<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE CHICAGO DOCK AND CANAL TRUST
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Shares, no par value, of the Registrant
(2) Aggregate number of securities to which transaction applies:
6,474,328 (assuming the exercise of all outstanding in the money
options to purchase Common Shares)
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$25.00
(4) Proposed maximum aggregate value of transaction:
$153,386,437 (equals number of outstanding Common Shares multiplied
by $25.00 plus number of outstanding in the money options
multiplied by $25.00 minus the aggregate exercise
price of such options)
(5) Total fee paid:
$30,677, equaling 1/50th of one percent of the proposed maximum
aggregate value of transaction.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PRELIMINARY COPY DATED JANUARY 10, 1997
[THE CHICAGO DOCK & CANAL TRUST LOGO]
, 1997
To: The Shareholders of The Chicago Dock and Canal Trust:
You are cordially invited to attend a Special Meeting of Shareholders of
The Chicago Dock and Canal Trust (the "Trust") to be held at 10:00 A.M., Chicago
time, on , , 1997, at the Sheraton Chicago Hotel & Towers,
301 East North Water Street, Superior Room, Chicago, Illinois. The Special
Meeting is being held in lieu of the special meeting originally scheduled for
January 9, 1997 which was previously cancelled by the Trust.
As described in the enclosed Proxy Statement, at the Special Meeting you
will be asked to consider and vote upon proposals to approve and adopt (i) an
Agreement and Plan of Merger dated December 27, 1996 (the "Merger Agreement"),
among CityFront Center, L.L.C., a Delaware limited liability company
("CityFront"), CityFront Acquisition Trust, a 99% owned subsidiary of CityFront
("Sub"), and the Trust, and the Merger (as defined below) contemplated thereby
(the Merger Agreement and the Merger being referred to herein as the "Merger
Proposal"), and (ii) an amendment (the "Trust Amendment") of the Amended and
Restated Declaration of Trust, as amended, of the Trust as described herein.
Under the Merger Agreement, CityFront would acquire the Trust by merging the
Trust into Sub and each outstanding Common Share of beneficial interest, without
par value (a "Share"), of the Trust would be converted into the right to receive
$25.00 in cash (the "Merger"). The Merger Agreement replaces the Agreement and
Plan of Merger dated September 27, 1996 among Newsweb Corporation, CDCT
Acquisition Trust and the Trust which was terminated by the Trust on December
27, 1996.
Your Board of Trustees has determined that the terms of the Merger are fair
to, and in the best interests of, the Trust and the Trust's shareholders and has
unanimously approved the Merger Proposal and the Trust Amendment. THE BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
PROPOSAL AND THE TRUST AMENDMENT.
The Merger Agreement provides that the consummation of the Merger is
subject to certain conditions, including approval and adoption of the Merger
Proposal and the Trust Amendment by the affirmative vote of the holders of at
least two-thirds of the outstanding Shares entitled to vote thereon. Only
holders of Shares of record at the close of business on , 1997,
are entitled to notice of and to vote at the Special Meeting or any adjournments
or postponements thereof.
You are urged to read the accompanying Proxy Statement, which provides a
description of the terms of the Merger Agreement, the Merger and the Trust
Amendment. A copy of the Merger Agreement is included as Appendix A to the
enclosed Proxy Statement and a copy of the Trust Amendment is included as
Appendix B to the enclosed Proxy Statement.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Failure to return a properly executed proxy card or vote
at the Special Meeting would have the same effect as a vote against the Merger
Proposal and the Trust Amendment. Executed proxies with no instructions
indicated thereon will be voted for approval and adoption of the Merger Proposal
and the Trust Amendment. PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS
TIME. In the event the Merger is consummated, you will be sent a letter of
transmittal for that purpose at or about that time.
Sincerely,
C.R. Gardner
CHARLES R. GARDNER
President
<PAGE> 3
PRELIMINARY COPY DATED JANUARY 10, 1997
THE CHICAGO DOCK AND CANAL TRUST
455 EAST ILLINOIS STREET, SUITE 565
CHICAGO, ILLINOIS 60611
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
Shareholders (the "Shareholders") of The Chicago Dock and Canal Trust (the
"Trust") will be held on , , 1997, at 10:00 A.M.,
Chicago time, at the Sheraton Chicago Hotel & Towers, 301 East North Water
Street, Superior Room, Chicago, Illinois, for the following purposes:
(i) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated December 27, 1996 (the "Merger
Agreement"), among CityFront Center, L.L.C., a Delaware limited liability
company ("CityFront"), CityFront Acquisition Trust, an Illinois business
trust and a 99% owned subsidiary of CityFront ("Sub"), and the Trust, and
the Merger (as defined below) contemplated thereby (the Merger Agreement
and the Merger being referred to herein as the "Merger Proposal"). A copy
of the Merger Agreement is attached to the accompanying Proxy Statement as
Appendix A. As more fully described in the Proxy Statement, the Merger
Agreement provides that: (A) the Trust would be merged with and into Sub,
with Sub continuing as the surviving trust (the "Merger"); and (B) each
outstanding Common Share of beneficial interest, without par value (a
"Share"), of the Trust (other than certain Shares owned by the Trust or any
subsidiary of the Trust, which would be cancelled), would be converted,
upon the consummation of the Merger, into the right to receive $25.00 in
cash.
(ii) To consider and vote upon a proposal to approve and adopt an
amendment (the "Trust Amendment") of the Amended and Restated Declaration
of Trust, as amended, of the Trust in the form attached to the accompanying
Proxy Statement as Appendix B.
(iii) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Trustees has fixed the close of business on , 1997,
as the record date for the determination of Shareholders entitled to notice of
and to vote at the Special Meeting. Only holders of Shares of record at the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement describes the Merger Proposal and the
Trust Amendment. To ensure that your vote will be counted, please complete, date
and sign the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope, whether or not you plan to attend the Special Meeting.
