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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JULY 31, 1996 COMMISSION FILE NO. 0-13804
THE CHICAGO DOCK AND CANAL TRUST
--------------------------------
(Exact name of registrant as specified in its charter)
ILLINOIS 36-2476640
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
455 EAST ILLINOIS STREET, SUITE 565
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CHICAGO, ILLINOIS 60611
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(Address of principal executive offices) (zip code)
(312) 467-1870
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON SHARES OF BENEFICIAL INTEREST - NO PAR VALUE PER SHARE, 5,783,800 SHARES
OUTSTANDING ON SEPTEMBER 13, 1996.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
JULY 31, APRIL 30,
1996 1996
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(IN THOUSANDS)
INVESTMENT IN REAL ESTATE, at cost:
DEVELOPED PROPERTIES $70,158 $70,246
LAND AND LAND IMPROVEMENTS
HELD FOR DEVELOPMENT 16,546 16,961
LAND SUBJECT TO GROUND
LEASES 7,201 6,743
LESS:ACCUMULATED
DEPRECIATION AND AMORTIZATION (14,789) (14,104)
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NET INVESTMENT IN REAL ESTATE 79,116 79,846
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OTHER ASSETS:
CASH AND CASH EQUIVALENTS 520 757
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INVESTMENTS AVAILABLE FOR SALE, AT COST
(APPROXIMATE MARKET VALUE OF $7,320
AT JULY 31, 1996) 7,303 5,973
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SHORT TERM INVESTMENTS-RESTRICTED,
AT COST (AND AT APPROXIMATE MARKET
VALUE) 502 203
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SECURITY DEPOSIT CASH 823 808
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RECEIVABLES:
TENANTS (INCLUDING $29,771 OF ACCRUED
BUT UNBILLED RENTS AT JULY 31, 1996) 29,907 29,647
REAL ESTATE TAXES PAYABLE BY LESSEES 7,273 5,931
LAND IMPROVEMENTS 1,388 1,388
INTEREST 52 45
OTHER 372 225
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38,992 37,236
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OTHER ASSETS, NET 1,045 1,185
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$128,301 $126,008
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
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THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
JULY 31, APRIL 30,
1996 1996
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(IN THOUSANDS)
LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
REAL ESTATE TAXES $5,475 $4,946
REAL ESTATE TAXES PAYABLE BY LESSEES 7,273 5,931
ACCRUED ENVIRONMENTAL REMEDIATION COSTS 750 750
OTHER 1,770 2,208
CASH DIVIDENDS PAYABLE 347 231
MORTGAGE NOTES PAYABLE 28,087 28,068
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TOTAL LIABILITIES 43,702 42,134
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SHAREHOLDERS' EQUITY:
COMMON SHARES OF BENEFICIAL INTEREST:
NO PAR VALUE, 20,000,000 AUTHORIZED,
5,944,200 ISSUED 3,101 3,101
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PREFERRED SHARES OF BENEFICIAL INTEREST:
NO PAR VALUE, 1,000,000 AUTHORIZED,
NONE ISSUED 0 0
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UNDISTRIBUTED INCOME BEFORE NET GAIN FROM
SALE OF REAL ESTATE PROPERTIES 9,745 9,020
UNDISTRIBUTED NET GAIN FROM SALE
OF REAL ESTATE PROPERTIES 72,372 72,372
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TOTAL UNDISTRIBUTED NET INCOME 82,117 81,392
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LESS:
TREASURY SHARES OF BENEFICIAL INTEREST,
AT COST-160,400 SHARES (619) (619)
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TOTAL SHAREHOLDERS' EQUITY 84,599 83,874
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$128,301 $126,008
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
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THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
JULY 31, JULY 31,
1996 1995
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(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
REVENUES:
REVENUE FROM RENTAL PROPERTY $4,609 $3,508
REAL ESTATE TAXES PAYABLE BY LESSEES 1,430 1,841
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TOTAL REVENUES 6,039 5,349
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EXPENSES:
REAL ESTATE TAXES 715 729
REAL ESTATE TAXES PAYABLE BY LESSEES 1,430 1,841
PROPERTY OPERATING EXPENSES 827 706
GENERAL AND ADMINISTRATIVE 443 462
DEPRECIATION AND AMORTIZATION 741 750
INTEREST EXPENSE 725 715
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TOTAL EXPENSES 4,881 5,203
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OPERATING INCOME 1,158 146
INVESTMENT AND OTHER INCOME 104 86
EQUITY IN NET LOSS OF LCD PARTNERSHIP (101) (103)
RESTRUCTURING EXPENSES (89) 0
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NET INCOME $1,072 $129
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EARNINGS PER SHARE $0.19 $0.02
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE STATEMENTS.
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THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JULY 31, JULY 31,
1996 1995
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(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $1,072 $129
ADD (DEDUCT)-ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH FLOWS FROM OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 741 750
EFFECT OF AVERAGING HOTEL RENTAL REVENUE (687) (1,037)
EQUITY IN NET LOSS OF LCD PARTNERSHIP 101 103
CHANGES IN RECEIVABLES (1,084) (1,869)
CHANGES IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,433 2,615
DIFFERENCE BETWEEN CURRENT INTEREST PAYABLE AND CONTRACTUAL INTEREST 43 519
AMORTIZATION OF LOAN FEES 20 20
OTHER 90 39
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,729 1,269
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CASH FLOWS FROM INVESTING ACTIVITIES:
NET (ACQUISITION) DISPOSITION OF SHORT-TERM INVESTMENTS (1,330) (694)
NET (ACQUISITION) DISPOSITION OF SHORT-TERM INVESTMENTS-RESTRICTED (299) (299)
ADDITIONS TO INVESTMENTS IN REAL ESTATE (56) (85)
LEASE COMMISSIONS AND OTHER (26) (22)
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CASH FLOWS (USED IN) INVESTING ACTIVITIES (1,711) (1,100)
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CASH FLOWS FROM FINANCING ACTIVITIES:
CASH DIVIDENDS DECLARED (347) (58)
CHANGE IN DIVIDENDS PAYABLE 116 0
PRINCIPAL PAYMENTS ON LOANS (24) (22)
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CASH FLOWS (USED IN) FINANCING ACTIVITIES (255) (80)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (237) 89
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 757 344
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CASH AND CASH EQUIVALENTS, END OF PERIOD $520 $433
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</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
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THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
1. Business of the Trust
The Trust is an equity oriented real estate investment trust which owns
partially developed land (including certain developed sites) located in downtown
Chicago, Illinois and income producing real property in Chicago and elsewhere.
The Trust was organized in 1962, succeeding to the business of its corporate
predecessor. The Trust has elected to continue its operation as a real estate
investment trust under the Internal Revenue Code of 1986, as amended. The Trust
is self administered.
As of July 31, 1996, the Trust's principal real estate investments
consisted of: (i) fee title or other interests in approximately 22 acres of
partially developed land in Cityfront Center in downtown Chicago (including
certain developed sites); (ii) Waterplace Park, an office complex in
Indianapolis, Indiana; and (iii) Lincoln Garden, an office complex in Tampa,
Florida.
2. Summary of Significant Accounting Policies
The financial statements have been prepared in conformity with generally
accepted accounting principles and reporting practices. Significant accounting
policies are described below and reference is made to the Notes to Consolidated
Financial Statements in the Trust's Form 10-K filed with the Securities and
Exchange Commission on July 9, 1996.
The financial statements in this report have not been audited by
independent public accountants. In the opinion of management, all adjustments
necessary for the fair presentation of the financial position and the results of
operations for the interim periods have been made. The results for the three
month periods are not necessarily indicative of the results for the full year.
3. Subsidiaries and Joint Venture
CDCT Plaza Corporation:
CDCT Plaza Corporation (the "Plaza Corp.") was formed by the Trust as a
wholly owned subsidiary. The Plaza Corp. owns or controls the 400 stall parking
facility under and adjacent to Ogden Plaza. The Plaza Corp. owns the area under
Park Drive, adjacent to Ogden Plaza, has a lessee's interest pursuant to a long
term lease from the Chicago Park District in the area under Ogden Plaza, and has
a licensee's interest in the area under Columbus Drive, adjacent to Ogden Plaza,
pursuant to a license with the City of Chicago. The license expires February
2002, subject to the City of Chicago's right to cancel the license for the
payment of a fee to
<PAGE>
the Plaza Corp. The area subject to the license contains 100 parking stalls and
is separate from the main portion of the parking facility which contains 300
stalls. An independent contractor operates the 400 stall parking facility, with
the Plaza Corp. receiving a varying percentage of gross revenues. The Trust
consolidates the operations of the Plaza Corp. in these financial statements.
CDCT Residence Corporation:
CDCT Residence Corporation (the "Residence Corp.") is a wholly owned
subsidiary which was capitalized with land located at the southeast corner of
East North Water and New Streets, (the "High-Rise" site) in Cityfront Center.
The Trust consolidates the operations of the Residence Corp. in these financial
statements.
In August 1989, the Residence Corp. entered into a partnership, LCD
Partnership ("LCD"), with Daniel E. Levin ("Levin"). The Residence Corp.
contributed the High-Rise site which was valued at $6,602,000 and which had an
historic cost of $1,689,000. Levin contributed cash, building plans for the
High-Rise building and a note for $903,000 which matured and was paid in
September 1991. Levin's contribution was valued at $3,301,000. The Residence
Corp. is a two-thirds partner in LCD and Levin is a one-third partner. Major
decisions of LCD, however, require unanimous approval. Accordingly, the
Residence Corp. accounts for its investment in LCD under the equity method.
In August 1989, LCD entered into a joint venture, New Street Joint Venture
("NSJV"), with Northwestern Mutual Life Insurance Company ("Northwestern
Mutual"). LCD contributed the High-Rise site, the plans and other assets
related to the development of the building (excluding the $903,000 note from
Levin). LCD's capital account was credited with $9,000,000. Northwestern
Mutual contributed an equal amount of cash. Northwestern Mutual and LCD are
50/50 partners in NSJV, subject, however, to Northwestern Mutual's priority over
LCD in certain distributions of cash flow and proceeds from sale or refinancing.
LCD accounts for its investment in NSJV under the equity method. The NSJV
agreement provides for Northwestern Mutual to receive a priority return of
operating cash flow and the proceeds from sale or refinancing of the High-Rise.
Cash flow must increase significantly from its current level for LCD to receive
any cash distribution from NSJV after the payment of Northwestern's preferential
return.
Northwestern Mutual also loaned NSJV $36,700,000 on a non-recourse basis.
In addition, the NSJV Agreement calls for LCD and Northwestern Mutual to
contribute, if necessary, their prorata shares of shortfalls in operating and
capital requirements. The High-Rise building opened in July 1991 and contains
480 units.
As of March 31, 1996, total assets and liabilities of NSJV were $45,731,000
and $38,287,000, respectively. For the three months ended March 31, 1996, NSJV
recorded gross revenues of $1,744,000 and total expenses of $2,094,000, which
resulted in a net loss of $350,000. Included in total expenses is depreciation
and
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amortization expense, which for the three months ended March 31, 1996 equaled
$424,000. LCD has a fiscal year which ends on April 30 and NSJV uses the
calendar year. Accordingly, LCD records its proportionate share of NSJV's
operating results four months in arrears.
