UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934, as amended
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Rule 14a-6(e)(2))
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CAPITAL TRUST, INC.
...................................................................
(Name of Registrant as Specified In Its Charter)
...................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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CAPITAL TRUST, INC.
410 Park Avenue, 14th Floor
New York, New York 10022
April 29, 2005
Dear Shareholders:
You are cordially invited to attend the 2005 annual meeting of
shareholders of Capital Trust, Inc., which will be held at 10:00 a.m., local
time, on Tuesday, June 14, 2005, at the offices of Paul, Hastings, Janofsky &
Walker LLP, 75 East 55th Street, New York, New York 10022. At the annual
meeting, shareholders will be asked to elect directors, ratify the appointment
of Ernst & Young LLP as our independent auditors for 2005 and act upon such
other business as may properly come before the meeting, all as described in the
attached notice of annual meeting of shareholders and proxy statement.
It is important that your shares be represented at the meeting and voted
in accordance with your wishes. Whether or not you plan to attend the meeting,
we urge you to complete, date, sign and return your proxy card in the enclosed
prepaid envelope as promptly as possible so that your shares will be voted at
the annual meeting. This will not limit your right to vote in person or to
attend the meeting.
Sincerely,
/s/ SAMUEL ZELL
Samuel Zell
Chairman of the Board
CAPITAL TRUST, INC.
410 Park Avenue, 14th Floor
New York, New York 10022
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To our Shareholders:
We hereby notify you that we are holding our 2005 annual meeting of
shareholders at the offices of Paul, Hastings, Janofsky & Walker LLP, 75 East
55th Street, New York, New York 10022, on Tuesday, June 14, 2005, at 10:00 a.m.,
New York City time, for the following purposes:
1. To elect nine directors to serve until our next annual meeting of
shareholders and until such directors' successors are duly
elected and qualify.
2. To ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2005.
3. To transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
You can vote your shares of class A common stock if our records show
that you were the owner of the shares as of the close of business on April 27,
2005, the record date for the annual meeting.
We have enclosed a proxy statement and a proxy card solicited by our
board of directors.
To assure your representation at the annual meeting, please vote.
Whether or not you plan to attend the annual meeting, please complete, date,
sign and return the enclosed proxy card promptly in the enclosed prepaid
envelope. This will help ensure that your vote is counted. If you fail to return
your card, your vote will not be counted, unless you attend the meeting and vote
in person. You may revoke your proxy in the manner described in the proxy
statement at any time before the proxy has been voted at the annual meeting.
By Order of the Board of Directors,
/s/ SAMUEL ZELL
Samuel Zell
Chairman of the Board
April 29, 2005
CAPITAL TRUST, INC.
410 Park Avenue, 14th Floor
New York, New York 10022
--------------------
PROXY STATEMENT
FOR
2005 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 14, 2005
--------------------
This proxy statement is being furnished by and on behalf of our board of
directors in connection with the solicitation of proxies to be voted at the 2005
annual meeting of shareholders. The date, time and place of the annual meeting
are:
Date: June 14, 2005
Time: 10:00 a.m., New York City time
Place: The law offices of Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street, New York, New York 10022
At the annual meeting, shareholders will be asked to:
o Elect the following nominees as our directors to serve until our
next annual meeting of shareholders and until such directors'
successors are duly elected and qualify: Samuel Zell, Thomas E.
Dobrowski, Martin L. Edelman, Craig M. Hatkoff, Edward S. Hyman,
John R. Klopp, Henry N. Nassau, Joshua A. Polan and Lynne B.
Sagalyn ("Proposal 1");
o Ratify the appointment of Ernst & Young LLP as our independent
registered public accounting firm, referred to herein as our
independent auditors, for the fiscal year ending December 31,
2005 ("Proposal 2"); and
o Transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
Our principal offices are located at 410 Park Avenue, 14th Floor, New
York, New York 10022 and our telephone number is (212) 655-0220.
This proxy statement and the enclosed proxy card are being sent on or
about April 29, 2005 to shareholders of record as of the close of business on
April 27, 2005.
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
In this section of the proxy statement, we answer some common questions
regarding the annual shareholders meeting and the voting of shares at the
meeting.
Where and when will the annual meeting be held?
The date, time and place of the meeting are:
June 14, 2005
10:00 a.m. (New York City time)
The law offices of Paul, Hastings,
Janofsky & Walker LLP
75 East 55th Street,
New York, New York 10022
Why did you send me this proxy statement?
We sent you this proxy statement and the enclosed proxy card because our board
of directors is asking for your proxy to vote your shares at the annual meeting.
We have summarized information in this proxy statement that you should consider
in deciding how to vote at the meeting. But you don't have to attend in order to
vote your shares. Instead, you may simply complete, sign, and return the
enclosed proxy card.
Who can vote?
You can vote your shares of class A common stock if our records show that you
were the owner of the shares as of the close of business on April 27, 2005, the
record date determining the shareholders who are entitled to vote at the annual
meeting. As of April 27, 2005, there were a total of 15,117,188 shares of our
class A common stock outstanding and entitled to vote at the annual meeting. You
get one vote for each share of class A common stock that you own. The enclosed
proxy card shows the number of shares you can vote.
How are votes counted?
We will hold the annual meeting if shareholders representing the required quorum
of shares of class A common stock entitled to vote either sign and return their
proxy cards or attend the meeting. A majority of the shares of class A common
stock entitled to vote at the meeting present in person or by proxy will
constitute a quorum. If you sign and return your proxy card, your shares will be
counted to determine whether we have a quorum even if you abstain or fail to
vote as indicated on the proxy card.
If you abstain or withhold votes, your abstention or withheld vote will not be
counted as votes cast and will have no effect on the result of the vote on the
election of directors and the ratification of the appointment of Ernst & Young
LLP as our independent auditors.
What is the required vote for approval?
