UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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, 1997
[ ] 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 1-8063
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Capital Trust
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(Exact name of registrant as specified in its charter)
California 94-6181186
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
605 Third Avenue, 26th Floor, New York, NY 10016
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 655-0220
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Class A Common Shares of Beneficial Interest, New York Stock Exchange
$1.00 par value ("Class A Common Shares") Pacific Stock Exchange
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 (ss.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. / /
709766.3
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MARKET VALUE
Based on the closing sales price of $11.31 per share, the aggregate
market value of the outstanding Class A Common Shares held by non-affiliates of
the registrant as of April 29, 1998 was $126,619,095.
OUTSTANDING SHARES
As of April 29, 1998 there were 18,229,650 outstanding Class A Common
Shares. The Class A Common Shares are listed on the New York and Pacific Stock
Exchanges (trading symbol "CT"). Trading is reported in many newspapers as
"CapitalTr".
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CAPITAL TRUST
PART III
Item 10. Trustees and Executive Officers of the Registrant...................1
Item 11. Executive Compensation..............................................5
Item 12. Security Ownership of Certain Beneficial Owners and Management.....10
Item 13. Certain Relationships and Related Transactions.....................14
Signatures...................................................................17
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Capital Trust (the "Company") hereby amends the following items of Part
III of its Form 10-K Annual Report for the fiscal year ended December 31, 1997
as filed with the Securities and Exchange Commission on February 26, 1998.
PART III
ITEM 10. Trustees and Executive Officers of the Registrant
The name, age as of April 30, 1998, and existing positions with the
Company of the trustees and executive and senior officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Office or Position Held
---- --- -----------------------
<S> <C> <C>
Samuel Zell........................... 56 Chairman of the Board of Trustees
Jeffrey A. Altman..................... 31 Trustee
Martin L. Edelman..................... 56 Trustee
Carol J. Eglow........................ 37 Managing Director
Jeremy FitzGerald..................... 34 Managing Director
Gary R. Garrabrant.................... 40 Trustee
Craig M. Hatkoff...................... 44 Trustee, Vice Chairman and Chairman of the Executive
Committee
Marc Holliday......................... 31 Managing Director
John R. Klopp......................... 44 Trustee, Vice Chairman and Chief Executive Officer
Donald J. Meyer....................... 47 Managing Director and Chief Investment Officer
Sheli Z. Rosenberg.................... 56 Trustee
Lynne B. Sagalyn...................... 50 Trustee
Edward L. Shugrue III................. 32 Managing Director, Chief Financial Officer and Assistant
Secretary
</TABLE>
The name, principal occupation for the last five years, selected
biographical information and the period of service as a trustee or officer of
the Company of each of the trustees and executive and senior officers are set
forth below.
Trustees
Samuel Zell has been Chairman of the Board of Trustees since July 15,
1997. Mr. Zell is chairman of the board of directors of Equity Group
Investments, Inc. ("EGI"), American Classic Voyages Co., an owner and operator
of cruise lines ("American Classic"), Anixter International Inc., a provider of
integrated network and cabling systems ("Anixter"), Manufactured Home
Communities, Inc., a REIT
709766.3
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specializing in the ownership and management of manufactured home communities
("MHC"), and Jacor Communications, Inc. an owner of radio stations ("Jacor"). He
is chairman of the board of trustees of Equity Residential Properties Trust, 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. Mr. Zell is also a director of Fred Meyer, Inc.,
an owner and operator of supermarkets and discount stores, Chart House
Enterprises, Inc., an owner and operator of restaurants, Ramco Energy PLC, an
independent oil company based in the United Kingdom, and TeleTech Holdings,
Inc., a provider of telephone and computer based customer care solutions.
Jeffrey A. Altman has been a trustee of the Company since November 4,
1997. Since November 1996, Mr. Altman has been a senior vice president of
Franklin Mutual Advisers, Inc., formerly Heine Securities Corporation, a
registered investment adviser ("FMA"), and a vice president of Franklin Mutual
Series Fund Inc., a mutual fund with assets in excess of $25 billion, advised by
FMA. From August 1988 to October 1996, Mr. Altman was an analyst with FMA. Mr.
Altman is also the chairman of the board of trustees of Value Property Trust, a
self-administered REIT engaged in the business of managing its portfolio of real
estate investments, and a director of Resurgence Properties Inc., a company
engaged in diversified real estate activities.
Martin L. Edelman has been a trustee of the Company since February 4,
1997. Mr. Edelman has been a director of Chartwell Leisure Inc., a publicly
traded owner and operator of hotel properties ("Chartwell"), since November 1994
and has been president of Chartwell since January 1996. He has also been a
director of Cendant Corporation and a member of that corporation's executive
committee since November 1993. Mr. Edelman has been of counsel to Battle Fowler
LLP, a New York City law firm that provides services to the Company, since
January 1994 and was a partner with that firm from 1972 through 1993. Mr.
Edelman also serves as a director of Avis Rent a Car, Inc. and G. Soros Realty,
Inc.
Gary R. Garrabrant has been a trustee of the Company since January 2,
1997. Mr. Garrabrant was the vice chairman of the Company from February 1997
until July 15, 1997. Mr. Garrabrant is executive vice president of EGI and
managing partner of EGI Capital Markets, L.L.C. He joined EGI as senior vice
president in January 1996. Previously, Mr. Garrabrant was director of Sentinel
Securities Corporation and co-founded Genesis Realty Capital Management in 1994,
both of which were based in New York and specialized in real estate securities
investment management. From 1989 to 1994, he was associated with The Bankers
Trust Company. Mr. Garrabrant is a director of Meritage Hospitality Group Inc.