4. Investments in Real Estate
Land and Land Improvements Held for Development -
Surface Parking:
During the third quarter of fiscal 1996, the Trust leased four surface
parking lots containing 725 stalls to System Parking, Inc. The lots had
previously been leased to North Pier Chicago on a fixed rental basis. The new
lease started January 1, 1996 and provides that the Trust will receive varying
percentages of the gross revenue generated by the lots. System Parking is
responsible for paying the operating expenses of the lots, but the Trust has the
obligation to pay the real estate taxes. The recent renovation of nearby Navy
Pier has increased demand for parking in the area and the Trust expects an
increase in net cash flow under the terms of the new lease compared to the prior
lease. For calendar year 1996, the new lease provides for minimum rent of
$3,600,000 (subject to potential adjustment during the remediation of the Tested
Site) (See Note 7).
Land Subject to Ground Leases -
Sheraton Chicago Hotel & Towers:
During fiscal 1989, the Trust entered into a 50 year ground lease (with
lessee options to extend the term 49 more years) with Tishman Realty Corporation
of Cook County ("Tishman Realty") for approximately 2.3 acres of land in
Cityfront Center in Chicago. Tishman Realty subsequently assigned this lease to
Cityfront Hotel Associates Limited Partnership ("Cityfront Hotel Associates"),
the current lessee. The site is currently improved with a 1,200 room convention
hotel called the Sheraton Chicago Hotel & Towers which opened in March 1992.
The lease provides for minimum annual rental payments which were fixed at
$150,000 through calendar 1994, and for payments which totalled $75,000 for the
six month period January 1, 1995 through June 30, 1995. The payments increased
to $900,000 for the six month period July 1, 1995 through December 31, 1995, and
will equal $2,100,000 for calendar 1996. After 1996, the base rent increases
annually by the increase in the Consumer Price Index, but not less than 5% nor
more than 10% per year. In addition to the base rent, percentage rent became
payable beginning July 1, 1995. Percentage rent equals the amount by which base
rent is exceeded by the product obtained by multiplying gross revenues from
operations by certain applicable percentages ranging from 2% - 5%.
The lessee also acquired an option to purchase the land. The earliest date
on which the land could be acquired pursuant to the option is July 30, 2003.
The purchase option provides that the land price will be the greater of (i) $40
million at January 1, 1999 escalating thereafter by the increase in the Consumer
Price Index,
<PAGE>
but not less than 5% nor more than 10% per year or (ii) the highest annual
ground rent payable during the thirty-six month period preceding the closing
date divided by the Applicable Capitalization Rate which ranges from 7.2% -
7.5%. In addition, in the event the option is exercised during the twelfth
operating year beginning April 1, 2003, a supplemental amount of $2.5 million
will be added to the purchase price. If the option were exercised at its
earliest date, April 1, 2003, the minimum purchase price which the Trust would
receive is approximately $52 million.
The Trust recognizes as rental revenue the average minimum base rent
payable over the initial 50 year term of the lease. This rent increases from
$150,000 in 1989 to approximately $16 million in 2038. The average rent
calculation also considers the minimum purchase price pursuant to the terms of
the above described purchase option. Under the Trust's method of revenue
recognition, the total carrying value of the land and the related accrued rent
receivable will never exceed the minimum option purchase price. The annual base
rental income recognized on the lease is approximately $4,848,000. The cash
base rent received during the first quarter of fiscal 1997 equaled $525,000.
The lease obligated the Trust to construct certain Phase II infrastructure
prior to the opening of the hotel. These development obligations consisted
primarily of Ogden Plaza and the elevated roadways adjacent to Columbus Drive
and surrounding the plaza. In addition to the infrastructure obligation under
the terms of the lease, the Trust also constructed the parking facility under
Ogden Plaza. Phase II infrastructure was substantially completed in March 1992.
This infrastructure was financed with the proceeds from a loan which has debt
service payments which, for the first eight years, correspond to the base rent
payable on the ground lease.
5. Mortgage Notes Payable
At July 31, 1996, mortgage notes payable consisted of two notes secured by
first mortgages on the rents from and the land under the Kraft Building, and the
rents from and the land under the Sheraton Chicago Hotel & Towers. Both notes
are non-recourse with respect to the Trust.
The principal balance of the Kraft Building note issued in May 1987, was
$5,696,000 at July 31, 1996. It is due in April 2016, bears interest at an
annual rate of 9.5%, payable monthly, and is self-amortizing over its term. The
carrying value of collateral pledged on this note at July 31, 1996 equaled
$15,000.
At July 31, 1996, the principal balance of the note secured by the rents
from and the land under the Sheraton Chicago Hotel & Towers was $22,391,000.
The note is due January 1, 2005. The initial principal amount of the loan was
$14,367,000 and the interest rate is 10.25%. Amounts are payable monthly, but
through December 31, 1998, the debt service currently payable coincides with the
ground rent due under the Sheraton lease. The difference between current
interest payable and the contractual interest is added to principal. Starting
in 1999, debt
<PAGE>
service will be computed on a 30 year amortization based on the then current
principal balance. The carrying value of collateral pledged on this note at
July 31, 1996 was $35,164,000 and consisted of land, the depreciated basis in
land improvements and accrued but unbilled rent.
On December 23, 1994, the Trust entered into a revolving credit agreement
with First Bank, N.A. The agreement has a three year term and provides for a
maximum commitment by the lender of $20,000,000. The agreement is secured by
the Cityfront Place Mid-Rise. Initially the Trust borrowed $4,000,000 of the
available credit and used the proceeds to retire the $4,000,000 Cityfront Place
Mid-Rise note issued February 25, 1992. During the fourth quarter of fiscal
1995, the Trust repaid the $4,000,000 initially advanced under the credit
facility using available cash and cash equivalents and investments available for
sale. Since that time the Trust has not borrowed any of the available credit.
Accordingly, at July 31, 1996, the full amount of the facility is available.
Interest only, based on LIBOR plus 135 basis points, is due monthly on the
amount advanced under the revolving credit agreement. The carrying value of
collateral pledged on this revolving credit agreement at July 31, 1996 equaled
$45,799,000.
6. Short-Term Investments - Restricted
As a requirement of the revolving credit agreement entered into by the
Trust on December 23, 1994 with First Bank, N.A., the Trust agreed to make
monthly payments into an escrow account. This account funds the semi-annual
real estate tax payments due on the Cityfront Place Mid-Rise. At July 31, 1996,
the balance in this account equaled $502,000.
7. Environmental Remediation Costs
In June 1993, the U.S. Environmental Protection Agency (the "EPA")
conducted preliminary surface tests on a 2.8 acre site currently used as a
surface parking lot (the "Tested Site"). The Tested Site was examined because
thorium, a radioactive element, may have been used on the Tested Site earlier in
the century by a former tenant, in a building which was demolished in the mid
1930's after the expiry of the tenant's lease.
In January 1994, the Trust entered into a consent order with the EPA
regarding preliminary testing to be performed on the Tested Site. Initial on-
site tests were conducted pursuant to that order in May 1994 and laboratory
analysis was completed on the samples in June 1994. The results of the tests
indicate one concentrated area which appears to be contaminated by thorium, and
other scattered areas on the Tested Site with significantly lower levels of
contamination. The most contaminated area is within the footprint of the
building previously occupied by the former tenant. The Trust submitted the
results of the testing to the EPA in September 1994.
<PAGE>
The Trust's consultants have prepared cost estimates to remediate the
contaminated areas on the Tested Site which range from $1 million to $7 million,
with $3.5 million representing the most likely estimated cost of the required
remediation, which involves excavation and disposal of the areas contaminated by
thorium. That range of costs is estimated based on the results of surface
measurements, the analysis of samples gathered from nine borings taken on the
site and the review of the Unilateral Administrative Order. While the tests
conducted to date were made pursuant to the consent order with the EPA,
additional conditions may exist on the site which would be discovered only upon
excavation.
The Trust entered into an agreement on August 11, 1995 (which was expanded
and superseded by an agreement dated January 18, 1996) with Kerr-McGee Chemical
Corporation ("KMCC"), the successor to a former tenant of the Tested Site,
regarding the financial responsibilities of the parties for the remediation of
the Tested Site (the "Reimbursement Agreement"). Under the terms of the
Reimbursement Agreement, KMCC is responsible for the remediation of the Tested
Site with respect to thorium contamination and any thorium/mixed waste
contamination, and the Trust has the obligation to reimburse KMCC for 25% of the
cost of this remediation, not to exceed a maximum reimbursement obligation of
the Trust of $750,000. Legal counsel has advised the Trust that it may have
claims for coverage for some or all of its share of the remediation costs under
its current or prior insurance policies.
On June 6, 1996, the EPA issued a Unilateral Administrative Order which
requires the remediation of the Tested Site and the disposal of the contaminated
material at an approved off-site facility. In response to this Order, KMCC, in
conjunction with the Trust, submitted a work plan for the remediation to the
EPA. The EPA has since reviewed and commented on the work plan and the Trust
and KMCC are currently preparing their response to the comments. In September,
additional drilling began to more precisely define the area to be remediated.
Remediation is scheduled to begin in October, with completion expected by the
end of calendar year 1996. Additional conditions may exist on the site which
would be discovered only upon excavation which may impact the timing of
remediation.
In the fourth quarter of fiscal 1995, the Trust recorded environmental
remediation expense of $1,035,000 based upon the resolution of accounting and
other issues related to environmental remediation costs of property held for
development and the execution of the Reimbursement Agreement with KMCC. This
amount included the Trust's share of testing and legal costs related to the
Tested Site through April 30, 1995, plus $750,000, which is the maximum
reimbursement obligation of the Trust pursuant to the terms of the Reimbursement
Agreement. This amount excluded the amount of the potential claims for some or
all of the Trust's share of the remediation costs under the Trust's current or
prior insurance policies.
<PAGE>
8. Solicitation of Indications of Interest for Business Combination
On February 28, 1996 the Trust retained Lehman Brothers Inc., as its
financial advisor to assist in studying strategic alternatives designed to
enhance shareholder value. As part of this study, the Board, on April 11, 1996,
authorized Lehman Brothers to seek preliminary indications of interest for a
potential business combination involving the Trust. There can be no assurance
that any transaction will occur as a result of this study.
<PAGE>
ITEM 2
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
On February 28, 1996 the Trust retained Lehman Brothers Inc., as its
financial advisor to assist in studying strategic alternatives designed to
enhance shareholder value. As part of this study, the Board, on April 11, 1996,
authorized Lehman Brothers to seek preliminary indications of interest for a
potential business combination involving the Trust. There can be assurance that
any transaction will occur as a result of this study.
To date, East Water Place, L.P., the developer lessee of East Water Place
Townhomes has leased 28 townhome lots from the Trust. The developer is
obligated to lease 16 more lots during calendar 1997 and the remaining 12 lots
in calendar 1998. Initial occupancy of the townhomes is planned by the end of
calendar 1996.