Executed proxies with no instructions indicated thereon will be voted for
approval and adoption of the Merger Proposal and the Trust Amendment. You may
revoke your proxy in the manner described in the accompanying Proxy Statement at
any time before it is voted at the Special Meeting. ALL PROXIES PREVIOUSLY
SUBMITTED BY SHAREHOLDERS RELATING TO THE SPECIAL MEETING ORIGINALLY SCHEDULED
FOR JANUARY 9, 1997, WHICH MEETING WAS PREVIOUSLY CANCELLED BY THE TRUST, HAVE
BEEN DEEMED TO HAVE BEEN CANCELLED.
By Order of the Board of Trustees,
M.F. Csar
MICHAEL F. CSAR
Secretary
Chicago, Illinois
, 1997
<PAGE> 4
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER PROPOSAL AND THE TRUST AMENDMENT.
THE AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING
SHARES ENTITLED TO VOTE THEREON IS REQUIRED TO APPROVE AND ADOPT THE MERGER
PROPOSAL AND THE TRUST AMENDMENT. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN
THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY SHAREHOLDER PRESENT AT
THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY
REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE MERGER PROPOSAL AND THE
TRUST AMENDMENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS TIME.
<PAGE> 5
PRELIMINARY COPY DATED JANUARY 10, 1997
THE CHICAGO DOCK AND CANAL TRUST
455 EAST ILLINOIS STREET, SUITE 565
CHICAGO, ILLINOIS 60611
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
, 1997
This Proxy Statement (the "Proxy Statement") is being furnished to the
holders of Common Shares of beneficial interest, without par value ("Shares"),
of The Chicago Dock and Canal Trust, an Illinois business trust (the "Trust"),
in connection with the solicitation of proxies by the Board of Trustees of the
Trust (the "Board of Trustees" or the "Board") for use at the Special Meeting of
Shareholders (the "Special Meeting") to be held on , , 1997,
at 10:00 A.M., Chicago time, at the Sheraton Chicago Hotel & Towers, 301 East
North Water Street, Superior Room, Chicago, Illinois. The Board of Trustees has
fixed the close of business on , 1997, as the record date (the
"Record Date") for the Special Meeting with respect to this solicitation.
At the Special Meeting, the holders of Shares (the "Shareholders") will
consider and vote upon proposals to approve and adopt (a) an Agreement and Plan
of Merger dated December 27, 1996 (the "Merger Agreement"), among CityFront
Center, L.L.C., a Delaware limited liability company ("CityFront"), CityFront
Acquisition Trust, an Illinois business trust and a 99% owned subsidiary of
CityFront ("Sub"), and the Trust, and the Merger (as defined below) contemplated
thereby (the Merger Agreement and the Merger being referred to herein as the
"Merger Proposal"), and (b) an amendment (the "Trust Amendment") of the Amended
and Restated Declaration of Trust, as amended, of the Trust (the "Declaration of
Trust"). A copy of the Merger Agreement is attached to this Proxy Statement as
Appendix A. A copy of the Trust Amendment is attached to this Proxy Statement as
Appendix B. Pursuant to the Merger Agreement and subject to satisfaction of the
conditions set forth therein, (i) the Trust would be merged into Sub (the
"Merger" or the "CityFront Merger"), with Sub continuing as the surviving trust
(the "Surviving Company") and (ii) each outstanding Share (other than certain
shares owned by the Trust or any subsidiary of the Trust, which would be
cancelled) would be converted, upon the consummation of the Merger, into the
right to receive $25.00 in cash (the "Merger Consideration").
The Board has determined that the terms of the Merger are fair to, and in
the best interests of, the Trust and the Shareholders and has unanimously
approved the Merger Agreement, the Merger and the Trust Amendment. THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE MERGER PROPOSAL AND
THE TRUST AMENDMENT.
THE SPECIAL MEETING IS BEING HELD IN LIEU OF THE SPECIAL MEETING OF
SHAREHOLDERS ORIGINALLY SCHEDULED FOR JANUARY 9, 1997, WHICH WAS PREVIOUSLY
CANCELLED BY THE TRUST, AND THIS PROXY STATEMENT AND THE ENCLOSED PROXY
SOLICITATION MATERIALS SUPERSEDE THOSE PREVIOUSLY DELIVERED TO SHAREHOLDERS FOR
THE JANUARY 9, 1997 SPECIAL MEETING.
The Shares are traded on the Nasdaq National Market ("Nasdaq") under the
symbol "DOCKS." On February 27, 1996, the last trading day prior to the Trust's
public announcement that it had formed a special committee of its Board of
Trustees to study strategic alternatives available to the Trust to maximize
Shareholder value, the last reported sale price of the Shares, as reported by
Nasdaq, was $12.00 per Share. On September 27, 1996, the last trading day prior
to the execution of the Agreement and Plan of Merger dated as of September 27,
1996 among Newsweb Corporation, an Illinois corporation ("Newsweb"), CDCT
Acquisition Trust, an Illinois business trust and a 99% owned subsidiary of
Newsweb ("Newsweb Sub"), and the Trust (the "Newsweb Merger Agreement"), which
was terminated concurrently with the execution of the Merger Agreement, the last
reported sale price of the Shares, as reported by Nasdaq, was $15.50 per Share.
On September 30, 1996, the first trading day after the announcement of the
execution of the Newsweb Merger Agreement, the last reported sale price of the
Shares, as reported by Nasdaq, was $20.27 per Share. On , 1997, the
last trading day prior to the date of this Proxy Statement, the last reported
sale price of the Shares, as reported by Nasdaq, was $ per share.
SHAREHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND TO CONSULT WITH THEIR PERSONAL FINANCIAL
AND TAX ADVISORS.
This Proxy Statement, the accompanying Notice of Special Meeting and the
accompanying proxy are first being mailed to Shareholders on or about
, 1997.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ALL PROXIES PREVIOUSLY
SUBMITTED BY SHAREHOLDERS RELATING TO THE SPECIAL MEETING ORIGINALLY SCHEDULED
FOR JANUARY 9, 1997, WHICH MEETING WAS PREVIOUSLY CANCELLED BY THE TRUST, HAVE
BEEN DEEMED TO HAVE BEEN CANCELLED.