Craig M. Hatkoff has been a trustee and a vice chairman of the Company
since July 15, 1997. Mr. Hatkoff is a founder and has been a managing partner of
Victor Capital Group, L.P. ("Victor Capital") since 1989. 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.
John R. Klopp has been a trustee of the Company since January 2, 1997,
the chief executive officer of the Company since February 1997 and a vice
chairman of the Company since July 15, 1997. Mr. Klopp is a founder and has been
a managing partner of Victor Capital since 1989. Mr. Klopp was a managing
director and co-head of Chemical Realty Corporation from 1982 until 1989. From
1978 to 1982,
709766.3
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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. He is a director of Metropolis Realty
Trust, Inc., a Manhattan office REIT.
Sheli Z. Rosenberg has been a trustee of the Company since July 15,
1997. Since 1994, Ms. Rosenberg has been the chief executive officer and
president of EGI and Ms. Rosenberg has been a director of EGI for more than the
past five years. She was a principal of the law firm Rosenberg & Liebentritt
P.C. from 1980 until September 1997. Ms. Rosenberg is a director of Jacor;
American Classic; MHC; Anixter; CVS Corporation, a drugstore chain; and Illinois
Power Co., a supplier of electricity and natural gas in Illinois, and its
holding company, Illinova Corporation. She is also a trustee of Equity
Residential Properties Trust and of Equity Office Properties Trust. Ms.
Rosenberg was a vice president of First Capital Benefit Administrators, Inc.,
which filed a petition under the federal bankruptcy laws on January 3, 1995,
which resulted in its liquidation on November 15, 1995.
Lynne B. Sagalyn has been a trustee of the Company since July 15, 1997.
Dr. Sagalyn has been a professor and the coordinator of the M.B.A. Real Estate
Program at the Columbia University Graduate School of Business since 1992. From
1991 to 1992, she was a visiting professor at Columbia. From 1987 to 1991, she
was an associate professor of Planning and Real Estate Development at the
Massachusetts Institute of Technology. She is also 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 (NYSE) and The Retail Initiative and on
an advisory board for Initiatives for a Competitive Inner City.
Executive and Senior Officers
Carol J. Eglow has been a managing director of the Company since July
15, 1997. Prior to that time, Ms. Eglow served as a principal of Victor Capital
and had been employed in various positions at such firm since June 1989. She was
previously employed in various positions at Chemical Realty Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Jeremy FitzGerald has been a managing director of the Company since
July 15, 1997. Prior to that time, Ms. FitzGerald served as a principal of
Victor Capital and had been employed in various positions at such firm since May
1990. She was previously employed in various positions at PaineWebber
Incorporated.
Marc Holliday has been a managing director of the Company since July
15, 1997. Prior to that time, Mr. Holliday served as a principal of Victor
Capital and had been employed in various positions at such firm since January
1991. He was previously employed with Westpak Banking Corporation.
Donald J. Meyer has been a managing director and Chief Investment
Officer of the Company since July 15, 1997. From 1979 through July 1997, Mr.
Meyer held various positions at The First National Bank of Chicago ("First
Chicago"). From 1989 until 1990, Mr. Meyer served as Senior Credit Officer for
real estate at First Chicago. From 1990 to 1993, Mr. Meyer, at different times,
was the head of the Real Estate Enhancement Division and the Asset Disposition
Department. Mr. Meyer was the Senior Credit Officer for Product Risk Management
at First Chicago from 1993 until 1995. From 1995 until 1997, Mr. Meyer was Head
of Structural Investments and managed First Chicago's investments in
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non-investment grade tranches of commercial mortgage-backed securities. In 1991,
Mr. Meyer became a Senior Vice President at First Chicago.
Edward L. Shugrue III has been the chief financial officer of the
Company since September 30, 1997 and a managing director and assistant secretary
of the Company since July 15, 1997. Prior to that time, Mr. Shugrue served as a
principal of Victor Capital since January 1997. He previously served as director
of real estate for and a vice president of River Bank America from April 1994
until June 1996 after serving as a vice president of the bank since January
1992. He was previously employed in various positions at Bear, Stearns & Co.
Inc.
Compliance with Section 16(a)
Section 16(a) of the Exchange Act requires the Company's officers and
trustees, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the NYSE. Officers, trustees and greater than ten
percent shareholders are required by regulation of the SEC to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of Forms 3, 4 and 5 and amendments thereto
available to the Company and written representations from certain of the
trustees, officers and 10% shareholders that no form is required to be filed,
the Company believes that no trustee, officer or beneficial owner of more than
10% of its Class A Common Shares failed to file on a timely basis reports
required pursuant to Section 16(a) of the Exchange Act with respect to 1997
except John McMahan, a former trustee of the Company, who filed a Form 4 report
for January 1997 on or about March 12, 1997 (30 days after the due date). The
late Form 4 report related to four transactions. Mr. McMahan paid the profit
from the transactions to the Company on February 9, 1997.
