UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended
Filed by the Registrant Filed by a Party other than the Registrant Check the
appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-12
CAPITAL TRUST, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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CAPITAL TRUST, INC.
410 Park Avenue
14th Floor
New York, New York 10022
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on April 2, 2003
To our Shareholders:
We hereby notify you that we are holding a special meeting of
shareholders at the offices of Paul, Hastings, Janofsky & Walker LLP, 75 East
55th Street, New York, New York 10022, on April 2, 2003, at 10:00 a.m., New York
City time, for the following purposes:
(1) To consider and vote upon a proposal to amend and restate our
charter to make the amendments we determined are necessary in connection
with our election to be taxed as a real estate investment trust and to
simplify our capital structure by eliminating from our charter the
authorized but unissued class B common stock, as described more fully in the
attached proxy statement and set forth in appendix A thereto.
(2) To consider and vote upon a proposal to further amend our charter
to effect a one (1) for three (3) reverse stock split and a corresponding
reduction in our stated capital, as described more fully in the attached
proxy statement and set forth in appendix B thereto.
(3) To consider and act upon such other business and matters or
proposals as may properly come before the special meeting and any
adjournment or postponement thereof.
You can vote your shares of class A common stock if our records show
that you owned the shares on February 14, 2003, the record date for the
shareholder meeting.
By Order of the Board of Directors
/s/ Samuel Zell
Samuel Zell
Chairman of the Board
DATE: February __, 2003
To assure your representation at the shareholders meeting, please vote. Whether
or not you plan to attend the meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. We have enclosed a return
envelope for that purpose, which requires no postage if mailed in the United
States. If you sign, date and mail your proxy card without indicating how you
wish to vote, your proxy will be counted as a vote in favor of the proposals to
amend our charter. If you fail to return your card, your vote will not be
counted, unless you attend the meeting and vote in person.
CAPITAL TRUST, INC.
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PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 2, 2003
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INTRODUCTION
We are asking you to approve amendments to our charter that we have
determined are necessary in light of our election to be taxed as a real estate
investment trust, or REIT, under federal income tax law. The amendments would
also, as a means of simplifying our capital structure, eliminate from our
charter the authorized but unissued class B common stock and effect a one (1)
for three (3) reverse stock split.
We have scheduled a special meeting of shareholders to vote on the
proposals to approve the charter amendments. The date, time and place of the
meeting is:
Date: April 2, 2003
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
The record date for shareholders entitled to notice of and to vote at
the special meeting is February 14, 2003. If you were a shareholder at that
time, you may vote at the meeting.
See Risk Factors section beginning on page 5 for certain information that should
be considered by shareholders regarding our election to be taxed as a REIT and
the related amendments to our charter.
Our officers and directors and a shareholder indirectly controlled by
trusts for the benefit of the family of Samuel Zell, chairman of our board of
directors, who collectively own or control the vote over 7,694,181 shares of
common stock in total, or approximately 47.4% of the 16,239,610 voting shares
outstanding, have advised us that they intend to vote all of the shares of
common stock owned by them in favor of the proposals.
Our board of directors has unanimously approved the charter amendments, and
believes that our REIT election, the simplification of our capital structure and
the reverse stock split are in our company's best interest. Our board of
directors unanimously recommends a vote in favor of approval of the proposals.
This proxy statement is dated February __, 2003 and was first mailed to
our shareholders on or about February __, 2003.
TABLE OF CONTENTS
Page
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FORWARD-LOOKING STATEMENTS.....................................................i
SUMMARY....................................................................... 1
RISK FACTORS...................................................................4
HISTORICAL AND PRO FORMA CAPITALIZATION........................................8
BUSINESS...................................................................... 9
GENERAL INFORMATION ABOUT THE SPECIAL MEETING AND VOTING......................10
REIT RELATED CHARTER AMENDMENTS...............................................12
CAPITAL STRUCTURE RELATED CHARTER AMENDMENTS..................................17
FEDERAL INCOME TAX CONSIDERATIONS.............................................21
BENEFICIAL OWNERSHIP OF STOCK.................................................37
DESCRIPTION OF OUR STOCK......................................................39
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING.................................46
WHERE YOU CAN FIND MORE INFORMATION...........................................46
ARTICLES OF AMENDMENT AND RESTATEMENT........................................A-1
ARTICLES OF AMENDMENT........................................................B-1
FORWARD-LOOKING STATEMENTS
This proxy statement contains statements that plan for or anticipate
the future. Forward-looking statements include statements about our future
operations as a REIT, the effects of our reverse stock split, our business plans
and strategies, and most other statements that are not historical in nature.
When used in this proxy statement, the words "anticipate," "plan," "intend,"
"believe," "estimate," and the like are generally considered forward-looking.
Because forward-looking statements involve future risks and uncertainties, there
are factors that could cause actual results to differ materially from those
expressed or implied. For example, a few of the uncertainties that could affect
the ultimate accuracy of the forward-looking statements, besides the specific
factors identified in the Risk Factors section on page 3, include:
o changes in the real estate market;
o changes in real estate capital markets;
o changes in our business strategies;
o fluctuations in prevailing interest rates and credit spreads; and
o changes in federal tax laws.
-i-
SUMMARY
This summary highlights selected information contained in this document
and may not contain all of the information that is important to you. To better
understand the proposals to amend our charter, you should read carefully this
entire document. We refer in the proxy statement to our class A common stock as
common stock, the only class of stock currently outstanding, which is listed and
traded on the New York Stock Exchange.
The Company
We are an investment management and real estate finance company that
pursues lending and investment opportunities in commercial real estate and
related assets.
In December 2002, our board of directors authorized our election to be
taxed as a REIT for the 2003 tax year. The decision to authorize the REIT
election resulted from a review of other strategic alternatives by our board of
directors. Our board determined that the REIT election was superior to the other
alternatives considered.
We are not undergoing any fundamental change in our business; we are only
changing how we are taxed for federal income tax purposes. We will continue to
make, for our own account and as investment manager for the account of funds
under management, loans and debt related investments in various types of
commercial real estate and related assets, and, to the extent necessary, will
modify our current investment program to originate or acquire loans and
investments to produce a portfolio of such assets that meets the asset and
income tests necessary to maintain our qualification as a REIT.
Our principal executive offices are located at:
Capital Trust, Inc.
410 Park Avenue, 14th Floor,
New York, New York 10022
Reasons for our REIT election
We believe our REIT election represents a strategic alternative that best
positions us to increase shareholder value. The key reasons for our board's
approval of our REIT election and related business plan were:
o The determination that our existing portfolios could produce an
attractive dividend yield if our net income could be distributed without
corporate-level income tax; and
o The belief that our investment management business was in an early phase
of development and would continue to grow and become more valuable in
the REIT format.
Our board also considered the following developments in our business
and the
regulatory environment in which REITs operate:
o With the development of our investment management business, we reduced
the need to retain earnings as a primary source of capital to support
our lending business;
o Recent IRS private letter rulings treat mezzanine loans as qualifying
assets that result in qualifying income; and
o New REIT laws provide us with the flexibility to invest in and manage a
portfolio of assets as well as to operate our investment management
business in a taxable REIT subsidiary.
Our board also considered the following benefits from a capital markets and
valuation perspective:
o The effective elimination of corporate-level income tax will allow us to
produce consistent dividend distributions;
o The potential for stock price appreciation with an attractive dividend
yield;
o The increased likelihood of attracting equity research analysis of our
business as our performance can be measured against other comparable
publicly-traded REITs; and
o The potential for independent valuation of our investment management
business which would be operated as a separate transparent segment in a
taxable REIT subsidiary.
REIT Related Charter Amendments
We propose to amend our charter to include ownership and transfer
restrictions in connection with our election to be taxed as a REIT. The REIT
related restrictions are intended to ensure that five or fewer individuals do
not own more than 50% of the value of our outstanding stock, a requirement we
must satisfy in order to maintain our qualifications as a REIT.
The restrictions would:
o prohibit ownership of our stock by certain individuals in excess of
2.5%;
o allow our board of directors to exempt certain individuals from the 2.5%
ownership limit;
o void any transfer in excess of the 2.5% ownership limit; and
o require our board of directors to use reasonable best efforts to
preserve our status as a REIT.
We determined that these restrictions are advisable in light of our
election to be taxed as a REIT and that they are comparable to similar
provisions contained in the corporate charters of other publicly traded REITs.
Capital Structure Related Charter Amendments
We also propose to amend our charter to eliminate from the charter the
100,000,000 shares of authorized but unissued shares of class B common stock as
a means of simplifying our capital structure. The class B common stock, none of
which is outstanding, had been originally authorized as a means of facilitating
compliance with The Bank Holding Company Act of 1956, as amended, by certain
prior investors who made a significant equity investment. Now that these
investors no longer hold the stock issued in connection with their investment,
we believe it is advisable to simplify our capital structure at the same time we
are amending our charter to include the REIT related ownership and transfer
restrictions.
We also propose to amend our charter to effect a one (1) for three (3)
reverse stock split whereby three shares of our outstanding common stock would
be automatically converted into one share of such stock and we would pay cash in
lieu of fractional shares that would otherwise be issued. Our board of directors
believes that the reverse stock split will enhance the marketability and
liquidity of our common stock, which trades on the New York Stock Exchange.
Upon the effective date of the reverse stock split, assuming no repurchases
of stock prior to such date, the number of shares of our outstanding common
stock will be reduced to 5,413,203, subject in each case to further reduction
upon the elimination of fractional shares, but the par value and the voting and
other rights and preferences of our stock will not otherwise be altered by the
reverse stock split. Our aggregate stated capital will be reduced so that it
equals $0.01 per outstanding share of our common stock.
Recommendation of our Board of Directors
Our board of directors has unanimously approved the charter amendments, and
believes that the amendments made thereby relating to our REIT election, the
elimination of our class B common stock and the reverse stock split are in our
company's best interest. Our board of directors unanimously recommends a vote in
2
favor of approval of the proposals to amend our charter as discussed herein.
No Appraisal Rights
Maryland corporate law does not provide for any dissenters' rights to elect
to have the fair value of your shares judicially appraised and paid to you in
cash in connection with the charter amendments.
3
RISK FACTORS
You should read the following risk factors carefully before voting your
stock. The risks and uncertainties relating to our election to be taxed as a
REIT and the related amendments to our charter are not the only ones you or we
will face. If the risks discussed below occur or develop to our or your
detriment, they may negatively affect our business or your investment in us.
Risks of ownership of our common stock due to our REIT election
The amended and restated charter does not permit ownership of over 2.5%
of our common stock by individuals, and attempts to acquire our common stock in
excess of the 2.5% limit would be void without the prior approval of our board
of directors.
For the purpose of preserving our REIT qualification, the amended and
restated charter would prohibit direct or constructive ownership by any
individual of more than 2.5% of the lesser of the total number or value of the
outstanding shares of our common stock as a means of preventing ownership of
more than 50% of our common stock by five or fewer individuals. The amended and
restated charter's constructive ownership rules are complex and may cause the
outstanding common stock owned by a group of related individuals or entities to
be deemed to be constructively owned by one individual. As a result, the
acquisition of less than 2.5% of our outstanding common stock by an individual
or entity could cause an individual to own constructively in excess of 2.5% of
our outstanding common stock, and thus be subject to the amended and restated
charter's ownership limit. The ownership limit was established following a
review of the aggregate ownership of the top five direct or constructive
individual shareholders. There can be no assurance that our board of directors,
as permitted in the amended and restated charter, will increase this ownership
limit in the future. Any attempt to own or transfer shares of our common stock
in excess of the ownership limit without the consent of our board of directors
shall be void, and will result in the shares being transferred by operation of
law to a charitable trust, and the person who acquired such excess shares will
not be entitled to any distributions thereon or to vote such excess shares.
After reviewing the top five shareholders treated as individuals for
REIT qualification purposes, our board of directors fixed the ownership limit at
2.5%. The amended and restated charter contains a provision that would exempt
certain of our officers and directors and related persons from the ownership
limit. Based on the number of shares outstanding on the date hereof, this
exemption would permit these top five shareholders collectively to hold up to
48.6% of our outstanding shares of common stock.
The 2.5% ownership limit may have the effect of precluding a change in
control of Capital Trust by a third party without the consent of our board of
directors, even if such change in control would be in the interest of our
stockholders (and even if such change in control would not reasonably jeopardize
our REIT status).
We have not established a dividend payment level and there are no
assurances of our ability to pay dividends in the future.
We intend to pay quarterly dividends and to make distributions to our
shareholders in amounts such that all or substantially all of our taxable income
in each year, subject to certain adjustments, is distributed. This, along with
other factors, should enable us to qualify for the tax benefits accorded to a
REIT under the Internal Revenue Code. We have not established a dividend payment
level. All distributions will be made at the discretion of our board of
directors and will depend on our earnings, our financial condition, maintenance
of our REIT status and such other factors as our board of directors may
4
deem relevant from time to time. There are no assurances as to our ability to
pay dividends in the future. In addition, some of our distributions may include
a return of capital.
Our current common stock trading price is not necessarily indicative of
the price of our common stock following the REIT election.
Our current stock price is not necessarily indicative of how the market
will value our common stock following our election to be taxed as a REIT. In the
future, we will be required to distribute 90% of our taxable income and can be
expected to be compared to other REITs and impacted by factors affecting REITs
generally. Our current stock price reflects the current market valuation of our
current business and assets and does not necessarily take into account the
changes in our business and operations that will occur in connection with our
REIT election. Our current stock price also is affected by general market
conditions.
An increase in market interest rates may lead prospective purchasers of
our common stock to expect a higher dividend yield, which would adversely affect
the market price of our common stock.
One of the factors that will influence the price of our common stock
will be the dividend yield on our stock (distributions as a percentage of the
price of our stock) relative to market interest rates. An increase in market
interest rates may lead prospective purchasers of our common stock to expect a
higher dividend yield, which would adversely affect the market price of our
common stock.
Tax legislation proposed by President Bush may have negative
consequences for REITs.
Recent tax legislation proposed by President Bush would, if enacted,
allow corporations to pay dividends that are tax-free to shareholders or, to the
extent dividends are not paid, allow shareholders to increase the tax basis of
their shares. As currently described, this proposal would not apply to REITs.
Although the proposal does not adversely affect the tax treatment of REITs, it
may cause investments in non-REIT corporations to become relatively more
desirable. As a result, the capital markets may be less favorable to REITs when
they seek to raise equity capital, and the prices at which REIT equity
securities trade may decline or underperform non-REIT corporations.
We will be dependent on external sources of capital to finance our
growth.
As with other REITs, but unlike corporations generally, our ability to
finance our growth must largely be funded by external sources of capital because
we generally will have to distribute to our shareholders 90% of our taxable
income in order to qualify as a REIT (including taxable income where we do not
receive corresponding cash). Our access to external capital will depend upon a
number of factors, including general market conditions, the market's perception
of our growth potential, our current and potential future earnings, cash
distributions and the market price of our stock.
Shareholders are not entitled to appraisal rights in connection with
the amended and restated charter and our election to be taxed as a REIT.
Shareholders do not have any statutory dissenters or appraisal rights
under Maryland corporate law to elect to have the fair value of their stock
judicially appraised and paid in cash in connection with the amended and
restated charter or our election to be taxed as a REIT.
5
Risks related to REIT qualification
If we do not maintain our qualification as a REIT, we will be subject
to tax as a regular corporation and face a substantial tax liability.
We expect to operate so as to qualify as a REIT under the Internal
Revenue Code. However, qualification as a REIT involves the application of
highly technical and complex Internal Revenue Code provisions for which only a
limited number of judicial or administrative interpretations exist. Even a
technical or inadvertent mistake could jeopardize our REIT status. Furthermore,
new tax legislation, administrative guidance or court decisions, in each
instance potentially with retroactive effect, could make it more difficult or
impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any
tax year, then:
o we would be taxed as a regular domestic corporation, which under current
laws, among other things, means being unable to deduct distributions to
shareholders in computing taxable income and being subject to federal
income tax on our taxable income at regular corporate rates;
o any resulting tax liability could be substantial, could have a material
adverse effect on our book value and could reduce the amount of cash
available for distribution to shareholders; and
o unless we were entitled to relief under applicable statutory provisions,
we would be required to pay taxes, and thus, our cash available for
distribution to shareholders would be reduced for each of the years
during which we did not qualify as a REIT.
Complying with REIT requirements may cause us to forego otherwise attractive
opportunities.
In order to qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning, among other things, our sources of income,
the nature and diversification of our investments in commercial real estate and
related assets, the amounts we distribute to our shareholders and the ownership
of our stock. We may also be required to make distributions to shareholders at
disadvantageous times or when we do not have funds readily available for
distribution. The REIT provisions of the tax code may substantially limit our
ability to hedge our financial assets and related borrowings. Thus, compliance
with REIT requirements may hinder our ability to operate solely on the basis of
maximizing profits.
Complying with REIT requirements may force us to liquidate or restructure
otherwise attractive investments.
In order to qualify as a REIT, we must also ensure that at the end of
each calendar quarter, at least 75% of the value of our assets consists of cash,
cash items, government securities and qualified REIT real estate assets. The
remainder of our investment in securities cannot include more than 10% of the
outstanding voting securities of any one issuer or 10% of the total value of the
outstanding securities of any one issuer. In addition, no more than 5% of the
value of our assets can consist of the securities of any one issuer. If we fail
to comply with these requirements, we must dispose of a portion of our assets
within 30 days after the end of the calendar quarter in order to avoid losing
our REIT status and suffering adverse tax consequences.
6
Complying with REIT requirements may force us to borrow to make distributions to
shareholders.
From time to time, our taxable income may be greater than our cash flow
available for distribution to shareholders. If we do not have other funds
available in these situations, we may be unable to distribute substantially all
of our taxable income as required by the REIT provisions of the Internal Revenue
Code. Thus, we could be required to borrow funds, sell a portion of our assets
at disadvantageous prices or find another alternative. These options could
increase our costs or reduce our equity.
7
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth (i) certain of our short-term
obligations and our capitalization as of September 30, 2002 and (ii) such
short-term obligations and capitalization giving pro forma effect to the
elimination of our class B common stock and the reverse stock split.