---------------------
THE DATE OF THIS PROXY STATEMENT IS , 1997.
---------------------
<PAGE> 6
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE
TRUST OR CITYFRONT SINCE THE DATE HEREOF.
As used herein, unless the context otherwise clearly requires: "Trust"
refers to The Chicago Dock and Canal Trust and its consolidated subsidiaries;
"CityFront" refers to CityFront Center, L.L.C. and its consolidated
subsidiaries, including Sub; "Merger Agreement" or "CityFront Merger Agreement"
refers to the Agreement and Plan of Merger dated as of December 27, 1996 among
CityFront, Sub and the Trust; "Merger" or "CityFront Merger" refers to the
merger of the Trust into Sub contemplated by the Merger Agreement; "Merger
Proposal" refers to the Merger Agreement and the Merger; and "Newsweb Merger"
refers to the merger of the Trust into Newsweb Sub contemplated by the
terminated Newsweb Merger Agreement. Capitalized terms not defined in the Proxy
Statement have the respective meanings specified in the Merger Agreement.
---------------------
ADDITIONAL INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). Such reports, proxy statements and other information filed by the
Trust may be inspected and copied at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices located at Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661, and Suite 1300, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of such
site is http://www.sec.gov. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
All information contained in this Proxy Statement concerning CityFront and
its subsidiaries, including Sub, has been supplied by CityFront and has not been
independently verified by the Trust. Except as otherwise indicated, all other
information contained in this Proxy Statement has been supplied by the Trust.
ii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................... 1
The Special Meeting................................................................. 1
Parties to the Merger Agreement..................................................... 1
The Merger.......................................................................... 2
The Merger Agreement................................................................ 3
The Newsweb Merger Agreement; The Newsweb Litigation................................ 5
Source and Amount of Funds.......................................................... 6
Interests of Certain Persons in the Merger.......................................... 6
The Trust Amendment................................................................. 6
Market Prices of the Shares......................................................... 7
Security Ownership of Certain Beneficial Owners and Management...................... 7
Selected Consolidated Financial Data................................................ 7
THE SPECIAL MEETING................................................................... 8
Date, Place and Time................................................................ 8
Purpose............................................................................. 8
Record Date; Voting Rights.......................................................... 8
Quorum.............................................................................. 8
Proxies............................................................................. 8
Required Vote....................................................................... 9
Solicitation of Proxies............................................................. 9
PARTIES TO THE MERGER AGREEMENT....................................................... 9
The Trust........................................................................... 9
CityFront........................................................................... 9
Sub................................................................................. 10
THE MERGER............................................................................ 10
Background of the Merger............................................................ 10
Reasons for the Merger; Recommendation of the Board................................. 14
Opinion of Financial Advisor........................................................ 16
Certain Federal Income Tax Consequences............................................. 20
Absence of Appraisal Rights......................................................... 21
Accounting Treatment................................................................ 21
Delisting and Deregistration of Shares.............................................. 21
THE MERGER AGREEMENT.................................................................. 22
The Merger.......................................................................... 22
Conditions to the Merger............................................................ 23
Termination of the Merger Agreement................................................. 24
No Solicitation..................................................................... 24
Fees and Expenses................................................................... 25
Conduct of Business by the Trust.................................................... 26
Trust Stock Options................................................................. 28
Indemnification and Insurance....................................................... 28
Reasonable Efforts.................................................................. 29
Representations and Warranties...................................................... 29
Severance Policy and Other Agreements............................................... 29
Guarantees of Obligations of CityFront and Sub...................................... 29
Redemption of Rights................................................................ 30
Assignment.......................................................................... 30
SOURCE AND AMOUNT OF FUNDS............................................................ 30
CERTAIN LITIGATION.................................................................... 30
CERTAIN AGREEMENTS BETWEEN CITYFRONT AND NEWSWEB...................................... 31
</TABLE>
iii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................ 31
MARKET PRICES OF THE SHARES........................................................... 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 34
THE TRUST AMENDMENT................................................................... 36
SELECTED CONSOLIDATED FINANCIAL DATA.................................................. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 38
Financial Condition................................................................. 38
Results of Operations -- Six Months Ended October 31, 1996 Versus Six Months Ended
October 31, 1995................................................................. 38
Results of Operations -- Fiscal 1996 Versus Fiscal 1995............................. 39
Results of Operations -- Fiscal 1995 Versus Fiscal 1994............................. 40
Liquidity and Capital Resources -- Six Months Ended October 31, 1996 Versus Six
Months Ended October 31, 1995.................................................... 41
Liquidity and Capital Resources -- Fiscal 1996 Versus Fiscal 1995................... 41
Liquidity and Capital Resources -- Fiscal 1995 Versus Fiscal 1994................... 42
Liquidity and Capital Resources -- General Discussion............................... 43
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 45
INDEPENDENT AUDITORS.................................................................. 46
OTHER MATTERS......................................................................... 46
CONSOLIDATED FINANCIAL STATEMENTS..................................................... F-1
APPENDIX A -- AGREEMENT AND PLAN OF MERGER
APPENDIX B -- TRUST AMENDMENT
APPENDIX C -- OPINION OF FINANCIAL ADVISOR
</TABLE>
iv
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and the Appendices hereto. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information contained
in this Proxy Statement and the Appendices hereto.
THE SPECIAL MEETING
Date, Place and Time....... The Special Meeting will be held at 10:00 A.M.,
Chicago time, on , 1997, at the
Sheraton Chicago Hotel & Towers, 301 East North
Water Street, Superior Room, Chicago, Illinois.
Purpose.................... To consider and vote upon proposals to approve and
adopt the Merger Proposal and the Trust Amendment
and to transact such other business as may properly
come before the Special Meeting. See "THE SPECIAL
MEETING -- Purpose."