709766.3
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<PAGE>
ITEM 11. Executive Compensation
Executive Compensation
The following table sets forth for the years indicated the annual
compensation of the chief executive officer and the other executive officers of
the Company who earned annual salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Other
Annual Compensation Compensation Compensation
- -------------------------------------- -------------------------------------------------------------------------
Securities
Underlying
Name and Principal Position Year Salary($)(1) Bonus($) Options(#)
<S> <C> <C> <C> <C> <C>
John R. Klopp 1997 $235,417(2) $500,000 75,000 $ 992 (3)
Vice Chairman and Chief
Executive Officer
Craig M. Hatkoff 1997 235,417(2) 500,000 75,000 992 (3)
Vice Chairman and Chairman
of the Executive Committee
Donald J. Meyer 1997 139,773 150,000 75,000 35,125 (4)
Managing Director and Chief
Investment Officer
Edward L. Shugrue III 1997 275,067 200,000 50,000 --
Managing Director and Chief
Financial Officer
</TABLE>
- ----------
(1) The Company paid total compensation of $140,000, $180,000 and $72,000 to
Frank M. Morrow, the Company's former chief executive officer, for the
years ended 1997, 1996 and 1995, respectively.
(2) Excludes $463,036 of capital distributions made by Victor Capital Group
prior to the acquisition of such firm by the Company to each of Messrs.
Klopp and Hatkoff during 1997. Also, excludes $475,021 of management fees
paid to Valentine Wildove & Company, Inc., which is owned equally by
Messrs. Klopp and Hatkoff.
(3) Represents term life insurance premiums paid by the Company.
(4) Represents relocation expenses paid by the Company.
709766.3
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<PAGE>
Employment Agreements
The Company is a party to employment agreements with John R. Klopp and
Craig M. Hatkoff. The employment agreements provide for five-year terms of
employment commencing as of July 15, 1997. On the fifth anniversary of the
commencement of the employment agreements, and on each succeeding anniversary,
the terms of the employment agreements shall be automatically extended for one
additional year unless, not later than three months prior to such anniversary
date, either party shall have notified the other that it will not extend the
term of the agreement. The employment agreements provide for base annual
salaries of $500,000, which will be increased each calendar year to reflect
increases in the cost of living and will otherwise be subject to increase in the
discretion of the Board of Trustees. Mr. Klopp and Mr. Hatkoff are also entitled
to annual incentive cash bonuses to be determined by the Board of Trustees based
on individual performance and the profitability of the Company. Mr. Klopp and
Mr. Hatkoff are also participants in the Company's 1997 long-term incentive
share plan (the "Incentive Share Plan") and other employee benefit plans of the
Company.
If the employment of Mr. Klopp or Mr. Hatkoff is terminated without
cause, with good reason or following a change of control, as those terms are
defined in the employment agreements, the affected employee would be entitled to
(i) a severance payment equal to the greater of the amount payable to such
employee over the remainder of the term of the employment agreement or an amount
equal to the aggregate base salary and cash incentive bonus paid to the employee
during the previous year; (ii) continued welfare benefits for two years; and
(iii) automatic vesting of all unvested share options such that all of the
employee's share options would become immediately exercisable. Each vested
option will remain exercisable for a period of one year following the employee's
termination. The employment agreements provide for a non-competition period of
one year if Mr. Klopp or Mr. Hatkoff terminates his employment voluntarily or is
terminated for cause.
The Company is a party to an employment agreement with Donald J. Meyer
which provides for a term of employment for two years. The employment agreement
provides for a base annual salary of $300,000, minimum annual bonuses of
$150,000 at the end of 1997 and 1998, and for participation in the Incentive
Share Plan.
Compensation of Trustees
The Company does not pay its non-employee trustees any cash fees for
their services as such, but rather compensates non-employee trustees with an
annual award of share units under the Company's 1997 non-employee trustee share
plan with a value equal to $30,000. The number of share units awarded to each
trustee, which are convertible into an equal number of Class A Common Shares
according to individual schedules set by each trustee, 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 Shares for the quarter. The share
units vest when issued. There is no separate compensation for service on
committees of the Board of Trustees. All trustees are also reimbursed for travel
expenses incurred in attending Board and committee meetings.
The Company is a party to a consulting agreement, dated as of July 15,
1997, with Gary R. Garrabrant, a trustee of the Company. The consulting
agreement has a term of one year and, as amended, provides for a consulting fee
of $180,000. Pursuant to the agreement, Mr. Garrabrant provides consulting
709766.3
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services for the Company, including, strategic planning, identifying and
negotiating mergers, acquisitions, joint ventures and strategic alliances, and
advising as to capital structure matters. Mr. Garrabrant is also entitled to
participate in the Company's Incentive Share Plan, on such basis as may be
determined by the compensation committee of the board of trustees (the
"Compensation Committee"). In 1998, Mr. Garrabrant was awarded 35,000 options to
purchase Class A Common Shares in recognition of his ongoing contributions to
the Company. The Compensation Committee also awarded a one-time discretionary
bonus of $150,000 to Mr. Garrabrant for services rendered during 1997 in
connection with the Company's public offering of 9,000,000 Class A Common Shares
(the "Offering").