September 30, 2002
Historical Pro Forma
---------- ---------
(thousands)
Short-Term Debt -- --
Total short-term debt
Long-Term Debt
Credit facilities 35,000 35,000
Repurchase obligations 172,757 172,757
-------------- --------------
Total long-term debt 207,757 207,757
Company-obligated, mandatorily redeemable, convertible preferred securities of CT
Convertible Trust I, holding solely 8.25% junior subordinated debentures 88,869 88,869
Shareholders' Equity; Pro Forma Shareholders' Equity(1)
Preferred stock, $0.01 per value, 100,000 shares authorized, no shares issued and -- --
outstanding
Class A common stock, $0.01 par value, 100,000 authorized, 179 --
17,912 issued and outstanding
Class B common stock, $0.01 par value, 100,000 shares authorized, no -- --
shares issued and outstanding
Restricted class A common stock, $0.01 par value, 3 --
300 shares issued and outstanding
Pro forma preferred stock, $0.01 par value; 100,000 shares authorized, -- --
no shares issued and outstanding
Pro forma class A common stock, $0.01 par value; 100,000 shares authorized, -- 60
5,971 shares issued and outstanding
Pro forma restricted class A common stock, $0.01 par value; -- 1
100 shares issued and outstanding 134,411 134,532
Additional paid-in capital (479) (479)
Unearned compensation (33,154) (33,154)
Accumulated other comprehensive income 371 371
Accumulated deficit
-------------- --------------
Total shareholders' equity and Pro forma total stockholders' equity 101,331 101,331
-------------- --------------
Total Capitalization and Pro Forma Total Capitalization (2) 397,957 397,957
============== ==============
--------------------
(1) The class B common stock is identical to the class A common stock, except the class B common stock does not entitle the
holders to voting rights.
(2) Total Capitalization and Pro Forma Total Capitalization include long-term debt and shareholders' equity.
8
BUSINESS
We are an investment management and real estate finance company that
pursues lending and investment opportunities in commercial real estate and
related assets. In December 2002, our board of directors authorized our election
to be taxed as a REIT for the 2003 tax year. We will continue to make, for our
own account and as investment manager for the account of funds under management,
loans and debt related investments in various types of commercial real estate
and related assets.
We are the co-sponsor and exclusive investment manager of CT Mezzanine
Partners II LP, or Fund II, the largest dedicated commercial real estate
mezzanine investment fund in the United States with total equity commitments of
$845 million. Our business strategy is to continue to expand our investment
management business by sponsoring other funds, and, following the investment
period for Fund II, other commercial real estate mezzanine investment funds. We
believe that these funds will generate additional investment management fees and
incentive compensation tied to the performance of their portfolios of
investments. We continue to manage our existing portfolio of balance sheet
assets originated prior to the commencement of our investment management
business and are positioned to selectively add to our balance sheet investments
by investing in a diverse array of real estate and investment
management/finance-related assets and enterprises, including operating
companies.
Our company was created to take advantage of opportunities resulting
from the rapid evolution of the real estate capital markets. Since our inception
in 1997, we have designed and developed a platform to provide flexible,
value-added financing for large single and multiple portfolios and real estate
operating companies. Our current investment program emphases senior and junior
mortgage loans, mezzanine loans secured by pledges in equity interests in the
property owners, subordinated tranches of commercial mortgage backed securities,
commonly referred to as CMBS, and preferred and other direct equity investments.
In general, our investments are subordinate to other third-party senior
financing, but senior to the owner/operator equity in the property.
In view of our election to be taxed as a REIT, we will tailor our
balance sheet investment program to originate or acquire loans and investments
to produce a portfolio that meets the asset and income tests necessary to
maintain our qualification as a REIT. In order to accommodate our REIT status,
the legal structure of future investment funds we sponsor may be different from
the legal structure of our existing investment funds. For a discussion of the
federal income tax law qualifications for a REIT, see the information below
under the caption "Federal Income Tax Considerations -- Taxation of REIT."
In connection with our election to be taxed as a REIT, we and
affiliates of Citigroup Inc. decided to modify our existing relationship under
which we co-sponsor and invest in a series of commercial real estate mezzanine
funds managed by us. In January 2003, we purchased Citigroup's interest in CT
Mezzanine Partners I for a purchase price of approximately $38.4 million
(including the assumption of liabilities). We also purchased from Citigroup
stock purchase warrants exercisable for 8,528,467 shares of our common stock for
a purchase price of approximately $2.1 million. Finally, we have agreed to amend
the terms of our venture agreement with Citigroup. Under the amended agreement,
we will earn 100% of the base management fees derived from all funds under
management and will own 62 1/2% of the incentive management interests in future
mezzanine funds co-sponsored with Citigroup pursuant to the venture agreement.
9
GENERAL INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
Where and when will the special meeting be held?
The date, time and place of the meeting is:
April 2, 2003
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 at the special meeting. This proxy
statement summarizes the information you need to know 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 common stock if our records show that you were the
official owner of record of the shares on February 14, 2003, the record date for
the special meeting. A total of 16,239,610 shares of our common stock can vote
at the special meeting. You get one vote for each share of 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 special meeting if shareholders representing the required
quorum of shares of stock entitled to vote either sign and return their proxy
cards or attend the meeting. A majority of the shares of 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.
The proposals to amend our charter are non-routine matters. As a result, if your
shares are held in the name of a nominee, and you do not tell the nominee by
April 2, 2003 how to vote your shares, the nominee cannot vote them (giving rise
to what is known as a broker non-vote) but if the nominee signs and returns the
proxy card, your shares will be counted as present to determine if a quorum
exists.
If you abstain or your shares are treated as broker non-votes, your abstention
or the broker non-votes will have the effect of a vote against the proposals to
amend our charter.
What is the required vote for approval?
The affirmative vote of a majority of the shares of common stock entitled to
vote is required to approve the proposals to amend our charter.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on the matter to be
considered at the special meeting. Sign and date the proxy card and mail it back
to us in the enclosed envelope. The proxyholders named in the proxy card will
vote your shares as you instruct. If you sign and return the proxy card but do
not vote on the proposal, the proxyholders will vote for you on the proposal.
Unless you instruct otherwise, the proxyholders will vote in favor of approval
of the proposals to amend our charter.
What if other matters come up at the special meeting?
The proposals to amend our charter described in this proxy statement are the
only matters we now know of that will be voted on at the special meeting. If
other matters are properly presented at the meeting, the proxyholders will vote
your shares as they see fit.
10
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal is taken, 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
special 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: Paul Caroppoli.
Can I vote in person at the special 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 special meeting and vote your shares in
person.
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 should give you instructions for voting your shares.
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.
11
REIT RELATED CHARTER AMENDMENTS
Introduction
We are providing this proxy statement to you in connection with our
request for shareholder approval to make the amendments to our charter we
determined are necessary in connection with our election to be taxed as a REIT.
Specifically, we are asking you to approve articles of amendment and restatement
of our charter which, among other things discussed below under the caption
"Capital Structure Related Charter Amendments", would amend our charter to
include ownership and transfer restrictions related to our REIT election.
Background
In 1997, our management team took control of our company,
re-capitalized it and significantly changed its business plan. At that time, our
goal was to create a large, diversified finance company that specialized in the
rapidly emerging market for commercial real estate mezzanine financing. Pursuant
to that business plan, we also provided advisory and investment banking services
to owners and operators of commercial real estate. Although our company had
originally been operated as a REIT since it was founded in 1966, in light of our
new business plan, we chose to be taxed as a regular domestic corporation in
order to maximize flexibility, retain earnings and accommodate our initial mix
of businesses.
From July, 1997 through December 31, 1999, we made 41 investments
aggregating approximately $1.3 billion, all for our own account and balance
sheet. By that time, we had become a recognized leader in the real estate
mezzanine market and we saw an opportunity to continue our successful investment
strategy and significantly expand our franchise by raising capital in the
private equity market. In March of 2000, we entered into a strategic venture
with affiliates of Citigroup Inc. to co-sponsor and invest in a series of
commercial real estate mezzanine funds that would be managed by us. This venture
marked the commencement of our investment management business and provided the
potential for significant operating leverage by allowing us to grow earnings and
enhance returns on equity without increasing financial leverage.
Pursuant to our strategic venture with Citigroup, we are currently
managing CT Mezzanine Partners II, which we refer to as Fund II. Fund II closed
its private offering in August 2001 with total capital commitments of $845
million, including commitments of $199 million and $50 million by Citigroup and
us, respectively, and the balance from third party institutional investors. Fund
II has originated $1.1 billion of investments and had a $723.5 million
investment portfolio at December 31, 2002. Our wholly owned subsidiary, CT
Investment Management Co., LLC, referred to as CTIMCO, serves as the exclusive
investment manager of Fund II.
When we entered the third party investment management business, we
decided to de-emphasize (and ultimately exit) the advisory/investment banking
business. Pursuant to our agreement with Citigroup, we also agreed to re-elect
REIT status as soon as practicable (the earliest possible point being for the
2002 tax year). During 2001, we became concerned that, due to the mix of assets
in our portfolio and our growing third-party investment management business, we
would find it difficult, as an operating matter, to meet the qualifications to
be taxed as a REIT. As a result, we sought and received from Citigroup a waiver
of the requirement to re-elect REIT status, which was ultimately received in
early 2002. Notwithstanding the waiver, we remained committed to pursuing
alternative strategies for tax efficiency, including a REIT election, depending
on the impact on our business.
Decision to Elect to be Taxed as a Real Estate Investment Trust
During 2002, we continued to explore various strategic alternatives to
increase shareholder value as we believed that our company was undervalued in
the equity market. We were also aware of important new developments in the rules
governing REITs that could materially benefit us. Specifically, the IRS had
issued private letter rulings concluding that mezzanine loans constitute
qualifying assets that result in
12
qualifying income for REIT qualification purposes. As a result of these
developments, at a meeting of our board of directors on November 6, 2002,
management presented a preliminary analysis of potential strategic alternatives
including a sale or liquidation of the company, a sale or spin-off of CTIMCO,
and a re-election of REIT status. The board directed management to propose a
comprehensive business plan for our company if we were to elect REIT status for
the 2003 tax year. Our board also authorized us to engage Morgan Stanley & Co.
Incorporated as our financial advisor to evaluate and analyze the proposed REIT
election and the other potential strategic alternatives.
On December 10, 2002, our board of directors held a meeting and
reviewed management's detailed plan for electing to operate and be taxed as a
REIT and to consider Morgan Stanley's evaluation and analysis of strategic
alternatives. Management reviewed its plan for meeting the REIT qualification
tests, including actions it recommended to address ownership concentration
issues and accumulated "earnings and profits" generated during the period when
we were taxed as a regular corporation. Morgan Stanley made a presentation that
included quantitative and qualitative assessments of various alternatives. Based
upon the plan presented by management and the analysis presented by Morgan
Stanley, our board unanimously determined that it was in our company's best
interest to elect to be taxed as a REIT and authorized management to take all
actions necessary and appropriate to elect to be operated and taxed as a REIT.
Our board of directors subsequently declared the election advisable and approved
and authorized for submission for shareholder approval the amended and restated
charter.
Reasons for Election to be Taxed as a REIT
Our board of directors considered numerous factors, including the
advice of Morgan Stanley, in reaching its decision to approve our election to be
taxed as a REIT as the superior alternative. Paramount among our board's reasons
for approving the election were:
o The determination that our existing portfolio of loans and investments
could produce an attractive dividend yield if our net income could be
distributed to shareholders free of corporate-level income tax, and
o The belief that our third-party investment management business was still
in an early phase of development and that the business should continue
to grow in the ordinary course and become more valuable.
Our board of directors also considered developments in our business and
with respect to the laws and regulations applicable to enterprises that operate
as REITs that rendered a decision to elect REIT status opportune for us and that
would not otherwise require us to materially alter our business plan in order to
qualify as a REIT. Specifically, our board considered the following
developments:
o With the development of our investment management business, we had
materially reduced the capital intensive nature of our balance sheet
lending business and therefore the need to retain earnings as a source
of capital;
o Recent IRS private letter rulings that permitted mezzanine loans to be
classified as qualifying assets that result in qualifying income; and
o Recent changes in REIT legislation, including the REIT Modernization Act
of 2000, that provided us with the flexibility to invest in and manage
our portfolio of assets as well as to operate our investment management
business in a taxable REIT subsidiary.
From a capital markets and valuation perspective, the board also
considered the following benefits afforded by the REIT structure:
13
o The effective elimination of corporate-level income tax could produce
consistent dividend distributions to shareholders;
o The potential for stock price appreciation with an attractive dividend
yield;
o The increased likelihood of attracting equity research analysis of our
business since our performance can now be measured against a pool of
comparable publicly-traded REITs; and
o The potential for independent valuation of our investment management
business, which would be operated as a separate transparent segment in a
taxable REIT subsidiary.
Our board of directors also considered the following negative factors:
o The fact that the specific plan to restructure our hedging strategy and
offset our accumulated earnings and profits and the write-off of certain
deferred tax assets would result in a loss of approximately $14 million
in the fourth quarter of fiscal year 2002;
o The possibility that management's assumptions with respect to future
operations as a REIT may not be achieved; and
o The potential that the federal tax laws governing or affecting REITs
could be changed.
The foregoing discussion of the information and factors considered by
our board of directors is not intended to be exhaustive but we believe includes
all material factors considered by the board. In view of the complexity and wide
variety of information and factors, both positive and negative, considered by
the board, it did not find it practical to quantify, rank or otherwise assign
relative or specific weights to the factors considered. In addition, the board
did not reach any specific conclusion with respect to each of the factors
considered, or any aspect of any particular factor, but, rather, conducted an
overall analysis of the factors described above, including discussions with
management and legal, financial and accounting advisors. In considering the
factors described above, individual members of the board may have given
different weight to different factors. Our board of directors considered all
these factors as a whole and believed the factors supported its determination.
After taking into consideration all of the factors set forth above, our board
concluded that electing to be taxed and operated as a REIT in accordance with
the plan developed by management was superior to the other strategic
alternatives considered by it and in the best interest of our company.
Becoming a Real Estate Investment Trust
Shareholder approval of the proposed amended and restated charter at
the special meeting, together with timely completion of the other transactions
described below, will allow us to qualify to elect to be taxed as a REIT
beginning with the taxable year beginning January 1, 2003. If we were to qualify
for taxation as a REIT and elect REIT status, we would not be subject to federal
corporate income tax on the net income we distribute to our shareholders.
One of the requirements to qualify as a REIT is the elimination of all
of our accumulated "earnings and profits" from all non-REIT qualifying years in
which we have operated as a regular corporation. We believe we have eliminated
all such earnings and profits by actions taken in December 2002. We did so by
triggering losses through the settlement of certain derivative hedging
instruments, the disposition of a non-performing asset and the write-off of
certain deferred tax assets.
In order to qualify as a REIT, no more than 50% of our common stock may
be owned by five or fewer individuals. As a means of facilitating compliance
with such qualification, shareholders controlled by John R. Klopp and Craig M.
Hatkoff and trusts for the benefit of the family of Samuel Zell each sold
14
500,000 shares of common stock to Stichting Pensioenfonds ABP in a transaction
that closed on February 7, 2003. Following this transaction, our largest five
individual shareholders own in the aggregate less than 50% of our common stock.
In connection with this transaction, we entered into a registration rights
agreement with Stichting Pensioenfonds ABP pursuant to which we agreed to
register for resale the shares of common stock purchased by it.
Ongoing Management
In connection with our election to become a REIT, we have consolidated
all of our management activities, including the investment management of Fund II
and future third-party funds and the ongoing management of our company itself,
into our wholly owned subsidiary, CTIMCO, which will be operated as a taxable
REIT subsidiary. CTIMCO will serve as our exclusive manager and all of our
employees will be directly employed by CTIMCO. Subject to the supervision of our
board of directors, CTIMCO will be responsible our the day-to-day operations
pursuant to a management agreement. We expect to base the compensation, fees,
expense reimbursements and other terms of the management agreement with CTIMCO
upon the terms contained in the management agreements between externally managed
publicly traded commercial mortgage REITs and their outside managers. We believe
that this will produce a management agreement with terms comparable to those
that could be obtained from unrelated parties on an arm's length basis. We
believe that this corporate organizational structure provides financial
transparency for, and facilitates the separate valuation of, our different
business segments, which should provide us with more flexibility if we decide to
sell or spin off CTIMCO's management business in the future.
Description of REIT Related Charter Amendments
We summarize below the principal REIT related amendments contained in
the amended and restated charter. This summary does not purport to be complete
and is qualified in its entirely by reference to the complete text of the
articles of amendment and restatement attached to this proxy statement as
appendix A. You are urged to read the appendix to this proxy statement in its
entirety.
Restriction on Transfer and Ownership of Shares
The proposed amended and restated charter would include a new provision
that would restrict ownership of our stock. The new provision prohibits
ownership, directly or by virtue of the attribution provisions of the Internal
Revenue Code, by any individual of more than 2.5% of the lesser of the number or
value of the issued and outstanding shares of our stock. The 2.5% ownership
limit was established as a means of preventing ownership of more than 50% of our
stock by five or fewer individuals following a review of the aggregate ownership
of the top five direct or constructive individual shareholders. Our board of
directors, in its sole and absolute discretion, may waive or modify the
ownership limit with respect to one or more persons who would not be treated as
"individuals" for purposes of the Internal Revenue Code if it is satisfied,
based upon information required to be provided by the party seeking the waiver
and, if otherwise determined to be necessary, upon a ruling from the Internal
Revenue Service or an opinion of counsel satisfactory to the board of directors,
that ownership in excess of this limit will not cause a person who is an
individual to be treated as owning shares in excess of the ownership limit,
applying the applicable constructive ownership rules, and will not otherwise
jeopardize our status as a REIT for federal income tax purposes. There can be no
assurance that our board of directors will increase this ownership limit in the
future.
Any shares held at any time in violation of the ownership limit will be
transferred automatically to a trust for the benefit of a designated charitable
beneficiary, and the person who acquired such excess shares of our stock will
not be entitled to any distributions thereon or to vote such excess shares of
stock. The holder of any such excess shares
15
of our stock will receive the lesser of the value of such excess shares as of
the effective time or the cash proceeds from the sale of such excess shares of
stock by the trustee of the trust. After the effective time of the amended and
restated charter, any person who acquires our stock in excess of the ownership
limit will not receive any proceeds from the subsequent sale thereof in excess
of the lesser of the price paid therefor or the amount realized from such sale.
A transfer of our stock to a person who, as a result of the transfer, violates
the ownership limit may be void under certain circumstances, and, in any event,
would deny the transferee any of the economic benefits of owning our stock in
excess of the ownership limit. The ownership limit may have the effect of
delaying, deferring or preventing a change in control and, therefore, could
adversely affect the shareholders' ability to realize a premium over the
then-prevailing market price for our common stock in connection with such
transaction.
The amended and restated charter contains a provision that would exempt
all shareholders who hold shares in excess of the 2.5% ownership limit as of the
effective date of the charter. Pursuant to this exemption, the following
shareholders would be so exempt:
o Samuel Zell, our chairman of the board, and Samstock LLC and Veqtor
Finance Company L.L.C., which is owned indirectly by trusts for the
benefit of the family of Mr. Zell;
o John R. Klopp, a director and our chief executive officer, and JRK
Investment Partnership LP, a family investment partnership owned by Mr.
