Investments, L.L.C. The managing member of SZ
Investments is Zell General Partnership. Sam Investment Trust is the sole
stockholder of Zell General Partnership, and Chai Trust Company is the
trustee of the Sam Investment Trust. Mr. Zell is not an officer or
director of Chai Trust Company and does not have voting or dispositive
power over such shares. Mr. Zell disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein. 4,000 of
such shares are owned by the Helen Zell Revocable Trust, the trustee of
which is Helen Zell, Mr. Zell's spouse. Mr. Zell does not have a pecuniary
interest in such shares.
Equity Compensation Plan Information
The following table provides information about the securities authorized
for issuance under our equity compensation plans as of January 1, 2004:
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
--------------------------------- ----------------------- -------------------- ------------------------
Equity compensation plans 602,470 $20.30 147,001(1)
approved by security holders
Equity compensation plans not
approved by security holders(2) -- -- --
---------- ---------- ---------------
Total 602,470 $20.30 147,001(1)
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-----------------------------
(1) The number of securities remaining for future issuance in 2004 consists of
147,001 shares issuable under our amended and restated 1997 incentive
stock plan and our amended and restated 1997 non-employee director stock
plan, both of which were approved by our shareholders. Awards under the
plan may include restricted stock, unrestricted stock, stock options,
stock units, stock appreciation rights, performance shares or other
equity-based awards, as the board of directors may determine.
(2) We have no equity compensation plans not approved by security holders.
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Item 13. Certain Relationships and Related Transactions
------------------------------------------------------------------------------
Arrangement with Equity Risk Services, Inc.
We pay Equity Risk Services, Inc., an affiliate of Samuel Zell, the
chairman of our board of directors, for certain services provided to us. These
services include consulting on insurance matters. During the year ended December
31, 2003, we incurred $48,000 of expenses in connection with these services.
Relationship with Martin L. Edelman
Martin L. Edelman, a director, is of counsel to Paul, Hastings, Janofsky
& Walker LLP, a law firm that provides us with ongoing legal representation with
respect to various matters.
Consulting Agreement with Craig M. Hatkoff
Craig M. Hatkoff, a director, is a party to a consulting services
agreement with our wholly owned subsidiary, CT Investment Management Co., LLC,
that extends through 2005, and pursuant to which he provides services as
requested by our chief executive officer and serves on the management committee
or board of the two private equity funds that we manage. Mr. Hatkoff was paid
$120,000 in 2003 pursuant to the agreement.
Relationship with Global Realty Outsourcing, Inc.
We pay Global Realty Outsourcing, Inc., a company in which we have an
equity investment and on whose board of directors John R. Klopp, our chief
executive officer, serves, for consulting services relating to monitoring assets
and evaluating potential investments. During the 2003 fiscal year, we incurred
$147,000 of expenses in connection with these services.
Investments by trusts established for the benefit of Samuel Zell in our funds
A trust established for the benefit of Mr. Zell and members of his
family indirectly invested on the same terms available to third party investors
in CT Mezzanine Partners II L.P. and CT Mezzanine Partners III, Inc., two
private equity funds which we currently manage, pursuant to which capital
commitments and capital contributions have been made, and from which income has
been received, since January 1, 2003.
We believe that the terms of the foregoing transactions are no less
favorable than could be obtained by us from unrelated parties on an arm's-length
basis.
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Item 14. Principal Accounting Fees and Services
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Principal Accounting Firm Fees
Aggregate fees we were billed for the fiscal years ended December 31,
2003 and 2002 by our principal accounting firm, Ernst & Young LLP are as
follows:
Fiscal Year Ended
December 31,
2003 2002
Audit fees............................ $206,917 $183,345
Audit-related fees (a)................ $ 20,300 --
-------- --------
Total audit and audit-related fees.... $227,217 $183,345
Tax fees (b).......................... $291,406 $300,707
All other fees (c).................... $318,802 $260,933
-------- --------
Total................................. $837,425 $774,985
-----------------------------
(a) The audit-related fees include amounts billed to us for review of our
registration statement and REIT accounting consulting advice in 2003.
(b) Tax fees include amounts billed to us primarily for tax planning and
consulting, tax compliance and preparation and review of federal, state and
local tax returns and tax fees related to REIT matters.
(c) All other fees include amounts billed to us related to audit of Fund II and
Fund III and tax return preparation for these funds for which we are reimbursed
by the funds.
The audit committee of the board of directors was advised of the
services provided by Ernst & Young LLP that are unrelated to the audit of the
annual fiscal year end financial statements and the review of interim financial
statements and has considered whether the provision of such services is
compatible with maintaining Ernst & Young LLP's independence as our independent
auditor.
Audit Committee Pre-Approval Policy
In accordance with our audit committee pre-approval policy, all audit
and non-audit services performed for us by our independent accountants were
pre-approved by the audit committee of our board of directors, which concluded
that the provision of such services by Ernst & Young LLP was compatible with the
maintenance of that firm's independence in the conduct of its auditing
functions.
The pre-approval policy provides for categorical pre-approval of
specified audit and permissible non-audit services and requires the specific
pre-approval by the audit committee, prior to engagement, of such services,
other than audit services covered by the annual engagement letter, that are
individually estimated to result in an amount of fees that exceed $50,000. In
addition, services to be provided by the independent accountants that are not
within the category of pre-approved services must be approved by the audit
committee prior to engagement, regardless of the service being requested or the
dollar amount involved.
Requests or applications for services that require specific separate
approval by the audit committee are required to be submitted to the audit
committee by both management and the independent accountants, and must include a
detailed description of the services to be provided and a joint statement
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confirming that the provision of the proposed services does not impair the
independence of the independent accountants.
The audit committee may delegate pre-approval authority to one or more
of its members. The member or members to whom such authority is delegated shall
report any pre-approval decisions to the audit committee at its next scheduled
meeting. The audit committee does not delegate to management its
responsibilities to pre-approve services to be performed by the independent
accountants.
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PART IV
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Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
------------------------------------------------------------------------------
(a) (3) Exhibits
------- --------
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
31.1 Certification of John R. Klopp, Chief Executive Officer, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Brian H. Oswald, Chief Financial Officer, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of John R. Klopp, Chief Executive Officer, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Brian H. Oswald, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
April 29, 2004 /s/ John R. Klopp
--------------------- -----------------
Date John R. Klopp
Vice Chairman and Chief Executive Officer
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