The Company is a party to a consulting agreement, dated as of January
1, 1998, with Martin L. Edelman, a trustee of the Company. The consulting
agreement has a term of one year, is terminable by either party upon thirty (30)
days prior notice and provides for a consulting fee of $8,000 per month. Unless
otherwise terminated, the agreement shall automatically be extended for an
additional one year term. Pursuant to the agreement, Mr. Edelman provides
consulting services for the Company including client development and advisory
services in connection with lending and investment banking activities and asset
and business acquisition transactions. Pursuant to the agreement, the Company
agreed to grant 50,000 options to purchase Class A Common Shares. Mr. Edelman is
also entitled to participate in the Company's Incentive Share Plan.
In 1998, the Compensation Committee awarded Samuel Zell 120,000 options
to purchase Class A Common Shares in recognition of his ongoing contributions to
the Company.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of trustees was comprised
during 1997 of Ms. Rosenberg, Dr. Sagalyn and Messrs. Altman, Edelman and Klopp.
Other than Mr. Klopp, none of the committee's members was an officer or employee
of the Company during 1997. No committee member had any interlocking
relationships requiring disclosure under applicable rules and regulations.
Mr. Zell and Ms. Rosenberg serve as members of the board of directors
of numerous non-public companies owned or controlled in whole or in part by Mr.
Zell or his affiliates which do not have compensation committees, and in many
cases, the executive officers of those companies include Mr. Zell and Ms.
Rosenberg.
For a description of certain relationships and transactions with
members of the board of trustees or their affiliates, see "Item 13 Certain
Relationships and Related Transactions."
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Incentive Share Option Plan
The following table sets forth share options issued in 1997 to the
executive officers named in the Summary Compensation Table. The table also sets
forth the hypothetical gains that would exist for the share options at the end
of their ten-year terms, assuming compound rates of appreciation of 5% and 10%.
The actual future value of the options will depend on the market value of the
Company's Class A Common Shares.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option
Individual Grants Term(2)
- ----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities % of Total
Underlying Option/SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted in Fiscal Price tion
Name (#)(1) Year ($/sh) Date 5% ($) 10% ($)
- ---- --------- ----------- --------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John R. Klopp 75,000 13.9665 $6.00 7/16/07 $283,002.58 $717,184.11
Craig M. Hatkoff 75,000 13.9665 6.00 7/16/07 283,002.58 717,184.11
Donald J. Meyer 75,000 13.9665 6.00 7/16/07 283,002.58 717,184.11
Edward L. Shugrue III 50,000 9.3110 6.00 7/16/07 188,668.39 478,122.73
</TABLE>
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(1) Represents shares underlying share options; none of the executive
officers were granted SARs. One-third of the options become exercisable
in equal increments on the first, second and third anniversaries of the
date of grant.
(2) The amounts of potential realizable value, which are based on assumed
appreciation rates of 5% and 10% prescribed by Securities and Exchange
Commission ("Commission") rules, are not intended to forecast possible
future appreciation, if any, of the Company's share price. The amounts
of potential value with respect to the options do not account for
expiration of the options upon termination of employment or the
phased-in exercise schedule. Future compensation resulting from the
options is based solely on the actual performance of the Company's
share price in the trading market.
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The following chart shows the 1997 year-end value of the share options
held by the named executive officers. None of the named executive officers
exercised share options during 1997.
Year End 1997 Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs at Year Money Options/SARs at
End # Year End(1)
---------------------------- ----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John R. Klopp 0 75,000 $0.00 $393,750.00
Craig M. Hatkoff 0 75,000 0.00 393,750.00
Donald J. Meyer 0 75,000 0.00 393,750.00
Edward L. Shugrue III 0 50,000 0.00 262,500.00
</TABLE>
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(1) Amounts shown represent the market value of the underlying Class A
Common Shares at year end calculated using the December 31, 1997, the
New York Stock Exchange ("NYSE") closing price per share of Class A
Common Shares of $11.25 minus the exercise price of the share option.
The actual value, if any, an executive may realize is dependent upon
the amount by which the market price of Class A Common Shares exceeds
the exercise price when the share options are exercised. The actual
value realized may be greater or less than the value shown in the
table.
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 29, 1998 certain information
with respect to the beneficial ownership of Class A Common Shares and class A
9.5% cumulative convertible preferred shares of beneficial interest, $1.00 par
value ("Class A Preferred Shares" (and together with the Class A Common Shares,
the "Company Shares")), and the voting power possessed thereby (based on
18,229,650 Class A Common Shares and 12,267,658 Class A Preferred Shares
outstanding on that date), by (i) each person known to the Company to be the
beneficial owner of more than 5% of each of the outstanding Class A Common
Shares and Class A Preferred Shares, (ii) each trustee and named executive
officer of the Company who is a beneficial owner of any Class A Common Shares
and (iii) all trustees and executive officers of the Company as a group. Such
information (other than with respect to trustees and officers of the Company) is
based on a review of statements filed with the Commission pursuant to Sections
13(d), 13(f) and 13(g) of the Exchange Act with respect to the Company's Class A
Common Shares.