On June 6, 1996, the EPA issued a Unilateral Administrative Order which
requires the remediation of an area in Cityfront Center currently used as a
parking lot known as the Tested Site. Kerr-McGee Chemical Corporation ("KMCC"),
which is responsible for the remediation of the Tested Site, in conjunction with
the Trust submitted a work plan for the remediation to the EPA. The EPA has
since reviewed and commented on the work plan and the Trust and KMCC are
currently preparing their response to the comments. In September, additional
drilling began to more precisely define the area to be remediated. Remediation
is scheduled to begin in October, with completion expected by the end of
calendar year 1996. Additional conditions may exist on the site which would be
discovered only upon excavation which may impact the timing and the extent of
remediation.
During the third quarter of fiscal 1995, the Trust sold a parcel of land to
the Chicago Music and Dance Theater, Inc. (the "Theater") for the construction
of a 1,500 seat performing arts theater in Cityfront Center. The Theater
reports it is close to raising the necessary financing for the construction of
the project. The Trust retained repurchase rights for the site if the Theater
has not made a substantial commencement of construction prior to September 1,
1996, subject to force majeure delays. The Theater has requested a 30 day
extension of this date in order to finalize its financing arrangements.
Recently the actual calendar 1995 real estate tax bills for the Trust's
Cityfront Center property were released by the Cook County Assessor. These
bills reflect a slight decrease from calendar 1994 taxes. The Trust had
reflected an estimate for calendar 1995 taxes at the end of fiscal 1996 which
assumed an increase in calendar 1995 taxes over calendar 1994 taxes.
<PAGE>
During the first quarter of fiscal 1997, the Mid-Rise and High-Rise
buildings of Cityfront Place continued their strong performances. Average
occupancy during the quarter was 97% and 96% for the Mid-Rise and High-Rise
respectively. At the Trust's two properties outside of Chicago, occupancy at
Lincoln Garden in Tampa, Florida and at Waterplace Park in Indianapolis, Indiana
was 92% and 90%, respectively, at July 31, 1996. Furthermore, occupancy at
Lincoln Garden rose to 96% in August 1996 and at Waterplace Park occupancy
increased to 99% in September 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1996 VERSUS
THREE MONTHS ENDED JULY 31, 1995
Revenues:
Revenue from rental property increased for the three months ended July 31,
1996 compared to the same period in the prior year primarily due to revenue
generated by the Trust's surface parking lots. As a result of a lease, which
began January 1, 1996, with System Parking, Inc., current quarter revenues from
these lots increased by $824,000. Current quarter revenues also exceeded
revenues from the first quarter of fiscal 1996 for the Mid-Rise, the Ogden Plaza
parking facility, Waterplace Park and Lincoln Garden. Finally, the current
quarter reflects revenues generated by the East Water Place Townhomes. No
townhome revenue was recorded during the first quarter of fiscal 1996.
Under the terms of the lease with System Parking, Inc., the Trust became
liable for real estate taxes on all four of the surface parking lots. Under the
prior lease, the lessee had the responsibility for the payment of real estate
taxes. As a result, real estate taxes payable by lessees decreased in the
current quarter. Real estate taxes payable by lessees are also reflected as
an expense, and therefore, do not affect net income.
Equity in Net Loss of LCD Partnership reflects the Trust's effective one-
third share of the operations of New Street Joint Venture, the entity which owns
the Cityfront Place High-Rise. The loss during the Trust's first quarter of
fiscal 1997, which ended July 31, 1996, reflects the building's operations from
January 1, 1996 through March 31, 1996, the first quarter of New Street Joint
Venture's fiscal year. The current quarter loss had no impact on Trust cash
flows since New Street Joint Venture did not require additional equity
contributions and because of the cash flow priority of LCD's partner in New
Street Joint Venture.
Expenses:
Although real estate tax expense decreased by only $14,000 this quarter
compared to the first quarter of fiscal 1996, two major differences exist
between the
<PAGE>
quarters. First, actual calendar 1995 real estate tax bills were lower than the
estimate reflected in the April 30, 1996 accrual balance. Second, under the
terms of its lease with System Parking, Inc., the Trust assumed the
responsibility for real estate taxes on all four of the surface parking lots.
Under the terms of the prior lease, the lessee had the responsibility for the
payment of taxes and these were reported as real estate taxes payable by
lessees.
Property operating expenses increased primarily due to increases at the
Mid-Rise and Waterplace Park. The increase at the Mid-Rise included an increase
in carpet replacement in individual units, which is recorded as expense when
incurred. The increase at Waterplace Park is the result of a significant
increase in occupancy from the current quarter as compared to the first quarter
of fiscal 1996.
Restructuring expenses consist primarily of legal and consulting expenses
related to the solicitation of indications of interest for a potential business
combination.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows:
OPERATING
Cash flows from operating activities increased in the first quarter of
fiscal 1997 compared to the same quarter in the prior year due primarily to an
increase in cash flows from parking operations.
INVESTING
Cash flows used in investing activities increased during the current
quarter due to an increase in the acquisition of unrestricted short-term
investments. These acquisitions were made possible by the increase in operating
cash flows.
FINANCING
Cash flows used in financing activities increased during the current
quarter due to the increase in dividends paid.
Funds From Operations:
The Board of Governors of the National Association of Real Estate
Investment Trusts in 1991 adopted a definition of "Funds From Operations" as
follows:
Funds from Operations means net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization,
<PAGE>
and after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
Funds from Operations equaled $2,031,000 during the current quarter
compared to $1,011,000 for the same period in the prior fiscal year. This
increase of $1,020,000 is primarily due to the increase in net income from
parking operations.
In March 1995, the Board of Governors clarified the preceding definition
with respect to the treatment of certain items, although the clarification did
not affect the Trust's reporting of such funds. The preceding definition of
Funds from Operations includes certain material non-cash items which are
reported in income and expense of the Trust. Please refer to the Consolidated
Statements of Cash Flows in the financial statements for the computation of cash
flows from operating, investing and financing activities.
General Discussion:
The Trust has historically used non-recourse debt secured by individual
properties as the primary source of additional capital, when needed, to fund
acquisitions or development. It has also acquired income producing properties
in tax-deferred exchanges in which little or no debt was required. The Trust
currently has four income producing properties with no debt outstanding -
Waterplace Park, Lincoln Garden, the Cityfront Place Mid-Rise and the Ogden
Plaza parking facility.
During the third quarter of fiscal 1995, the Trust entered into a three
year $20,000,000 revolving credit agreement with First Bank, N.A. secured by the
Mid-Rise apartment building. At July 31, 1996, the full amount of the facility
is available. The Trust agreed to make monthly payments into an escrow account
to fund the semi-annual real estate tax payments due on the Cityfront Place Mid-
Rise. At July 31, 1996 the balance in this account equaled $502,000.
At July 31, 1996, total interest bearing debt of the Trust equaled
$28,087,000, all of which was fixed rate debt.
While the Trust may not, under federal tax law applicable to REIT's, hold
property for sale in the ordinary course of business, its policy is to evaluate
periodically its portfolio to properties which might be considered for sale,
lease or exchange. The most recent sale occurred during the third quarter of
fiscal 1995 when the Trust sold a parcel containing approximately 41,000 square
feet to the Chicago Music and Dance Theater, Inc. Prior to this, the Trust sold
the land under the Brick Venture apartment building adjacent to North Pier at
Cityfront Center in fiscal 1989.
In January 1994, the Trust entered into a consent order with the EPA
regarding preliminary testing to be performed on a 2.8 acre site in Cityfront
Center
<PAGE>
currently used as a parking lot (the "Tested Site"). The Trust's consultants
have prepared cost estimates to remediate the contaminated areas on the Tested
Site which range from $1 million to $7 million, with $3.5 million representing
the most likely estimated cost of the required remediation, which involves
excavation and disposal of the areas contaminated by thorium.
The Trust entered into an agreement on August 11, 1995 (which was expanded
and superseded by an agreement dated January 18, 1996) with Kerr-McGee Chemical
Corporation ("KMCC"), regarding the financial responsibilities of the parties
for the remediation of the Tested Site (the "Reimbursement Agreement"). Under
the terms of the Reimbursement Agreement, KMCC is responsible for the
remediation of the Tested Site with respect to thorium contamination and any
thorium/mixed waste contamination, and the Trust has the obligation to reimburse
KMCC for 25% of the cost of this remediation, not to exceed a maximum
reimbursement obligation of the Trust of $750,000.
On June 6, 1996, the EPA issued a Unilateral Administrative Order which
requires the remediation of the Tested Site and the disposal of the contaminated
material at an approved off-site facility. In response to this Order, KMCC, in
conjunction with the Trust, submitted a work plan for the remediation to the
EPA. The EPA has since reviewed and commented on the work plan and the Trust
and KMCC are currently preparing their response to the comments. In September,
additional drilling began to more precisely define the area to be remediated.
Remediation is scheduled to begin in October, with completion expected by the
end of calendar year 1996. Additional conditions may exist on the site which
would be discovered only upon excavation which may impact the timing and the
extent of remediation.
The Trust will consider using its current cash, investments available for
sale or its current credit facility, to fund its obligations under the
Reimbursement Agreement with KMCC. The Trust may have claims for coverage for
some or all of its share of the remediation costs under its current or prior
insurance policies.
In order to fully develop the land owned by the Trust in Chicago,
additional infrastructure expenditures will be required. These improvements are
necessary to fully redevelop the property in accordance with the Planned
Development Ordinance approved by the Chicago City Council on November 6, 1985.
The Trust completed Phase I infrastructure in fiscal 1988 using the
proceeds from borrowings secured by the Kraft Building and One Michigan Avenue.
Total Phase I expenditures amounted to approximately $10 million. The Trust
completed Phase II infrastructure in fiscal 1992 using the proceeds from a
borrowing secured by the rents from and land under the Sheraton Chicago Hotel &
Towers ground lease.
Phase III infrastructure consists primarily of the River Esplanade and
River Drive east of McClurg Court, Du Sable Park (a 3 acre park east of Lake
Shore Drive),
<PAGE>
the slip promenade on the south bank of the Ogden Slip and the upgrading of the
remainder of East North Water Street. The total current cost to the Trust for
the improvements is estimated to be approximately $8.5 million, which includes
the Trust's obligation to contribute $600,000 for improvements to be made in Du
Sable Park expected to be completed during calendar 1997. The remainder of
Phase III will be constructed as needed to support additional development in the
area. However, certain improvements are required to be completed no later than
the completion of 2,500 units of residential development on the east portion of
Cityfront Center. The estimated cost of the remaining infrastructure is based
on a number of assumptions, including, but not limited to the following: (i)
East Water Place, L.P. completes all improvements on the parcels which are
currently under development for the East Water Place Townhomes related to the
slip promenade on the south bank of the Ogden Slip; (ii) the Chicago Music and
Dance Theater, Inc. completes the pedestrian concourse through its parcel; (iii)
the estimate is based on design development drawings; actual site conditions may
materially increase the amount; and (iv) the cost estimate includes hard
construction costs only and is stated in terms of current costs. It is the
intention of the Trust to finance future infrastructure with cash on hand, its
current credit facility, general corporate indebtedness, borrowings secured by
its income producing properties and ground leases, asset sales or some
combination of these sources.