The election of each of our nominees for director requires a plurality of the
votes cast at the annual meeting and the ratification of the appointment of
Ernst & Young LLP as our independent auditors requires a majority of the votes
cast at the annual meeting on such matter.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on the matters to be
considered at the annual meeting. Sign and date the proxy card and mail it back
to us in the enclosed envelope. The individuals named and designated as proxies
in the proxy card will vote your shares as you instruct. You have the following
choices in completing your voting.
o You may vote on each proposal, in which case your shares will be
voted in accordance with your choices.
o In voting on directors, you can either vote FOR all directors or
withhold your vote on all or certain directors specified by you.
o You may abstain on the proposal to ratify the appointment of
Ernst & Young LLP as our independent auditors, in which case no
vote will be recorded.
o You may return a signed proxy card without indicating your vote
on any matter, in which case the designated proxies will vote to
elect all nine nominees as directors and ratify the appointment
of Ernst & Young LLP as our independent auditors.
What if other matters come up at the annual meeting?
The only matters we now know of that will be voted
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on at the annual meeting include the proposals we have described in this proxy
statement: the election of nine directors and the proposal to ratify the
appointment of Ernst & Young LLP as our independent auditors for 2005. If other
matters are properly presented at the meeting, the designated proxies will vote
your shares in their discretion.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change your vote either
by giving us a written notice revoking your proxy card or by signing, dating,
and returning to us a new proxy card or by attending the annual meeting and
voting your shares in person. We will honor the proxy card with the latest date.
Proxy revocation notices or new proxy cards should be sent to Capital Trust,
Inc. c/o American Stock Transfer & Trust Company, 6201 Fifteenth Avenue,
Brooklyn, New York 11219, Attention: Paula Caroppoli.
Can I vote in person at the annual meeting rather than by completing the proxy
card?
Although we encourage you to complete and return the proxy card to ensure that
your vote is counted, you can attend the annual meeting and vote your shares in
person even if you have submitted a proxy card.
Will my shares be voted if I do not provide my proxy?
Your shares may be voted if they are held in the name of a brokerage firm, even
if you do not provide the brokerage firm with voting instructions. Brokerage
firms have the authority under the NYSE rules to cast votes on certain "routine"
matters if they do not receive instructions from their customers. The election
of directors and the proposal to ratify the appointment of Ernst & Young LLP as
our independent auditors are considered routine matters for which brokerage
firms may vote unvoted shares.
What do I do if my shares are held in "street name"?
If your shares are held in the name of your broker, a bank, or other nominee,
that party will give you instructions for voting your shares.
Who will count the votes?
Representatives of American Stock Transfer & Trust Company will count the votes
and will serve as the independent inspector of election.
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, some of our employees may
contact you by telephone, by mail, or in person. None of these employees will
receive any extra compensation for doing this. We do not expect to engage an
outside firm to solicit votes, but if such a firm is engaged subsequent to the
date of this proxy statement, the cost is estimated to be less than $10,000,
plus reasonable out-of-pocket expenses.
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PROPOSAL 1 -- ELECTION OF DIRECTORS
The number of directors that comprise our entire board of directors has
been fixed at nine. Nine nominees will be proposed for election as directors at
the annual meeting to hold office until our next annual meeting of shareholders
and until their successors are duly elected and qualify. All nine nominees
currently serve on our board of directors.
Effective February 7, 2005, Jeffrey A. Altman resigned from our board of
directors. Our board of directors appointed Edward S. Hyman as a director
effective March 30, 2005.
All of the nominees are willing to serve as directors but, if any of
them should decline or be unable to act as a director, the individuals
designated in the proxy cards as proxies will exercise the discretionary
authority provided to vote for the election of such substitute nominee selected
by our board of directors, unless the board alternatively acts to reduce the
size of the board or maintain a vacancy on the board in accordance with our
bylaws. The board of directors has no reason to believe that any such nominees
will be unable or unwilling to serve.
The Board considered transactions and relationships between each
director or any member of his or her immediate family and the company and its
subsidiaries and affiliates. Our board of directors has determined that Messrs.
Dobrowski, Hyman, Nassau and Polan and Dr. Sagalyn are independent under the
criteria for independence set forth in the listing standards of the New York
Stock Exchange, and therefore, upon the election of all nine nominees, 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 28, 2005, and existing positions with us of
the nominees, if any, are as follows:
Name Age Office or Position Held
---- --- -----------------------
Samuel Zell............... 63 Chairman of the Board of Directors
Thomas E. Dobrowski....... 61 Director
Martin L. Edelman......... 63 Director
Craig M. Hatkoff.......... 51 Director
Edward S. Hyman........... 60 Director
John R. Klopp............. 51 Director, Chief Executive Officer and
President
Henry N. Nassau........... 50 Director
Joshua A. Polan........... 57 Director
Lynne B. Sagalyn.......... 57 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; Equity Lifestyle Properties, Inc., a REIT specializing in the
ownership and management of manufactured home communities; and Rewards Network,
Inc., an administrator of consumer loyalty rewards programs.
Thomas E. Dobrowski has been a director since 1998. Mr. Dobrowski is the
managing director of Real Estate and Alternative Investments for General Motors
Investment Management Corporation, an investment manager for several pension
funds of General Motors Corporation, its subsidiaries, as well as for several
third party clients. Mr. Dobrowski is a trustee of Equity Office Properties
Trust and a director of Equity Lifestyle Properties, 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.
Edward S. Hyman was appointed a director, effective as of March 30,
2005. Mr. Hyman is chairman of ISI Group, Inc. and ISI Inc. Prior to forming
both of these companies in April 1991, he was vice chairman and a member of the
board of C.J. Lawrence Inc., which he joined in 1972.
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 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 has been a
partner since September 2003 and is Co-Chair of the Corporate and Securities
group at the law firm Dechert LLP. 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. 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.