Record Date; Voting
Rights................... Only Shareholders of record at the close of
business on the Record Date are entitled to receive
notice of and to vote at the Special Meeting and
any adjournment or postponement thereof. At the
close of business on the Record Date, there were
[5,786,300] Shares outstanding, each of which
entitles the registered holder thereof to one vote
on each matter voted upon at the Special Meeting.
See "THE SPECIAL MEETING -- Record Date; Voting
Rights."
Quorum..................... The holders of a majority of the Shares outstanding
and entitled to vote must be present in person or
represented by proxy at the Special Meeting in
order for a quorum to be present. See "THE SPECIAL
MEETING -- Quorum."
Required Vote.............. Approval of the Merger Proposal and the Trust
Amendment will require the affirmative vote of the
holders of at least two-thirds of the outstanding
Shares entitled to vote thereon. See "THE SPECIAL
MEETING -- Required Vote," "THE MERGER AGREEMENT --
Conditions to the Merger," "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "THE
TRUST AMENDMENT." APPROVAL OF THE MERGER PROPOSAL
AND THE TRUST AMENDMENT IS A CONDITION TO THE
OBLIGATIONS OF THE TRUST, CITYFRONT AND SUB UNDER
THE MERGER AGREEMENT TO CONSUMMATE THE MERGER.
PARTIES TO THE MERGER AGREEMENT
The Chicago Dock and Canal
Trust.................... The Trust is an Illinois business trust which owns
partially developed land located in downtown
Chicago, Illinois and income producing real
property in Chicago, Indianapolis, Indiana and
Tampa, Florida. Its principal executive offices are
located at 455 East Illinois Street, Suite 565,
Chicago, Illinois 60611 and its telephone number is
(312) 467-1870. See "PARTIES TO THE MERGER
AGREEMENT -- The Trust."
CityFront Center,
L.L.C. .................. CityFront is a Delaware limited liability company
formed for purposes of consummating the Merger and
developing and managing the properties of the Trust
following the Merger. Members of CityFront include
Daniel E. McLean (President of MCL Construction
Corporation) and
1
<PAGE> 10
several other prominent Chicago area
businesspersons. Mr. McLean, through his various
affiliated entities, has developed numerous
residential and multi-use real estate projects in
Chicago, Illinois and its surrounding areas,
including such projects as "The Residences at
Central Station" and "The Pointe at Lincoln Park."
CityFront's principal executive offices are located
at 1337 West Fullerton Avenue, Chicago, Illinois
60614 and its telephone number is (773) 525-4814.
See "PARTIES TO THE MERGER AGREEMENT -- CityFront."
Sub........................ Sub is an Illinois business trust formed solely for
the purpose of consummating the Merger. Sub has
minimal assets and no business and has carried on
no activities which are not directly related to its
formation and its execution of the Merger
Agreement. Its principal executive offices are
located at 1337 West Fullerton, Chicago, Illinois
60614 and its telephone number is (773) 525-4814.
See "PARTIES TO THE MERGER AGREEMENT -- Sub."
Assignment of Rights....... Pursuant to the Merger Agreement, CityFront may
assign, in its sole discretion, any or all of its
rights, interests and obligations under the Merger
Agreement to any Affiliate (as defined in the
Merger Agreement) of CityFront, provided CityFront
guarantees the obligation of such assignees through
the Closing Date (as defined in the Merger
Agreement). Pursuant to the Merger Agreement, at
the election of CityFront, any direct or indirect
wholly owned subsidiary of CityFront may be
substituted for Sub as a constituent company in the
Merger. In such event, the parties to the Merger
Agreement shall execute an appropriate amendment to
the Merger Agreement in order to reflect such
substitution. See "THE MERGER AGREEMENT --
Assignment."
THE MERGER
Recommendation of the Board
of Trustees.............. The Board of Trustees has determined that the terms
of the Merger are fair to, and in the best
interests of, the Trust and the Shareholders and
has unanimously approved the Merger Proposal. THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE MERGER PROPOSAL. See "THE
MERGER -- Reasons for the Merger; Recommendation of
the Board."
Opinion of Financial
Advisor.................. Lehman Brothers Inc. ("Lehman Brothers") has acted
as financial advisor to the Trust in connection
with the Merger and delivered its opinion on
December 27, 1996 to the Board to the effect that,
as of the date of such opinion, from a financial
point of view the consideration to be received by
the Shareholders pursuant to the Merger is fair to
such Shareholders. The full text of such written
opinion of Lehman dated December 27, 1996, which
sets forth the assumptions made, procedures
followed, matters considered, and limitations on
the scope of review undertaken, is attached to this
Proxy Statement as Appendix C and should be read
carefully in its entirety. See "THE
MERGER -- Opinion of Financial Advisor."
Certain Federal Income Tax
Consequences............. In general, each holder of Shares will recognize
gain or loss for federal income tax purposes equal
to the difference, if any, between the cash
2
<PAGE> 11
received pursuant to the Merger and such holder's
adjusted tax basis for its Shares. Such gain or
loss generally will be treated as a capital gain or
capital loss provided the Shares were a capital
asset in the hands of such holder. The Merger may
also be taxable under applicable state, local and
foreign tax laws and may be subject to backup
withholding. All Shareholders are urged to consult
their own tax advisers. See "THE MERGER -- Certain
Federal Income Tax Consequences."
Absence of Appraisal
Rights................... Neither the Illinois laws governing Illinois
business trusts, such as the Trust, nor the
Declaration of Trust, including the Trust
Amendment, provide holders of Shares the right to
dissent from the Merger and seek an appraisal of
their Shares. See "THE MERGER -- Absence of
Appraisal Rights."
Accounting Treatment....... The Trust understands that the Merger will be
accounted for by CityFront as a "purchase" under
generally accepted accounting principles. See "THE
MERGER -- Accounting Treatment."