The recent renovation of nearby Navy Pier has increased demand for parking
in the surrounding area. As a result, the Trust expects an increase in net cash
flow under the terms of its new lease for four surface parking lots with System
Parking, Inc. compared to the cash flow it received from its prior lease with
North Pier Chicago. In addition, the Trust expects an increase in net cash flow
from the operations of the Ogden Plaza parking facility.
Starting January 1, 1996, the base rent payable to the Trust from its lease
with Cityfront Hotel Associates Limited Partnership for the Sheraton Chicago
Hotel & Towers increased to an annual rate of $2.1 million. While all of the
base rent will be paid as additional debt service on the loan which financed the
infrastructure improvements associated with the hotel, it is the starting point
for the future increases in minimum base rent and minimum rent will exceed the
debt service beginning in 1999. Also starting July 1, 1995, the percentage rent
provisions of the ground lease became effective. During fiscal 1996 the Trust
received $226,000 in percentage rent, of which $96,000 was recognized as revenue
with the remaining $130,000 representing a prepayment of future percentage rent.
Percentage rent for the months of April, May and June 1996, exceeded base rent
by $106,000, less than the overpayment from the prior year. Accordingly, no
additional payments of percentage rent were received during the first quarter of
fiscal 1997.
The New Street Joint Venture Agreement obligates LCD and Northwestern
Mutual to contribute, if necessary, their prorata shares of funds related to the
operation of the High-Rise building. As of July 31, 1996, LCD had funded
$335,000 as its share of additional capital contributions, all of which was
contributed prior to
<PAGE>
fiscal 1994. LCD currently holds approximately $910,000 in short term
investments. The Trust's two-thirds share of these short term investments is
not reflected on the Trust's balance sheet and is in addition to the Trust's
cash and investments. The New Street Joint Venture agreement provides for
Northwestern Mutual to receive a priority return of operating cash flow and the
proceeds from sale or refinancing of the High-Rise. Cash flow must increase
significantly from its current level for LCD to receive any cash distributions
from New Street Joint Venture after the payment of Northwestern's preferential
return. The cash hold by LCD is not subject to any such priorities.
On July 17, 1996 the Board of Trustees of the Trust declared an increase to
the Trust's quarterly dividend to $.06 per share from $.04 per share effective
for the dividend paid September 1, 1996. This followed an increase to the
Trust's quarterly dividend to $.04 per share from $.01 per share effective for
the dividend paid March 1, 1996. These dividend increases reflect an overall
improvement in the cash flow and the operating results of the Trust.
Management considers that the Trust's liquidity at July 31, 1996 is
adequate to meet its operating needs and commitments.
<PAGE>
Part II
- -------
Item 6(a) - Exhibits -
10.17 Amendment to Employment Agreement between the Trust and Charles
R. Gardner dated August 5, 1996 is filed herewith.
10.18 Noncompetition Agreement between the Trust and Charles R. Gardner
dated August 5, 1996 is filed herewith.
10.19 Amendment to Employment Agreement between the Trust and David R.
Tinkham dated August 5, 1996 is filed herewith.
10.20 Noncompetition Agreement between the Trust and David R. Tinkham
dated August 5, 1996 is filed herewith.
Item 6(b) - No Form 8-K's were filed during the first quarter of fiscal
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHICAGO DOCK AND CANAL TRUST
/s/ DAVID R. TINKHAM
--------------------------------
David R. Tinkham, Vice
President and Chief
Accounting Officer
September 13, 1996
<PAGE>
AMENDMENT NO. 2 TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 2 to Executive Employment Agreement is made as of
the 5th day of August, 1996 between THE CHICAGO DOCK AND CANAL TRUST, an
Illinois business trust (the "Trust"), and CHARLES R. GARDNER ("Executive").
The Trust and Executive previously entered into an Executive
Employment Agreement dated as of April 14, 1993 and an amendment thereto dated
as of July 19, 1995 (the "Employment Agreement") providing for the employment
arrangements between the Trust and Executive. The Trust and Executive now
desire to make certain further changes in the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the Trust and Executive hereby amend the Employment
Agreement as follows:
1. Section 5 of the Employment Agreement shall be amended by
adding a new paragraph (e) to read as follows:
"(e) LIQUIDATION OF THE TRUST. The Trust agrees as
follows: (i) In the event of the adoption of a plan of
liquidation by the Board of Trustees of the Trust, the
Compensation Committee of the Board of Trustees of the Trust
shall concurrently therewith grant to Executive an option (the
"Liquidation Option") to purchase 135,000 common shares at a
purchase price per share equal to the Fair Market Value (as
defined below) of a common share on the date of grant of such
option. The Liquidation Option shall become exercisable upon the
occurrence of a Change in Control (as defined in Section 7(d)).
"Fair Market Value" shall mean the closing price per share of the
common shares quoted on the National Market System of the
National Association of Securities Dealers' Automated Quotation
System on the date as of which such value is being determined,
or, if there shall be no reported transaction for such date, on
the next preceding date for which a transaction was reported;
provided, however, that if Fair Market Value cannot be so
determined, Fair Market Value shall be determined by the
Compensation Committee of the Board of Trustees by whatever means
or method as such Committee, in the good faith exercise of its
discretion, shall at such time deem appropriate.
(ii) In the event of a liquidation (in whole or in part) of
the Trust, the
<PAGE>
Compensation Committee of the Board of Trustees of the Trust will, in
accordance with its duties to interpret and administer the stock
option plans of the Trust, take such action as is necessary to provide
for an equitable adjustment of the exercise prices of then outstanding
stock options (including the Liquidation Option) or, if the Board of
Trustees determines that an amendment to such plans is required to
effect such an equitable adjustment, the Board will take such action
as is necessary to implement such amendments."
2. The second sentence of Section 7(d) of the Employment
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"The term "Change in Control" shall mean (1) a
reorganization, merger or consolidation of Trust with one or more
corporations or entities if the Trust is not the surviving
entity, (2) a transfer of all or substantially all of the
property of the Trust to another entity or person, (3) the
transfer in one or more transactions to one or more persons
pursuant to a plan of liquidation or otherwise of (x) the
Specified Percentage (as hereinafter defined) of the total assets
of the Trust and (y) undeveloped real property representing 50%
or more of the aggregate square footage of undeveloped real
property owned by the Trust immediately prior to the first
transaction involving a transfer of assets after the date hereof
(the "Measurement Date"), (4) if any person becomes the
beneficial owner of twenty-five percent (25%) or more of the
total number of outstanding common shares of the Trust (as used
in this clause, "person" shall mean any individual or entity as
well as any syndicate or group deemed to be a person pursuant to
Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended, and the term "beneficial owner" shall be interpreted in
accordance with Rule 13d-3 under such Act, or any corresponding
rule later adopted), or (5) if subsequent to the date (herein the
"Determination Date") which is the later of the date hereof or
the last date as of which the term of Executive's employment has
been automatically extended for one additional year pursuant to
Section 2 hereof, a majority of the persons serving as Trustees
of the Trust shall be persons who were not Trustees as of the
Determination Date. "Specified
-2-
<PAGE>
Percentage" shall mean a percentage equal to or greater than 70% which
is derived from a fraction, the numerator of which is the aggregate
net proceeds to the Trust from the sale or sales of assets sold since
the Measurement Date (net of any related indebtedness) and the
denominator of which is the dollar amount reflected on the Trust's
balance sheet as total assets at the end of the fiscal year next
preceding the Measurement Date (net of any indebtedness).
Notwithstanding anything contained herein to the contrary, it is
understood that a Change in Control shall be deemed to have occurred
for purposes of this Agreement under the following circumstances:
(x) the term set forth in Section 2 hereof shall have expired after
the adoption by the Trust of a plan of liquidation, (y) Executive
shall not have been terminated pursuant to Section 7(c) hereof and
(z) Executive shall not have refused to accept an extension to his
employment on substantially the same terms and conditions which would
have enabled him to remain employed by the Trust until the Specified
Percentage had been achieved."
3. Section 8(d) of the Employment Agreement shall be deleted in
its entirety and the following shall be substituted in lieu thereof:
"(d) (i) If Executive's employment is terminated under
Section 7(d) or Section 7(f) above prior to the expiration of the
term of this Agreement, the Trust, in lieu of all other
obligations under this Agreement (other than the obligations set
forth in clause (ii) below), shall as liquidated damages or
severance pay or both cause all then outstanding stock options
theretofore granted to Executive to immediately vest and to
become exercisable regardless of any installment exercise
provisions.
(ii) If Executive's employment is terminated under
Section 7(f) above prior to a Change in Control and prior to the
expiration of the term of this Agreement, the Trust, in addition
to the obligations set forth in clause (i) above, shall as
liquidated damages or severance pay or both:
(a) pay Executive his base compensation for thirty-six
(36) months thereafter at the then current rate as provided
in
-3-
<PAGE>
Section 5(a) hereof; provided that such base compensation shall
be paid entirely in cash except to the extent of the agreed
compensation value of Base Compensation Options granted to
Executive prior to the date of Notice of Termination (or the Date
of Termination with respect to any termination for which a Notice
of Termination is not required) as base compensation for any
period after the Date of Termination;
(b) during the thirty-six (36) month period
thereafter, (at the Trust's expense) provide Executive with
the benefits described in Schedule A hereto;
(c) pay to Executive in a lump sum within fifteen (15)
days of the Date of Termination an amount in cash equal to
the present value of Executive's additional pension plan
benefits under the Trust's defined benefit plans accrued
through the third anniversary of the Date of termination (as
calculated under the "Increase in Value" column of
Schedule B attached hereto); and
(d) provide to Executive, pursuant to a plan
previously approved by the Compensation Committee of the
Board of Trustees, in a lump sum within fifteen (15) days of
the Date of Termination an amount in cash equal to 20% of
the product of 135,000 and the Fair Market Value of a common
share of the Trust on the Date of Termination (it being
understood that this clause (d) shall not apply in the event
that the Trust has granted the Liquidation Option to
Executive)."