Joshua A. Polan has been a director since 2004. Mr. Polan is a managing
director of Berkley Capital, LLC, a wholly owned subsidiary of W. R. Berkley
Corporation. He has been an executive officer of Interlaken Capital, Inc., a
company substantially owned and controlled by William R. Berkley, W. R. Berkley
Corporation's
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chairman of the board and chief executive officer, since June 1988, and
currently serves as managing director of Interlaken. For more than five years
prior to June 1988, Mr. Polan was a partner in the public accounting firm of
Touche Ross & Co. Mr. Polan is a member of the management committee of LD Realty
Advisors LLC, the general partner of LDPG Realty Investors, L.P. He is currently
a director of Strategic Distribution, Inc.
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.
Vote Required; Recommendation
The election to the board of directors of each of our nine nominees will
require the affirmative vote of a plurality of the votes cast at the annual
meeting. Our board of directors unanimously recommends that you vote for the
election of all nine nominees.
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Board of Directors; Committees
Our board of directors is currently comprised of Messrs. Zell,
Dobrowski, Edelman, Hatkoff, Hyman, Klopp, Nassau and Polan and Dr. Sagalyn.
Our board of directors currently has four standing committees: an audit
committee, a compensation committee, a corporate governance committee, and an
investment committee.
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
operates. This charter is posted on our corporate website at
www.capitaltrust.com.
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 is
available on our corporate website at www.capitaltrust.com.
Compensation Committee: The compensation committee is currently
comprised of Mr. Polan and Dr. Sagalyn, with Mr. Polan serving as the
committee's chairperson. All compensation committee members meet the
independence criteria set forth in the listing standards of the New York Stock
Exchange. The compensation committee oversees the compensation of executive
officers and senior management, including plans and programs relating to cash
compensation, incentive compensation, equity-based awards and other benefits and
perquisites and administers any such plans or programs as required by the terms
thereof. Our board of directors has adopted a written charter under which the
compensation committee operates. This charter is posted on our corporate website
at www.capitaltrust.com.
Corporate Governance Committee: The corporate governance committee is
currently comprised of Messrs. Dobrowski, Nassau and Polan, with Mr. Nassau
serving as the committee's chairperson. All corporate governance committee
members meet the independence criteria set forth in the listing standards of the
New York Stock Exchange. The corporate governance committee identifies qualified
individuals to become board members, recommends to the board individuals to be
designated as nominees for election as directors at the annual meetings of
shareholders, and develops and recommends to the board our corporate governance
guidelines. Our board of directors has adopted a written charter under which the
corporate governance committee operates. This charter is posted on our corporate
website at www.capitaltrust.com.
Investment Committee: The investment committee is comprised of Messrs.
Zell, Hatkoff and Nassau all of whom will remain on this committee following the
annual meeting. The investment committee exercises the authority of the board to
approve additions to or modifications of our portfolio of loans and investments
beyond the limits of the authority delegated to management in our loan policy.
During fiscal year 2004, our board of directors held four meetings. The
audit committee held four meetings in 2004. The compensation committee and the
performance compensation committee (which was eliminated immediately following
the 2004 annual meeting of shareholders) did not hold any formal committee
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meetings in 2004, but rather discussed matters informally and acted by unanimous
written consent four times in performing their functions. The investment
committee did not hold any formal committee meetings in 2004, but rather
discussed matters informally and acted by unanimous written consent once in
performing its functions. During 2004, each director attended at least 75% of
all meetings of the board of directors (while he or she was a member), and at
least 75% of all meetings of committees on which he or she served.
Corporate Governance
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 listing standards related to codes of
conduct and ethics and is posted on our corporate website at
www.capitaltrust.com. 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, N.Y. 10022.
Corporate Governance Guidelines: We have also adopted corporate
governance guidelines to advance the functioning of our board of directors and
its committees and to set forth our board of directors' expectations as to how
it should perform its functions. Our corporate governance guidelines are posted
on our corporate website at www.capitaltrust.com.
Shareholder Nominations and Communications Policy: Our board of
directors has adopted policies with respect to the consideration of candidates
recommended by shareholders for election as director and shareholder
communications with the board of directors.
Shareholders may recommend nominees for consideration by the corporate
governance committee by submitting the names and the following supporting
information to our secretary at: Secretary, Shareholder Nominations, Capital
Trust, Inc., 410 Park Avenue, 14th Floor, New York, N.Y. 10022. The submissions
should include a current resume and curriculum vitae of the candidate and a
statement describing the candidate's qualifications and contact information for
personal and professional references. The submission should also include the
name and address of the shareholder who is submitting the nominee, the number of
shares which are owned of record or beneficially by the submitting shareholder
and a description of all arrangements or understanding between the submitting
shareholder and the candidate.
Shareholders and other interested parties may communicate directly with
our board of directors or the non-management directors. All communications
should be in writing and should be directed to our secretary at: Secretary,
Shareholder Communications, Capital Trust, Inc., 410 Park Avenue, 14th Floor,
New York, N.Y. 10022. The sender should indicate in the address whether it is
intended for the entire board of directors, the non-management directors as a
group or an individual director. Each communication intended for the board of
directors or non-management directors received by the secretary will be
forwarded to the intended recipients in accordance with the existing
instructions.
The full text of the shareholder nominations and communications policy
is available on our corporate website at www.capitaltrust.com.
Director Attendance at Annual Meeting of Shareholders. We do not have a
formal policy regarding attendance by directors at our annual meeting of
shareholders but invite and encourage all directors to attend. We make every
effort to schedule our annual meeting of shareholders at a time and date to
permit attendance by directors, taking into account the directors' schedules and
the timing requirements of applicable law. At our last annual meeting, which was
held on June 17, 2004, two directors attended.
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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 second amended and restated 1997 long-term incentive 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 deferral
elections 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
During 2004, the compensation committee of the board of directors was
comprised of Messrs. Altman and Polan and Dr. Sagalyn. None of the committee's
members was employed by us as an officer or employee during 2004. 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 22.
Executive and Senior Officers
The following sets forth the positions, ages as of April 28, 2005 and
selected biographical information for our executive and senior officers who are
not directors.