Klopp and his family;
o Craig M. Hatkoff, a director, and CMH Investment Partnership, a family
investment partnership owned by Mr. Hatkoff and his family;
o Gary R. Garrabrant, a director, and GRG Investment Partnership LP, a
family investment partnership owned by Garrabrant and his family;
o Sheli Z. Rosenberg, a director, and Rosenberg-CT General Partnership, a
family investment partnership owned by Ms. Rosenberg and her husband;
and
o Stephen D. Plavin, our chief operating officer.
In addition, the proposed amended and restated charter would include a
new provision that states that if we elect to qualify for REIT status, our board
of directors will use its reasonable best efforts to take such actions as are
necessary or appropriate to preserve our status our as a REIT, but if the board
determines that it is no longer in our best interests to continue to be
qualified as a REIT, the board may revoke or otherwise terminate our REIT
election. The board may also determine that compliance with any restriction or
limitation on stock ownership and transfers (described above) is no longer
required for REIT qualification.
Articles of Amendment and Restatement
The effective date of the amendments discussed above will occur upon
the filing with, and acceptance for record by, the State Department of
Assessments and Taxation of Maryland of the articles of amendment and
restatement set forth in appendix A hereto. Although our board of directors
believes as of the date of this proxy statement that the charter amendments
discussed above are advisable and in our company's best interest, our board of
directors may abandon the proposal at any time before, during or after the
special meeting and prior to filing the articles of amendment and restatement in
Maryland, should it determine otherwise. For a summary description of our stock
following the charter amendments, refer to the information below under the
caption "Description of Our Stock."
16
CAPITAL STRUCTURE RELATED CHARTER AMENDMENTS
Introduction
We are also providing this proxy statement to you in connection with
our request for shareholder approval of other amendments to our charter to
eliminate from our charter the authorized but unissued class B common stock and
to effect a one (1) for three (3) reverse stock split. Specifically, we are
asking you to approve articles of amendment and restatement of our charter,
which, among other things discussed above under the caption "REIT Related
Charter Amendments", would eliminate our class B common stock and articles of
amendment which would further amend our charter to effect the reverse stock
split.
Elimination of Class B Common Stock
We summarize below the amendments relating to the elimination of the
class B common stock from the amended and restated charter. This summary does
not purport to be complete and is qualified in its entirety by reference to the
complete text of the articles of amendment and restatement attached to this
proxy statement as appendix A. You are urged to read the appendix to this proxy
statement in its entirety.
The amended and restated charter would eliminate the 100,000,000 shares
of our authorized but unissued class B common stock and make other conforming
amendments that would reflect the elimination of the class B common stock. The
non-voting class B common stock had been originally authorized as a means of
limiting the voting power of certain prior investors who at the time they made a
significant equity investment in us might have been prohibited by the Bank
Holding Company Act of 1956, as amended, from holding more than 4.9% of any
class or series of our voting stock. Now that these investors no longer hold the
stock issued in connection with their investment, we believe it is advisable to
simplify our capital structure by eliminating the class B common stock and have
decided to so amend our charter at the same time that we are amending our
charter to include the REIT related ownership and transfer restrictions.
The class B common stock, none of which is outstanding, is identical to
the class A common stock except it does not have voting rights. Under our
current charter, each share of class B common stock is convertible at the option
of the holder at any time into one share of class A common stock, and each share
of class A common stock is convertible at the option of the holder at any time
into one share of class B common stock. If shares of class B common stock are to
be converted into shares of class A common stock, the holder of shares of the
class B common stock must certify to us that he or she will not, upon the
issuance of such shares of class A common stock, own more than 4.9% of any class
of our voting stock or that he or she is not prohibited by the Bank Holding
Company Act from holding more than 4.9% of any class or series of our voting
stock.
The amendment deletes all references to class B common stock and
eliminates all 100,000,000 shares of class B common stock from our authorized
stock. The amended and restated charter would also eliminate the conversion
rights of the class A common stock pursuant to which the holders have a right to
convert one share of class A common stock into one share of class B common
stock.
Reverse Stock Split
In January 2003, our board of directors authorized a further amendment
to our charter that would effect a one (1) for three (3) reverse stock split
whereby three (3) shares of our outstanding common stock would be automatically
converted into one (1) share of common stock and a corresponding reduction of
our stated capital would be made. To avoid the existence of fractional shares,
any shareholder who would otherwise be entitled to receive a fractional share
will receive cash from us in lieu of such fractional share
based on the closing trading price of our common stock on the effective date of
the charter amendment. The voting and other rights and preferences of our stock
will not otherwise be altered by the reverse stock split. A copy of the charter
amendment is attached as appendix B.
Our board of directors authorized the reverse stock split with the
purpose of increasing the marketability and liquidity of our common stock which
trades on the New York Stock Exchange. Our board of directors believes that the
current low trading price for our common stock may effectively limit the
marketability of the stock for the following reasons:
o there is a reluctance on the part of many brokerage firms and
institutional investors to recommend lower-priced stocks to their
clients or to hold them in their portfolios because they are viewed as
unduly speculative in nature;
o it is the policy of certain brokerage firms not to provide coverage and
research with respect to lower-priced stocks;
o brokerage firms often apply time-consuming procedures that function to
make the handling of orders for lower-priced stocks difficult for
investors and unattractive to brokers from an economic standpoint;
o brokerage firms often will not allow their customers to obtain margin
loans on lower-priced stocks; and
o the brokerage commission on a lower-priced stock may also represent a
higher percentage of the sale price as compared to the brokerage
commission on a higher-priced stock.
Our aim with the reverse stock split is to have the current trading
price per share of our common stock, which has averaged $4.75 per share over the
last 30 trading days, increase proportionately by three times. With such an
increase in price, we believe that:
o the shares become more attractive to a broader range of investors by
increasing the price per share so that institutional and other investors
with minimum price per share restrictions can purchase the stock;
o brokerage firms will be able to recommend the stock to their clients and
avoid applying time-consuming procedures in the handling of orders for
the stock;
o the stock becomes more attractive to analysts, and, as a result,
produces greater analyst coverage and research;
o brokerage firms will be able to extend margin loans on the stock thereby
removing such impediment to ownership by investors who desire to own
only marginable stock; and
o trading commissions on a sale of the stock will represent a lower
percentage of the sales price.
However, we cannot assure you that the trading price of our common
stock will increase in proportion to the reduction in the number of outstanding
shares resulting from the reverse stock split or that the marketability or
liquidity of such stock will be improved.
18
Effects of the Reverse Split
If approved by our shareholders, upon the effective date of the charter
amendment the following will result:
o each three (3) shares of our outstanding common stock will be converted
automatically into one (1) share of our common stock, resulting in a
reduction of the number of outstanding shares of such stock from
16,239,610 to 5,413,203 (subject to further reduction upon the
elimination of fractional shares);
o the total number of shares of common stock and preferred stock
authorized for issuance in our charter will remain the same;
o the par value of our shares of stock will remain $0.01 per share and, as
a consequence, the aggregate stated capital of our outstanding stock
will be reduced, while the aggregate capital surplus in excess of our
stated capital attributable to our outstanding stock for statutory and
accounting purposes will be correspondingly increased;
o the number of shares of stock subject to our outstanding stock options
and convertible securities and authorized for issuance pursuant to our
stock plans will be proportionately reduced and the exercise and
conversion prices will be proportionately increased;
o no fractional shares of stock will be issued for any fractional interest
resulting from the reverse stock split and we will pay cash in lieu of
such fractional shares based on the closing price on the New York Stock
Exchange on the day immediately preceding the effective date of the
reverse stock split;
o the rights, preferences, privileges or priorities of all our outstanding
common stock will remain unchanged;
o each shareholder's percentage ownership and voting power will remain
unchanged, except for minor differences resulting from the elimination
of fractional interests; and
o certain shareholders may be left with one or more "odd lots," or a
number of shares that is less than 100, and therefore may find it
difficult to sell such shares and in connection with any sale may have
to pay higher commissions and other transaction costs as compared to a
sale involving a "round lot," or a number that is in even multiplies of
100.
We do not expect that the reverse stock split will affect the listing
of our shares of common stock on the New York Stock Exchange, nor the
registration of such stock under the Securities Exchange Act of 1934. We will,
however, need to file a supplemental listing application with the New York Stock
Exchange in connection with the reverse stock split. All fees incurred in
connection with the implementation of the proposed reverse stock split will be
borne by us.
Exchange of Stock Certificates and Elimination of Fractional Share Interests
The reverse stock split will become effective upon the filing and
acceptance for record of the articles of amendment in Maryland without any
action on the part our shareholders and without regard to the date or dates old
stock certificates formerly representing shares of our stock before the reverse
stock split are physically surrendered for new stock certificates representing
the number of shares of stock a shareholder is entitled to receive as a result
of the reverse stock split.
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As soon as practicable after the date the charter amendment becomes
effective, we will send a letter of transmittal to each shareholder of record at
the effective time for use in transmitting old stock certificates to our
transfer agent, American Stock Transfer & Trust Company, who will be serving as
our exchange agent. The letter of transmittal will contain instructions for the
surrender of old certificates to the exchange agent in exchange for new
certificates representing the number of whole new shares of stock into which
such holders' shares represented by the old certificates have been converted as
a result of the reverse stock split and cash in lieu of fractional shares.
Shareholders should not send their old certificates to the exchange
agent until they have received the letter of transmittal. Old certificates not
presented for surrender as soon as is practicable after the letter of
transmittal is sent shall be exchanged for new certificates at the first time
they are otherwise presented for transfer or conversion. Until so surrendered,
each current certificate representing shares of our stock will be deemed for all
corporate purposes after the effective time of the charter amendment to
represent ownership of shares in the appropriately reduced whole number of
shares.
No fractional shares of stock will be issued for any fractional share
interest resulting from the reverse stock split. Rather, we will pay each
shareholder who would otherwise receive a fractional share of stock as a result
of the reverse stock split, in lieu of such fractional share interest, an amount
of cash equal to the closing sale price of a share of common stock on the New
York Stock Exchange on the date the charter amendment becomes effective (or the
preceding trading day if the stock was not traded that day) multiplied by the
number of shares of stock held by such holder that would otherwise have been
exchanged for such fractional share interest. We will use our existing cash to
fund such payments.
Articles of Amendment and Restatement and Articles of Amendment
The effective date of the amended and restated charter that will effect
the elimination of the class B common stock and charter amendment that will
effect the reverse stock split will occur upon the filing with, and acceptance
for record by, the State Department of Assessments and Taxation of Maryland of
the articles of amendment and restatement set forth in appendix A hereto and
articles of amendment set forth in appendix B hereto, respectively. Although our
board of directors believes as of the date of this proxy statement that the
charter amendments are advisable and in our company's best interest, our board
of directors may abandon the proposal at any time before, during or after the
special meeting and prior to filing the articles of amendment and restatement
and articles of amendment in Maryland, if it should determine otherwise. For a
summary of our stock following the charter amendments, refer to the information
below under the caption "Description of Our Stock".
20
FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a discussion of the material United States federal
income tax considerations associated with our REIT election and with the
ownership of our common stock. The following discussion is not exhaustive of all
possible tax considerations that may be relevant to the REIT election. Moreover,
the discussion contained herein does not address all aspects of taxation that
may be relevant to you in light of your personal tax circumstances, including,
for example, certain types of shareholders subject to special treatment under
federal income tax laws, including insurance companies, tax-exempt organizations
(except to the extent discussed under the caption "Taxation of Tax-Exempt
Shareholders"), financial institutions, broker-dealers, and foreign corporations
and persons who are not citizens or residents of the United States (except to
the extent discussed under the caption "Taxation of Non-U.S. Shareholders").
The statements in this discussion are based upon, and qualified in
their entirety by, current provisions of the Internal Revenue Code, existing,
temporary, and currently-proposed Treasury Regulations promulgated under the
Internal Revenue Code, existing administrative rulings and practices of the
Internal Revenue Service, and judicial decisions. We cannot give you any
assurances that future legislative, administrative, or judicial actions or
decisions, which may be retroactive in effect, will not affect the accuracy of
any of the statements in this proxy statement.
You are urged to consult your own tax advisor regarding the specific
tax consequences to you of the election and of the ownership and sale of stock
in an entity electing to be taxed as a real estate investment trust, including
the federal, state, local, foreign and other tax consequences of such ownership
and sale, as well as potential changes in the applicable tax laws.
Opinion of Counsel
Our tax counsel, Paul, Hastings, Janofsky & Walker LLP, will deliver to
us an opinion to the effect that, subject to the qualifications set forth in the
opinion and discussed below,
o the summary of the federal income tax consequences to shareholders set
forth in this section addresses all material federal income tax
consequences of the election, and
o to the extent that such summary involves matters of law, it is accurate
in all material respects under the Internal Revenue Code and Treasury
Regulations and their existing interpretations and represents counsel's
opinion as to how such matters would be resolved by a court if presented
with the issues discussed in this section.
Tax counsel has also delivered to us an opinion to the effect that,
subject to the qualifications set forth in the opinion, we will qualify to be
treated as a REIT beginning January 1, 2003. No legal opinion has been obtained
regarding any other tax issues, except as specifically noted herein. In
addition, an opinion of counsel is not binding on the Internal Revenue Service
or the courts. Accordingly, some of the conclusions set forth in this section
could be challenged by the IRS and any such challenge could be sustained by the
courts.
This summary and the opinion of counsel are based on the facts and law
relating to the election as of the date of this proxy statement and do not
address or cover the tax consequences of any transaction undertaken by us or our
shareholders following the election.
Prior to January 1, 2003, all of our income was subject to income taxes
that we paid, and our shareholders recognized income only to the extent that we
paid a dividend from current or accumulated
21
earnings and profits. Following the election, we generally will be taxable only
on our undistributed income, and our shareholders generally will be taxable on
the income distributed to them. However, because the operations of CTIMCO are of
a nature and scope that would cause us to fail to qualify as a real estate
investment trust, it will be treated and operate as a taxable REIT subsidiary.
As a result, CTIMCO will be directly taxed on its income, so that only its
after-tax income will be available for reinvestment or for distribution to our
shareholders. In general, any of the after-tax income of CTIMCO distributed to
our shareholders will be includable in our shareholders' taxable income and will
be subject to a second level of tax. The REIT may own an interest in one or more
taxable REIT subsidiaries, in addition to CTIMCO.
Tax Consequences of REIT Election
Introduction.
We plan to make an election to be taxed as a real estate investment
trust under Section 856 of the Internal Revenue Code, commencing with our
taxable year beginning January 1, 2003. The sections of the Internal Revenue
Code and Treasury Regulations applicable to qualification and operation as a
real estate investment trust are technical and complex. Although we believe that
we will be organized and will operate in a manner necessary to satisfy the
requirements for taxation as a real estate investment trust under the Internal
Revenue Code, many of which are discussed below, we cannot assure you that the
REIT will be able to so operate for all periods following the Election.
Taxation of a REIT
General.
If we qualify as a real estate investment trust, we generally will not
be subject to federal corporate income taxes on our net income to the extent
that the income is currently distributed to stockholders. The benefit of this
tax treatment is that it substantially eliminates the "double taxation"
resulting from the taxation at both the corporate and stockholder levels that
generally results from owning stock in a corporation. Accordingly, income
generated by us generally will be subject to taxation solely at the stockholder
level upon distribution. We will, however, be required to pay certain federal
income taxes, including in the following circumstances:
o We will be subject to federal income tax at regular corporate rates on
taxable income, including net capital gain, that we do not distribute to
stockholders during, or within a specified time period after, the
calendar year in which such income is earned.
o We will be subject to the "alternative minimum tax" on our undistributed
items of tax preference.
o We will be subject to a 100% tax on net income from certain sales or
other dispositions of property that we hold primarily for sale to
customers in the ordinary course of business (known as "prohibited
transactions").
o If we fail to satisfy the 75% gross income test or the 95% gross income
test, both described below, but nevertheless qualify as a real estate
investment trust, we will be subject to a 100% tax on an amount equal to
(i) the gross income attributable to the greater of the amount by which
we fail the 75% or 95% gross income test multiplied by (ii) a fraction
intended to reflect our profitability.
o If we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (b) other
22
nonqualifying income from foreclosure property, we will be required to
pay tax at the highest corporate rate on this income. In general,
foreclosure property is property acquired through foreclosure after a
default on a loan secured by the property or on a lease of the property.
o If we acquire an asset from a corporation which is not a REIT in a
transaction in which the basis of the asset in our hands is determined
by reference to the basis of the asset in the hands of the transferor
corporation, and we subsequently sell the asset within ten years, then
under Treasury Regulations, we would be required to pay tax at the
highest regular corporate tax rate on this gain to the extent the fair
market value of the asset exceeds our adjusted tax basis in the asset,
in each case, determined as of the date on which we acquired the asset.
The results described in this paragraph assume that we will elect this
treatment in lieu of an immediate tax when the asset is acquired. We
will also be subject to such tax liability for all of our assets that
were held as of January 1, 2003.
o We will generally be subject to tax on the portion of any "excess
inclusion" income derived from an investment in residual interests in
real estate mortgage investment conduits to the extent our stock is held
by specified tax exempt organizations not subject to tax on unrelated
business taxable income.
o If we fail to distribute during the calendar year at least the sum of
(i) 85% of our real estate investment trust ordinary income for such
year, (ii) 95% of our real estate investment trust capital gain net
income for such year, and (iii) any undistributed taxable income from
prior periods, we will pay a 4% excise tax on the excess of such
required distribution over the amount actually distributed to
stockholders.
o We may elect to retain and pay income tax on some or all of our
long-term capital gain, as described below.
o We may be subject to a 100% excise tax on transactions with our taxable
REIT subsidiary not conducted on an arm's-length basis.
Requirements for Qualification as a REIT.
Introduction.
In order to qualify as a real estate investment trust for federal
income tax purposes, we must elect to be treated as a REIT and must satisfy
certain statutory tests relating to, among other things, (i) sources of our
income, (ii) the nature of our assets, (iii) the amount of our distributions,
and (iv) the ownership of our stock.
The Internal Revenue Code defines a REIT as a corporation, trust or
association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates
of beneficial ownership to its owners;
(3) that would be taxable as a regular corporation, but for its
election to be taxed as a REIT;
(4) that is not a financial institution or an insurance company
under the Internal Revenue Code;
(5) that is owned by 100 or more persons;
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(6) not more than 50% in value of the outstanding stock of which
is owned, actually or constructively, by five or fewer
individuals, as defined in the Internal Revenue Code to
include some entities, during the last half of each year; and
(7) that meets other tests, described below, regarding the nature
of its income and assets, and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4) must be
met during the entire year and that condition (5) must be met during at least
335 days of a year of twelve months, or during a proportionate part of a shorter
taxable year. Conditions (5) and (6) do not apply to the first taxable year for
which an election is made to be taxed as a REIT. With Stichting Pensioenfonds
ABP's purchase of 1,500,000 shares of our common stock from shareholders
associated with John R. Klopp, Craig M. Hatkoff and Samuel Zell, as of the date
of this proxy statement, we would satisfy the requirements of condition (6).