4. As amended hereby, the Employment Agreement remains in full
force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
THE CHICAGO DOCK AND CANAL TRUST
By: /s/ Robert E. Wood II
--------------------------------
Robert E. Wood II, Trustee
EXECUTIVE
/s/ Charles R. Gardner
-----------------------------------
Charles R. Gardner
-5-
<PAGE>
SCHEDULE A
LIFE INSURANCE
$500,000 INDIVIDUAL TERM POLICY
$50,000 GROUP TERM COVERAGE
HEALTH AND DENTAL INSURANCE
85% OF COST OF $200 DEDUCTIBLE HEALTH INSURANCE
85% OF COST OF DENTAL POLICY
DISABILITY INSURANCE
INDIVIDUAL POLICY FOR $3,500 BENEFIT PER MONTH
GROUP POLICY FOR $6,000 BENEFIT PER MONTH
EMPLOYEE TO REPORT COST IN INCOME; BENEFIT TAX FREE
AUTOMOBILE
USE OF SAAB TURBO CONVERTIBLE, MAINTENANCE, GAS, INSURANCE
NEW CAR EVERY TWO YEARS
401(k) PLAN
ANNUAL TRUST CONTRIBUTION OF $5,000 PER YEAR
CLUB DUES
CHICAGO CLUB
410 CLUB
TAVERN CLUB
NEW YORK UNIVERSITY CLUB
ARTS CLUB
ECONOMIC CLUB
EXECUTIVE'S CLUB
PARKING
MONTHLY INDOOR PARKING PASS
<PAGE>
SCHEDULE B
(TOWERS PERRIN Letterhead)
CONFIDENTIAL
July 16, 1996
Mr. David R. Tinkham
Vice President
The Chicago Dock & Canal Trust
455 East Illinois Street, Suite 565
Chicago, Illinois 60611
Dear David:
Following up to our prior estimates of the value of the retirement-related
provisions of your and Charlie Gardner's employment contracts in the event of
your involuntary terminations prior to the expiration of the contracts, we have
estimated those values at additional periodic dates after September 30, 1996.
Below are the additional estimates (total of qualified plan and SERP) together
with the September 30, 1996 estimate:
- --------------------------------------------------------------------------------
Value Value With 3
Without 3 Added Years
Termination Date Added Years of Accruals Increase in
of Accruals Value
- --------------------------------------------------------------------------------
September 30, 1996
Gardner $499,331 $690,962 $191,631
Tinkham 98,393 154,261 55,868
- --------------------------------------------------------------------------------
December 31, 1996
Gardner 559,545 710,240 150,695
Tinkham 127,004 158,574 31,570
- --------------------------------------------------------------------------------
March 31, 1997
Gardner 576,773 729,780 153,007
Tinkham 131,321 163,381 32,060
- --------------------------------------------------------------------------------
June 30, 1997
Gardner 594,252 749,584 155,332
Tinkham 135,753 168,332 32,579
- --------------------------------------------------------------------------------
<PAGE>
David R. Tinkham
July 16, 1996
Page 2.
As you can see, there is a discontinuity in the value of the contract provisions
(increase in value) at December 31, 1996. That's because the SERP final pay is
based on the highest Plan Year pay in the last five FULL Plan Years. Since the
Plan Year is the calendar year, 1996 pay is not taken into account in
calculating the benefit at September 30, 1996. The total benefit calculated
taking into account three future years already uses 1996 in the calculation; we
don't see the same discontinuity in that benefit. In other words, there is a
discontinuity in the value of the contract benefit but the total benefits
(qualified plan, SERP, and contract provisions) increases rather smoothly.
Again, keep in mind that the value of these benefits will change if:
- - the actuarial assumptions, in particular the interest rates, change or
- - any of the participant information changes.
Attached are tables showing most of the development of the additional estimates.
If you have any questions or need additional information, please call me.
Sincerely,
/s/ William G. Leighty, Jr.
- --------------------------------------
William G. Leighty, Jr., Principal
WGL:kr
Enclosures
<PAGE>
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is entered into as of
August 5, 1996 between THE CHICAGO DOCK AND CANAL TRUST, an Illinois business
trust (the "Trust"), and CHARLES R. GARDNER (the "Executive").
WHEREAS, the Executive has acquired extensive knowledge of and
experience in the business conducted by the Trust; and
WHEREAS, the Trust and the Executive desire to enter into this
Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the adequacy and sufficiency of which are hereby acknowledged,
the Trust and the Executive hereby agree as follows:
1. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective only upon the termination of the Executive's employment under the
following circumstances:
(a) TERMINATION BY THE EXECUTIVE AFTER CHANGE IN CONTROL. The
Executive may, at his election and upon sixty (60) days prior written
notice to the Trust, terminate his employment under the Employment
Agreement between the Trust and the Executive dated as of April 14,
1993, as amended (the "Employment Agreement"), in the event that
(i) the Executive shall in his absolute judgment determine that due to
changed circumstances occurring on or after the date of this Agreement
he is unable effectively to carry out his duties and responsibilities
as contemplated by the Employment Agreement, and (ii) on or after the
date hereof there has been a "Change in Control." The term "Change in
Control" shall mean (1) a reorganization, merger or consolidation of
the Trust with one or more corporations or entities if the Trust is
not the surviving entity, (2) a transfer of all or substantially all
of the property of the Trust to another entity or person, (3) the
transfer in one or more transactions to one or more persons pursuant
to a plan of liquidation or otherwise of (x) the Specified Percentage
(as hereinafter defined) of the total assets of the Trust and
(y) undeveloped real property representing 50% or more of the
aggregate square footage of undeveloped real property owned by the
Trust immediately prior to the first transaction involving a transfer
of assets after the date hereof (the "Measurement Date"), (4) if any
person becomes the beneficial owner of twenty-five percent (25%) or
more of the total number of outstanding common shares of the Trust (as
used in this clause, "person" shall mean any
<PAGE>
individual or entity as well as any syndicate or group deemed to be a
person pursuant to Section 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the term "beneficial owner" shall be
interpreted in accordance with Rule 13d-3 under the Exchange Act, or any
corresponding rule later adopted), or (5) if subsequent to the date (herein
the "Determination Date") which is the later of the date hereof or the last
date as of which the term of the Executive's employment has been
automatically extended for one additional year pursuant to Section 2 of the
Employment Agreement, a majority of the persons serving as Trustees of the
Trust shall be persons who were not Trustees as of the Determination Date.
"Specified Percentage" shall mean a percentage equal to or greater than 70%
which is derived from a fraction, the numerator of which is the net
proceeds to the Trust from the sale or sales of assets sold since the
Measurement Date (net of any related indebtedness) and the denominator of
which is the dollar amount reflected on the Trust's balance sheet as total
assets at the end of the fiscal year next preceding the Measurement Date
(net of any indebtedness). Notwithstanding anything contained herein to
the contrary, it is understood that a Change in Control shall be deemed to
have occurred for purposes of this Agreement under the following
circumstances: (x) the term set forth in Section 2 of the Employment
Agreement shall have expired after the adoption by the Trust of a plan of
liquidation, (y) the Executive shall not have been terminated pursuant to
Section 7(c) of the Employment Agreement and (z) the Executive shall not
have refused to accept an extension to his employment on substantially the
same terms and conditions which would have enabled him to remain employed
by the Trust until the Specified Percentage had been achieved. To be
effective, the Executive's notice to terminate his employment under this
Section 1(a) must be delivered on or before the later of (i) one month
after the December 15 immediately following the Change in Control or
(ii) six (6) months after the Change in Control. In the event of a
termination under this Section 1(a), the parties shall have the obligations
set forth in this Agreement.
(b) TERMINATION WITHOUT CAUSE AFTER CHANGE IN CONTROL. The
Trust may, by action of its Board of Trustees, upon thirty (30) days
advance written notice to the Executive, terminate the employment of
the Executive under the Employment Agreement without Cause. "Cause"
means any act that is materially inimical to the best interests of the
Trust and that constitutes on the part of the Executive common law
fraud, a felony or other gross malfeasance of duty. In the event of
such
-2-
<PAGE>
a termination of the Executive's employment under this Section 1(b) upon or
after the occurrence of a Change in Control, the parties shall have the
obligations set forth in this Agreement.
The date of termination of the Executive's employment pursuant to
Section 1(a) or 1(b) above shall be the "Effective Date" of this Agreement. The
term of this Agreement shall commence on the Effective Date and continue for a
period of three years following the Effective Date (the "Noncompetition
Period"); PROVIDED, HOWEVER, that this Agreement shall be null and void and of
no force and effect in the event that the Effective Date has not occurred prior
to the termination of the Employment Agreement in accordance with its terms
(other than pursuant to Sections 7(d) or 7(f) thereof).
2. NONCOMPETITION. During the Noncompetition Period, except with the
prior written approval of the Board of Trustees of the Trust, the Executive will
not, directly or indirectly, as an owner, individual proprietor, principal,
director, partner, stockholder, officer, employee, consultant, agent,
representative, investor, lender or in any other capacity whatsoever, alone, or
in association with any person, partnership, firm, corporation or other business
organization, carry on, be engaged in or take part in or render services to, or
own, share in the earnings of or invest in the stock, bonds or other securities
of any entity that competes with the Trust in connection with the Trust Business
(as hereinafter defined) within a three (3) mile radius of the northeast corner
of the intersection of Columbus Drive and East Grand Avenue in Chicago,
Illinois; PROVIDED, HOWEVER, that (a) the Executive may own, directly or
indirectly, solely as an investment, securities of a publicly-traded entity
engaged in the Trust Business if the Executive is not a controlling person of,
or member of a group that controls, such entity and the Executive, together with
any group of which the Executive is a member, does not beneficially own in the
aggregate five percent or more of any class of securities of such entity and
(b) the Executive may acquire an entity no more than five percent of the
consolidated revenues of which for each of the three fiscal years of such entity
ended prior to the acquisition thereof by the Executive would fall within the
scope of the prohibition contained in this Section 2. The "Trust Business"
means (i) the ownership and development of undeveloped or partially developed
real property, (ii) the rental of commercial and residential real properties,
(iii) the ownership and operation of parking structures and (iv) activities
relating to the foregoing clauses (i), (ii) and (iii).
3. NON-SOLICITATION. During the Noncompetition Period, except with
the prior written approval of the Board of Trustees of the Trust, the Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization,
solicit,
-3-
<PAGE>
request or endeavor to entice away from the Trust or any of its subsidiaries,
any individual, partnership, firm, corporation or other business organization
which is, at the time of such solicitation, request or endeavor, employed by or
otherwise engaged to perform services for the Trust or any of its subsidiaries
(including, but not limited to, any independent sales representatives or
organizations) or any individual, partnership, firm, corporation or other
business organization who is, at the time of such solicitation, request or
endeavor, a customer or client of the Trust.
4. COMPENSATION. (a) As compensation for the covenants contained in
this Agreement, the Trust shall:
(i) Pay to the Executive a lump sum cash amount equal to
$930,000 within fifteen (15) days of the Effective Date.
(ii) Pay to the Executive in a lump sum within fifteen (15) days
of the Effective Date an amount in cash equal to the present value of
the Executive's additional pension plan benefits accrued through the
third anniversary of the Effective Date (as calculated under the
"Increase in Value" column of Schedule A attached hereto).