Jeremy FitzGerald, age 41, 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 42, 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 34, 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 44, 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 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 45, 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
9
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 44, 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.
10
Report of the Audit Committee of the Board of Directors*
Our board of directors' audit committee carries out oversight functions
with respect to the preparation, review and audit of our financial statements,
our system of internal controls and the qualifications, independence and
performance of our internal auditor consultants and independent auditors and
operates under a written charter adopted by the board of directors. The audit
committee has the sole authority and responsibility to select, evaluate and, as
appropriate, replace our independent auditors. The audit committee members are
independent within the meaning of the applicable New York Stock Exchange listing
standards and Rule 10A-3 under the Exchange Act.
Our management is responsible for the development, maintenance and
evaluation of internal controls and procedures and the financial reporting
system, the maintenance of appropriate accounting and financial reporting
principles or policies and the preparation of financial statements in accordance
with generally accepted accounting principles. Our independent auditors perform
an independent audit of our consolidated financial statements in accordance with
generally accepted auditing standards and issue a report thereon. The audit
committee's responsibility is to monitor and oversee the foregoing functions.
The audit committee has met and held discussions with management and the
independent auditors with respect to our consolidated financial statements for
fiscal year 2004 and related matters. Management advised the committee that our
consolidated financial statements were prepared in accordance with generally
accepted accounting principles and the committee has reviewed and discussed the
consolidated financial statements with management and our independent auditors,
Ernst & Young LLP. Our independent auditors presented to and reviewed with the
audit committee the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees). Our independent auditors
also provided to the committee the written disclosures and the letter from the
auditors required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and in connection therewith the committee
discussed with the independent auditors their views as to their independence.
The audit committee also reviewed, among other things, the audit and non-audit
services performed by, and the amount of fees paid for such services to, Ernst &
Young LLP. The audit committee meetings include, whenever appropriate, executive
sessions with our independent auditors without the presence of our management.
In undertaking its oversight function, the audit committee relied,
without independent verification, on management's representation that the
financial statements have been prepared with integrity and objectivity and in
conformity with accounting principles generally accepted in the United States
and on the representations of the independent auditors included in their report
on our financial statements. The audit committee is not, however, professionally
engaged in the practice of accounting or auditing and does not provide any
expert or other special assurance or professional opinion as to the sufficiency
of the external or internal audits, whether the company's financial statements
are complete and accurate and are in accordance with generally accepted
accounting principles, or on the effectiveness of the system of internal
control.
Based on the audit committee's considerations, discussions with
management and the independent auditors as described above, the audit committee
recommended to the board of directors that
--------
* The material in this report is not "solicitation material," is not
deemed filed with the SEC, and is not incorporated by reference in any filing of
the company under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any filing.
11
the audited consolidated financial statements be included in our Annual Report
on Form 10-K for the year ended December 31, 2004 for filing with the SEC.
Audit Committee
Lynne B. Sagalyn
Thomas E. Dobrowski
Henry N. Nassau
12
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 $100,000, which we refer to as the
named executive officers.
Summary Compensation Table
------------------------- ------------------------------- ----------------
Annual Compensation (1) Long Term Compensation
----------------------- ------ ------------ ------------ --------------- --------------- ----------------
Other
Name and Principal Restricted Securities Compensation
------------------- Stock Underlying ------------
Position Year Salary($) Bonus($) Award($) Options (#) ($)(8)
-------- ---- --------- -------- -------- ----------- ------
John R. Klopp
Chief Executive 2004 600,000 1,073,450 6,988,962(2) -- 6,150
Officer and 2003 600,000 1,000,000 -- -- 6,000
President 2002 600,000 1,100,000 -- 83,334 6,000
Stephen D. Plavin
Chief Operating 2004 374,723 750,000 250,002(3) -- 6,150
Officer 2003 371,671 650,000 203,500(4) -- 6,000
2002 371,671 600,000 312,500(5) -- 6,000
Brian H. Oswald
Chief Financial 2004 223,750 250,000 99,992(6) -- 6,150
Officer, Secretary 2003 210,000 250,000 50,875(7) -- 6,000
and Treasurer
------------------------
(1) The annual compensation presented for 2004 represents the annual base salary
paid during the fiscal year ended December 31, 2004 and the annual bonus
compensation that was paid in February 2005 and accrued as an expense by us for
the fiscal year ended December 31, 2004. 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 (i)(a) the value of 10,941 shares of restricted stock granted on
January 26, 2004 (based on the $22.85 per share closing price on such date) and
(b) the value of 10,941 shares of performance stock granted on January 26, 2004
(based on the $22.85 per share closing price on such date); (ii) the value of
218,818 shares of restricted stock granted on July 15, 2004 (based on the $26.47
per share closing price on such date); and (iii) (a) the value of 10,724 shares
of class A common stock that initially vested on February 4, 2005 (based on the
$32.49 per share closing price on such date), but are subject to further time
vesting and (b) the value of 10,724 shares of class A common stock that
initially vested on February 4, 2005 (based on the $32.49 per share closing
price on such date), but are subject to further performance vesting. The value
of such stock awards referred to above outstanding at December 31, 2004 was
$7,391,897 (based on the $30.71 per share New York Stock Exchange closing price
on such date).
(3) Represents (i) the value of 5,471 shares of restricted stock granted on
January 26, 2004 (based on the $22.85 per share closing price on such date) and
(ii) the value of 5,470 shares of performance stock granted on January 26, 2004
(based on the $22.85 per share closing price on such date). The value of such
stock awards to Mr. Plavin at December 31, 2004 was $335,998 (based on the
$30.71 per share New York Stock Exchange closing price on such date).
(4) Represents the value of 10,000 shares of restricted stock granted 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
$307,100 (based on the $30.71 per share closing price on such date).
(5) Represents the value of 16,667 shares of restricted stock granted on August
31, 1998 and issued during 2002 (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, 2004 was $511,844 (based on the $30.71 per share closing price
on such date).