Our proposed amended and restated charter provides for restrictions
regarding ownership and transfer of our stock. These restrictions are intended
to assist us in satisfying the share ownership requirements described in
conditions (5) and (6) above. These stock ownership and transfer restrictions
are described below under the caption "Description of Our Stock -- Certain
Provisions of Maryland Law and Our Charter and Bylaws -- REIT Qualification --
Restrictions on Ownership and Transfer." These restrictions, however, may not
ensure that we will, in all cases, be able to satisfy the share ownership
requirements described in conditions (5) and (6) above. If we fail to satisfy
these share ownership requirements, our status as a REIT would terminate. If,
however, we comply with the rules contained in applicable Treasury Regulations
that require us to determine the actual ownership of our shares and we do not
know, or would not have known through the exercise of reasonable diligence, that
we failed to meet the requirement described in condition (6) above, we would not
be disqualified as a REIT.
In addition, a corporation may not qualify as a REIT unless its taxable
year is the calendar year. We have and will continue to have a calendar taxable
year.
A corporation that is a "qualified REIT subsidiary" is not treated as a
corporation separate from its parent real estate investment trust for federal
income tax purposes. All assets, liabilities, and items of income, deduction,
and credit of a qualified REIT subsidiary are treated as the assets,
liabilities, and items of income, deduction and credit of the real estate
investment trust. A qualified REIT subsidiary is a corporation, all of the
capital stock of which is owned by a real estate investment trust and for which
no election has been made to treat it as a "taxable REIT subsidiary" (as
discussed below). Thus, in applying the requirements described in this section,
any qualified REIT subsidiary that we may own in the future will be ignored and
all assets, liabilities and items of income, deduction and credit of such
subsidiary will be treated as our assets, liabilities, and items of income,
deduction and credit.
A REIT will be deemed to own its proportionate share (based upon its
share of the capital of the partnership) of the assets of a partnership in which
it is a partner and will be deemed to be entitled to the income of the
partnership attributable to such share. In addition, the assets and income of
the partnership attributed to a REIT shall retain their same character as in the
hands of the partnership for purposes of determining whether the REIT satisfied
the income and asset tests described below.
A real estate investment trust may own up to 100% of the stock of one
or more taxable REIT subsidiaries. A taxable REIT subsidiary may earn income
that would not be REIT qualifying income, as described below, if earned directly
by the parent real estate investment trust. Both the subsidiary and the real
estate investment trust must jointly elect to treat the subsidiary as a taxable
REIT subsidiary. Overall, not more than 20% of the value of the real estate
investment trust's assets may consist of securities of one or more taxable REIT
subsidiaries. A taxable REIT subsidiary will pay tax at regular corporate rates
on any income that it earns. There is a 100% excise tax imposed on transactions
involving a taxable REIT
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subsidiary and its parent real estate investment trust that are not conducted on
an arm's-length basis. CTIMCO is and will remain our wholly owned subsidiary and
we and CTIMCO will make a taxable REIT subsidiary election with respect to
CTIMCO. CTIMCO will pay corporate income tax on its taxable income and its
after-tax net income will be available for reinvestment and for distribution to
us as its parent. We may own interests in one or more taxable REIT subsidiaries
other than CTIMCO.
Income Tests
General. A REIT must satisfy annually two tests regarding the sources
of its gross income in order to maintain its real estate investment trust
status. First, at least 75% of a REIT's gross income, excluding gross income
from certain "dealer" sales, for each taxable year generally must consist of
defined types of income that the REIT derives, directly or indirectly, from
investments relating to real property or mortgages on real property or temporary
investment income. We refer to this test as the 75% gross income test.
Qualifying income for purposes of the 75% gross income test generally includes:
o interest from debt secured by mortgages on real property or on interests
in real property;
o "rents from real property" (as defined below);
o dividends or other distributions on, and gain from the sale of, shares
in other real estate investment trusts;
o gain from the sale or other disposition of real property; and
o amounts (other than amounts the determination of which depends in whole
or in part on the income or profits of any person) received as
consideration for entering into agreements to make loans secured by
mortgages on real property or on interests in real property or
agreements to purchase or lease real property.
Second, at least 95% of the REIT's gross income, excluding gross income
from certain "dealer" sales, for each taxable year generally must consist of
income that is qualifying income for purposes of the 75% gross income test, as
well as dividends, other types of interest, and gain from the sale or
disposition of stock or securities. We refer to this test as the 95% gross
income test.
Interest from Debt Secured by Mortgages on Real Property or on
Interests in Real Property. For these purposes, the term "interest" generally
does not include any interest of which the amount received depends on the income
or profits of any person. An amount will generally not be excluded from the term
"interest," however, if such amount is based on a fixed percentage of receipts
or sales.
Any amount includable in gross income by us with respect to a regular
or residual interest in a real estate mortgage investment conduit, or REMIC, is
generally treated as interest on an obligation secured by a mortgage on real
property for purposes of the 75% gross income test. If, however, less than 95%
of the assets of a real estate mortgage investment conduit consist of real
estate assets, we will be treated as receiving directly our proportionate share
of the income of the REMIC, which would generally include non-qualifying income
for purposes of the 75% gross income test. In addition, if we receive interest
income with respect to a mortgage loan that is secured by both real property and
other property and the principal amount of the loan exceeds the fair market
value of the real property on the date we purchased the mortgage loan, interest
income on the loan will be apportioned between the real property and the other
property, which apportionment would cause us to recognize income that is not
qualifying income for purposes of the 75% gross income test.
In general, and subject to the exceptions in the preceding paragraph,
the interest, original issue discount, and market discount income that we derive
from investments in mortgage backed securities and
25
mortgage loans will be qualifying interest income for purposes of both the 75%
and the 95% gross income tests. It is possible, however, that interest income
from a mortgage loan may be based in part on the borrower's profits or net
income, which would generally disqualify such interest income for purposes of
both the 75% and the 95% gross income tests.
We may acquire construction loans or mezzanine loans that have shared
appreciation provisions. To the extent interest on a loan is based on the cash
proceeds from the sale or value of property, income attributable to such
provision would be treated as gain from the sale of the secured property, which
generally should qualify for purposes of the 75% and 95% gross income tests.
There is some uncertainty as to whether mezzanine loans constitute qualifying
assets for purposes of the 75% asset test and result in qualifying income for
purposes of the 75% gross income test. Recent private letter rulings issued by
the Internal Revenue Service to other taxpayers indicate that, in certain
circumstances, mezzanine loans secured by interests in a partnership or limited
liability company, substantially all of the assets of which represent interests
in real estate, constitute qualifying assets and result in qualifying income. We
have received an opinion of counsel to the effect that our mezzanine loans
constitute qualifying assets and result in qualifying income. However, an
opinion of counsel is not binding on the Internal Revenue Service, and we may
not rely on private letter rulings issued to other taxpayers. If this issue is
not clarified by legislation, regulations, or a public ruling, we expect to
request a private letter ruling from the Internal Revenue Service to the effect
that our mezzanine loans constitute qualifying assets and result in qualifying
income for purposes of these tests. If, however, our mezzanine loans are
determined not to constitute qualifying assets and do not result in qualifying
income for purposes of these tests, our ability to elect REIT status will be
jeopardized.
We may employ, to the extent consistent with the REIT provisions of the
Internal Revenue Code, forms of securitization of our assets under which a
"sale" of an interest in a mortgage loan occurs, and a resulting gain or loss is
recorded on our balance sheet for accounting purposes at the time of sale. In a
"sale" securitization, only the net retained interest in the securitized
mortgage loans would remain on our balance sheet. We may elect to conduct
certain of our securitization activities, including such sales, through one or
more taxable subsidiaries, or through qualified REIT subsidiaries, formed for
such purpose. To the extent consistent with the REIT provisions of the Internal
Revenue Code, such entities could elect to be taxed as real estate mortgage
investment conduits or financial asset securitization investment trusts.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any year, we may still qualify as a REIT if we are entitled to relief under
the Internal Revenue Code. Generally, we may be entitled to relief if:
o our failure to meet the gross income tests was due to reasonable cause
and not due to willful neglect;
o we attach a schedule of the sources of our income to our Federal income
tax return; and
o any incorrect information on the schedule was not due to fraud with the
intent to evade tax.
It is not possible to state whether in all circumstances we would be
entitled to rely on these relief provisions. If these relief provisions do not
apply to a particular set of circumstances, we would not qualify as a REIT. As
discussed above under the caption "--Taxation of REIT -- General", even if these
relief provisions apply, and we retain our status as a REIT, a tax would be
imposed with respect to our income that does not meet the gross income tests. We
may not always be able to maintain compliance with the gross income tests for
REIT qualification despite frequently monitoring our income.
26
Foreclosure Property.
Net income realized by us from foreclosure property would generally be
subject to tax at the maximum Federal corporate tax rate. Foreclosure property
includes real property and related personal property (1) that is acquired by us
through foreclosure following a default on indebtedness owed to us that is
secured by the property and (2) for which we make an election to treat the
property as foreclosure property.
Prohibited Transaction Income.
Any gain realized by us on the sale of any property, other than
foreclosure property, held as inventory or otherwise held primarily for sale to
customers in the ordinary course of business will be prohibited transaction
income, and subject to a 100% penalty tax. This prohibited transaction income
may also adversely affect our ability to satisfy the gross income tests for
qualification as a REIT. Whether property is held as inventory or primarily for
sale to customers in the ordinary course of a trade or business depends on all
the facts and circumstances surrounding the particular transaction. While the
Treasury Regulations provide standards which, if met, would not result in
prohibited transaction income, we may not be able to meet these standards in all
circumstances.
Hedging Transactions.
We may enter into hedging transactions with respect to one or more of
our assets or liabilities. Our hedging transactions could take a variety of
forms, including interest rate swaps or cap agreements, options, futures
contracts, forward rate agreements, or similar financial instruments. To the
extent that we enter into hedging transactions to reduce our interest rate risk
on indebtedness incurred to acquire or carry real estate assets, any income or
gain from the disposition of hedging transactions should be qualifying income
for purposes of the 95% gross income test, but not the 75% gross income test.
Rents from Real Property.
Rent that a REIT receives from real property that it owns and leases to
tenants will qualify as "rents from real property" if the following conditions
are satisfied,
o First, the rent must not be based, in whole or in part, on the income or
profits of any person. An amount will not fail to qualify as rent from
real property solely by reason of being based on a fixed percentage (or
percentages) of sales and receipts.
o Second, neither a REIT nor any direct or indirect owner of 10% or more
of its stock may own, actually or constructively, 10% or more of the
tenant from which the REIT collects the rent.
o Third, all of the rent received under a lease will not qualify as rents
from real property unless the rent attributable to the personal property
leased in connection with the real property constitutes no more than 15%
of the total rent received under the lease.
o Finally, a REIT generally must not operate or manage its real property
or furnish or render services to its tenants, other than through an
"independent contractor" who is adequately compensated and from whom the
REIT does not derive revenue. The REIT may provide services directly,
however, if the services are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not
otherwise considered rendered "primarily for the occupant's
convenience." In addition, the REIT may render, other than through an
independent contractor, a de minimis amount of "non-customary" services
to the tenants
27
of a property as long as the REIT's income from such services does not
exceed 1% of its gross income from the property.
Although no assurances can be given that either of the income tests
will be satisfied in any given year, we anticipate that our operations will
allow us to meet each of the 75% gross income test and the 95% gross income
test. Such belief is premised in large part on our expectation that
substantially all of the amounts received by us will qualify as interest from
debt secured by mortgages on real property or on interests in real property.
Asset Tests
A REIT also must satisfy the following four tests relating to the
nature of its assets at the close of each quarter of its taxable year.
o First, at least 75% of the value of a REIT's total assets must consist
of cash or cash items, including receivables, government securities,
"real estate assets," or qualifying temporary investments. We refer to
this test as the "75% asset test".
o Second, no more than 25% of the value of a REIT's total assets may be
represented by securities other than those that are qualifying assets
for purposes of the 75% asset test. We refer to this test as the "25%
asset test".
o Third, of the investments included in the 25% asset test, the value of
the securities of any one issuer (other than a "taxable REIT
subsidiary") that a REIT owns may not exceed 5% of the value of the
REIT's total assets, and a REIT may not own 10% or more of the total
combined voting power or 10% or more of the total value of the
securities of any issuer (other than a "taxable REIT subsidiary").
o Fourth, while a REIT may own up to 100% of the stock of a corporation
that elects to be treated as a "taxable REIT subsidiary" for federal
income tax purposes, at no time may the total value of a REIT's stock in
one or more taxable REIT subsidiaries exceed 20% of the value of the
REIT's gross assets.
We expect that any mortgage backed securities, real property, and
temporary investments that we acquire will generally be qualifying assets for
purposes of the 75% asset test, except to the extent that less than 95% of the
assets of a real estate mortgage investment conduit in which we own an interest
consists of "real estate assets." Mortgage loans, including distressed mortgage
loans, construction loans, bridge loans, and mezzanine loans also will generally
be qualifying assets for purposes of the 75% asset test to the extent that the
principal balance of each mortgage loan does not exceed the value of the
associated real property.
We anticipate that we may securitize all or a portion of the mortgage
loans which we acquire, in which event we will likely retain certain of the
subordinated and interest only classes of mortgage backed securities which may
be created as a result of such securitization. The securitization of mortgage
loans may be accomplished through one or more real estate investment conduits
established by us or, if a non-real estate mortgage investment conduit
securitization is desired, through one or more qualified REIT subsidiaries or
taxable subsidiaries established by us. The securitization of the mortgage loans
through either one or more real estate mortgage investment conduits or one or
more qualified REIT subsidiaries or taxable subsidiaries should not affect our
qualification as a REIT or result in the imposition of corporate income tax
under the taxable mortgage pool rules. Income realized by us from a real estate
mortgage investment conduit securitization could, however, be subject to a 100%
tax as a "prohibited transaction." Such prohibited transactions are discussed
above under the caption "--Income Tests--Prohibited Transaction Income."
28
We intend to operate so that we will not acquire any assets that would
cause us to violate any of the asset tests. If, however, we should fail to
satisfy any of the asset tests at the end of a calendar quarter, we would not
lose our real estate investment trust status if (i) we satisfied the asset tests
at the end of the close of the preceding calendar quarter and (ii) the
discrepancy between the value of our assets and the asset test requirements
arose from changes in the market values of our assets and was not wholly or
partly caused by the acquisition of one or more nonqualifying assets. If we did
not satisfy the condition described in clause (ii) of the preceding sentence, we
could still avoid disqualification as a real estate investment trust by
eliminating any discrepancy within 30 days after the close of the calendar
quarter in which the discrepancy arose.
Distribution Requirements.
Each taxable year, a REIT must distribute dividends to its shareholders
in an amount at least equal to:
o 90% of the REIT's "real estate investment trust taxable income,"
computed without regard to the dividends paid deduction and the REIT's
net capital gain or loss; and
o certain items of noncash income.
A REIT must make such distributions in the taxable year to which they
relate, or in the following taxable year if the REIT declares the distribution
before it timely files its federal income tax return for such year and pays the
distribution on or before the first regular distribution date after such
declaration. Further, if a REIT fails to meet the 90% distribution requirement
as a result of an adjustment to its tax returns by the Internal Revenue Service,
the REIT may, if the deficiency is not due to fraud with intent to evade tax or
a willful failure to file a timely tax return, and if certain other conditions
are met, retroactively cure the failure by paying a deficiency dividend (plus
interest) to its shareholders.
A REIT will be subject to federal income tax on its taxable income,
including net capital gain, that it did not distribute to its shareholders.
Furthermore, if a REIT fails to distribute during a calendar year, or, in the
case of distributions with declaration and record dates falling within the last
three months of the calendar year, by the end of the January following such
calendar year, at least the sum of:
o 85% of the REIT's real estate investment trust ordinary income for such
year;
o 95% of the REIT's real estate investment trust capital gain income for
such year; and
o any of the REIT's undistributed taxable income from prior periods, the
REIT will be subject to a 4% nondeductible excise tax on the excess of
such required distribution over the amount actually distributed. If the
REIT elects to retain and pay income tax on the net capital gain that it
receives in a taxable year, the REIT will be deemed to have distributed
any such amount for the purposes of the 4% excise tax described in the
preceding sentence.
We intend to make distributions to our holders of common stock in a
manner that will allow us to satisfy the distribution requirements described
above. It is possible that, from time to time, our pre-distribution taxable
income may exceed our cash flow and we may have difficulty satisfying the
distribution requirements. We intend to monitor closely the relationship between
our pre-distribution taxable income and our cash flow and intend to borrow funds
or liquidate assets in order to overcome any cash flow shortfalls if necessary
to satisfy the distribution requirements imposed by the Internal Revenue Code.
It is possible, although unlikely, that we may decide to terminate our REIT
status as a result of any such cash shortfall. Such a termination would have
adverse consequences to our stockholders. The consequences are described above
under the caption "--Taxation of a REIT--General."
29
Recordkeeping Requirements.
A REIT must maintain records of information specified in applicable
Treasury Regulations in order to maintain its qualification as a real estate
investment trust. In addition, in order to avoid a monetary penalty, a REIT must
request on an annual basis certain information from its shareholders designed to
disclose the actual ownership of the REIT's outstanding stock. We intend to
comply with these recordkeeping requirements.
Ownership Requirements.
For a REIT to qualify as a real estate investment trust, shares of the
REIT must be held by a minimum of 100 persons for at least 335 days in each
taxable year after the REIT's first taxable year. Further, at no time during the
second half of any taxable year after the REIT's first taxable year may more
than 50% of the REIT's shares be owned, actually or constructively, by five or
fewer "individuals." As of the date of the proxy statement, we would satisfy the
requirement that we not be closely held as described in the foregoing sentence.
Our common stock will be held by 100 or more persons. Our proposed amended and
restated charter will contain ownership and transfer restrictions designed to
prevent violation of these requirements. The provisions of the amended and
restated charter restricting the ownership and transfer of our common stock are
described below under the caption "Description of Our Stock--Certain Provisions
of Maryland Law and Our Charter and Bylaws -- REIT Qualification Restrictions on
Ownership and Transfer."
Earnings and Profits.