<TABLE>
<CAPTION>
Class A Class A
Common Shares Preferred Shares
---------------------------- -------------------------
Amount and Nature of Amount and Nature of
Beneficial Ownership(1) Beneficial Ownership(1)
---------------------------- -------------------------
Five Percent Shareholders, Percent of Percent of
Trustees and Executive Officers Number Class Number Class
- --------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Veqtor Finance Company, LLC (2) 6,959,593(3) 38.2% 12,267,658 100%
c/o Capital Trust (3)
605 Third Avenue, 26th Floor
New York, New York 10016
FMR Corp. (4) 2,357,982 12.9 -- --
Jeffrey A. Altman 30,000 * -- --
Martin L. Edelman 2,043(6) * -- --
Gary R. Garrabrant (5) 2,043(6) * -- --
Craig M. Hatkoff (3) 18,000 * -- --
John R. Klopp (3)(5) -- -- -- --
Sheli Z. Rosenberg (5) 2,043(6) * -- --
Lynne B. Sagalyn 2,043(6) * -- --
Samuel Zell (3)(5) 2,043(6) * -- --
Donald J. Meyer 5,000(7) * -- --
Edward L. Shugrue III 22,000(7) * -- --
All executive officers and trustees as a group 85,215 * -- --
(10 persons) (3)(5)
* Represents less than 1%.
</TABLE>
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- ----------
(1) The number of shares owned are those beneficially owned, as determined
under the rules of the Commission, 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) Capital Trust Investors Limited Partnership ("CTILP") and V2 Holdings,
LLC ("V2") are the sole managing members of Veqtor Finance Company,
LLC, a Delaware limited liability company ("Veqtor"). The general
partner of CTILP is SZ Investments LLC, the managing member of which is
Zell General Partnership, Inc. ("Zell GP"). The sole stockholder of
Zell GP is the Samuel Zell Revocable Trust (the "Zell Trust"). Mr.
Samuel Zell serves as the trustee of the Zell Trust. Messrs. John R.
Klopp and Craig M. Hatkoff are the sole members of V2.
(3) John R. Klopp, Craig M. Hatkoff and Samuel Zell collectively indirectly
control the affairs of Veqtor. Each of Messrs. Hatkoff, Klopp and Zell
disclaim beneficial ownership of the Common Shares and Preferred Shares
owned by Veqtor. Veqtor issued $50.0 million of 12% convertible
redeemable notes ("Veqtor Notes") to four institutional lenders to fund
the purchase of its Company Shares. The Veqtor Notes are convertible by
the holders thereof into preferred units of Veqtor ("Veqtor Preferred
Units") at a rate of $55.59 per unit from and after the earlier of July
15, 2000, the dissolution, liquidation or winding up of Veqtor or the
sale of any or all of Veqtor's Company Shares. The Veqtor Preferred
Units may be redeemed by the holders thereof in exchange for a portion
of Veqtor's Company Shares at any time after six months from the date
of conversion of the Veqtor Notes into such units. Veqtor and the
institutional lenders have reached an understanding, subject to
completion of definitive documentation, that would provide for, among
other things, the early conversion of the Veqtor Notes into Veqtor
Preferred Units on the date of execution of such documentation. The
proposed arrangement provides that the Veqtor Preferred Units would be
redeemable for a portion of the Company Shares at any time from and
after the earlier of July 15, 1999 or the liquidation, dissolution or
winding up of Veqtor. Pursuant to the proposed arrangement, if all
Veqtor Preferred Units were redeemed by the holders thereof for Company
Shares on July 16, 1999, the institutional lenders would receive in
exchange for their units an aggregate of 9,648,946 of the Company
Shares owned by Veqtor; if all Veqtor Preferred Units were redeemed by
the Company prior to July 15, 2000, the institutional lenders would
receive in exchange for their units an aggregate of 9,899,710 of the
Company Shares owned by Veqtor. In addition, in connection with the
Offering, CTILP, V2 and Veqtor agreed with the Company that upon either
the redemption for cash of the Veqtor Notes or the conversion of the
Veqtor Notes into Veqtor Preferred Units, and in the latter case, the
subsequent redemption of all such units in exchange for a specified
portion of Veqtor's Company Shares, Veqtor shall convert the remaining
Class A Preferred Shares owned by it into Class A Common Shares. CTILP,
V2 and Veqtor also agreed that Veqtor shall redeem the Veqtor Preferred
Units on the earliest date upon which Veqtor has the right to effect
such redemption.
(4) Beneficial ownership information is based on the Schedule 13G jointly
filed by FMR Corp. ("FMR"), Edward C. Johnson 3rd, Abigail P. Johnson,
Fidelity Management and Research Company (the "FMR Advisor") and
Fidelity Growth & Income Fund (the "FGI Fund") reporting ownership of
shares by the FGI Fund and other funds advised by the FMR Advisor. FMR
and the FMR Advisor are located at 82 Devonshire Street, Boston,
Massachusetts, 02109.
(5) Messrs. Zell, Klopp, Hatkoff and Garrabrant and Ms. Rosenberg hold
indirect economic ownership interests in Veqtor equal to approximately
34.2%, 25%, 25%, 4.5% and 4.5%, respectively.
(6) Represents shares which may be obtained upon conversion of vested share
units.
709766.3
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(7) Includes 20,000 and 5,000 shares for Mr. Shugrue and Mr. Meyer,
respectively, that are the subject of restricted share awards for which
the recipients retain voting rights.