THE MERGER AGREEMENT
Conversion of Securities... At the Effective Time (as hereinafter defined) of
the Merger each issued and outstanding Share will
be converted into the right to receive the Merger
Consideration of $25.00 per Share. See "THE MERGER
AGREEMENT -- The Merger."
Payment of Merger
Consideration............ At or about the Effective Time, the Paying Agent
(as hereinafter defined) appointed under the Merger
Agreement will mail to each holder of record of
Shares a letter of transmittal and related
instructions to effect the surrender of
certificates representing such Shares in exchange
for the Merger Consideration in accordance with the
Merger Agreement. See "THE MERGER AGREEMENT -- The
Merger -- Exchange Procedures."
Trust Stock Options........ At the Effective Time, each holder of a then
outstanding option to purchase Shares (a "Trust
Stock Option"), whether or not then exercisable,
shall, in settlement thereof and without any action
by such holder, be deemed to have made a
disposition of such Trust Stock Option to the Trust
and shall receive from the Trust for each Share
subject to such Trust Stock Option an amount in
cash equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of
such Trust Stock Option. See "THE MERGER
AGREEMENT -- Trust Stock Options."
No Solicitation............ The Trust has agreed that it will not, nor shall it
permit any of its subsidiaries to, and it shall use
its best efforts to cause its officers, trustees,
employees, agents, affiliates or any investment
banker, financial advisor, attorney, accountant or
other representative retained by it or any of its
subsidiaries not to, directly or indirectly, (i)
solicit, initiate or knowingly encourage, or
knowingly take any other action to facilitate, any
inquiries or the making of any proposal which
constitutes, or would reasonably be expected to
lead to, any Takeover Proposal (as hereinafter
defined) or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal;
provided, however, that the Trust may, under
specified circumstances relating to a Takeover
Proposal, respond to
3
<PAGE> 12
certain unsolicited written proposals from third
parties. The Trust has agreed that it, and its
subsidiaries and their respective officers,
trustees, employees, representatives, agents and
affiliates shall immediately cease any discussions
or negotiations with any parties that may be
ongoing with respect to a Takeover Proposal. See
"THE MERGER -- Background of the Merger" and "THE
MERGER AGREEMENT -- No Solicitation."
Termination................ The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or
after approval of the terms of the Merger Agreement
by the Shareholders: (i) by the mutual written
consent of CityFront and the Trust; (ii) by either
CityFront or the Trust if (A) any Governmental
Entity (as hereinafter defined) shall have issued
an order, decree or ruling or taken any other
action permanently enjoining, restraining or
otherwise prohibiting the consummation of the
Merger and such order, decree or ruling or other
action shall have become final and nonappealable,
(B) at the Special Meeting, the Merger Agreement,
the Merger or the Trust Amendment shall fail to be
approved by the requisite vote of the Shareholders,
or (C) the Merger shall not have been consummated
on or before May 31, 1997; (iii) by CityFront or
Sub (A) if the Trust shall have failed to perform
in any material respect any material obligation or
to comply in any material respect with any material
agreement or covenant of the Trust to be performed
or complied with by it under the Merger Agreement
or if there has been a breach of any of the
representations and warranties of the Trust set
forth in the Merger Agreement that are qualified as
to materiality or there has been a material breach
of any such representations and warranties that are
not so qualified, in each case which failure or
breach cannot be or has not been cured within 20
business days after the giving of written notice
thereof to the Trust, or (B) if the Board of
Trustees or any committee thereof shall have
withdrawn or modified in a manner adverse to
CityFront or Sub its approval or recommendation of
the Merger or the Merger Agreement, or approved or
recommended any Takeover Proposal (as hereinafter
defined) or the Board of Trustees shall have
resolved to do any of the foregoing; (iv) by the
Trust (A) in the exercise of the fiduciary duties
of the Board of Trustees as described below under
"THE MERGER AGREEMENT--No Solicitation," provided
it has complied with all provisions of the Merger
Agreement relating thereto, including the notice
provisions therein, and that it complies with
applicable requirements relating to the payment
(including the timing of any payment) of Expenses
and the Termination Fee (each as defined below
under "THE MERGER AGREEMENT--Fees and Expenses") or
(B) if CityFront or Sub shall have breached in any
material respect any of its respective
representations, warranties, covenants or other
agreements contained in the Merger Agreement, which
breach or failure to perform is incapable of being
cured or has not been cured within 20 days after
the giving of written notice to CityFront or Sub.
See "THE MERGER AGREEMENT -- Termination."
Fees and Expenses.......... Under certain circumstances, termination of the
Merger Agreement would require the payment by the
Trust to CityFront of an amount equal to the sum of
$3,500,000 plus CityFront's documented
out-of-pocket expenses relating to the Merger in an
amount up to, but not exceeding, $750,000. Such
circumstances include, without limitation, the
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<PAGE> 13
Shareholders failing to approve and adopt the
Merger Proposal and the Trust Amendment if, at or
prior to the time of the Special Meeting, a
Takeover Proposal has been made, and, within one
year of the Special Meeting, the Trust enters into
an Acquisition Agreement (as hereinafter defined)
or a Takeover Proposal shall have been consummated.
THE NEWSWEB MERGER AGREEMENT; THE NEWSWEB LITIGATION
The Newsweb Merger
Agreement; The Newsweb
Litigation................. On September 27, 1996, the Trust entered into the
Newsweb Merger Agreement with Newsweb and Newsweb
Sub providing for the merger of the Trust into
Newsweb Sub. The Trust mailed a proxy statement,
dated November 14, 1996, to Shareholders of record
of the Trust as of November 11, 1996 relating to
the Newsweb Merger Agreement and
giving notice of a special meeting of Shareholders
that was scheduled for January 9, 1997 to consider
the Newsweb Merger Agreement and the merger of the
Trust into Newsweb Sub. On November 27, 1996, the
Trust received an unsolicited proposal from
CityFront offering $22.00 per Share in cash as
merger consideration. Between November 27, 1996 and
December 27, 1996, the Trust held various
discussions with CityFront and received a series of
revised proposals from CityFront relating to the
Merger, culminating in CityFront's delivery to the
Trust of a revised proposal on December 21, 1996
offering $25.00 per Share in cash as merger
consideration.