(iii) Provide to the Executive, pursuant to a plan previously
approved by the Compensation Committee of the Board of Trustees, in a
lump sum within fifteen (15) days of the Effective Date an amount in
cash equal to 20% of the product of 135,000 and the Fair Market Value
(as defined below) of a common share of the Trust on the date next
preceding the date of the Change in Control (it being understood that
this clause (iii) shall not apply in the event that the Trust has
granted the Liquidation Option (as defined in the Employment
Agreement) to the Executive pursuant to the terms of the Employment
Agreement). "Fair Market Value" shall mean the closing price per
share of the common shares quoted on the National Market System of the
National Association of Securities Dealers' Automated Quotation System
on the date as of which such value is being determined, or, if there
shall be no reported transaction for such date, on the next preceding
date for which a transaction was reported; provided, however, that if
Fair Market Value cannot be so determined, Fair Market Value shall be
determined by the Compensation Committee of the Board of Trustees by
whatever means or method as such Committee, in the good faith exercise
of its discretion, shall at such time deem appropriate.
-4-
<PAGE>
(b) In addition, the Trust agrees that the Board of Trustees will
take such action as is necessary to amend the Executive's existing stock option
agreements to provide, in the event of a Change in Control, for the acceleration
of the payment date (from the last business day of the calendar year to the date
of a Change in Control) for any dividend equivalent payments which shall have
accrued but not yet been distributed prior to the Change in Control.
5. CONFIDENTIALITY. The Executive shall not, at any time during the
Noncompetition Period, make use of or disclose, directly or indirectly, any
trade secret or other confidential or secret information of the Trust or other
technical, business, proprietary or financial information of the Trust not
available to the public or to the competitors of the Trust ("Confidential
Information"), except to the extent that such Confidential Information
(a) becomes a matter of public record or is published in a newspaper, magazine
or other periodical available to the general public, (b) is required to be
disclosed by any law, regulation or order of any court or regulatory commission,
department or agency, or (c) as the Board of Directors of the Trust may so
authorize in writing.
6. SCOPE OF COVENANTS; REMEDIES. The following provisions shall
apply to the covenants of the Executive contained in this Agreement:
(a) Without limiting the right of the Trust to pursue all other
legal and equitable remedies available for violation by the Executive
of the covenants contained in this Agreement, it is expressly agreed
by the Executive and the Trust that such other remedies cannot fully
compensate the Trust for any such violation and that the Trust shall
be entitled to injunctive relief to prevent any such violation or any
continuing violation thereof.
(b) The Trust and the Executive each intends and agrees that the
covenants contained in this Agreement are reasonably designed to
protect the Trust's legitimate business interests without
unnecessarily or unreasonably restricting the Executive's business
opportunities during or after the termination of the Noncompetition
Period, but that if in any action before any court or agency legally
empowered to enforce the covenants contained in this Agreement, any
term, restriction, covenant or promise contained herein is found to be
unreasonable and accordingly unenforceable, then such term,
restriction, covenant or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
-5-
<PAGE>
(c) The maximum aggregate liability of the Executive in respect
of the covenants of the Executive contained in this Agreement shall
not under any circumstances exceed the amount paid pursuant to
Section 4(a) hereof.
7. AUTHORIZATION. The execution, delivery and performance of this
Agreement have been duly authorized by the Trust.
8. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of and be enforceable by the Executive and by his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees and by the Trust and its successors and assigns. In the
event of the death of the Executive while any amounts are payable to the
Executive hereunder, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to such person or persons
designated in writing by the Executive to receive such amounts or, if no person
is so designated, to the Executive's estate. As used in this Agreement, the
"Trust" shall mean the Trust as hereinbefore defined and any successor to all or
substantially all of the business and/or assets of the Trust (whether direct or
indirect, by purchase, merger, consolidation or otherwise).
9. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or five days after deposit in the
United States mail, postage prepaid, addressed (a) if to the Executive, to
Charles R. Gardner, 819 Belden Avenue, Chicago, Illinois 60614, with a copy to
Patti Eylar, 440 N. McClurg Court, Apt. 820, Chicago, Illinois 60611, and if to
the Trust, to The Chicago Dock and Canal Trust, 455 East Illinois Street, Suite
565, Chicago, Illinois 60611, attention: Vice President-Finance, with a copy to
Larry A. Barden, Esq., Sidley & Austin, One First National Plaza, Chicago,
Illinois 60603, or (b) to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
10. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any of the other provisions of this Agreement, which other provisions shall
remain in full force and effect.
-6-
<PAGE>
11. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
12. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and executed
by the Executive and by a duly authorized officer of the Trust. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by the Trust
or the Executive to insist upon strict compliance with any provision of this
Agreement or to assert any right which the Trust or the Executive may have
hereunder shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed
by a duly authorized officer or director of the Trust and the Executive has
executed this Agreement as of the day and year first above written.
THE CHICAGO DOCK AND CANAL TRUST
By: /s/ Robert E. Wood II
--------------------------------
Robert E. Wood II, Trustee
EXECUTIVE
/s/ Charles R. Gardner
-------------------------------------
Charles R. Gardner
-7-
<PAGE>
SCHEDULE A
(TOWERS PERRIN Letterhead)
CONFIDENTIAL
July 16, 1996
Mr. David R. Tinkham
Vice President
The Chicago Dock & Canal Trust
455 East Illinois Street, Suite 565
Chicago, Illinois 60611
Dear David:
Following up to our prior estimates of the value of the retirement-related
provisions of your and Charlie Gardner's employment contracts in the event of
your involuntary terminations prior to the expiration of the contracts, we have
estimated those values at additional periodic dates after September 30, 1996.
Below are the additional estimates (total of qualified plan and SERP) together
with the September 30, 1996 estimate:
- --------------------------------------------------------------------------------
Value Value With 3
Without 3 Added Years
Termination Date Added Years of Accruals Increase in
of Accruals Value
- --------------------------------------------------------------------------------
September 30, 1996
Gardner $499,331 $690,962 $191,631
Tinkham 98,393 154,261 55,868
- --------------------------------------------------------------------------------
December 31, 1996
Gardner 559,545 710,240 150,695
Tinkham 127,004 158,574 31,570
- --------------------------------------------------------------------------------
March 31, 1997
Gardner 576,773 729,780 153,007
Tinkham 131,321 163,381 32,060
- --------------------------------------------------------------------------------
June 30, 1997
Gardner 594,252 749,584 155,332
Tinkham 135,753 168,332 32,579
- --------------------------------------------------------------------------------
As you can see, there is a discontinuity in the value of the contract provisions
(increase in value) at December 31, 1996. That's because the SERP final pay is
based on the highest Plan Year pay in the last five FULL Plan Years. Since the
Plan Year is the calendar year, 1996 pay is not taken into account in
calculating the benefit at September 30, 1996. The total benefit calculated
taking into account three future years already uses 1996 in the calculation; we
don't see the same discontinuity in that benefit. In other words, there is a
discontinuity in the
<PAGE>
value of the contract benefit but the total benefits (qualified plan, SERP, and
contract provisions) increases rather smoothly.
Again, keep in mind that the value of these benefits will change if:
- - the actuarial assumptions, in particular the interest rates, change or
- - any of the participant information changes.
Attached are tables showing most of the development of the additional estimates.
If you have any questions or need additional information, please call me.
Sincerely,
/s/ William G. Leighty, Jr.
- --------------------------------------
William G. Leighty, Jr., Principal
WGL:kr
Enclosures
<PAGE>
AMENDMENT NO. 3 TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment No. 3 to Executive Employment Agreement is made as of
the 5th day of August, 1996 between THE CHICAGO DOCK AND CANAL TRUST, an
Illinois business trust (the "Trust"), and DAVID R. TINKHAM ("Executive").
The Trust and Executive previously entered into an Executive
Employment Agreement dated as of April 14, 1993, an amendment no. 1 thereto
dated as of July 19, 1995 and an amendment no. 2 thereto dated as of April 10,
1996 (as so amended, the "Employment Agreement") providing for the employment
arrangements between the Trust and Executive. The Trust and Executive now
desire to make certain further changes in the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the Trust and Executive hereby amend the Employment
Agreement as follows:
1. Section 5 of the Employment Agreement shall be amended by
adding a new paragraph (e) to read as follows:
"(e) LIQUIDATION OF THE TRUST. The Trust agrees as
follows: (i) In the event of the adoption of a plan of
liquidation by the Board of Trustees of the Trust, the
Compensation Committee of the Board of Trustees of the Trust
shall concurrently therewith grant to Executive an option (the
"Liquidation Option") to purchase 37,500 common shares at a
purchase price per share equal to the Fair Market Value (as
defined below) of a common share on the date of grant of such
option. The Liquidation Option shall become exercisable upon the
occurrence of a Change in Control (as defined in Section 7(d)).
"Fair Market Value" shall mean the closing price per share of the
common shares quoted on the National Market System of the
National Association of Securities Dealers' Automated Quotation
System on the date as of which such value is being determined,
or, if there shall be no reported transaction for such date, on
the next preceding date for which a transaction was reported;
provided, however, that if Fair Market Value cannot be so
determined, Fair Market Value shall be determined by the
Compensation Committee of the Board of Trustees by whatever means
or method as such Committee, in the good faith exercise of its
discretion, shall at such time deem appropriate.
<PAGE>
(ii) In the event of a liquidation (in whole or in part) of
the Trust, the Compensation Committee of the Board of Trustees of
the Trust will, in accordance with its duties to interpret and
administer the stock option plans of the Trust, take such action
as is necessary to provide for an equitable adjustment of the
exercise prices of then outstanding stock options (including the
Liquidation Option) or, if the Board of Trustees determines that
an amendment to such plans is required to effect such an
equitable adjustment, the Board will take such action as is
necessary to implement such amendments."
2. The second sentence of Section 7(d) of the Employment
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"The term "Change in Control" shall mean (1) a
reorganization, merger or consolidation of Trust with one or more
corporations or entities if the Trust is not the surviving
entity, (2) a transfer of all or substantially all of the
property of the Trust to another entity or person, (3) the
transfer in one or more transactions to one or more persons
pursuant to a plan of liquidation or otherwise of (x) the
Specified Percentage (as hereinafter defined) of the total assets
of the Trust and (y) undeveloped real property representing 50%
or more of the aggregate square footage of undeveloped real
property owned by the Trust immediately prior to the first
transaction involving a transfer of assets after the date hereof
(the "Measurement Date"), (4) if any person becomes the
beneficial owner of twenty-five percent (25%) or more of the
total number of outstanding common shares of the Trust (as used
in this clause, "person" shall mean any individual or entity as
well as any syndicate or group deemed to be a person pursuant to
Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended, and the term "beneficial owner" shall be interpreted in
accordance with Rule 13d-3 under such Act, or any corresponding
rule later adopted), or (5) if subsequent to the date (herein the
"Determination Date") which is the later of the date hereof or
the last date as of which the term of Executive's employment has
been automatically extended for one additional year pursuant to
Section 2 hereof, a majority of the persons serving as Trustees
of the
-2-
<PAGE>
Trust shall be persons who were not Trustees as of the Determination
Date. "Specified Percentage" shall mean a percentage equal to or
greater than 70% which is derived from a fraction, the numerator of
which is the aggregate net proceeds to the Trust from the sale or
sales of assets sold since the Measurement Date (net of any related
indebtedness) and the denominator of which is the dollar amount
reflected on the Trust's balance sheet as total assets at the end of
the fiscal year next preceding the Measurement Date (net of any
indebtedness). Notwithstanding anything contained herein to the
contrary, it is understood that a Change in Control shall be deemed to
have occurred for purposes of this Agreement under the following
circumstances: (x) the term set forth in Section 2 hereof shall have
expired after the adoption by the Trust of a plan of liquidation,
(y) Executive shall not have been terminated pursuant to Section 7(c)
hereof and (z) Executive shall not have refused to accept an extension
to his employment on substantially the same terms and conditions which
would have enabled him to remain employed by the Trust until the
Specified Percentage had been achieved."