In order for us to qualify as a REIT, on or before the end of the 2003
tax year (the first year to which our election to be taxed as a REIT relates),
we must have distributed to our shareholders an amount equal to any earnings and
profits accumulated from years in which we were taxed as a regular corporation.
We have been treated as a regular corporation for 1997-2002. Any distribution
made by us to satisfy this requirement will be treated as taxable income by the
shareholders, and we generally will not be permitted to include such amounts
when computing our dividends paid deduction. If we were found to have
miscalculated our earnings and profits accumulated from years in which we were a
regular corporation, our ability to qualify as a REIT could be jeopardized. We
believe, as of January 1, 2003, we have no accumulated earnings or profits from
any non-REIT qualifying tax year for which we were taxed as a regular
corporation as a result of losses we triggered in December 2002.
Failure to Qualify.
If a REIT fails to qualify as a real estate investment trust in any
taxable year, and no relief provisions applied, the REIT would be subject to
federal income tax, including any applicable alternative minimum tax, on its
taxable income at regular corporate rates. In calculating a REIT's taxable
income in a year in which it did not qualify as a real estate investment trust,
the REIT would not be able to deduct amounts paid out to its shareholders. In
fact, the REIT would not be required to distribute any amounts to its
shareholders in such taxable year. In such event, to the extent of the REIT's
current and accumulated earnings and profits, all distributions to shareholders
would be taxable as ordinary income. Moreover, subject to certain limitations
under the Internal Revenue Code, corporate shareholders might be eligible for
the dividends received deduction. Unless the REIT qualified for relief under
specific statutory provisions, the REIT would be disqualified from taxation as a
real estate investment trust for the four taxable years following the year in
which it ceased to qualify as a real estate investment trust. We cannot predict
whether, in all circumstances, we would qualify for such statutory relief.
30
Taxation of Taxable U.S. Shareholders
Taxable U.S. Shareholder
As used herein, the term "Taxable U.S. Shareholder" means a holder of
our common stock that, for United States federal income tax purposes, is:
o a citizen or resident of the United States;
o a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any state or political
subdivision thereof;
o an estate the income of which from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business
within the United States; or
o any trust with respect to which (i) a United States court is able to
exercise primary supervision over the administration of such trust and
(ii) one or more United States persons have the authority to control all
substantial decisions of the trust.
For any taxable year in which we qualify as a REIT, amounts distributed
to Taxable U.S. Shareholders will be taxed as follows.
Distributions Generally.
Distributions made to our Taxable U.S. Shareholders out of current or
accumulated earnings and profits (and not designated as a capital gain dividend)
will be taken into account by such shareholder as ordinary income and will not,
in the case of a corporate shareholder, be eligible for the dividends received
deduction. To the extent that we make a distribution with respect to holders of
our common stock that is in excess of our current or accumulated earnings and
profits, the distribution will be treated by a Taxable U.S. Shareholder first as
a tax-free return of capital, reducing the shareholder's tax basis in the common
stock, and any portion of the distribution in excess of the shareholder's tax
basis in the common stock will then be treated as gain from the sale of such
common stock. Dividends declared by us in October, November, or December of any
year payable to a shareholder of record on a specified date in any such month
shall be treated as both paid by us and received by shareholders on December 31
of such year, provided that the dividend is actually paid by us during January
of the following calendar year. Taxable U.S. Shareholders may not include on
their federal income tax returns any of our tax losses.
Capital Gain Dividends.
Dividends to Taxable U.S. Shareholders that properly are designated by
us as capital gain dividends will be treated by such shareholders as long-term
capital gain, to the extent that such dividends do not exceed our actual net
capital gain, without regard to the period for which the shareholders have held
our common stock. Taxable U.S. Shareholders that are corporations may be
required, however, to treat up to 20% of particular capital gain dividends as
ordinary income. Capital gain dividends, like regular dividends from a real
estate investment trust, are not eligible for the dividends received deduction
for corporations.
Retained Capital Gains.
A REIT may elect to retain, rather than distribute, its net long-term
capital gain received during the tax year. To the extent designated in a notice
from the REIT to its shareholders, the REIT will pay the income tax on such
gains and Taxable U.S. Shareholders must include their proportionate share of
the
31
undistributed net long-term capital gain so designated in their income for
the tax year. Each Taxable U.S. Shareholder will be deemed to have paid its
share of the tax paid by the REIT, which tax will be credited or refunded to
such shareholder.
Passive Activity Loss and Investment Interest Limitations.
Distributions, including deemed distributions of undistributed net
long-term capital gain, from us and gain from the disposition of our common
stock will not be treated as passive activity income, and, therefore, Taxable
U.S. Shareholders who are subject to the passive loss limitation rules of the
Internal Revenue Code will not be able to apply any passive activity losses
against such income. Distributions from us, to the extent they do not constitute
a return of capital, generally will be treated as investment income for purposes
of the investment income limitation on deductibility of investment interest.
However, net capital gain from the disposition of our common stock or capital
gain dividends, including deemed distributions of undistributed net long-term
capital gains, generally will be excluded from investment income.
Sale of Common Stock.
Upon the sale of our common stock, a Taxable U.S. Shareholder generally
will recognize gain or loss equal to the difference between the amount realized
on such sale and the holder's tax basis in the common stock sold. To the extent
that the common stock is held as a capital asset by the Taxable U.S.
Shareholder, the gain or loss will be a long-term capital gain or loss if the
common stock has been held for more than a year, and will be a short-term
capital gain or loss if the common stock has been held for a shorter period. In
general, however, any loss upon a sale of the common stock by a Taxable U.S.
Shareholder who has held such common stock for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent that distributions from us were required to be treated as
long-term capital gain by that holder.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts, which we refer to as Exempt
Organizations, generally are exempt from federal income taxation. Exempt
Organizations are subject to tax, however, on their unrelated business taxable
income, or UBTI. UBTI is defined as the gross income derived by an Exempt
Organization from an unrelated trade or business, less the deductions directly
connected with that trade or business, subject to certain exceptions. While many
investments in real estate generate UBTI, the Internal Revenue Service has
issued a ruling that dividend distributions from a REIT to an exempt employee
pension trust do not constitute UBTI, provided that the shares of the REIT are
not otherwise used in an unrelated trade or business of the exempt employee
pension trust. Based on that ruling, amounts distributed to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of common stock with debt, a portion of its income from
a REIT will constitute UBTI pursuant to the "debt-financed property" rules.
In addition, in certain circumstances, a pension trust that owns more
than 10% of the stock of a REIT will be required to treat a percentage of the
dividends paid by the REIT as UBTI based upon the percentage of the REIT's
income that would constitute UBTI to the shareholder if received directly by it.
This rule applies to a pension trust holding more than 10% (by value) of our
common stock only if (i) the percentage of the income from us that is UBTI
(determined as if we were a pension trust) is at least 5% and (ii) we are
treated as a "pension-held REIT." We do not expect to qualify as a "pension-held
REIT" and have covenanted not to become one in connection with our prior
convertible trust preferred financing.
32
Taxation of Non-U.S. Shareholders
General.
The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships,
foreign trusts and certain other foreign stockholders, which we refer to as
Non-U.S. Shareholders, are complex and no attempt is made herein to provide more
than a general summary of such rules. This discussion does not consider the tax
rules applicable to all Non-U.S. Shareholders and, in particular, does not
consider the special rules applicable to U.S. branches of foreign banks or
insurance companies or certain intermediaries. Non-U.S. shareholders should
consult with their own tax advisors to determine the impact of federal, state,
local and foreign tax laws with regard to the election, including any reporting
and withholding requirements.
Ordinary Dividends.
General.
Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by a REIT of United States real property interests
and are not designated by a REIT as capital gain dividends (or deemed
distributions of retained capital gains) will be treated as ordinary dividends
to the extent that they are made out of current or accumulated earnings and
profits of the REIT. Any portion of a distribution in excess of current and
accumulated earnings and profits of the REIT will not be taxable to a Non-U.S.
Shareholder to the extent that such distribution does not exceed the adjusted
basis of the shareholder in the REIT's stock, but rather will reduce the
adjusted basis of such shares. To the extent that the portion of the
distribution in excess of current and accumulated earnings and profits exceeds
the adjusted basis of a Non-U.S. Shareholder in our common stock, such excess
generally will be treated as gain from the sale or disposition of the common
stock and will be taxed as described below.
Withholding.
Dividends paid to Non-U.S. Shareholders may be subject to U.S.
withholding tax. If an income tax treaty does not apply and the Non-U.S.
Shareholder's investment in the REIT's stock is not effectively connected with a
trade or business conducted by the Non-U.S. Shareholder in the United States (or
if a tax treaty does apply and the investment in the stock is not attributable
to a United States permanent establishment maintained by the Non-U.S.
Shareholder), ordinary dividends (i.e., distributions out of current and
accumulated earnings and profits) will be subject to a U.S. withholding tax at a
30% rate, or, if an income tax treaty applies, at a lower treaty rate. Because
we generally cannot determine at the time that a distribution is made whether or
not it will be in excess of earnings and profits, we intend to withhold on the
gross amount of each distribution at the 30% rate (or lower treaty rate) (other
than distributions subject to the 35% FIRPTA withholding rules described below).
To receive a reduced treaty rate, a Non-U.S. Shareholder must furnish us or our
paying agent with a duly completed Form 1001 or Form W-8BEN (or authorized
substitute form) certifying such holder's qualification for the reduced rate.
Generally, a Non-U.S. Shareholder will be entitled to a refund from the IRS to
the extent the amount withheld by us from a distribution exceeds the amount of
United States tax owed by such shareholder.
In the case of a Non-U.S. Shareholder that is a partnership or a trust,
the withholding rules for a distribution to such a partnership or trust will be
dependent on numerous factors, including (1) the classification of the type of
partnership or trust, (2) the status of the partner or beneficiary, and (3) the
activities of the partnership or trust. Non-U.S. Shareholders that are
partnerships or trusts are urged to consult their tax advisors regarding the
withholding rules applicable to them based on their particular circumstances.
33
If an income tax treaty does not apply, ordinary dividends that are
effectively connected with the conduct of a trade or business within the United
States by a Non-U.S. Shareholder (and, if a tax treaty applies, ordinary
dividends that are attributable to a United States permanent establishment
maintained by the Non-U.S. Shareholder) are exempt from U.S. withholding tax. In
order to claim such exemption, a Non-U.S. Shareholder must provide us or our
paying agent with a duly completed Form W-8ECI (or authorized substitute form)
certifying such holder's exemption. However, ordinary dividends exempt from U.S.
withholding tax because they are effectively connected or are attributable to a
United States permanent establishment maintained by the Non-U.S. Shareholder
generally are subject to U.S. federal income tax on a net income basis at
regular graduated rates. In the case of Non-U.S. Shareholders that are
corporations, any effectively connected ordinary dividends or ordinary dividends
attributable to a United States permanent establishment maintained by the
Non-U.S. Shareholder may, in certain circumstances, be subject to an additional
branch profits tax at a 30% rate, or lower rate specified by an applicable
income tax treaty.
Capital Gain Dividends.
General.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of United States real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980, which is commonly
referred to as FIRPTA. Under FIRPTA, distributions attributable to gain from
sales of United States real property are taxed to a Non-U.S. Shareholder as if
such gain were effectively connected with a United States trade or business.
Non-U.S. Shareholders thus would be taxed at the regular capital gain rates
applicable to Taxable U.S. Shareholders (subject to the applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Distributions subject to FIRPTA also may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Shareholder not
otherwise entitled to treaty relief or exemption.
Withholding.
Under FIRPTA, a REIT is required to withhold 35% of any distribution
that is designated as a capital gain dividend or which could be designated as a
capital gain dividend and is attributable to gain from the disposition of a
United States real property interest. Moreover, if a REIT designates previously
made distributions as capital gain dividends, subsequent distributions (up to
the amount of the prior distributions so designated) will be treated as capital
gain dividends for purposes of FIRPTA withholding.
Sale of Common Stock.
A Non-U.S Shareholder generally will not be subject to United States
federal income tax under FIRPTA with respect to gain recognized upon a sale of
our common stock, if less than 50% of our assets during a prescribed testing
period consist of interests in real property located within the United States
(excluding interests in real property solely in the capacity as a creditor) or
we are a "domestically-controlled REIT." A domestically-controlled REIT
generally is defined as a real estate investment trust in which at all times
during a specified testing period less than 50% in value of the stock was held
directly or indirectly by non-U.S. persons. Although currently it is anticipated
that we will be a domestically-controlled REIT, and, therefore, that the sale of
common stock will not be subject to taxation under FIRPTA, there can be no
assurance that we will, at all relevant times, be a domestically-controlled
REIT. If we are not a domestically-controlled REIT, a Non-U.S. Shareholder's
sale of our stock will generally not be subject to tax under FIRPTA if (a) the
stock is treated as "regularly traded" on an established securities market and
(b) the seller held 5% or less of our stock at all times during a specified
testing period. If the gain on the sale of our common stock were subject to
taxation under FIRPTA, a Non-U.S. Shareholder would be subject to the same
treatment as Taxable U.S. Shareholders with respect to such gain (subject
34
to the applicable alternative minimum tax and a special alternative minimum tax
in the case of nonresident alien individuals). In addition, a purchaser of our
common stock from a Non-U.S. Shareholder subject to taxation under FIRPTA
generally would be required to deduct and withhold a tax equal to 10% of the
amount realized by a Non-U.S. Shareholder on the disposition. Any amount
withheld would be creditable against the Non-U.S. Shareholder's FIRPTA tax
liability.
Even if gain recognized by a Non-U.S. Shareholder upon the sale of our
common stock is not subject to FIRPTA, such gain generally will be taxable to
such shareholder if:
o an income tax treaty does not apply and the gain is effectively
connected with a trade or business conducted by the Non-U.S.
Shareholder in the United States (or, an income tax treaty applies
and the gain is attributable to a United States permanent
establishment maintained by the Non-U.S. Shareholder), in which
case, unless an applicable treaty provides otherwise, a Non-U.S.
Shareholder will be taxed on his or her net gain from the sale at
regular graduated U.S. federal income tax rates. In the case of a
Non-U.S. Shareholder that is a corporation, such shareholder may
be subject to an additional branch profits tax at a 30% rate,
unless an applicable income tax treaty provides for a lower rate
and the shareholder demonstrates its qualification for such rate;
or
o the Non-U.S. Shareholder is a nonresident alien individual who
holds our common stock as a capital asset and was present in the
United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the Non-U.S.
Shareholder will be subject to a 30% tax on capital gains.
Estate Tax Considerations.
The value of our common stock owned, or treated as owned, by a Non-U.S.
Shareholder who is a nonresident alien individual at the time of his or her
death will be included in the individual's gross estate for United States
federal estate tax purposes, unless otherwise provided in an applicable estate
tax treaty.
Information Reporting and Backup Withholding
A REIT is required to report to its shareholders and to the IRS the
amount of distributions paid during each tax year, and the amount of tax
withheld, if any. These requirements apply even if withholding was not required
with respect to payments made to a shareholder. In the case of Non-U.S.
Shareholders, the information reported may also be made available to the tax
authorities of the Non-U.S. Shareholder's country of residence, if an applicable
income tax treaty so provides.
Backup withholding generally may be imposed at the rate of up to 30% on
certain payments to shareholders unless the shareholder (i) furnishes certain
information, or (ii) is otherwise exempt from backup withholding.
A shareholder who does not provide a REIT with his or her correct
taxpayer identification number also may be subject to penalties imposed by the
IRS. In addition, the REIT may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their non-foreign status
to the REIT.
You should consult your own tax advisor regarding your qualification
for an exemption from backup withholding and the procedure for obtaining an
exemption. Backup withholding is not an additional tax. Rather, the amount of
any backup withholding with respect to a distribution to a shareholder will be
allowed as a credit against such holder's United States federal income tax
liability and may entitle the Taxable U.S. Shareholder to a refund, provided
that the required information is furnished to the IRS.
35
In general, backup withholding and information reporting will not apply
to a payment of the proceeds of the sale of our common stock by a Non-U.S.
Shareholder by or through a foreign office of a foreign broker effected outside
of the United States; provided, however, that foreign brokers having certain
connections with the United States may be obligated to comply with the backup
withholding and information reporting rules. Information reporting (but not
backup withholding) will apply, however, to a payment of the proceeds of a sale
of our common stock by foreign offices of certain brokers, including foreign
offices of a broker that:
o is a United States person;
o derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States; or
o is a "controlled foreign corporation" for United States tax purposes.
Information reporting will not apply in the above cases if the broker
has documentary evidence in its records that the holder is a Non-U.S.
Shareholder and certain conditions are met, or the Non-U.S. Shareholder
otherwise establishes an exemption.
Payment to or through a United States office of a broker of the
proceeds of a sale of our common stock is subject to both backup withholding and
information reporting unless the shareholder certifies in the manner required
that he or she is a Non-U.S. Shareholder and satisfies certain other
qualifications under penalties of perjury or otherwise establishes an exemption.
State and Local Tax
The discussion herein concerns only the United States federal income
tax treatment likely to be accorded to a REIT and its shareholders. No
consideration has been given to the state and local tax treatment of such
parties. The state and local tax treatment may not conform to the federal
treatment described above. As a result, you should consult your own tax advisor
regarding the specific state and local tax consequences of the REIT Election and
ownership and sale of our common stock.
Federal Income Tax Consequences of the Reverse Stock Split
We have not sought and will not seek a ruling from the Internal Revenue
Service regarding the federal income tax consequences of the reverse stock
split. However, in the opinion of counsel, based upon the Internal Revenue Code,
Treasury Regulations promulgated thereunder, judicial authority and
administrative rulings and practices as in effect on the date of this proxy
statement, the reverse stock split will have the tax consequences explained
below. This discussion is for general information only, is applicable only to
shareholders who hold shares as capital assets, and does not discuss
consequences which may apply to special classes of taxpayers.
We will not recognize any gain or loss as a result of the reverse stock
split.
The exchange of three (3) shares of common stock for one (1) share of
new common stock will not result in the recognition of gain or loss to our
common shareholders. Shareholders who receive cash in lieu of fractional shares
will recognize capital gain (except in any case in which the cash payment is
essentially equivalent to a dividend) to the extent the cash paid for the
fractional shares exceeds the shareholders' adjusted basis in the fractional
shares surrendered. The holding period of the shares of the new common stock
will include the shareholders' holding period for the shares of the common stock
exchanged therefor. The adjusted basis of the shares of the new common stock
will be the same as the adjusted basis of the shares of the common stock
exchanged therefor, reduced by the portion of the adjusted basis of the old
common stock properly allocated to the fractional shares.