On December 6, 1996, Newsweb filed an action in the
Circuit Court of Cook County, Illinois against
CityFront and certain related parties alleging,
inter alia, that CityFront was attempting to
tortiously interfere with the Newsweb Merger
Agreement (the "Newsweb Litigation"). On December
12, 1996, Newsweb amended its complaint to add the
Trust and its trustees as defendants. On December
19, the Court held a hearing on Newsweb's motion
for a preliminary injunction against CityFront, the
Trust and its trustees to enjoin the Trust and
CityFront from considering and pursuing the
CityFront proposal. Such motion was denied by the
court on December 20, 1996, although the Court also
expressly reserved consideration of all of
Newsweb's other claims, including its claims
against the defendants for damages.
Following the denial of the motion, on December 20,
1996, Newsweb delivered a proposal to the Trust
offering to amend the Newsweb Merger Agreement to
increase the merger consideration to be paid
thereunder to $23.00 per Share in cash. Following
receipt of notice from the Trust that CityFront's
$25.00 per Share proposal had been determined by
the Trust to be superior to Newsweb's $23.00 per
Share offer, Newsweb advised the Trust that Newsweb
would not be submitting a further revised offer.
Thereafter, the Board of Trustees approved the
CityFront proposal. Concurrently with the execution
of the CityFront Merger Agreement on December 27,
1996, the Trust terminated the Newsweb Merger
Agreement. In connection with the termination of
the Newsweb Merger Agreement, the Trust paid
Newsweb a termination fee of $3,500,000 and
expenses of up to $750,000, as required by the
Newsweb Merger Agreement. On December 26, 1996,
Newsweb, Newsweb Sub, CityFront and Sub, entered
into an Asset Purchase Agreement (the
5
<PAGE> 14
"Asset Purchase Agreement") which, if consummated,
will inter alia, terminate the Newsweb Litigation
with prejudice. See "THE MERGER -- Background of
the Merger"; "CERTAIN LITIGATION"; and "CERTAIN
AGREEMENTS BETWEEN CITYFRONT AND NEWSWEB."
SOURCE AND AMOUNT OF FUNDS
Source and Amount of
Funds.................... CityFront has informed the Trust that the funds
required to consummate the Merger will come from
borrowings under a secured credit facility,
consisting of a two-year and a three-year term loan
in the aggregate amount of $75,000,000 and
available working capital from equity capital
commitments aggregating $75,000,000. See "SOURCE
AND AMOUNT OF FUNDS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interests of Certain
Persons in the Merger.... Trustees and executive officers of the Trust have
interests in the Merger in addition to their
interests solely as Shareholders. Those interests
relate to the receipt of cash in exchange for the
Trust Stock Options, amounts that may become due
after the Effective Time under certain employment
and non-competition agreements and the provision of
indemnification after the Merger. See "THE MERGER
AGREEMENT -- Trust Stock Options," "THE MERGER
AGREEMENT -- Indemnification and Insurance," and
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
THE TRUST AMENDMENT
The Trust Amendment........ The Trust Amendment clarifies certain procedures to
be followed in connection with consummation of the
Merger. The Trust Amendment (i) provides that the
merger of the Trust into any other person
(including the Merger of the Trust into Sub)
requires the approval of at least two-thirds of the
duly qualified and acting trustees of the Trust and
the favorable vote of the holders of at least
two-thirds of the outstanding Shares, (ii) states
that the limitation on ownership of Shares
contained in the Declaration of Trust (limiting
ownership per person to 9.8% of the outstanding
Shares) does not apply to the acquisition of Shares
pursuant to a merger involving the Trust (including
the Merger) and (iii) sets forth provisions
governing mergers involving the Trust (including
the Merger), including (A) requirements for a plan
of merger, (B) requirements for Shareholder
approval, (C) requirements for the filing of
articles of merger and (D) provisions relating to
the effective date and effect of the Merger.
APPROVAL OF THE TRUST AMENDMENT BY THE AFFIRMATIVE
VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES IS A CONDITION TO THE
OBLIGATIONS OF THE TRUST, CITYFRONT AND SUB UNDER
THE MERGER AGREEMENT TO CONSUMMATE THE MERGER.
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<PAGE> 15
Recommendation of the Board
of Trustees.............. THE BOARD OF TRUSTEES HAS APPROVED THE TRUST
AMENDMENT AND UNANI-
MOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE TRUST AMENDMENT. See "THE TRUST
AMENDMENT."
MARKET PRICES OF THE SHARES
Market Prices of the
Shares................... The Shares are traded on Nasdaq under the symbol
"DOCKS." On February 27, 1996, the last trading day
prior to the Trust's public announcement that it
had formed a special committee of its Board of
Trustees to study strategic alternatives available
to the Trust to maximize Shareholder value, the
last reported sale price of the Shares, as reported
by Nasdaq, was $12.00 per Share. On September 27,
1996, the last trading day prior to the execution
of the Newsweb Merger Agreement, the last reported
sale price of the Shares, as reported by Nasdaq,
was $15.50 per share. On September 30, 1996, the
first trading day after the announcement of the
execution of the Newsweb Merger Agreement, the last
reported sale price of the Shares, as reported by
Nasdaq, was $20.27 per Share. On , 1997,
the last trading day prior to the date of this
Proxy Statement, the last reported sale price of
the Shares, as reported by Nasdaq, was $ per
share. For additional information concerning
historical market prices of the Shares, see "MARKET
PRICES OF THE SHARES."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of
Certain Beneficial Owners
and Management........... At the close of business on the Record Date, the
trustees and executive officers of the Trust
beneficially owned, in the aggregate, 594,504
Shares (including Shares subject to Trust Stock
Options), representing approximately 9.5% of the
Shares outstanding at such time. Excluding Shares
subject to Trust Stock Options, the trustees and
executive officers of the Trust beneficially owned
an aggregate of 141,965 Shares at the close of
business on the Record Date (representing
approximately 2.5% of the Shares outstanding at
such time). See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
SELECTED CONSOLIDATED FINANCIAL DATA
Selected Consolidated
Financial Data........... Certain selected historical consolidated financial
data of the Trust are set forth under "SELECTED
CONSOLIDATED FINANCIAL DATA." That data should be
read in conjunction with the financial statements
and related notes also included in this Proxy
Statement. See "SELECTED CONSOLIDATED FINANCIAL
DATA" and "CONSOLIDATED FINANCIAL STATEMENTS."