3. Section 8(d) of the Employment Agreement shall be deleted in
its entirety and the following shall be substituted in lieu thereof:
"(d) (i) If Executive's employment is terminated under
Section 7(d) or Section 7(f) above prior to the expiration of the
term of this Agreement, the Trust, in lieu of all other
obligations under this Agreement (other than the obligations set
forth in clause (ii) below), shall as liquidated damages or
severance pay or both cause all then outstanding stock options
theretofore granted to Executive to immediately vest and to
become exercisable regardless of any installment exercise
provisions.
(ii) If Executive's employment is terminated under
Section 7(f) above prior to a Change in Control and prior to the
expiration of the term of this Agreement, the Trust, in addition
to the obligations set forth in clause (i) above, shall as
liquidated damages or severance pay or both:
(a) pay Executive his base compensation for thirty-six
(36)
-3-
<PAGE>
months thereafter at the then current rate as provided in
Section 5(a) hereof; provided that such base compensation shall
be paid entirely in cash except to the extent of the agreed
compensation value of Base Compensation Options granted to
Executive prior to the date of Notice of Termination (or the Date
of Termination with respect to any termination for which a Notice
of Termination is not required) as base compensation for any
period after the Date of Termination;
(b) during the thirty-six (36) month period
thereafter, (at the Trust's expense) provide Executive with
the benefits described in Schedule A hereto;
(c) pay to Executive in a lump sum within fifteen (15)
days of the Date of Termination an amount in cash equal to
the present value of Executive's additional pension plan
benefits under the Trust's defined benefit plans accrued
through the third anniversary of the Date of Termination (as
calculated under the "Increase in Value" column of
Schedule B attached hereto); and
(d) provide to Executive, pursuant to a plan
previously approved by the Compensation Committee of the
Board of Trustees, in a lump sum within fifteen (15) days of
the Date of Termination an amount in cash equal to 20% of
the product of 37,500 and the Fair Market Value of a common
share of the Trust on the Date of Termination (it being
understood that this clause (d) shall not apply in the event
that the Trust has granted the Liquidation Option to
Executive)."
4. As amended hereby, the Employment Agreement remains in full
force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
THE CHICAGO DOCK AND CANAL TRUST
By: /s/ Robert E. Wood II
------------------------------------
Robert E. Wood II, Trustee
EXECUTIVE
/s/ David R. Tinkham
----------------------------------------
David R. Tinkham
-5-
<PAGE>
SCHEDULE A
LIFE INSURANCE
$50,000 GROUP TERM COVERAGE
HEALTH/DENTAL INS
85% OF COST OF $200 DEDUCTIBLE EMPLOYEE HEALTH INSURANCE
35% OF COST OF $200 DEDUCTIBLE DEPENDENT HEALTH INSURANCE
85% OF COST OF EMPLOYEE DENTAL POLICY
35% OF COST OF DEPENDENT DENTAL POLICY
DISABILITY INSURANCE
INDIVIDUAL POLICY FOR $1,250 BENEFIT PER MONTH
GROUP POLICY FOR $6,000 BENEFIT PER MONTH
EMPLOYEE TO REPORT COST IN INCOME; BENEFITS TAX FREE
AUTOMOBILE
USE OF VOLVO 850 GLT, MAINTENANCE, GAS, INSURANCE
NEW CAR EVERY TWO YEARS
401(k) PLAN
ANNUAL TRUST CONTRIBUTION OF $5,000 PER YEAR
CLUB DUES
UNIVERSITY CLUB OF CHICAGO
410 CLUB
ECONOMIC CLUB
EXECUTIVE'S CLUB
CITYFRONT PLACE HEALTH CLUB
PARKING
MONTHLY INDOOR PARKING PASS
<PAGE>
SCHEDULE B
(TOWERS PERRIN Letterhead)
CONFIDENTIAL
July 16, 1996
Mr. David R. Tinkham
Vice President
The Chicago Dock & Canal Trust
455 East Illinois Street, Suite 565
Chicago, Illinois 60611
Dear David:
Following up to our prior estimates of the value of the retirement-related
provisions of your and Charlie Gardner's employment contracts in the event of
your involuntary terminations prior to the expiration of the contracts, we have
estimated those values at additional periodic dates after September 30, 1996.
Below are the additional estimates (total of qualified plan and SERP) together
with the September 30, 1996 estimate:
______________________________________________________________________________
Value Value With 3
Without 3 Added Years
Termination Date Added Years of Accruals Increase in
of Accruals Value
______________________________________________________________________________
September 30, 1996
Gardner $499,331 $690,962 $191,631
Tinkham 98,393 $154,261 55,868
______________________________________________________________________________
December 31, 1996
Gardner 559,545 710,240 150,695
Tinkham 127,004 158,574 31,570
______________________________________________________________________________
March 31, 1997
Gardner 576,773 729,780 153,007
Tinkham 131,321 163,381 32,060
______________________________________________________________________________
June 30, 1997
Gardner 594,252 749,780 155,332
Tinkham 135,753 168,332 32,579
______________________________________________________________________________
As you can see, there is a discontinuity in the value of the contract provisions
(increase in value) at December 31, 1996. That's because the SERP final pay is
based on the highest Plan Year pay in the last five FULL Plan Years. Since the
Plan Year is the calendar year, 1996 pay is not taken into account in
calculating the benefit at September 30, 1996. The total benefit calculated
taking into account three future years already uses 1996 in the calculation; we
don't see the same discontinuity in that benefit. In other words, there is a
discontinuity in the value of the contract benefit but the total benefits
(qualified plan, SERP, and contract provisions) increases rather smoothly.
<PAGE>
Again, keep in mind that the value of these benefits will change if:
- - the actuarial assumptions, in particular the interest rates, change or
- - any of the participant information changes.
Attached are tables showing most of the development of the additional estimates.
If you have any questions or need additional information, please call me.
Sincerely,
/s/ William G. Leighty, Jr.
- -----------------------------------
William G. Leighty, Jr., Principal
WGL:kr
Enclosures
<PAGE>
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is entered into as of
August 5, 1996 between THE CHICAGO DOCK AND CANAL TRUST, an Illinois business
trust (the "Trust"), and DAVID R. TINKHAM (the "Executive").
WHEREAS, the Executive has acquired extensive knowledge of and
experience in the business conducted by the Trust; and
WHEREAS, the Trust and the Executive desire to enter into this
Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the adequacy and sufficiency of which are hereby acknowledged,
the Trust and the Executive hereby agree as follows:
1. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective only upon the termination of the Executive's employment under the
following circumstances:
(a) TERMINATION BY THE EXECUTIVE AFTER CHANGE IN CONTROL. The
Executive may, at his election and upon sixty (60) days prior written
notice to the Trust, terminate his employment under the Employment
Agreement between the Trust and the Executive dated as of April 14,
1993, as amended (the "Employment Agreement"), in the event that
(i) the Executive shall in his absolute judgment determine that due to
changed circumstances occurring on or after the date of this Agreement
he is unable effectively to carry out his duties and responsibilities
as contemplated by the Employment Agreement, and (ii) on or after the
date hereof there has been a "Change in Control." The term "Change in
Control" shall mean (1) a reorganization, merger or consolidation of
the Trust with one or more corporations or entities if the Trust is
not the surviving entity, (2) a transfer of all or substantially all
of the property of the Trust to another entity or person, (3) the
transfer in one or more transactions to one or more persons pursuant
to a plan of liquidation or otherwise of (x) the Specified Percentage
(as hereinafter defined) of the total assets of the Trust and
(y) undeveloped real property representing 50% or more of the
aggregate square footage of undeveloped real property owned by the
Trust immediately prior to the first transaction involving a transfer
of assets after the date hereof (the "Measurement Date"), (4) if any
person becomes the beneficial owner of twenty-five percent (25%) or
more of the total number of outstanding common shares of the Trust (as
used in this clause, "person" shall mean any
<PAGE>
individual or entity as well as any syndicate or group deemed to be a
person pursuant to Section 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the term "beneficial owner" shall be
interpreted in accordance with Rule 13d-3 under the Exchange Act, or any
corresponding rule later adopted), or (5) if subsequent to the date (herein
the "Determination Date") which is the later of the date hereof or the last
date as of which the term of the Executive's employment has been
automatically extended for one additional year pursuant to Section 2 of the
Employment Agreement, a majority of the persons serving as Trustees of the
Trust shall be persons who were not Trustees as of the Determination Date.
"Specified Percentage" shall mean a percentage equal to or greater than 70%
which is derived from a fraction, the numerator of which is the net
proceeds to the Trust from the sale or sales of assets sold since the
Measurement Date (net of any related indebtedness) and the denominator of
which is the dollar amount reflected on the Trust's balance sheet as total
assets at the end of the fiscal year next preceding the Measurement Date
(net of any indebtedness). Notwithstanding anything contained herein to
the contrary, it is understood that a Change in Control shall be deemed to
have occurred for purposes of this Agreement under the following
circumstances: (x) the term set forth in Section 2 of the Employment
Agreement shall have expired after the adoption by the Trust of a plan of
liquidation, (y) the Executive shall not have been terminated pursuant to
Section 7(c) of the Employment Agreement and (z) the Executive shall not
have refused to accept an extension to his employment on substantially the
same terms and conditions which would have enabled him to remain employed
by the Trust until the Specified Percentage had been achieved. To be
effective, the Executive's notice to terminate his employment under this
Section 1(a) must be delivered on or before the later of (i) one month
after the December 15 immediately following the Change in Control or
(ii) six (6) months after the Change in Control. In the event of a
termination under this Section 1(a), the parties shall have the obligations
set forth in this Agreement.
(b) TERMINATION WITHOUT CAUSE AFTER CHANGE IN CONTROL. The
Trust may, by action of its Board of Trustees, upon thirty (30) days
advance written notice to the Executive, terminate the employment of
the Executive under the Employment Agreement without Cause. "Cause"
means any act that is materially inimical to the best interests of the
Trust and that constitutes on the part of the Executive common law
fraud, a felony or other gross malfeasance of duty. In the event of
such
-2-
<PAGE>
a termination of the Executive's employment under this Section 1(b) upon or
after the occurrence of a Change in Control, the parties shall have the
obligations set forth in this Agreement.
The date of termination of the Executive's employment pursuant to
Section 1(a) or 1(b) above shall be the "Effective Date" of this Agreement. The
term of this Agreement shall commence on the Effective Date and continue for a
period of three years following the Effective Date (the "Noncompetition
Period"); PROVIDED, HOWEVER, that this Agreement shall be null and void and of
no force and effect in the event that the Effective Date has not occurred prior
to the termination of the Employment Agreement in accordance with its terms
(other than pursuant to Sections 7(d) or 7(f) thereof).