Buy/Sell Agreement
Veqtor, CTILP, V2 and Messrs. Klopp and Hatkoff are parties to an
agreement, dated July 15, 1997, that contains buy/sell provisions pursuant to
which (i) one member of Veqtor may purchase from or sell to the other member its
interests in Veqtor or (ii) one member of V2 or CTILP may purchase the other V2
member's interest in V2 (the "Buy/Sell Agreement"). Pursuant to the agreement,
from and after July 15, 2000, either CTILP or V2 as the initiating party (the
"Initiating Party") may initiate the buy/sell process by notifying (the
"Buy/Sell Notice") the other party (the "Responding Party") of its desire either
to sell for cash all of its Veqtor Common Units (as defined in the Buy/Sell
Agreement) to the Responding Party or to purchase for cash all of the Veqtor
Common Units owned by the Responding Party, in each case, at the per unit price
specified by the Initiating Party (the "Specified Price"). Upon receipt of the
Buy/Sell Notice, the Responding Party must within 150 days elect either to sell
its Veqtor Common Units to the Initiating Party or purchase the Initiating
Party's Veqtor Common Units at the Specified Price. If the Responding Party
fails to respond to the Buy/Sell Notice, it shall be deemed to have elected to
sell its Veqtor Common Units at the Specified Price.
The Buy/Sell Agreement provides that upon the termination of employment
(including through death or disability) with the Company of either John R. Klopp
or Craig M. Hatkoff (the "Departing Person") other than by voluntary termination
(the "Termination Event"), whomever of Messrs. Klopp or Hatkoff has not been the
subject of the Termination Event (the "Remaining Person") shall have the right
to purchase all of the interests in V2 then held by the Departing Person for
cash at their fair market value as defined in the Buy/Sell Agreement ("Fair
Market Value"). If the Remaining Person does not purchase the Departing Person's
interest in V2, the Buy/Sell Agreement provides that CTILP shall have the right
to purchase for cash from V2 50% of the Veqtor Common Units then held by V2 at
their fair market value, upon which purchase V2 shall distribute to the
Departing Person (or his estate or representative) an amount equal to the net
proceeds of such sale reduced by 50% of V2's aggregate liabilities in full
redemption of the interest in V2 then held by the Departing Person (or his
estate or representative). If CTILP does not elect to purchase the Veqtor Common
Units held by V2 pursuant to the foregoing, (i) Veqtor must distribute to V2 50%
of its assets that V2 would be entitled to receive upon a liquidation of Veqtor
(whereupon V2's economic interest in Veqtor shall be correspondingly reduced)
and (ii) V2 must distribute to the Departing Person 50% of such assets reduced
by 50% of V2's aggregate liabilities in full redemption of the Departing
Person's interest in V2.
Pursuant to the Buy/Sell Agreement, upon the voluntary termination of
employment with the Company of either of Messrs. Klopp or Hatkoff (the
"Voluntarily Departing Person"), CTILP shall have the right to purchase from V2
50% of the Veqtor Common Units then held by V2 for cash at their fair market
value, upon such purchase V2 shall distribute to the Voluntarily Departing
Person an amount equal to the net proceeds of such sale reduced by 50% of V2's
aggregate liabilities in full redemption of the interest in V2 then held by the
Voluntarily Departing Person. If CTILP does not purchase the Veqtor Common Units
pursuant to the foregoing, the agreement provides that whomever of Messrs. Klopp
or Hatkoff is not the Voluntarily Departing Person (the "Voluntarily Remaining
Member") shall have the right to purchase all of the interest in V2 then held by
the Voluntarily Departing Person for cash at its Fair Market Value. If the
Voluntarily Remaining Member does not purchase from the Voluntarily Departing
Person all of the interest in V2 then held by the Voluntarily Departing Person
for cash at its Fair Market Value pursuant to the
709766.3
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foregoing, (i) Veqtor must distribute to V2 50% of its assets that V2 would be
entitled to receive in a liquidation of Veqtor (whereupon V2's economic interest
in Veqtor shall be correspondingly reduced) and (ii) V2 must distribute to the
Voluntarily Departing Person 50% of such assets reduced by 50% of V2's aggregate
liabilities in full redemption of the Voluntarily Departing Person's interest in
V2.
Pursuant to the Buy/Sell Agreement, upon the termination of employment
with the Company of both Messrs. Klopp and Hatkoff, within any 30-day period,
for any or no reason, whether voluntary or involuntary, including, without
limitation, by reason of death or disability, CTILP shall have the right to
purchase from V2 all of the Veqtor Common Units then held by V2 for cash at
their Fair Market Value. If CTILP does not purchase the Veqtor Common Units
pursuant to the foregoing, Veqtor shall distribute to V2 100% of its assets that
V2 would be entitled to receive upon a liquidation of Veqtor in full redemption
of 100% of the Veqtor Common Units then held by V2.
Pursuant to the Buy/Sell Agreement, upon the termination of employment
with the Company of either of Messrs. Klopp or Hatkoff for any or no reason,
whether voluntary or involuntary, including, without limitation, by reason of
his death or disability, following by more than 30 days the prior termination of
employment with the Company of the other individual for any or no reason,
whether voluntary or involuntary, including, without limitation, by reason of
his death or disability, CTILP shall have the right to purchase from V2 all of
the Veqtor Common Units then held by V2 for cash at their Fair Market Value. If
CTILP does not purchase the Veqtor Common Units pursuant to the foregoing,
Veqtor shall distribute to V2 100% of its assets that V2 would be entitled to
receive upon a liquidation of Veqtor in full redemption of 100% of the Veqtor
Common Units then held by V2.