7
<PAGE> 16
THE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at 10:00 A.M., Chicago time, on
, 1997, at the Sheraton Chicago Hotel & Towers, 301 East North Water Street,
Superior Room, Chicago, Illinois.
PURPOSE
At the Special Meeting, Shareholders will consider and vote upon the Merger
Proposal and the Trust Amendment. The Shareholders will also transact such other
business as may properly come before the Special Meeting.
The Board has determined that the terms of the Merger are fair to, and in
the best interests of, the Trust and the Shareholders and has unanimously
approved the Merger Proposal and the Trust Amendment. THE BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE MERGER PROPOSAL AND THE TRUST
AMENDMENT. See "THE MERGER -- Reasons for the Merger; Recommendation of the
Board" and "THE TRUST AMENDMENT."
RECORD DATE; VOTING RIGHTS
Only shareholders of record at the close of business on the Record Date,
, 1997, are entitled to receive notice of and to vote at the
Special Meeting and any adjournment or postponement thereof. At the close of
business on the Record Date, there were [5,786,300] Shares outstanding, each of
which entitles the registered holder thereof to one vote on each matter voted
upon at the Special Meeting.
QUORUM
The holders of a majority of the Shares outstanding and entitled to vote
must be present in person or represented by proxy at the Special Meeting in
order for a quorum to be present. Pursuant to the Declaration of Trust and as
permitted by Illinois law, Shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e. Shares held by a broker or nominee which
are represented at the Special Meeting, with respect to which such broker or
nominee is empowered to vote on at least one proposal but not empowered to vote
on other proposals) will be counted as Shares present for purposes of
determining the number of Shares represented at the Special Meeting and the
presence of a quorum.
If a quorum is not present or represented at the Special Meeting,
Shareholders entitled to vote at the Special Meeting, whether present in person
or represented by proxy, shall only have the power to adjourn the Special
Meeting for the purpose of allowing additional time for soliciting and obtaining
additional proxies or votes. At any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Special Meeting, except for any
proxies which have theretofore effectively been revoked or withdrawn. At such
time as a quorum is present or represented by proxy, the Special Meeting will
reconvene without notice to Shareholders, other than an announcement at the
prior adjournment of the Special Meeting, unless the adjournment is for more
than thirty days or a new record date has been set.
PROXIES
All Shares represented by properly executed proxies in the enclosed form
which are received in time for the Special Meeting and have not been revoked
will be voted in accordance with the instructions indicated in such proxies. If
no instructions are indicated, such shares will be voted "FOR" the Merger
Proposal and the Trust Amendment. In addition, the persons designated in such
proxies will have discretion to vote upon such other matters as may properly
come before the Special Meeting, including, without limitation, the right to
vote for any adjournment thereof proposed by the Board to solicit additional
proxies.
PROXIES IN THE FORM DELIVERED TO SHAREHOLDERS WITH THE TRUST'S PROXY
STATEMENT DATED NOVEMBER 14, 1996 ARE NOT VALID FOR THE SPECIAL MEETING AND HAVE
BEEN DEEMED TO HAVE BEEN CANCELLED. SHAREHOLDERS WISHING TO
8
<PAGE> 17
VOTE AT THE SPECIAL MEETING BY PROXY MUST EXECUTE A PROXY IN THE
ENCLOSED FORM.
Any proxy in the enclosed form may be revoked by the Shareholder executing
it at any time prior to its exercise by giving written notice thereof to the
Secretary of the Trust, by signing and returning a later dated proxy or by
voting in person at the Special Meeting. Attendance at the Special Meeting will
not in and of itself constitute the revocation of a proxy.
SHAREHOLDERS SHOULD NOT FORWARD ANY SHARE CERTIFICATES WITH THEIR PROXY
CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, SHARE CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL,
WHICH WOULD BE SENT TO SHAREHOLDERS BY THE PAYING AGENT AT OR ABOUT THE
EFFECTIVE TIME.
REQUIRED VOTE
Approval of the Merger Proposal and the Trust Amendment will require the
affirmative vote of the holders of not less than two-thirds of the outstanding
Shares entitled to vote thereon. Because the required vote of the Shareholders
on the Merger Proposal and the Trust Amendment is based upon the total number of
outstanding Shares, the failure to submit a proxy card (or to vote in person at
the Special Meeting) or the abstention from voting by a Shareholder (including
broker non-votes) will have the same effect as an "AGAINST" vote with respect to
approval and adoption of the Merger Proposal and the Trust Amendment.
SOLICITATION OF PROXIES
The Trust will bear the costs of soliciting proxies from Shareholders. In
addition to soliciting proxies by mail, trustees, officers and employees of the
Trust, without receiving additional compensation therefor, may solicit proxies
by telephone, by telegram or in person. Arrangements also will be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Shares held of record by such
persons, and the Trust will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith. The Company has retained Morrow & Co., Inc. ("Morrow") to
aid in the solicitation of proxies and has agreed to indemnify Morrow against
certain liabilities, including liabilities under the federal securities laws.
Morrow's fee for solicitation of the proxies will be $5,000 plus reimbursement
for out-of-pocket costs and expenses. Morrow previously received a fee of $3,000
from the Trust for solicitation of proxies in connection with the cancelled
January 9, 1997 Special Meeting relating to the Newsweb Merger.