(6) Represents (i) the value of 2,188 shares of restricted stock granted on
January 26, 2004 (based on the $22.85 per share closing price on such date) and
(ii) the value of 2,188 shares of performance stock granted on January 26, 2004
(based on the $22.85 per share closing price on such date). The value of such
stock awards to Mr. Oswald at December 31, 2004 was $134,387 (based on the
$30.71 per share closing price on such date).
13
(7) Represents the value of 2,500 shares of restricted stock granted 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, 2004 was
$76,775 (based on the $30.71 per share closing price on such date).
(8) 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 as of February 24, 2004. The
employment agreement provides for Mr. Klopp's employment through December 31,
2008 (subject to earlier termination under certain circumstances as described
below).
Under the 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 provides for annual performance compensation awards, pursuant to our
amended and restated 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 to 200% of
base salary at maximum performance, with a target of 150% of base salary at
target performance. The agreement also provides for an annual performance
compensation award of restricted shares ranging from $250,000 at threshold
performance to $750,000 at maximum performance, with a target of $500,000 at
target performance. The restricted share awards will be subject to further
vesting: 50% of each award will vest in equal installments over the three year
period from the date of issuance and 50% of each award will vest on the fourth
anniversary from the date of issuance provided the total shareholder return
during the vesting period is at least 13% per annum.
Pursuant to the agreement, Mr. Klopp was granted, as of the effective
date and pursuant to the 2004 Plan, an initial award of 218,818 restricted
shares, 50% of which will be subject to time vesting in eight equal quarterly
increments commencing on March 31, 2007 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 was also awarded, as of the effective date and
pursuant to the 2004 Plan, a performance compensation award that provides for
cash payments equal to 8% of the amount of cash we receive, if any, as incentive
management fees from CT Mezzanine Partners III, Inc., known as Fund III, that
vests 65% as of the end of Fund III's investment period and 35% on our receipt
of incentive management fees from Fund III. The agreement provided for an
additional performance compensation award on or before February 24, 2005 as
determined by the compensation committee in its discretion with respect to up to
an additional 10% of incentive management fees received from Fund III. On
February 4, 2005, the compensation committee awarded Mr. Klopp a performance
compensation award that provides for cash payments equal to 4% of the Fund III
incentive management fees. The award vests 65% on the expiration of the Fund III
investment period 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 vesting in full of all annual restricted
share grants made prior thereto and the initial restricted share grant; the
accelerated 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 of the agreement, he
receives the same post termination benefits as though he were terminated for
"cause" or resigned for "good reason," except he will be paid a lump
14
sum cash payment equal to his base salary and 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,
which provisions extend for 24 months following termination in certain
circumstances.
Stock Options and Long Term Incentive Plan
No stock option grants were made to any named executive officer in 2004.
The following table shows the 2004 year-end value of the stock options
held by the named executive officers. None of the named executive officers
exercised stock options during 2004.
Year End 2004 Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs at
Options/SARs at Year End Year End (1)
-------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
John R. Klopp 180,558 27,778 $2,161,554 $411,393
Stephen D. Plavin 50,001 -- 385,508 --
Brian H. Oswald 35,002 -- 409,257 --
----------------------------------
(1) Amounts shown reflect the excess of the market value of the underlying class
A common stock at year end based upon the $30.71 per share closing price
reported on the New York Stock Exchange on December 31, 2004 over the exercise
prices for the stock options. The actual value, if any, an executive may realize
is dependent upon the amount by which the market price of class A common stock
exceeds the exercise price when the stock options are exercised.
15
The following table provides information with respect to a long term
incentive plan award made to three named executive officers in 2004.
Long Term Incentive Plans - Awards in Last Fiscal Year
Number of Performance or
Shares, Other Period
Units Until
or Other Maturation of Estimated Future Payouts under
Name Rights Payment Non-Stock Price-Based Plans
---------------------- -- ----------- -- ------------------ -- ------------- -------------- ------------
Threshold($) Target($) Maximum($)
John R. Klopp 8.0% (1) -- (2) -- (3) 513,249 -- (3)
Stephen D. Plavin 4.0% (1) -- (2) -- (3) 256,625 -- (3)
Brian H. Oswald 0.8% (1) -- (2) -- (3) 51,325 -- (3)
John R. Klopp 10,941(4) 1/1/04 - 12/31/07 -- (4) -- (4) -- (4)
John R. Klopp 10,724(5) 1/1/05 - 12/31/08 -- (5) -- (5) -- (5)
Stephen D. Plavin 5,470 (6) 1/1/04 - 12/31/07 -- (6) -- (6) -- (6)
Brian H. Oswald 2,188 (7) 1/1/04 - 12/31/07 -- (7) -- (7) -- (7)
-----------------
(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 III, Inc., which we refer to as
Fund III. During 2004, 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 III. These rights
vest 65% upon the expiration of the investment period and 35% upon our
receipt of incentive distributions from Fund III. Including these grants,
incentive bonus agreements representing rights to receive cash payments
equal to 17.8% of our total incentive distributions, if any, from Fund III
have been granted to various employees. We intend to grant rights of up to
40% of our total incentive distributions to employees.
(2) The incentive bonus agreements do not provide for any specified time frame
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 III. We currently expect to receive
incentive distributions from Fund III in 2008 and 2009.
(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 III. Our incentive
distributions will depend on whether the investors in Fund III 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 III's investments
continue to perform and pay off in full by June 30, 2009. There can be no
assurance that Fund III will perform in accordance with the foregoing
assumptions and produce returns that will be sufficient to generate
incentive distributions.
(4) Represents performance stock awarded to Mr. Klopp on January 26, 2004 which
is subject to performance vesting if the specified total shareholder return
is obtained for the entire four-year period ended December 31, 2007.