2. NONCOMPETITION. During the Noncompetition Period, except with the
prior written approval of the Board of Trustees of the Trust, the Executive will
not, directly or indirectly, as an owner, individual proprietor, principal,
director, partner, officer, employee, consultant, agent, representative or in
any other similar capacity, alone, or in association with any person,
partnership, firm, corporation or other business organization, carry on, be
engaged in or take part in or render services in respect of any activities that
compete with the Identified Trust Business (as hereinafter defined) within a
three (3) mile radius of the northeast corner of the intersection of Columbus
Drive and East Grand Avenue in Chicago, Illinois; PROVIDED, HOWEVER, that
(a) the Executive may own, directly or indirectly, as an investment, securities
of an entity engaged in business in competition with the Identified Trust
Business in any location if the Executive is not a controlling person of, or
member of a group that controls, such entity and the Executive, together with
any group of which the Executive is a member, does not beneficially own in the
aggregate five percent or more of any class of securities of such entity,
(b) the Executive may acquire an entity no more than five percent of the
consolidated revenues of which for each of the three fiscal years of such entity
ended prior to the acquisition thereof by the Executive would fall within the
scope of the prohibition contained in this Section 2 and (c) the Executive may
be employed by an entity engaged in business in competition with the Identified
Trust Business in any location provided the Executive himself does not seek to
obtain on behalf of such entity any development opportunities which the Trust
seeks to add to the Identified Trust Business. The "Identified Trust Business"
means the development of undeveloped real property owned by the Trust and
located in Cityfront Center, Chicago, for purposes of (i) a senior living
housing facility, (ii) a parking facility designed primarily to serve Navy Pier,
or (iii) an expansion of the Sheraton Chicago Hotel & Towers.
3. NON-SOLICITATION. During the Noncompetition Period, except with
the prior written approval of the Board of
-3-
<PAGE>
Trustees of the Trust, the Executive shall not, whether for his own account or
for the account of any other individual, partnership, firm, corporation or other
business organization, solicit, request or endeavor to entice away from the
Trust or any of its subsidiaries, any individual, partnership, firm, corporation
or other business organization which is, at the time of such solicitation,
request or endeavor, employed by or otherwise engaged to perform services for
the Trust or any of its subsidiaries (including, but not limited to, any
independent sales representatives or organizations) or any individual,
partnership, firm, corporation or other business organization who is, at the
time of such solicitation, request or endeavor, a customer or client of the
Trust.
4. COMPENSATION. (a) As compensation for the covenants contained in
this Agreement, the Trust shall:
(i) Pay to the Executive a lump sum cash amount equal to
$510,000 within fifteen (15) days of the Effective Date.
(ii) Pay to the Executive in a lump sum within fifteen (15) days
of the Effective Date an amount in cash equal to the present value of
the Executive's additional pension plan benefits accrued through the
third anniversary of the Effective Date (as calculated under the
"Increase in Value" column of Schedule A attached hereto).
(iii) Provide to the Executive, pursuant to a plan previously
approved by the Compensation Committee of the Board of Trustees, in a
lump sum within fifteen (15) days of the Effective Date an amount in
cash equal to 20% of the product of 37,500 and the Fair Market Value
(as defined below) of a common share of the Trust on the date next
preceding the date of the Change in Control (it being understood that
this clause (iii) shall not apply in the event that the Trust has
granted the Liquidation Option (as defined in the Employment
Agreement) to the Executive pursuant to the terms of the Employment
Agreement). "Fair Market Value" shall mean the closing price per
share of the common shares quoted on the National Market System of the
National Association of Securities Dealers' Automated Quotation System
on the date as of which such value is being determined, or, if there
shall be no reported transaction for such date, on the next preceding
date for which a transaction was reported; provided, however, that if
Fair Market Value cannot be so determined, Fair Market Value shall be
determined by the Compensation Committee of the Board of Trustees by
whatever means or method as such Committee, in the good
-4-
<PAGE>
faith exercise of its discretion, shall at such time deem appropriate.
(b) In addition, the Trust agrees that the Board of Trustees will
take such action as is necessary to amend the Executive's existing stock option
agreements to provide, in the event of a Change in Control, for the acceleration
of the payment date (from the last business day of the calendar year to the date
of a Change in Control) for any dividend equivalent payments which shall have
accrued but not yet been distributed prior to the Change in Control.
5. CONFIDENTIALITY. The Executive shall not, at any time during the
Noncompetition Period, make use of or disclose, directly or indirectly, any
trade secret or other confidential or secret information of the Trust related to
the Identified Trust Business and not available to the public or to the
competitors of the Trust ("Confidential Information"), except to the extent that
such Confidential Information (a) becomes a matter of public record or is
published in a newspaper, magazine or other periodical available to the general
public, (b) is required to be disclosed by any law, regulation or order of any
court or regulatory commission, department or agency, or (c) as the Board of
Directors of the Trust may so authorize in writing.
6. SCOPE OF COVENANTS; REMEDIES. The following provisions shall
apply to the covenants of the Executive contained in this Agreement:
(a) Without limiting the right of the Trust to pursue all other
legal and equitable remedies available for violation by the Executive
of the covenants contained in this Agreement, it is expressly agreed
by the Executive and the Trust that such other remedies cannot fully
compensate the Trust for any such violation and that the Trust shall
be entitled to injunctive relief to prevent any such violation or any
continuing violation thereof.
(b) The Trust and the Executive each intends and agrees that the
covenants contained in this Agreement are reasonably designed to
protect the Trust's legitimate business interests without
unnecessarily or unreasonably restricting the Executive's business
opportunities during or after the termination of the Noncompetition
Period, but that if in any action before any court or agency legally
empowered to enforce the covenants contained in this Agreement, any
term, restriction, covenant or promise contained herein is found to be
unreasonable and accordingly unenforceable, then such term,
restriction, covenant or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
-5-
<PAGE>
(c) The maximum aggregate liability of the Executive in respect
of the covenants of the Executive contained in this Agreement shall
not under any circumstances exceed the amount paid pursuant to
Section 4(a) hereof.
7. AUTHORIZATION. The execution, delivery and performance of this
Agreement have been duly authorized by the Trust.
8. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of and be enforceable by the Executive and by his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees and by the Trust and its successors and assigns. In the
event of the death of the Executive while any amounts are payable to the
Executive hereunder, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to such person or persons
designated in writing by the Executive to receive such amounts or, if no person
is so designated, to the Executive's estate. As used in this Agreement, the
"Trust" shall mean the Trust as hereinbefore defined and any successor to all or
substantially all of the business and/or assets of the Trust (whether direct or
indirect, by purchase, merger, consolidation or otherwise).
9. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or five days after deposit in the
United States mail, postage prepaid, addressed (a) if to the Executive, to
David R. Tinkham, 2330 Ewing Avenue, Evanston, Illinois 60201, with a copy to
Diana Shoemaker, 1255 Gulfstream Avenue, Apt. 506, Sarasota, Florida 34236 and
if to the Trust, to The Chicago Dock and Canal Trust, 455 East Illinois Street,
Suite 565, Chicago, Illinois 60611, attention: President, with a copy to
Larry A. Barden, Esq., Sidley & Austin, One First National Plaza, Chicago,
Illinois 60603, or (b) to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
10. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any of the other provisions of this Agreement, which other provisions shall
remain in full force and effect.
-6-
<PAGE>
11. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
12. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and executed
by the Executive and by a duly authorized officer of the Trust. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by the Trust
or the Executive to insist upon strict compliance with any provision of this
Agreement or to assert any right which the Trust or the Executive may have
hereunder shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed
by a duly authorized officer or director of the Trust and the Executive has
executed this Agreement as of the day and year first above written.
THE CHICAGO DOCK AND CANAL TRUST
By: /s/ Robert E. Wood II
------------------------------
Robert E. Wood II, Trustee
EXECUTIVE
/s/ David R. Tinkham
-----------------------------------
David R. Tinkham
-7-
<PAGE>
SCHEDULE A
----------
(TOWERS PERRIN Letterhead)
CONFIDENTIAL
July 16, 1996
Mr. David R. Tinkham
Vice President
The Chicago Dock & Canal Trust
455 East Illinois Street, Suite 565
Chicago, Illinois 60611
Dear David:
Following up to our prior estimates of the value of the retirement-related
provisions of your and Charlie Gardner's employment contracts in the event of
your involuntary terminations prior to the expiration of the contracts, we have
estimated those values at additional periodic dates after September 30, 1996.
Below are the additional estimates (total of qualified plan and SERP) together
with the September 30, 1996 estimate:
- --------------------------------------------------------------------------------
Value Value With 3
Without 3 Added Years
Termination Date Added Years of Accruals Increase in
of Accruals Value
- --------------------------------------------------------------------------------
September 30, 1996
Gardner $499,331 $690,962 $191,631
Tinkham 98,393 154,261 55,868
- --------------------------------------------------------------------------------
December 31, 1996
Gardner 559,545 710,240 150,695
Tinkham 127,004 158,574 31,570
- --------------------------------------------------------------------------------
March 31, 1997
Gardner 576,773 729,780 153,007
Tinkham 131,321 163,381 32,060
- --------------------------------------------------------------------------------
June 30, 1997
Gardner 594,252 749,584 155,332
Tinkham 135,753 168,332 32,579
- --------------------------------------------------------------------------------
As you can see, there is a discontinuity in the value of the contract provisions
(increase in value) at December 31, 1996. That's because the SERP final pay is
based on the highest Plan Year pay in the last five FULL Plan Years. Since the
Plan Year is the calendar year, 1996 pay is not taken into account in
calculating the benefit at September 30, 1996. The total benefit calculated
taking into account three future years already uses 1996 in the calculation; we
don't see the same discontinuity in that benefit. In other words, there is a
discontinuity in the
<PAGE>
value of the contract benefit but the total benefits (qualified plan, SERP, and
contract provisions) increases rather smoothly.
Again, keep in mind that the value of these benefits will change if:
- - the actuarial assumptions, in particular the interest
rates, change or
- - any of the participant information changes.
Attached are tables showing most of the development of the additional estimates.
If you have any questions or need additional information, please call me.
Sincerely,
/s/ William G. Leighty, Jr.
- ----------------------------------------
William G. Leighty, Jr., Principal
WGL:kr
Enclosures
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 520
<SECURITIES> 8,628
<RECEIVABLES> 38,992
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 93,905
<DEPRECIATION> 14,789
<TOTAL-ASSETS> 128,301
<CURRENT-LIABILITIES> 0
<BONDS> 28,087
0
0
<COMMON> 3,101
<OTHER-SE> 81,498
<TOTAL-LIABILITY-AND-EQUITY> 128,301
<SALES> 0
<TOTAL-REVENUES> 6,039
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 725
<INCOME-PRETAX> 1,072
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,072
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