The Buy/Sell Agreement prohibits the transfer of Veqtor Common Units
and interests in V2 except to permitted transferees as defined in the agreement
or pursuant to right of first refusal provision contained in the agreement. The
Buy/Sell Agreement contains provisions governing the management of Veqtor.
Pursuant to such provisions, in the event that V2 and CTILP do not hold the same
number of Veqtor Common Units, then, notwithstanding anything to the contrary in
the operating agreement governing Veqtor (the "Veqtor Operating Agreement"), all
matters to be determined by V2 and CTILP as the managing members of Veqtor shall
be determined as between V2 and CTILP by an affirmative vote of a majority of
the Veqtor Common Units then held by V2 and CTILP, and V2 and CTILP shall be
bound to act on such matter as managing members in the manner determined by such
vote. The agreement provides that no permitted transferee or other third party
transferee shall be entitled to be appointed, or otherwise act as, a managing
member of Veqtor.
The Buy/Sell Agreement provides that notwithstanding anything to the
contrary in the Veqtor Operating Agreement, as long as V2 and CTILP hold the
same number of Veqtor Common Units, each shall be entitled to direct the
nomination of an equal number of trustees/directors of the Company, and if
Veqtor shall be entitled to nominate an odd number of trustees/directors, V2 and
CTILP shall jointly select one of the trustee/director nominees. If V2 and CTILP
do not hold the same number of Veqtor Common Units, then, notwithstanding
anything to the contrary in the Veqtor Operating Agreement, V2 and CTILP each
shall be entitled to direct the nomination of a number of trustees/directors
equal to their relative percentage holdings of Veqtor Common Units multiplied by
the total number of trustees/directors which Veqtor is then entitled to nominate
(rounded to the nearest whole number).
709766.3
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ITEM 13. Certain Relationships and Related Transactions
Interest Purchase Agreement
In connection with the acquisition of Victor Capital, the Company
entered into an interest purchase agreement, dated as of June 16, 1997, with
John R. Klopp, Craig M. Hatkoff and Valentine Wildove & Company, Inc., pursuant
to which the Company acquired partnership interests in Victor Capital and
certain of its affiliated entities for a purchase price of $5 million. The
purchase price under the interest purchase agreement is payable by the delivery
by the Company to the sellers of the non-interest bearing acquisition notes (the
"Acquisition Notes"). The Acquisition Notes provide for ten semi-annual
principal amortization payments in equal installments. Mr. Klopp and Mr.
Hatkoff, each of whom is a trustee of the Company, each received an Acquisition
Note in the principal amount of $2,162,500. Valentine Wildove & Company, Inc.,
in which Messrs. Klopp and Hatkoff are each 50% owners, received $675,000 in
principal amount of the Acquisition Notes.
The interest purchase agreement provides that the sellers will
indemnify the Company from all damages as a result of any breach of any
representation, warranty, covenant or agreement of the sellers contained in the
interest purchase agreement. The Company's right to indemnification and the
seller's obligation to provide indemnification with respect to any breach of a
representation or warranty continue until July 15, 1999.
Investment Agreement
Pursuant to the terms of the preferred share purchase agreement, dated
as of June 16, 1997, by and between the Company and Veqtor (the "Investment
Agreement"), on July 15, 1997, the Company sold 12,267,658 Class A Preferred
Shares to Veqtor for an aggregate purchase price of $33.0 million. The
Investment Agreement contains certain restrictive covenants binding on the
Company. The Investment Agreement provides that the Company will not amend the
Company's amended and restated declaration of trust, dated July 15, 1997 (the
"Current Declaration of Trust") unless (i) the Company has given Veqtor no less
than 15 days prior notice of such change and (ii) the Board of Trustees has
reasonably determined that the amendment does not contravene or violate the
provisions of the Investment Agreement or the terms of the Class A Preferred
Shares. The Company has agreed that, so long as any Class A Preferred Shares or
class B 9.5%, cumulative convertible non-voting preferred shares of beneficial
interest, $1.00 par value ("Class B Preferred Shares"), remain outstanding,
without the affirmative vote of the holders of more than 50% of the Class A
Preferred Shares and Class B Preferred Shares then outstanding, voting as a
single class, the Company will not incur any indebtedness if the Company's
debt-to-equity ratio would exceed 5:1.
The Company has also agreed in the Investment Agreement only to issue
shares that are Junior Shares and only to issue Class B Preferred Shares upon
the conversion of any Class A Preferred Shares. "Junior Shares" are defined as
common shares and any other class or series of shares of the Company now or
hereafter authorized, issued or outstanding that are subject, under the terms of
the Current Declaration of Trust, to the following restrictions and limitations:
(i) no dividend or distribution can be declared or paid on the shares of such
class or series unless all accrued dividends and other amounts then due with
respect to the Class A Preferred Shares and Class B Preferred Shares shall have
been paid in full; (ii) in the event of any liquidation, dissolution or winding
up of the Company, either voluntary or involuntary, the holders of Class A
Preferred Shares and Class B Preferred Shares shall be entitled to receive out
of the assets of the
709766.3
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Company available for distribution to shareholders, the liquidation preference
with respect to the Class A Preferred Shares and Class B Preferred Shares and
any accrued and unpaid dividends thereon before any payment shall be made or any
assets distributed to the holders of such other class or series of shares of the
Company; and (iii) shares of such class or series are not required to be
redeemed under any circumstances, either at the option of the Company or of any
holder thereof, unless all of the outstanding Class A Preferred Shares and Class
B Preferred Shares have theretofore been redeemed or converted.