(5) Mr. Klopp was awarded a performance award on February 24, 2004 which, upon
the attainment of 2004 annual performance measures, provided for, among
other things, the initial vesting on February 4, 2005 of 21,448 shares of
class A common stock, 50% of which is subject to further time vesting in
one-third increments over a three-year period ended January 1, 2008 and 50%
of which is subject to further performance vesting if the specified total
shareholder return is obtained for the entire four-year period ended
December 31, 2008. The 10,724 number in the table represents the number of
shares of class A common stock subject to further performance vesting.
(6) Represents performance stock awarded to Mr. Plavin on January 26, 2004 which
is subject to performance vesting if the specified total shareholder return
is obtained for the entire four-year period ended December 31, 2007.
16
(7) Represents performance stock awarded to Mr. Oswald on January 26, 2004 which
is subject to performance vesting if the specified total shareholder return
is obtained for the entire four-year period ended December 31, 2007.
Equity Compensation Plan Information
The following table provides information about the securities authorized
for issuance under our equity compensation plans as of January 1, 2005:
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under
exercise of outstanding exercise price of equity compensation plans
options, warrants and outstanding options, (excluding securities
rights warrants and rights reflected in column (a))
Plan category (a) (b) (c)
------------------------------ ----------------------- --------------------- -------------------------
Equity compensation plans 544,000 $20.91 1,308,602(1)
approved by security
holders
Equity compensation plans
not approved by security
holders(2) -- -- --
------------ ------------ ------------
Total 544,000 $20.91 1,308,602(1)
----------
(1) The number of securities remaining for future issuance in 2005 consists of
1,308,602 shares issuable under our amended and restated 2004 long-term
incentive plan, second amended and restated 1997 long-term incentive stock
plan and our amended and restated 1997 non-employee director stock plan, all
of which were approved by our shareholders. Awards under the plans may
include restricted stock, unrestricted stock, stock options, stock units,
stock appreciation rights, performance shares, performance units, deferred
share units or other equity-based awards, as the board of directors may
determine.
(2) We have no equity compensation plans not approved by security holders.
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 2004.
Form 4s required to be filed in January 2004 by John R. Klopp, Stephen D. Plavin
and Brian H. Oswald as a result of grants of restricted stock were filed later
in March 2004. A Form 3 required to be filed in May 2004 by W. R. Berkley
Corporation as a result of the acquisition of class A common stock was filed
late in June 2004. A Form 4 required to be filed in July 2004 by General Motors
Investment Management Corporation due to the acquisition of class A common stock
as a result of the conversion of convertible trust preferred securities and
subsequent sale of such class A common stock was filed late in October 2004. A
Form 4 required to be filed in September 2004 by Vornado Realty, L.P. due to the
acquisition of class A common stock as a result of the conversion of convertible
trust preferred securities was filed late in October 2004.
17
Report on Executive Compensation*
Introduction
Our compensation committee administers our compensation programs.
Immediately following our 2004 annual meeting of shareholders, the compensation
committee was reconstituted to operate under a new charter and the performance
compensation committee was eliminated since its functions were assumed by the
reconstituted and newly chartered compensation committee.
Compensation for 2004
Our 2004 executive compensation program consisted of three elements: an
annual base salary, annual bonus compensation and long-term incentive
compensation.
Mr. Klopp received a $600,000 annual salary as set forth in his
employment agreement which was previously approved by the board of directors and
the other executive officers also received their previously established or
negotiated salaries. The compensation committee's goal was to provide
competitive executive compensation packages as a means of retaining its
executive officers. To that end and consistent with its prior practices, the
committee strived to compensate executive officers with salaries commensurate
with prevailing compensation practices in the financial services industry.
Salaries vary according to the levels of responsibility undertaken by the
executive officers.
The compensation committee's goals with annual bonus and long-term
incentive compensation was to focus executive behavior on the fulfillment of
long-term and annual business objectives, and to create a sense of ownership in
the company that causes executive decisions to be aligned with the best
interests of our shareholders.
For 2004, the board of directors articulated goals for our company. The
board emphasized the amount of quarterly dividends declared, net growth in
balance sheet assets and ongoing deployment of Fund III's equity through
origination of new portfolio assets. The goals were included as the performance
measures in Mr. Klopp's performance compensation award governing his annual
bonus opportunity and performance stock opportunity. The committee compared the
company's actual performance to the designated performance measures and
determined that Mr. Klopp was entitled to a cash bonus of $1,000,000 and 21,448
shares of performance stock pursuant to the formula set forth in his performance
award agreement, which stock is subject to further time and performance vesting.
The committee awarded Mr. Klopp a discretionary bonus of $73,450 for overall
leadership in achieving company goals.
The compensation committee considered other executive officers'
performance in achieving these goals in determining their annual bonuses which,
consistent with the prevailing practices in the financial services industry,
represents a substantial portion of their compensation.
Section 162(m) of the Internal Revenue Code of 1986 limits the
deductibility in our tax return of compensation over $1 million to any of our
executive officers unless, in general, the compensation is paid
----------
* The material in this report is not "solicitation material," is not deemed
filed with the SEC, and is not incorporated by reference in any filing of the
company under the Securities Act or the Securities Exchange Act, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filing.
18
pursuant to a plan which is performance-related, and non-discretionary and has
been approved by our shareholders. The performance compensation committee's
policy with respect to Section 162(m) was to make every reasonable effort to
ensure that compensation is deductible to the extent permitted while
simultaneously providing our executives with appropriate rewards for their
performance. During 2004, we paid one of our executive officers approximately
$193,975 aggregate cash compensation that was non-deductible pursuant to Section
162(m). In awarding the cash bonus that produced this non-deductible
compensation expense, the compensation committee determined that the advantages
to us of awarding the bonus compensation as a reward for the performance and
contribution of the executive officer outweighed the loss of the tax deduction.
The compensation committee will continue to consider on a case-by-case basis
whether particular compensation awards and programs that do not satisfy the
conditions of Section 162(m) outweigh the costs to us of the loss of the related
tax deduction.