36
BENEFICIAL OWNERSHIP OF STOCK
The following table sets forth the beneficial ownership of our common
stock based on beneficial ownership as of February 14, 2003, for persons known
to us to be holding more than 5% of our common stock, each director and
executive officer, and our directors and executive officers as a group. Such
information (other than with respect to directors and officers) is based on a
review of statements filed with the Securities and Exchange Commission pursuant
to Sections 13(d), 13(f) and 13(g) of the Exchange Act with respect to our
common stock.
Amount and Nature
of Beneficial Ownership
-----------------------
Five Percent Shareholders, Percent
Directors and Executive Officers Number(1) of Class (1)
------------------------------------- ---------- -------------
Veqtor Finance Company, L.L.C. (2) 2,692,288 16.6%
EOP Operating Limited Partnership (3) 4,273,428 (4) 20.8
State Street Bank and Trust Company, as Trustee for General 4,273,428 (4) 20.8
Motors Employees Global Group Pension Trust (5)
Vornado Realty, L.P. (6) 4,273,428 (4) 20.8
Stichting Pensioenfonds ABP (7) 1,633,000 10.2
Advisors Research, Inc. (8) 1,072,900 6.6
Bedford Oak Advisors, LLC (9) 892,100 5.5
Jeffrey A. Altman -- --
Thomas E. Dobrowski -- (10) --
Martin L. Edelman 105,710 (11) *
Gary R. Garrabrant 485,133 (11)(12) 2.5
Craig M. Hatkoff 2,001,723 (13)(14)(15) 12.2
John R. Klopp 2,324,020 (13)(14) 13.9
Susan W. Lewis -- --
Brian H. Oswald 137,560 (16) *
Stephen D. Plavin 416,666 (16) 2.5
Sheli Z. Rosenberg 450,133 (11)(17) 2.8
Steven Roth -- (18) --
Lynne B. Sagalyn 55,710 (11) *
Michael D. Watson -- --
Samuel Zell 221,015 (11)(19) 1.4
All executive officers and directors as a group (14 persons) 6,202,365 35.6%
-------------------------------------------------------------
* Represents less than 1%.
(1) The number of shares are those beneficially owned, as determined under
the rules of the Securities and Exchange 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) Zell General Partnership, Inc., or Zell GP, is the sole managing member
of Veqtor Finance Company, L.L.C. The sole shareholder of Zell GP is The
Sam Investment Trust, a trust established for the benefit of the family
of Sam Zell. Chai Trust Company L.L.C., which is advised by Equity Group
Investments, L.L.C. with respect to its investments, serves as
37
trustee of The Sam Investment Trust. Veqtor is located at c/o Equity
Group Investments, L.L.C., Two North Riverside Plaza, Chicago, Illinois
60606.
(3) Beneficial ownership information is based on a statement filed pursuant
to Section 13(d) of the Exchange Act by EOP Operating Limited
Partnership, or EOP. The address of EOP is Two North Riverside Plaza,
Chicago, Illinois 60606.
(4) Represents shares which may be obtained upon conversion of $29,914,000 in
convertible amount of Variable Step Up Convertible Trust Preferred
Securities issued by our company's consolidated Delaware statutory
business trust subsidiary, CT Convertible Trust I, or the CT Trust, to
each of EOP, State Street Bank and Trust Company, as trustee for General
Motors Employes Global Group Pension Trust, or the GM Trust, and Vornado
Realty L.P., or VNO.
(5) Beneficial ownership information is based on statements filed pursuant to
Section 13(d) of the Exchange Act by General Motors Asset Management
Corporation, or GMAM, and the GM Trust as another reporting person named
therein. State Street Bank and Trust Company acts as the trustee for the
GM Trust, a trust under and for the benefit of certain employee benefit
plans of General Motors Corporation, or GM, and its subsidiaries. These
shares may be deemed to be owned beneficially by GMIMCo, a wholly owned
subsidiary of GM. GMIMCo's principal business is providing investment
advice and investment management services with respect to the assets of
certain employee benefit plans of GM and its subsidiaries and with
respect to the assets of certain direct and indirect subsidiaries of GM
and associated entities. GMIMCo is serving as the GM Trust's investment
manager with respect to these shares and in that capacity it has sole
power to direct the trustee as to the voting and disposition of these
shares. Because of the trustee's limited role, beneficial ownership of
the shares by the trustee is disclaimed. The address of GMIMCo is 767
Fifth Avenue, New York, New York 10153.
(6) Beneficial ownership information is based on a statement filed pursuant
to Section 13(d) of the Exchange Act filed by VNO. The address of VNO is
c/o Vornado Realty Trust, Park 80 West, Plaza II, Saddle Brook, New
Jersey 07663.
(7) Stichting Pensioenfonds ABP is located at c/o ABP Investments US,
Inc., 666 Third Avenue 2nd floor, New York, NY 10017-3904.
(8) Beneficial ownership information is based on the Schedule 13G filed by
Advisory Research Incorporated. The address of Advisory Research
Incorporated is 180 North Stetson Avenue, Suite 5780, Chicago, Illinois
60601.
(9) Beneficial ownership information is based on the Schedule 13G filed by
Bedford Oak Advisors, LLC. The address of Bedford Oak Advisors, LLC is
100 South Bedford Road, Mt. Kisco, NY 10549.
(10) Does not include the shares that may be deemed beneficially owned by
GMIMCo, as to which Mr. Dobrowski disclaims beneficial ownership.
(11) In each case (that of Mr. Zell, Mr. Edelman, Mr. Garrabrant, Ms.
Rosenberg and Dr. Sagalyn), includes 30,710 shares obtainable upon
conversion of vested stock units. In the case of Mr. Zell, Mr. Edelman,
Mr. Garrabrant and Dr. Sagalyn, includes 120,000, 75,000, 35,000 and
25,000 shares issuable upon the exercise of vested stock options.
(12) Includes the 419,423 shares owned by GRG Investment Partnership LP, for
which Mr. Garrabrant serves as the general partner.
(13) Includes, in the case of Mr. Hatkoff, the 1,830,132 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,
1,800,132 shares owned by JRK Investment Partnership LP, a family
partnership for which Mr. Klopp serves as general partner.
(14) Includes 424,999 and 141,667 shares issuable upon the exercise of vested
stock options held by each of Messrs. Klopp and Hatkoff. Includes 29,630
shares for Mr. Klopp that are the subject of restricted stock awards for
which he retains voting rights.
(15) Includes 11,924 shares that may be obtained upon conversion of vested
stock units.
(16) Includes 96,666 and 116,666 shares issuable upon the exercise of vested
stock options held by Mr. Oswald and Mr. Plavin. Includes 3,704 shares
for Mr. Oswald that are the subject of restricted stock awards for which
he retains voting rights.
(17) Includes 419,423 shares owned by Rosenberg-CT General Partnership, for
which Ms. Rosenberg serves as a general partner.
(18) Does not include the shares that may be deemed beneficially owned by VNO,
as to which Mr. Roth disclaims beneficial ownership.
(19) Does not include the shares that may be deemed beneficially owned by EOP,
as to which Mr. Zell disclaims beneficial ownership.
38
DESCRIPTION OF OUR STOCK
The proposed charter amendments would include in our charter ownership
and transfer restrictions relating to our election to be taxed as a REIT,
eliminate from our charter our class B stock and effect a one (1) for three (3)
reverse stock split. The following is a summary description of our common and
preferred stock, provisions of our charter and our bylaws and specific
provisions of the Maryland General Corporation Law following effectiveness of
the charter amendments. As summaries, they are qualified in their entirety by
reference to the Maryland General Corporation Law and to our charter and bylaws.
Common Stock
Holders of our class A common stock are entitled to receive dividends
when authorized by our board of directors out of assets legally available for
the payment of dividends. They are also entitled to share ratably in our assets
legally available for distribution to our shareholders in the event of our
liquidation, dissolution or winding up, after payment of, or adequate provision
for, all of our known debts and liabilities. These rights are subject to the
preferential rights of any other class or series of our stock. All shares of
class A common stock have equal dividend and liquidation rights.
Subject to our charter restrictions on ownership and transfer of our
stock, each outstanding share of class A common stock is entitled to one vote on
all matters to be submitted to a vote of the shareholders. There is no
cumulative voting in the election of our directors and our directors are elected
by a plurality of the votes cast, so the holders of a simple majority of the
outstanding class A common stock, voting at a shareholders meeting at which a
quorum is present, can elect all of the directors nominated for election at the
meeting. Holders of our common stock have no exchange, sinking fund, redemption
or appraisal rights and have no preemptive rights to subscribe for any of our
securities. Because holders of common stock do not have preemptive rights, we
may issue additional shares of stock that may reduce each shareholder's
proportionate voting and financial interest in our company. Rights to receive
dividends on our common stock may be restricted by the terms of any future
classified and issued shares of our preferred stock.
Under our charter we may issue up to 200,000,000 shares of stock
comprised of the following:
o 100,000,000 shares of class A common stock, par value $.01 per share;
and
o 100,000,000 shares of preferred stock, par value $.01 per share.
As of February 14, 2003, 5,413,203 shares of class A common stock were
issued and outstanding after giving effect to the one (1) for three (3) reverse
stock split, subject to further reduction upon the elimination of fractional
shares. No shares of preferred stock have been designated as a particular class
or series or are outstanding. The class A common stock is listed on the New York
Stock Exchange under the symbol "CT".
Under Maryland law, a Maryland corporation generally cannot dissolve,
amend its charter, merge, sell all or substantially all of its assets, engage in
a share exchange or engage in similar transactions outside the ordinary course
of business unless approved by the affirmative vote of shareholders holding at
least two-thirds of the shares entitled to vote on the matter. However, a
Maryland corporation may provide in its charter for approval of these matters by
a lesser percentage, but not less than a majority, of all of the votes entitled
to be cast on the matter. Our charter provides for approval of these matters by
a majority of all votes entitled to be cast on the matter.
39
Power to Reclassify Shares of Our Stock and to Increase the Number of Shares of
Our Stock
Our charter authorizes our board of directors, without shareholder
approval, to:
o classify and reclassify any unissued shares of our common stock and
preferred stock into other classes or series of stock; and
o increase or decrease the aggregate number of shares of stock of any
class or series that may be issued.
Prior to the issuance of shares of each class or series, the board is
required by Maryland law and by our charter to set, subject to our charter
restrictions on transfers of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series. Thus, the board could authorize the issuance of shares of
preferred stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in control of our
company that might involve a premium price for holders of our common stock or
otherwise be in their best interest.
Power to Issue Additional Shares of Common Stock and Preferred Stock
We believe that the power to issue additional shares of our common
stock or preferred stock, increase the aggregate number of shares of stock of
any class or series that we have the authority to issue and to classify or
reclassify unissued shares of our common or preferred stock and thereafter to
issue the classified or reclassified shares provides us with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. These actions can be taken without
shareholder approval, unless shareholder approval is required by applicable law
or the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although we have no present intention of
doing so, we could issue a class or series of stock that could delay, defer or
prevent a transaction or a change in control of our company that might involve a
premium price for holders of common stock or otherwise be in their best
interest.
Transfer Agent and Registrar
The transfer agent and registrar for the all of the securities covered
by this prospectus is American Stock Transfer & Trust Company located in
Brooklyn, New York.
Certain Provisions of Maryland Law and Our Charter and Bylaws
REIT Qualification Restrictions on Ownership and Transfer
Our charter contains restrictions on the number of shares of our stock
that a person may own. No individual may acquire or hold, directly or
indirectly, in excess of 2.5% in value or number of our stock unless they
receive an exemption from our board of directors.
Our charter further prohibits (a) any person from owning shares of our
stock that would result in our being "closely held" under Section 856(h) of the
Internal Revenue Code or otherwise cause us to fail to qualify as a REIT and (b)
any person from transferring shares of our stock if the transfer would result in
our stock being owned by fewer than 100 persons. Any person who acquires or
intends to acquire shares of our stock that may violate any of these
restrictions, or who is the intended transferee of shares of our stock which are
transferred to the Trust, as defined below, is required to give us immediate
written notice and provide us with such information as we may request in order
to determine the effect of the transfer on our status as a REIT. The above
restrictions will not apply if our board of directors determines that it is no
longer in our best interests to continue to qualify as a REIT.
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Our board of directors, in its sole discretion, may exempt a person
from, or modify, these limits, subject to such terms, conditions,
representations and undertakings as it may determine. Our board of directors has
granted limited exemptions to certain persons who directly or indirectly own our
stock, including officers and directors and shareholders controlled by them or
trusts for the benefit of their families.
Any attempted transfer of our stock which, if effective, would result
in violation of the above limitations, will cause the number of shares causing
the violation (rounded to the nearest whole share) to be automatically
transferred to a trust, which we refer to as the Trust, for the exclusive
benefit of one or more charitable beneficiaries, which we refer to as the
Charitable Beneficiary, and the proposed transferee will not acquire any rights
in the shares. The automatic transfer will be deemed to be effective as of the
close of business on the business day (as defined in our charter) prior to the
date of the transfer. The shares transferred to the Trust will generally be
selected so as to minimize the aggregate value of shares transferred to the
Trust. Shares of our stock held in the Trust will be issued and outstanding
shares. The proposed transferee will not benefit economically from ownership of
any shares of stock held in the Trust, will have no rights to dividends and no
rights to vote or other rights attributable to the shares of stock held in the
Trust. The trustee of the Trust will have all voting rights and rights to
dividends or other distributions with respect to shares held in the Trust. These
rights will be exercised for the exclusive benefit of the Charitable
Beneficiary. Any dividend or other distribution paid prior to our discovery that
shares of stock have been transferred to the Trust will be paid by the recipient
to the Trustee upon demand. Any dividend or other distribution authorized but
unpaid will be paid when due to the Trustee. Any dividend or distribution paid
to the Trustee will be held in trust for the Charitable Beneficiary. Subject to
Maryland law, the Trustee will have the authority (i) to rescind as void any
vote cast by the proposed transferee prior to our discovery that the shares have
been transferred to the Trust and (ii) to recast the vote in accordance with the
desires of the Trustee acting for the benefit of the Charitable Beneficiary.
However, if we have already taken irreversible corporate action, then the
Trustee will not have the authority to rescind and recast the vote. If necessary
to protect our status as a REIT, we may establish additional Trusts with
distinct Trustees and Charitable Beneficiaries to which shares may be
transferred.
Within 20 days of receiving notice from us that shares of our stock
have been transferred to the Trust, the Trustee will sell the shares to a person
designated by the Trustee, whose ownership of the shares will not violate the
above ownership limitations. Upon the sale, the interest of the Charitable
Beneficiary in the shares sold will terminate and the Trustee will distribute
the net proceeds of the sale to the proposed transferee and to the Charitable
Beneficiary as follows. The proposed transferee will receive the lesser of (i)
the price paid by the proposed transferee for the shares or, if the proposed
transferee did not give value for the shares in connection with the event
causing the shares to be held in the Trust (e.g., a gift, devise or other
similar transaction), the Market Price (as defined in our charter) of the shares
on the day of the event causing the shares to be held in the Trust and (ii) the
price received by the Trustee from the sale or other disposition of the shares.
Any net sale proceeds in excess of the amount payable to the proposed transferee
will be paid immediately to the Charitable Beneficiary. If, prior to our
discovery that shares of our stock have been transferred to the Trust, the
shares are sold by the proposed transferee, then (i) the shares shall be deemed
to have been sold on behalf of the Trust and (ii) to the extent that the
proposed transferee received an amount for the shares that exceeds the amount he
was entitled to receive, the excess shall be paid to the Trustee upon demand.
In addition, shares of our stock held in the Trust will be deemed to
have been offered for sale to us, or our designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that resulted in the
transfer to the Trust (or, in the case of a devise or gift, the Market Price at
the time of the devise or gift) and (ii) the Market Price on the date we, or our
designee, accept the offer. We will have the right to accept the offer until the
Trustee has sold the shares. Upon a sale to us, the interest of the Charitable
Beneficiary in the shares sold will terminate and the Trustee will distribute
the net proceeds of the sale to the proposed transferee.
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All certificates representing shares of our stock issued in the future
will bear a legend referring to the restrictions described above.
Every owner of more than such percentage as may from time to time be
established by our board of directors (or such lower percentage as required by
the Internal Revenue Code or the regulations promulgated thereunder) of our
stock, within 30 days after the end of each taxable year, is required to give us
written notice, stating his name and address, the number of shares of each class
and series of our stock which he beneficially owns and a description of the
manner in which the shares are held. Each such owner shall provide us with such
additional information as we may request in order to determine the effect, if
any, of his beneficial ownership on our status as a REIT and to ensure
compliance with the ownership limits. In addition, each shareholder shall upon
demand be required to provide us with such information as we may request in good
faith in order to determine our status as a REIT and to comply with the
requirements of any taxing authority or governmental authority or to determine
such compliance.
These ownership limits could delay, defer or prevent a transaction or a
change in control that might involve a premium price for the common stock or
otherwise be in the best interest of the stockholders.
Business Combinations
Under Maryland law, "business combinations" between a Maryland
corporation and an interested shareholder or an affiliate of an interested
shareholder are prohibited for five years after the most recent date on which
the interested shareholder becomes an interested shareholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested shareholder is defined as:
o any person who beneficially owns 10% or more of the voting power of the
corporation's shares; or
o an affiliate or associate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial owner
of 10% or more of the voting power of the then outstanding voting stock
of the corporation.
A person is not an interested shareholder under the statute if the
board of directors approved in advance the transaction by which he or she
otherwise would have become an interested shareholder. However, in approving a
transaction, our board of directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms and conditions
determined by the board.
After the five-year prohibition, any business combination between the
Maryland corporation and an interested shareholder generally must be recommended
by the board of directors of the corporation and approved by the affirmative
vote of at least:
o 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation; and
o two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested shareholder
with whom or with whose affiliate the business combination is to be
effected or the shares held by any affiliate or associate of the
interested shareholder.
These super-majority vote requirements do not apply if the
corporation's common shareholders receive a minimum price, as defined under
Maryland law, for their shares in the form of cash or other consideration in the
same form as previously paid by the interested shareholder for its shares.
42
The statute permits various exemptions from its provisions, including
business combinations that are exempted by the board of directors prior to the
time that the interested shareholder became an interested shareholder.
Our board of directors has adopted resolutions which exempt Veqtor
Finance Company, L.L.C., JRK Investment Partnership LP and CMH Investment
Partnership LP from the five-year prohibition and the super-majority vote
requirement. The business combination statute may discourage others from trying
to acquire control of us and may increase the difficulty of consummating any
offer relating to the same.
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter. A control share acquisition means the acquisition of control shares,
subject to certain exceptions. Shares owned by the acquiror, by officers of the
target corporation or by directors of the target corporation who are also
employees are excluded from shares entitled to vote on the matter. Control
shares are voting shares of stock which, if aggregated with all other shares of
stock owned by the acquiror or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power:
o one-tenth or more but less than one-third;
o one-third or more but less than a majority; or
o a majority or more of all voting power.