The Investment Agreement provides for certain registration rights with
respect to securities of the Company held by Veqtor at the time of the
Investment, to the extent such securities (whether or not converted into other
securities of the Company) continue to be held by Veqtor or the Institutional
Investors (as such term is defined in the Investment Agreement) (or their
respective transferors). The holders of such registrable securities will have
the right to request that the Company prepare and file up to three registration
statements under the Securities Act covering all or any portion of such
registrable securities. In addition, if the Company proposes to file a
registration statement at any time, the Company has agreed to use its best
efforts, upon Veqtor's and the other holders' request, to cause any shares held
by Veqtor and the other holders to be included in such registration. In
connection with any securities registration, Veqtor and the other holders,
respectively, have agreed to pay all underwriting discounts and selling
commissions on the shares registered on behalf of Veqtor and the other holders.
All other costs of registration are to be paid by the Company.
Sharing Agreement
Pursuant to an oral agreement with The Peregrine Real Estate Trust (the
"Former Parent"), costs for certain general administrative services, including
executive services (including the services of Mr. Morrow), accounting services,
treasury services, financial reporting and internal bookkeeping services,
shareholder relations, and directors' and officers' insurance were shared with
the Former Parent. The shared costs were allocated to the Company and the Former
Parent based upon their respective asset values (real property and notes
receivable), subject to annual negotiation. Pursuant to this agreement,
approximately $435,000 and $258,000 was paid or accrued as a payable to the
Former Parent in 1995 and 1996, respectively. As of December 31, 1996, the
Company owed the Former Parent approximately $31,000 pursuant to the cost
sharing agreement. The agreement was terminated on January 7, 1997 and all
amounts owed thereunder were paid.
Reimbursement Agreement
Pursuant to an expense reimbursement arrangement with EGI, the Company
has agreed to reimburse EGI the costs for certain general administrative
services to the Company, including, among others, certain legal, tax,
shareholder relations and insurance acquisition services, which are provided by
employees of EGI. As of December 31, 1997, the Company had paid or accrued
approximately $82,000 to EGI.
Relationships with Martin L. Edelman
Martin L. Edelman, a trustee of the Company, is of counsel to Battle
Fowler LLP, a New York City law firm that is representing the Company with
respect to various matters and has represented the Company and certain
affiliates thereof, including Victor Capital, in the past with respect to
various legal matters. The Company expects to continue to retain Battle Fowler
LLP for legal services in the future.
709766.3
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Relationship with Rosenberg & Liebentritt, P.C.
During 1997, the Company retained the services of Rosenberg &
Liebentritt, P.C., a law firm which performs legal services exclusively for
entities in which Samuel Zell, a trustee of the Company, has an interest.
Asset Management Agreements
VP Metropolis Services, LLC, a wholly-owned subsidiary of the Company
("VPM"), is a party to an asset management agreement (the "VPM Asset Management
Agreement") with MVB Metropolis Properties, L.P. ("MVB") pursuant to which VPM
has agreed to manage, service and administer certain real estate assets owned by
MVB and its affiliates, initially including a New York City property consisting
of 46 condominium units and a pool of 18 mortgages secured by properties located
throughout the Unites States. John R. Klopp and Craig M. Hatkoff, both trustees
of the Company, are each 25.05% owners of VP-LP, LLC, which owns a 1.0% interest
in MVB. In addition, Mr. Klopp is a vice president of MVB Metropolis Corp., the
general partner and a 1.0% owner of MVB. Pursuant to the VPM Asset Management
Agreement, fees of $247,219, $149,069 and $149,090 were paid to VPM during 1995,
1996 and 1997, respectively.
Victor Asset Management Partners, LLC, a wholly-owned subsidiary of the
Company ("VAMP"), is a party to an asset management agreement (the "VAMP Asset
Management Agreement I") with S.H. Mortgage Acquisition, LLC ("S.H. Mortgage
Acquisition") pursuant to which VAMP has agreed to manage, service and
administer certain real estate assets owned by S.H. Mortgage Acquisition and its
affiliates, initially including 21 loans secured by various properties and other
assets located in New Jersey. Messrs. Klopp and Hatkoff are managing members of
VP-NJ, LLC, which owns a 1.0% interest in and is the managing member of S.H.
Mortgage Acquisition. Pursuant to the VAMP Asset Management Agreement I, fees of
$126,406, $401,912 and $313,977 were paid to VAMP during 1995, 1996 and 1997,
respectively.
VAMP is also a party to an asset management agreement (the "VAMP Asset
Management Agreement II") with RE Acquisition, LLC ("RE Acquisition") pursuant
to which VAMP has agreed to manage, service and administer certain real estate
assets owned by RE Acquisition, initially including a pool of five mortgages and
other rights relating to real properties located in New York and New Jersey.
Messrs. Klopp and Hatkoff are managing members of VPC Partners, LLC, which owns
a 0.7772% interest in RE Acquisition. In addition, Mr. Klopp is a manager of RE
Acquisition. Pursuant to the VAMP Asset Management Agreement II, fees of
$380,566 were paid to VAMP during 1997.
709766.3
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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 30, 1998 /s/ John R. Klopp
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Date John R. Klopp
Vice Chairman and Chief Executive Officer
709766.3
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