Compensation Committee
Joshua A. Polan
Lynne B. Sagalyn
19
Performance Graph*
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total shareholder return on shares of our class A common stock
against (i) the cumulative total return of companies listed on the New York
Stock Exchange, (ii) the cumulative total return of a peer group selected in the
previous year by us (iStar Financial Inc., RAIT Investment Trust, Anthracite
Capital Inc., Allied Capital Corp. and LNR Property Corp.), which we refer to as
the Old Peer Group and (iii) the cumulative total return of a peer group newly
selected by us (iStar Financial Inc., RAIT Investment Trust, Anthracite Capital
Inc., Arbor Realty Trust, Gramercy Capital Corp., Newcastle Investment Corp. and
NorthStar Realty Finance Corp.), which we refer to as the New Peer Group. We
have selected the New Peer Group as a basis for comparison because we believe
that, as a result of changes in our operations and the competitive environment,
a comparison of shareholder returns to the returns of our newly selected peer
group companies provides a more appropriate basis of comparison. The five-year
period compared commences December 31, 1999 and ends December 31, 2004. This
graph assumes that $100 was invested on January 1, 2000 in us and each of the
market index and the peer group index, at the December 31, 1999 closing price,
and that all cash distributions were reinvested. Our class A common stock price
performance shown on the graph is not indicative of future price performance.
[GRAPHIC OMITTED]
1999 2000 2001 2002 2003 2004
CAPTITAL TRUST 100.00 98.76 115.20 106.00 159.18 230.18
NYSE MARKET INDEX 100.00 102.38 93.26 76.18 98.69 111.45
OLD PEER GROUP INDEX 100.00 125.11 175.12 192.04 271.05 310.87
NEW PEER GROUP INDEX 100.00 132.61 188.13 231.45 341.47 428.35
----------
* The price performance comparison information in the table is not
"solicitation material," is not deemed filed with the SEC, and is not
incorporated by reference in any filing of the company under the Securities Act
or the Securities Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any filing.
20
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 28, 2005, 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.
Number of Shares
Beneficially Percent of
Name of Beneficial Owner Owned (1) Class
---------------------------------- -------------------- --------------
Veqtor Finance Company, L.L.C. (2) 897,429 5.9%
Vornado Realty, L.P. (3) 1,424,474 8.6
W. R. Berkley Corporation 2,000,000 13.2
Thomas E. Dobrowski --(4) --
Martin L. Edelman 40,219(5) *
Craig M. Hatkoff 671,230(6)(7) 4.4
Edward S. Hyman -- --
John R. Klopp 1,103,490(6)(7) 7.2
Henry N. Nassau 13,764(8) *
Brian H. Oswald 58,585(9) *
Stephen D. Plavin 184,792(9) 1.2
Joshua A. Polan --(10) --
Lynne B. Sagalyn 23,552(5) *
Samuel Zell 80,218(5)(11) *
All executive officers and directors 2,200,617 14.1
as a group (11 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 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. Mr. Zell is not an officer or director of Chai
Trust Company and does not have voting or dispositive power over such
shares. Veqtor Finance Company, L.L.C. is located at c/o Equity Group
Investments, L.L.C., Two North Riverside Plaza, Chicago, Illinois 60606.
21
(3) 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.
(4) Does not include the shares that may be deemed beneficially owned by
General Motors Investment Management Corporation, as to which Mr.
Dobrowski disclaims beneficial ownership.
(5) In the case of Mr. Zell, Mr. Edelman and Dr. Sagalyn, includes 15,218
shares obtainable by each upon conversion of vested stock units. In the
case of Mr. Zell, Mr. Edelman and Dr. Sagalyn, includes 40,000, 25,001
and 8,334 shares issuable upon the exercise of vested stock options.
(6) 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.
(7) Includes 208,336 and 47,223 shares issuable upon the exercise of vested
stock options held by each of Messrs. Klopp and Hatkoff. Includes
258,501 shares for Mr. Klopp that are the subject of restricted stock
awards for which he retains voting rights. Includes for Mr. Hatkoff
7,963 shares that may be obtained upon conversion of vested stock units.
(8) Includes 2,564 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.
(9) Includes 35,002 and 50,001 shares issuable upon the exercise of vested
stock options held by Mr. Oswald and Mr. Plavin, respectively. Includes
7,559 and 26,302 shares for Mr. Oswald and Mr. Plavin, respectively,
that are the subject of restricted stock awards for which they retain
voting rights.
(10) Does not include the shares owned by W. R. Berkley Corporation, as to
which Mr. Polan disclaims beneficial ownership.
(11) 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, Inc. 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. 10,000 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.
Certain Relationships and Related Transactions
Arrangement with Equity Risk Services, Inc.
We pay Equity Risk Services, Inc., a subsidiary of Equity Office
Properties Trust, of which Samuel Zell, the chairman of our board of directors,
is the chairman of its board of trustees, for certain services provided to us.
These services include consulting on insurance matters. During the year ended
December 31, 2004, we incurred $49,000 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.
22
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 to June 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 2004 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 2004 fiscal year, we incurred
$568,000 of expenses in connection with these services.
Investments by trusts established for the benefit of Samuel Zell in our funds
Trusts 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 LP 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 2001.
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.
23
PROPOSAL 2 -- RATIFICATION OF INDEPENDENT AUDITORS
Description of Proposal
Our board of directors has appointed Ernst & Young LLP as our
independent auditors for the fiscal year ending December 31, 2005, and has
further directed that the appointment of such accountants be submitted for
ratification by the shareholders at the annual meeting. We have been advised by
Ernst & Young LLP that neither that firm nor any of its associates has any
relationship with us or our subsidiaries other than the usual relationship that
exists between independent certified public accountants and clients. Ernst &
Young LLP will have a representative at the annual meeting who will have an
opportunity to make a statement, if he or she so desires, and who will be
available to respond to appropriate questions.
Shareholder ratification of the appointment of Ernst & Young LLP as our
independent auditors is not required by our charter or otherwise. However, our
board of directors is submitting the appointment of Ernst & Young LLP to the
shareholders for ratification as a matter of what it considers to be good
corporate practice. Even if the appointment is ratified, our board of directors
in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the board determines that such a
change would be in our and our shareholders' best interests.