Control shares do not include shares the acquiror is entitled to vote
as a result of having previously obtained shareholder approval.
A person who has made or proposes to make a control share acquisition
may compel the board of directors of the corporation to call a special meeting
of shareholders to be held within 50 days of demand to consider the voting
rights of the shares. The right to compel the calling of a special meeting is
subject to the satisfaction of certain conditions, including an undertaking to
pay the expenses of the meeting. If no request for a meeting is made, the
corporation may itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then the corporation may redeem for fair value any or all of the
control shares, except those for which voting rights have previously been
approved. The right of the corporation to redeem control shares is subject to
certain conditions and limitations. Fair value is determined, without regard to
the absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of the shares are considered and not approved. If voting
rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of appraisal rights may not be less than the highest
price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction, or (b) to acquisitions approved or exempted by the
charter or bylaws of the corporation.
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Maryland Unsolicited Takeovers Act
The Maryland Unsolicited Takeovers Act applies to any Maryland
corporation that has a class of securities registered under the Securities
Exchange Act of 1934 and at least three independent directors. Pursuant to such
act, the board of directors of any Maryland corporation fitting such
description, without obtaining shareholder approval and notwithstanding a
contrary provision in its charter or bylaws, may elect to:
o classify the board;
o increase the required shareholder vote to remove a director to
two-thirds of all the votes entitled to be cast by the shareholders
generally in the election of directors; and
o require that a shareholder requested special meeting need be called only
upon the written request of the shareholders entitled to cast a majority
of all the votes entitled to be cast at the meeting.
Additionally, the board could provide that:
o the number of directors may be fixed only by a vote of the board of
directors;
o each vacancy on the board of directors (including a vacancy resulting
from the removal of a director by the shareholders) may be filled only
by the affirmative vote of a majority of the remaining directors in
office, even if the remaining directors do not constitute a quorum; and
o any director elected to fill a vacancy will hold office for the full
remainder of the term, rather than until the next election of directors.
The Maryland Unsolicited Takeovers Act does not limit the power of a
corporation to confer on the holders of any class or series of preferred stock
the right to elect one or more directors. We currently have more than three
independent directors and therefore our board of directors could elect to
provide for any of the foregoing provisions. As of the date of this prospectus,
our board of directors has not made any such election.
Advance Notice of Director Nominations and New Business
Our bylaws provide that with respect to an annual meeting of
shareholders, nominations of individuals for election to the board of directors
and the proposal of business to be considered by shareholders may be made only:
o pursuant to our notice of the meeting;
o by or at the direction of the board of directors; or
o by a shareholder who was a shareholder of record both at the time of
giving of notice and at the time of the annual meeting, who is entitled
to vote at the meeting and who has complied with the advance notice
procedures of the bylaws.
With respect to special meetings of shareholders, only the business
specified in our notice of the meeting may be brought before the meeting.
Nominations of individuals for election to the board of directors at a special
meeting may only be made:
o pursuant to our notice of the meeting;
44
o by or at the direction of the board of directors; or
o provided that the board of directors has determined that directors will
be elected at the meeting, by a shareholder who is a shareholder of
record both at the time of giving of notice and at the time of the
special meeting and who is entitled to vote at the meeting and has
complied with the advance notice provisions of the bylaws.
45
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Pursuant to SEC Rule 14a-8, if you want to include a shareholder
proposal in the proxy statement for our 2003 annual meeting of shareholders, it
must have been delivered to our corporate secretary at the company's executive
offices before January 1, 2003.
In addition, if you desire to bring business (including director
nominations) before our 2003 annual meeting, our bylaws currently require that
written notice of such business must be received by our secretary between 90
days before and 60 days before. 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 will be
excluded from consideration at the meeting, regardless of any earlier notice
provided in accord with SEC Rule 14a-8.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission, or SEC. You may
read and copy any materials we have filed with the SEC at the SEC's public
reference room at 450 Fifth Street, Washington, D.C. 20549. The SEC also
maintains a web site (http://www.sec.gov) that contains reports, proxy
statements and other information concerning us. Please call the SEC at
1-800-SEC-0330 for information concerning the operations of the public reference
rooms.
We have authorized no one to give you any information or to make any
representation about the proposals that differs from or adds to the information
contained in this proxy statement or in the documents we have publicly filed
with the SEC. You should not rely on any different or additional information.
The information contained in this proxy statement speaks only as of the
date indicated on the cover page.
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APPENDIX A
ARTICLES OF AMENDMENT AND RESTATEMENT
CAPITAL TRUST, INC.
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ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Capital Trust, Inc., a Maryland corporation (the "Corporation"),
desires to amend and restate its charter as currently in effect and as
hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, Tonya Mitchem Grindon whose address is c/o Ballard
Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202,
being at least 18 years of age, does hereby form a corporation under the general
laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Capital Trust, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of the charter, "REIT" means a real estate
investment trust under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard Street,
Baltimore, Maryland 21202. The name of the resident agent of the Corporation in
the State of Maryland is The Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202. The resident agent is a Maryland corporation.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number of Directors. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. The
number of directors of the Corporation shall be twelve (12), which number may be
increased or decreased pursuant to the Bylaws, but shall never be less than the
minimum number required by the Maryland General Corporation Law. The names of
the directors who shall serve until the next annual meeting of stockholders and
until their successors are duly elected and qualified are:
Samuel Zell
Jeffrey A. Altman
Sheli Z. Rosenberg
Gary R. Garrabrant
Martin L. Edelman
John R. Klopp
Lynne B. Sagalyn
Craig M. Hatkoff
Thomas E. Dobrowski
Steven Roth
Susan W. Lewis
Michael D. Watson
The directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors.
Section 5.2 Extraordinary Actions. Notwithstanding any provision of law
permitting or requiring any action to be taken or approved by the affirmative
vote of the holders of shares entitled to cast a greater number of votes, any
such action shall be effective and valid if taken or approved by the affirmative
vote of holders of shares entitled to cast a majority of all the votes entitled
to be cast on the matter.
Section 5.3 Authorization by Board of Stock Issuance. The Board of
Directors may authorize the issuance from time to time of shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class or
series, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable (or without consideration in the case of a stock
split or
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stock dividend), subject to such restrictions or limitations, if any, as may be
set forth in the charter or the Bylaws.
Section 5.4 Preemptive Rights. Except as may be provided by the Board
of Directors in setting the terms of classified or reclassified shares of stock
pursuant to Section 6.4 or as may otherwise be provided by contract, no holder
of shares of stock of the Corporation shall, as such holder, have any preemptive
right to purchase or subscribe for any additional shares of stock of the
Corporation or any other security of the Corporation which it may issue or sell.
Section 5.5 Indemnification. The Corporation shall have the power, to
the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former director or officer of the Corporation or (b) any individual
who, while a director of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, real estate investment trust, partnership, limited liability
company, joint venture, trust, employee benefit plan or any other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
director or officer of the Corporation. The Corporation shall have the power,
with the approval of the Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Corporation or a predecessor of the Corporation.
Section 5.6 Determinations by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its stock:
the amount of the net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its stock or the payment of other distributions on its stock; the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any other matter
relating to the business and affairs of the Corporation.
Section 5.7 REIT Qualification. If the Corporation elects to qualify
for federal income tax treatment as a REIT, the Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Corporation as a REIT; however, if the Board of
Directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code. The Board of Directors also may determine that
compliance with any restriction or limitation on
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stock ownership and transfers set forth in Article VII is no longer required for
REIT qualification.
ARTICLE VI
STOCK
Section 6.1 Authorized Shares. The total number of shares of stock
which the Corporation shall have the authority to issue is 200,000,000 shares,
consisting of two classes of stock as follows:
(a) 100,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of which 100,000,000 shares shall initially be designated class
A common stock, par value $.01 per share (the "Class A Stock"); and
(b) 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock").
(c) The aggregate par value of all authorized shares of stock having
par value is $2,000,000. If shares of one class of stock are classified or
reclassified into shares of another class of stock pursuant to this Article VI,
the number of authorized shares of the former class shall be automatically
decreased and the number of shares of the latter class shall be automatically
increased, in each case by the number of shares so classified or reclassified,
so that the aggregate number of shares of stock of all classes that the
Corporation has authority to issue shall not be more than the total number of
shares of stock set forth in the first sentence of this Section 6.1. To the
extent permitted by Maryland law, the Board of Directors, without any action by
the stockholders of the Corporation, may amend the charter from time to time to
increase or decrease the aggregate number of shares of stock of any class or
series that the Corporation has the authority to issue.
Section 6.2 Common Stock. Except as may otherwise be provided in the
charter, all shares of Common Stock shall be identical and shall entitle the
holders thereof to the same rights and privileges with respect thereto. The
Board of Directors may classify or reclassify any unissued shares of Common
Stock from time to time in one or more classes or series of stock. Subject to
the provisions of Section 6.3, the Common Stock shall have the following
preferences, rights, powers, restrictions, limitations and qualifications, and
such others as may be afforded by law:
(a) Voting Rights. Except as may otherwise be provided by law, each
holder of Class A Stock shall have one vote in respect to each share of Class A
Stock held of record on all matters to be voted upon by stockholders.
(b) Dividend Rights. The holders of Common Stock shall be entitled to
receive, ratably in proportion to the number of shares of Common Stock held by
them, such dividends as may be authorized from time to time by the Board of
Directors out of assets legally available therefor.
(c) Liquidation Rights. In the event of the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, after payment in full
or reasonable
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provision for payment in full of all claims and obligations of the Corporation
shall have been made, all of the assets of the Corporation, if any, remaining,
of whatever kind available for distribution to stockholders, shall be
distributed to the holders of Common Stock, ratably, in proportion to the number
of shares of Common Stock held by them.
Section 6.3 Preferred Stock. The Board of Directors may classify any
unissued shares of Preferred Stock and reclassify any previously classified but
unissued shares of Preferred Stock of any series from time to time, in one or
more classes or series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to issuance of
classified or reclassified shares of any class or series, the Board of Directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of stock of the Corporation; (b) specify the number
of shares to be included in the class or series; (c) set or change, subject to
the provisions of Section 6.3 and subject to the express terms of any class or
series of stock of the Corporation outstanding at the time, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series; and (d) cause the Corporation to file
articles supplementary with the State Department of Assessments and Taxation of
Maryland ("SDAT"). Any of the terms of any class or series of stock set or
changed pursuant to clause (c) of this Section 6.4 may be made dependent upon
facts or events ascertainable outside the charter (including determinations by
the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire stock in
the Corporation shall acquire the same subject to the provisions of the charter
and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII, the
following terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership
Limit" shall initially mean not more than 2.5 percent, or such higher percentage
as the Board of Directors shall from time to time determine pursuant to Section
7.2.9, in value or number of the aggregate of the outstanding shares of Capital
Stock. The number and value of the outstanding shares of Capital Stock shall be
determined by the Board of Directors, which determination shall be conclusive
for all purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings. The term "Beneficial Owner" is intended to be
interpreted in the context of Section 856(h) of the Code so that the Beneficial
Ownership of Capital Stock held by an entity shall be Individuals who are
treated as owners of Capital Stock for purposes of Section 856(h) of the Code
rather than the entity itself.
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Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or
series of stock of the Corporation, including, without limitation, Common Stock
and Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean
one or more beneficiaries of the Trust as determined pursuant to Section 7.3.6,
provided that each such organization must be described in Section 501(c)(3) of
the Code and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Charter. The term "Charter" shall mean the charter of the Corporation,
as that term is defined in the MGCL.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Common Stock Ownership Limit. The term "Common Stock Ownership Limit"
shall initially mean not more than 2.5 percent (in value or in number of shares,
whichever is more restrictive), or such higher percentage as the Board of
Directors shall from time to time determine pursuant to Section 7.2.9, of the
aggregate of the outstanding shares of Common Stock. The number and value of
outstanding shares of Common Stock shall be determined by the Board of
Directors, which determination shall be conclusive for all purposes hereof.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a stockholder of
the Corporation for whom an Excepted Holder Limit is created by this Article VII
or by the Board of Directors pursuant to Section 7.2.7 and shall, without
limitation, include each Existing Holder.
Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 7.2.7,
and subject to adjustment as provided in Sections 7.2.7(d) and (e), the
percentage limit established by the Board of Directors pursuant to Section
7.2.7, and which for each Existing Holder shall be the Existing Holder Limit,
subject to adjustment as provided in Section 7.2.7(e).
Existing Holder. The term "Existing Holder" shall mean any Person who
was, or would have been upon the exchange of debt or any security of the
Corporation, the Beneficial Owner of shares of Capital Stock in excess of the
Aggregate Stock Ownership Limit or the Common Stock Ownership Limit both on and
immediately after the Initial Date, so long as, but only so long as, such Person
Beneficially Owns or would, upon exchange of debt or any security of the
Corporation, Beneficially Own shares of Capital Stock in excess of the Aggregate
Stock Ownership Limit or the Common Stock Ownership Limit.
Existing Holder Limit. The term "Existing Holder Limit" for any
Existing Holder shall mean the percentage of the outstanding shares of Capital
Stock Beneficially Owned, or which would have been Beneficially Owned upon the
exchange of debt or any security of the Corporation, by such Existing Holder
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on and immediately after the Initial Date, and, after any adjustment pursuant to
Section 7.2.7(e), shall mean such percentage of the outstanding shares of
Capital Stock as so adjusted. Any Existing Holder Limit shall not be modified
except as provided in Sections 7.2.7(d)and (e). From the Initial Date until the
Restriction Termination Date, the Corporation shall maintain and, upon request,
make available to each Existing Holder, a schedule which sets forth the then
current Existing Holder Limit for each Existing Holder.
Individual. "Individual" shall mean (i) an "individual" within the
meaning of Section 542(a)(2) of the Code, as modified by Section 544 of the Code
and/or (ii) any beneficiary of a "qualified trust" (as defined in Section
856(h)(3)(E)) of the Code which qualified trust is eligible for look-through
treatment under Section 856(h)(3)(A) of the Code for purposes of determining
whether a REIT is closely held under Section 856(a)(6) of the Code.
Initial Date. The term "Initial Date" shall mean the date upon which
the Articles of Amendment and Restatement containing this Article VII are filed
with the SDAT.
Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date. The "Closing Price" on any
date shall mean the last sale price for such Capital Stock, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such Capital Stock, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if such Capital Stock
is not listed or admitted to trading on the NYSE, as reported on the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such Capital Stock is listed
or admitted to trading or, if such Capital Stock is not listed or admitted to
trading on any national securities exchange, the last quoted price, or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotation system that may then be in use or, if
such Capital Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such Capital Stock selected by the Board of Directors or, in the
event that no trading price is available for such Capital Stock, the fair market
value of the Capital Stock, as determined by the Board of Directors.
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law,
as amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Person. The term "Person" shall mean an Individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, and a group to which an Excepted Holder Limit applies.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of Section
7.2.1, would Beneficially Own or Constructively Own shares of Capital Stock, and
if appropriate in the context, shall also mean any Person who would have been
the record owner of the shares that the Prohibited Owner would have so owned.
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REIT. The term "REIT" shall mean a real estate investment trust within
the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Corporation
determines pursuant to Section 5.7 that it is no longer in the best interests of
the Corporation to attempt to, or continue to, qualify as a REIT or that
compliance with the restrictions and limitations on Beneficial Ownership,
Constructive Ownership and Transfers of shares of Capital Stock set forth herein
is no longer required in order for the Corporation to qualify as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event that
causes any Person to acquire Beneficial Ownership or Constructive Ownership, or
any agreement to take any such actions or cause any such events, of Capital
Stock or the right to vote or receive dividends on Capital Stock, including (a)
the granting or exercise of any option (or any disposition of any option), (b)
any disposition of any securities or rights convertible into or exchangeable for
Capital Stock or any interest in Capital Stock or any exercise of any such
conversion or exchange right and (c) Transfers of interests in other entities
that result in changes in Beneficial or Constructive Ownership of Capital Stock;
in each case, whether voluntary or involuntary, whether owned of record,
Constructively Owned or Beneficially Owned and whether by operation of law or
otherwise. The terms "Transferring" and "Transferred" shall have the correlative
meanings.
Trust. The term "Trust" shall mean any trust provided for in Section
7.3.1.
Trustee. The term "Trustee" shall mean the Person, unaffiliated with
the Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of the Trust.
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period commencing
on the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Individual, other than an Excepted Holder,
shall Beneficially Own or Constructively Own shares of Capital Stock in excess
of the Aggregate Stock Ownership Limit, (2) no Individual, other than an
Excepted Holder, shall Beneficially Own or Constructively Own shares of Common
Stock in excess of the Common Stock Ownership Limit and (3) no Excepted Holder
shall Beneficially Own or Constructively Own shares of Capital Stock in excess
of the Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own
shares of Capital Stock to the extent that such Beneficial or Constructive
Ownership of Capital Stock would result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code (without regard to whether the
ownership interest is held during the last half of a taxable year), or otherwise
failing to qualify as a REIT (including, but not limited to, Beneficial or
Constructive Ownership that would result in the Corporation owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Corporation from such
tenant would cause the Corporation to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
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(iii) Notwithstanding any other provisions contained
herein, any Transfer of shares of Capital Stock (whether or not such Transfer is
the result of a transaction entered into through the facilities of the NYSE or
any other national securities exchange or automated inter-dealer quotation
system) that, if effective, would result in the Capital Stock being beneficially
owned by less than 100 Persons (determined under the principles of Section
856(a)(5) of the Code) shall be void ab initio, and the intended transferee
shall acquire no rights in such shares of Capital Stock.
(b) Transfer in Trust. If any Transfer of shares of Capital
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE or any other national securities exchange or
automated inter-dealer quotation system) occurs which, if effective, would
result in any Person Beneficially Owning or Constructively Owning shares of
Capital Stock in violation of Sections 7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would cause such Person
to violate Section 7.2.1(a)(i) or (ii)(rounded to the nearest whole share) shall
be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 7.3, effective as of the close of business
on the Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such shares; or
(ii) if the transfer to the Trust described in Section
7.2.1(b)(i) would not be effective for any reason to prevent the violation of
Section 7.2.1(a)(i) or (ii), then the Transfer of that number of shares of
Capital Stock that otherwise would cause any Person to violate Section
7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee shall
acquire no rights in such shares of Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board of Directors or
any duly authorized committee thereof shall at any time determine that a
Transfer or other event has taken place that results in a violation of Section
7.2.1 or that a Person intends to acquire or has attempted to acquire Beneficial
or Constructive Ownership of any shares of Capital Stock in violation of Section
7.2.1 (whether or not such violation is intended), the Board of Directors or a
committee thereof shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or other event, including, without
limitation, causing the Corporation to redeem shares, refusing to give effect to
such Transfer on the books of the Corporation or instituting proceedings to
enjoin such Transfer or other event; provided, however, that any Transfer or
attempted Transfer or other event in violation of Section 7.2.1 shall
automatically result in the transfer to the Trust described in Section
7.2.1(b)(i), and, where applicable, such Transfer (or other event) shall be void
ab initio as provided above irrespective of any action (or non-action) by the
Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who
acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of shares of Capital Stock that will or may violate Section 7.2.1(a)
or any Person who would have owned shares of Capital Stock that resulted in a
transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall
immediately give written notice to the Corporation of such event, or in the case
of such a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Corporation at its principal executive office
(attention: President) such other
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information as the Corporation may request in order to determine the effect, if
any, of such Transfer on the Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the
Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than such percentage as may from
time to time be established by the Board (or such lower percentage as required
by the Code or the Treasury Regulations promulgated thereunder) of the
outstanding shares of Capital Stock, within 30 days after the end of each
taxable year, shall give written notice to the Corporation stating the name and
address of such owner, the number of shares of Capital Stock and other shares of
the Capital Stock Beneficially Owned and a description of the manner in which
such shares are held. Each such owner shall provide to the Corporation such
additional information as the Corporation may request in order to determine the
effect, if any, of such Beneficial Ownership on the Corporation's status as a
REIT and to ensure compliance with the Aggregate Stock Ownership Limit; and
(b) each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who is
holding Capital Stock for a Beneficial or Constructive Owner shall provide to
the Corporation such information as the Corporation may request, in good faith,
in order to determine the Corporation's status as a REIT and to comply with
requirements of any taxing authority or governmental authority or to determine
such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Section 5.7,
nothing contained in this Section 7.2 shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.2, Section 7.3, or any
definition contained in Section 7.1, the Board of Directors shall have the power
to determine the application of the provisions of this Section 7.2 or Section
7.3 or any such definition with respect to any situation based on the facts
known to it. In the event Section 7.2 or 7.3 requires an action by the Board of
Directors and the Charter fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the action
to be taken so long as such action is not contrary to the provisions of Sections
7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of
Directors, in its sole discretion, may exempt a Person from the Aggregate Stock
Ownership Limit and the Common Stock Ownership Limit, as the case may be, and
may establish or increase an Excepted Holder Limit for such Person if:
(i) the Board of Directors obtains such representations
and undertakings from such Person as are reasonably necessary to ascertain that
no Individual's Beneficial or Constructive Ownership of such shares of Capital
Stock will violate Section 7.2.1(a)(ii);
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(ii) such Person does not and represents that it will
not own, actually or Constructively, an interest in a tenant of the Corporation
(or a tenant of any entity owned or controlled by the Corporation) that would
cause the Corporation to own, actually or Constructively, more than a 9.9%
interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and
the Board of Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain this fact (for this purpose, a
tenant from whom the Corporation (or an entity owned or controlled by the
Corporation) derives (and is expected to continue to derive) a sufficiently
small amount of revenue such that, in the opinion of the Board of Directors,
rent from such tenant would not adversely affect the Corporation's ability to
qualify as a REIT, shall not be treated as a tenant of the Corporation); and
(iii) such Person agrees that any violation or
attempted violation of such representations or undertakings (or other action
which is contrary to the restrictions contained in Sections 7.2.1 through 7.2.6)
will result in such shares of Capital Stock being automatically transferred to a
Trust in accordance with Sections 7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section
7.2.7(a), the Board of Directors may require a ruling from the Internal Revenue
Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors in its sole discretion, as it may deem
necessary or advisable in order to determine or ensure the Corporation's status
as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of
Directors may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an underwriter which
participates in a public offering or a private placement of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) may Beneficially
Own or Constructively Own shares of Capital Stock (or securities convertible
into or exchangeable for Capital Stock) in excess of the Aggregate Stock
Ownership Limit, the Common Stock Ownership Limit, or both such limits, but only
to the extent necessary to facilitate such public offering or private placement.
(d) The Board of Directors may only reduce the Excepted
Holder Limit for an Excepted Holder: (1) with the written consent of such
Excepted Holder at any time, (2) pursuant to the terms and conditions of the
agreements and undertakings entered into with such Excepted Holder in connection
with the establishment of the Excepted Holder Limit for that Excepted Holder, or
(3) pursuant to Section 7.2.7(e). No Excepted Holder Limit shall be reduced to a
percentage that is less than the Common Stock Ownership Limit.
(e) Modification of Excepted Holder Limits. The Excepted
Holder Limits may be modified as follows:
(i) Subject to the limitations provided in Section
7.2.9, the Board may grant options, stock units or shares of Capital Stock which
result in Beneficial Ownership of shares of Capital Stock by an Excepted Holder
pursuant to an incentive stock or option plan approved by the Board of Directors
and/or the stockholders. Any such grant shall increase the Excepted Holder Limit
for the affected Excepted Holder to the maximum extent possible under Section
7.2.9 to permit the Beneficial Ownership of shares of Capital Stock issuable
upon the exercise of such option.
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(ii) Subject to the limitations provided in Section
7.2.9, an Excepted Holder may elect to participate in a dividend reinvestment
plan approved by the Board of Directors which results in Beneficial Ownership of
shares of Capital Stock by such participating Excepted Holder. Any such
participation shall increase the Excepted Holder Limit for the affected Excepted
Holder to the maximum extent possible under Section 7.2.9 to permit Beneficial
Ownership of the shares of Capital Stock acquired as a result of such
participation.
(iii) The Excepted Holder Limit for any Excepted Holder
shall be reduced after any Transfer permitted in this Article VII by such
Excepted Holder by the percentage of the outstanding shares of Capital Stock so
Transferred or after the lapse (without exercise) of an option, stock unit or
share of Capital Stock granted pursuant to an incentive stock or option plan
described in Section 7.2.7(e)(i) by the percentage of the shares of Capital
Stock which the option, stock unit or share of Capital Stock, if exercised or
vested, would have represented, but in either case no Excepted Holder Limit
shall be reduced to a percentage which is less than the Common Stock Ownership
Limit.
(iv) Upon the issuance by the Corporation of any
Capital Stock, the Excepted Holder Limit for any Excepted Holder shall be
reduced to the percentage of the outstanding shares of Capital Stock held by any
such Excepted Holder immediately after any such issuance, but no Excepted Holder
Limit shall be reduced to a percentage which is less than the Common Stock
Ownership Limit.
(v) Prior to the modification of any Excepted Holder
Limit pursuant to Section 7.2.7(e), the Board of Directors may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Corporation's status
as a REIT.
Section 7.2.8 Increase in Aggregate Stock Ownership and Common
Stock Ownership Limits. Subject to Section 7.2.9, the Board of Directors may
from time to time increase the Common Stock Ownership Limit and the Aggregate
Stock Ownership Limit.
Section 7.2.9 Limitations on Changes in Excepted Holder,
Aggregate Ownership Limits and Common Stock Ownership Limits. Neither the
Aggregate Stock Ownership Limit, Common Stock Ownership Limit nor any Excepted
Holder Limit may be increased (nor may any additional Excepted Holder Limit be
created) by the Board of Directors if, after giving effect to such increase (or
creation), five Individual Beneficial Owners of shares of Capital Stock
(including all of the then Excepted Holders) could Beneficially Own, in the
aggregate, more than 49.9% in number or value of the outstanding shares of
Capital Stock.
Section 7.2.10 Legend. Each certificate for shares of Capital
Stock shall bear substantially the following legend:
The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Individual may
Beneficially or Constructively Own shares of
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the Corporation's Common Stock in excess of 2.5 percent (in value or
number of shares, whichever is more restrictive) of the outstanding
shares of Common Stock of the Corporation unless such Individual is an
Excepted Holder (in which case the Excepted Holder Limit shall be
applicable); (ii) no Individual may Beneficially or Constructively Own
shares of Capital Stock of the Corporation in excess of 2.5 percent of
the value of the total outstanding shares of Capital Stock of the
Corporation, unless such Individual is an Excepted Holder (in which
case the Excepted Holder Limit shall be applicable); (iii) no Person
may Beneficially or Constructively Own Capital Stock that would result
in the Corporation being "closely held" under Section 856(h) of the
Code or otherwise cause the Corporation to fail to qualify as a REIT;
and (iv) no Person may Transfer shares of Capital Stock if such
Transfer would result in the Capital Stock of the Corporation being
owned by fewer than 100 Persons. Any Person who Beneficially or
Constructively Owns or attempts to Beneficially or Constructively Own
shares of Capital Stock which causes or will cause a Person to
Beneficially or Constructively Own shares of Capital Stock in excess or
in violation of the above limitations must immediately notify the
Corporation. If any of the restrictions on transfer or ownership are
violated, the shares of Capital Stock represented hereby will be
automatically transferred to a Trustee of a Trust for the benefit of
one or more Charitable Beneficiaries. In addition, upon the occurrence
of certain events, attempted Transfers in violation of the restrictions
described above may be void ab initio. All capitalized terms in this
legend have the meanings defined in the charter of the Corporation, as
the same may be amended from time to time, a copy of which, including
the restrictions on transfer and ownership, will be furnished to each
holder of Capital Stock of the Corporation on request and without
charge.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
Section 7.3 Transfer of Capital Stock in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer or
other event described in Section 7.2.1(b) that would result in a transfer of
shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed
to have been transferred to the Trustee as trustee of a Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the Business Day
prior to the purported Transfer or other event that results in the transfer to
the Trust pursuant to Section 7.2.1(b). The Trustee shall be appointed by the
Corporation and shall be a Person
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unaffiliated with the Corporation and any Prohibited Owner. Each Charitable
Beneficiary shall be designated by the Corporation as provided in Section 7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee. Shares of
Capital Stock held by the Trustee shall be issued and outstanding shares of
Capital Stock of the Corporation. The Prohibited Owner shall have no rights in
the shares held by the Trustee. The Prohibited Owner shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends or other distributions and shall not possess any
rights to vote or other rights attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall have
all voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised for
the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust and, subject to Maryland
law, effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Owner prior to the discovery by the Corporation that the shares of Capital Stock
have been transferred to the Trustee and (ii) to recast such vote in accordance
with the desires of the Trustee acting for the benefit of the Charitable
Beneficiary; provided, however, that if the Corporation has already taken
irreversible corporate action, then the Trustee shall not have the authority to
rescind and recast such vote. Notwithstanding the provisions of this Article
VII, until the Corporation has received notification that shares of Capital
Stock have been transferred into a Trust, the Corporation shall be entitled to
rely on its share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings, determining the
validity and authority of proxies and otherwise conducting votes of
stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held in
the Trust to a person, designated by the Trustee, whose ownership of the shares
will not violate the ownership limitations set forth in Section 7.2.1(a). Upon
such sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as provided in this Section
7.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by
the Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be held
in the Trust (e.g., in the case of a gift, devise or other similar transaction),
the Market Price of the shares on the day of the event causing the shares to be
held in the Trust and (2) the price per share received by the Trustee from the
sale or other disposition of the shares held in the Trust. Any net sales
proceeds in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary. If, prior to the discovery by
the Corporation that shares of Capital Stock have been transferred to the
Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall
be deemed to have been sold on behalf of the Trust and (ii) to the extent that
the Prohibited Owner received an amount for such shares that exceeds the amount
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that such Prohibited Owner was entitled to receive pursuant to this Section
7.3.4, such excess shall be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Stock Transferred to the
Trustee. Shares of Capital Stock transferred to the Trustee shall be deemed to
have been offered for sale to the Corporation, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift or
similar transaction, the Market Price at the time of such devise or gift or
similar transaction) and (ii) the Market Price on the date the Corporation, or
its designee, accepts such offer. The Corporation shall have the right to accept
such offer until the Trustee has sold the shares held in the Trust pursuant to
Section 7.3.4. Upon such a sale to the Corporation, the interest of the
Charitable Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By
written notice to the Trustee, the Corporation shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Trust such that (i) the shares of Capital Stock held in the Trust would not
violate the restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in
Section 501(c)(3) of the Code and contributions to each such organization must
be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of
the Code.
Section 7.4 NYSE Transactions. Nothing in this Article VII shall
preclude the settlement of any transaction entered into through the facilities
of the NYSE or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction occurs shall
not negate the effect of any other provision of this Article VII and any
transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article VII.
Section 7.5 Enforcement. The Corporation is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article VII.
Section 7.6 Section 7.6 Non-Waiver. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make
any amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in the
charter, of any shares of outstanding stock. All rights and powers conferred by
the charter on stockholders, directors and officers are granted subject to this
reservation.
A-15
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article IX, nor the adoption or amendment of any other provision
of the charter or Bylaws inconsistent with this Article IX, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
THIRD: The amendment to and restatement of the charter as hereinabove
set forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation
is as set forth in Article IV.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article IV.
SIXTH: The number of directors of the Corporation and the names of
those currently in office are as set forth in Article V.
SEVENTH: There has been no change in the total number of shares of
stock which the Corporation had authority to issue or in the aggregate par value
of such shares.
EIGHTH: The undersigned Chief Executive Officer of the Corporation
acknowledges these Articles of Amendment and Restatement to be the corporate act
of the Corporation and, as to all matters or facts required to be verified under
oath, the undersigned Chief Executive Officer acknowledges that to the best of
his knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties of
perjury.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-16
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be executed under seal in its name and on its
behalf by its Chief Executive Officer and attested to by its Secretary, on this
____ day of ________________, 2003.
ATTEST: CAPITAL TRUST, INC.
Brian H. Oswald By:__________________(SEAL)
Secretary
John R. Klopp
Chief Executive Officer
A-17
APPENDIX B
ARTICLES OF AMENDMENT
CAPITAL TRUST, INC.
ARTICLES OF AMENDMENT
THIS IS TO CERTIFY THAT:
FIRST: Capital Trust, Inc., a Maryland corporation (the "Corporation"),
hereby amends its charter as currently in effect as follows: Immediately upon
the acceptance of these Articles of Amendment for record (the "Effective Time")
by the State Department of Assessments and Taxation of Maryland ("SDAT"), every
three shares of Class A Common Stock ("Class A Stock"), par value $.01 par
share, of the Corporation, which were issued and outstanding immediately prior
to the Effective Time shall automatically and without any action on the part of
the holder thereof be changed into one issued and outstanding share of Class A
Stock, subject to the treatment of fractional interests in shares of Class A
Stock resulting from the change described below. No certificates or scrip
representing fractional share interests in Class A Stock shall be issued, and no
fractional share interest shall entitle the holder thereof to vote or to any
rights as a stockholder of the Corporation. A stockholder shall receive, in lieu
of any fractional share interest in Class A Stock to which the stockholder would
otherwise be entitled, a cash payment therefor equal to the product obtained by
multiplying (1) the closing price per share of Class A Stock on the New York
Stock Exchange on the day immediately preceding the Effective Date, as reported
on the composite tape of the New York Stock Exchange, Inc. (or in the event the
Class A Stock is not so traded on the day immediately preceding the Effective
Time, such closing price on the next preceding day on which such stock was
traded on the New York Stock Exchange), or in the event the Class A Stock is not
traded on the New York Stock Exchange, the fair value per share as determined
solely in the discretion of the Board of Directors, by (2) the number of shares
of Class A Stock outstanding immediately prior to the Effective Time that would
otherwise have been changed into a fractional interest in Class A Stock. Each
holder of a certificate which immediately prior to the Effective Time
represented outstanding shares of Class A Stock (an "Old Certificate") shall be
entitled to receive, upon surrender of such Old Certificate to the transfer
agent of the Corporation for cancellation, a certificate (a "New Certificate")
representing the number of whole shares of Class A Stock, as the case may be,
into which and for which the shares formerly represented by the Old Certificates
so surrendered are changed into under the terms hereof. If more than one Old
Certificate shall be surrendered at one time for the account of the same
stockholder, the number of whole shares of Class A Stock, as the case may be,
for which New Certificates shall be computed on the basis of the aggregate
number of shares represented by the Old Certificates so surrendered.
SECOND: These Articles of Amendment of the Corporation have been duly
advised by the Board of Directors of the Corporation and approved by the
stockholders of the Corporation as required by law.
THIRD: The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters of
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
[Remainder of Page Left Intentionally Blank]
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its President and
attested by its Assistant Secretary on this ___ day of __________, 2003.
ATTEST: CAPITAL TRUST, INC.
____________________________ By: _________________________ (SEAL)
Brian H. Oswald John R. Klopp
Secretary President
B-2
CAPITAL TRUST, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CAPITAL TRUST,
INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 2, 2003.
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 Special Meeting of Stockholders of the
Company (the "Special Meeting") to be held at the offices of Paul, Hastings,
Janofsky & Walker LLP, 75 East 55th Street, New York, New York 10022, on
Wednesday, April 2, 2003 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 and otherwise to represent the undersigned at the Special
Meeting with all powers possessed by the undersigned if personally present at
the Special Meeting. The undersigned hereby acknowledges receipt of the Notice
of the Special Meeting of Shareholders and of the accompanying Proxy Statement
and revokes any proxy heretofore given with respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as
instructed below. If this Proxy is executed but no instruction is given, the
votes entitled to be cast by the undersigned will be cast "for" each of the
proposals as described in the Proxy Statement and in the discretion of the Proxy
holder on any other matter that may properly come before the meeting or any
adjournment or postponement thereof. Please mark your choice like this: x .
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF
THE FOLLOWING
1. On the proposal to amend and restate our charter to make amendments the
Company determined are necessary in connection with its election to be
taxed as a real estate investment trust and to simplify the Company's
capital structure by eliminating from its charter the authorized but
unissued class B common stock, as more fully described in the Proxy
Statement and set forth in appendix A thereto.
(check one box) /_/ For /_/ Against /_/ Abstain
2. On the proposal to amend our charter to effect a three (3) for one (1)
reverse stock split and a corresponding reduction in our stated capital
all as described more fully in the Proxy Statement and set forth in
appendix B thereto.
(check one box) /_/ For /_/ Against /_/ Abstain
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Special Meeting, or any
adjournment or postponement thereof, or upon matters incident to the
conduct of the Special Meeting.
/_/ CHECK HERE IF YOU PLAN TO ATTEND THE MEETING IN PERSON
You may revoke or change your proxy at any time prior to its use at the
Special Meeting by giving the Company written direction to revoke it, by giving
the Company a new proxy or by attending the Special Meeting and voting in
person. Your attendance at the Special 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 Special Meeting.
(Continued and to be signed on the reverse side)
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: ____________________________, 2003
-------------------------------------
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.