Principal Accounting Firm Fees
Aggregate fees we were billed for the fiscal years ended December 31,
2004 and 2003 by our principal accounting firm, Ernst & Young LLP are as
follows:
Fiscal Year Ended
December 31,
2004 2003
---- ----
Audit fees (a) .................... $ 830,865 $ 232,234
Audit-related fees (b)............. 225,000 256,368
---------- ----------
Total audit and audit-related
fees............................. 1,055,865 488,602
Tax fees (c)....................... 324,350 384,356
All other fees .................... -- --
---------- ----------
Total.............................. $1,380,215 $ 872,958
========== ==========
-------------------------
(a) Audit fees include amounts billed to us related to annual financial
statement audit work, quarterly financial statement reviews and comfort letters
on and review of SEC registration statements. Approximately $350,000 of the
audit fees incurred in 2004 represent recurring and nonrecurring services
associated with the Sarbanes-Oxley Section 404 internal control audit.
(b) The audit-related fees include principally amounts billed to us related to
the audit of Fund II and Fund III.
(c) 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 tax matters. Tax fees also
include amounts billed to us related to tax return preparation for Fund II and
Fund III for which we are reimbursed by the funds.
24
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
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.
Vote Required; Recommendation
The affirmative vote of a majority of the votes cast at the annual
meeting is required to ratify the appointment of Ernst & Young LLP as our
independent auditors. Our board of directors unanimously recommends that you
vote for the ratification of Ernst & Young LLP as our independent auditors.
25
ANNUAL REPORT
Our annual report to shareholders is being concurrently distributed to
shareholders herewith.
OTHER MATTERS
Our management does not know of any other matters to come before the
annual meeting. If, however, any other matters do come before the annual
meeting, it is the intention of the persons designated as proxies to vote in
accordance with their discretion on such matters.
SHAREHOLDER PROPOSALS
If you wish to submit a shareholder proposal pursuant to Rule 14a-8
under the Securities Exchange Act for inclusion in our proxy statement and proxy
card for our 2006 annual meeting of shareholders, you must submit the proposal
to our secretary no later than December 30, 2005. In addition, if you desire to
bring business (including director nominations) before our 2006 annual meeting,
you must comply with our bylaws, which currently require that you provide
written notice of such business to our secretary no earlier than March 16, 2006
and no later than April 15, 2006. For additional requirements, shareholders
should refer to our bylaws, article II, section 12, "Nominations and Proposals
by Stockholders," a current copy of which may be obtained from our secretary. If
we do not receive timely notice pursuant to our bylaws, any proposal may be
excluded from consideration at the meeting, regardless of any earlier notice
provided in accordance with Rule 14a-8.
26
CAPITAL TRUST, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CAPITAL TRUST, INC. FOR THE
2005 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 14, 2005.
The undersigned, as a holder of class A common stock, par value $.01
per share ("Class A Common Stock"), of Capital Trust, Inc., a Maryland
corporation (the "Company"), hereby appoints John R. Klopp and Brian H. Oswald,
and each of them, with full power of substitution, as proxies to vote all shares
of Class A Common Stock which the undersigned is entitled to vote through the
execution of a proxy with respect to the 2005 Annual Meeting of Shareholders of
the Company (the "Annual Meeting") to be held at the offices of Paul, Hastings,
Janofsky & Walker LLP, 75 East 55th Street, New York, New York 10022, on
Tuesday, June 14, 2005 at 10:00 a.m., local time, or any adjournment or
postponement thereof, and authorizes and instructs said proxies to vote in the
manner directed below.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING
1. Election of directors.
FOR WITHHELD Nominees: Samuel Zell
|_| |_|
Thomas E. Dobrowski
Martin L. Edelman
Craig M. Hatkoff
Edward S. Hyman
John R. Klopp
Henry N. Nassau
Joshua A. Polan
Lynne B. Sagalyn
For, except vote withheld for the following nominee(s):
-------------------------------------------
2. On the proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent accountants for the fiscal year ending December 31, 2005.
(check one box) |_| For |_| Against |_| Abstain
-------------------------------------------
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the Annual Meeting, or any adjournment or
postponement thereof, or upon matters incident to the conduct of the Annual
Meeting.
You may revoke or change your proxy at any time prior to its use at the Annual
Meeting by giving the Company written direction to revoke it, by giving the
Company a new proxy or by attending the Annual Meeting and voting in person.
Your attendance at the Annual Meeting will not by itself revoke a proxy given by
you. Written notice of revocation or subsequent proxy should be sent to Capital
Trust, Inc. c/o American Stock Transfer & Trust Company, 6201 Fifteenth Avenue,
Brooklyn, New York 11219, Attention: Paula Caroppoli, or hand-delivered to
Capital Trust, Inc. c/o American Stock Transfer & Trust Company, so as to be
delivered at or before the taking of the vote at the Annual Meeting.
(Continued and to be signed on the reverse side)
Returned proxy cards will be voted (1) as specified on the matters listed above;
(2) in accordance with the Board of Directors' recommendations where no
specification is made; and (3) in accordance with the judgment of the proxies on
any other matters that may properly come before the meeting. Please mark your
choice like this: x
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the election
of the named nominees and approval of the other proposal set forth above.
The undersigned hereby acknowledges receipt of the notice of the Annual Meeting
and the proxy statement furnished therewith.
Print and sign your name below exactly as it appears hereon and date this card.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. Joint owners should each sign. If a corporation, please
sign in full corporate name by president or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: , 2005
----------------------------
-------------------------------------
Signature (title, if any)
--------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY. YOU MAY REVOKE THIS PROXY IN THE MANNER DESCRIBED ABOVE AT ANY
TIME PRIOR TO THE TAKING OF A VOTE ON THE MATTERS DESCRIBED HEREIN.