PARTIES TO THE MERGER AGREEMENT
THE TRUST
The Trust is an Illinois business trust which owns partially developed land
(including certain developed sites) located in downtown Chicago, Illinois and
income producing real property in Chicago, Indianapolis, Indiana and Tampa,
Florida. The Trust was organized in 1962, succeeding to the business of its
corporate predecessor. The Trust has elected to continue its operation as a self
administered real estate investment trust under the Internal Revenue Code of
1986, as amended.
As of the date hereof, the Trust's principal real estate investments
consist 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. The Trust's principal executive offices are located at 455 East
Illinois Street, Suite 565, Chicago, Illinois 60611 and its telephone number is
(312) 467-1870.
CITYFRONT
CityFront is a Delaware limited liability company formed for purposes of
consummating the Merger and developing and managing the properties of the Trust
following the Merger. Members of CityFront include Daniel E. McLean (President
of MCL Construction Corporation) and several other prominent Chicago area
businesspersons. Mr. McLean, through his various affiliated entities, has
developed numerous residential and multi-use real estate projects in Chicago and
its surrounding areas, including such projects as "The Residences at Central
Station" and "The Pointe at Lincoln Park." CityFront's principal executive
offices are located at 1337 West Fullerton Avenue, Chicago, Illinois 60614 and
its telephone number is (773) 525-4814.
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<PAGE> 18
SUB
Sub is an Illinois business trust formed solely for the purpose of
consummating the Merger. Sub has minimal assets and no business and has carried
on no activities which are not directly related to its formation and its
execution of the Merger Agreement. Its principal executive offices are located
at 1337 West Fullerton, Chicago, Illinois 60614 and its telephone number is
(773) 525-4814.
THE MERGER
BACKGROUND OF THE MERGER
In December 1995, the Board of Trustees, due in part to concern that the
then current trading price of the Shares did not reflect the full value of the
Trust, retained a consulting firm (the "Consultant") to assist the Trust in
exploring ways to maximize shareholder value. The Consultant conducted an
analysis of the Trust's financial condition, prospects, properties and trading
history and interviewed various Shareholders. The Consultant observed, among
other things, that the Shareholders desired to maximize the present value of
their Trust holdings and to realize greater liquidity. The Consultant also
observed that, while the Trust's properties had development potential, the Trust
was undercapitalized and would require significant additional capital and
increased infrastructure to maximize the value of the Trust's properties as an
independent entity. These observations led the Consultant to recommend that the
Trust consider a merger transaction in which the Trust would become part of a
larger entity.
In February 1996, the Trust received an inquiry from one of its
Shareholders regarding the Trust's interest in pursuing a possible business
combination at a proposed purchase price of $14.00 per Share (the "February
Inquiry"). The Trust held certain preliminary discussions with such Shareholder
to clarify certain of the terms of the February Inquiry, but ultimately
concluded that the proposed purchase price set forth in the February Inquiry did
not warrant entering into exclusive negotiations with such Shareholder.
On February 28, 1996, the Trust issued a press release announcing that its
Board of Trustees had formed a special committee of the Board of Trustees (the
"Special Committee") to study strategic alternatives available to the Trust to
maximize Shareholder value and that the Trust had retained Lehman Brothers as
its financial advisor to assist in such study. During March and early April
1996, Lehman Brothers conducted certain corporate and property-related due
diligence with respect to the Trust. The results of such due diligence were
used, in part, by Lehman Brothers to make presentations to the Special Committee
on April 8, 1996 and the Board of Trustees on April 11, 1996 evaluating various
strategic alternatives available to the Trust.
Lehman Brothers' presentations focused on valuing the Trust under five
strategic alternative scenarios. The first scenario (the "Status Quo Scenario")
assumed that the Trust continued its current business plan, operations and
management. The second scenario (the "Orderly Liquidation Scenario") assumed
that the Trust liquidated all of its assets over a period of three years. The
third scenario (the "Sale/Merger Scenario") assumed the sale of all of the
Trust's assets or capital stock in exchange for cash or securities. The fourth
scenario (the "Repositioned Business Plan -- Ownership of Income Property
Scenario") assumed non-incoming producing property of the Trust would be sold
immediately and that the Trust would continue to own and operate its income
producing properties. The last scenario (the "Repositioned Business Plan --
Aggressive Development Scenario") assumed that the Trust altered its business
strategy to pursue an aggressive development schedule. Each of the scenarios was
valued based on one or more of the following methodologies: analysis of
historical trading; comparison to other publicly-traded companies; or discounted
cash flow analysis. The results of such valuations indicated an implied present
value per Share of between $9-$13 for the Status Quo Scenario, $15-$17 for the
Orderly Liquidation Scenario, $14-$17 for the Sale/Merger Scenario, $12-$14 for
the Repositioned Business Plan -- Ownership of Income Property Scenario and $13-
$15 for the Repositioned Business Plan -- Aggressive Development Scenario. Each
of these valuation methodologies is described in more detail under "-- Opinion
of Financial Advisor." Lehman Brothers advised the Special Committee and the
Board that in evaluating each scenario, timing issues, tax considerations, ease
of execution and the risk of completion would need to be considered. In
addition, Lehman Brothers acknowledged that the valuations were largely based on
a financial analysis and that the competitive nature of
10
<PAGE> 19
the transaction process and strategic and other business reasons could result in
a willingness of a third party to offer values in excess of the ranges indicated
in the valuation methodologies. Lehman Brothers indicated its belief that, after
taking into account all alternatives, a possible sale or merger of the Trust
through an open and thorough auction process would be the alternative with the
potential to yield the highest value for the Shareholders.
At its April 11th meeting, the Board of Trustees determined to proceed with
soliciting indications of interest for a potential business combination with the
Trust. A press release was immediately issued announcing that Lehman Brothers
had been authorized to seek such indications of interest on behalf of the Trust.
During the weeks immediately following this public announcement, Lehman Brothers
and the Trust began to contact potentially interested parties to determine
whether such parties had an interest in receiving detailed financial and other
information relating to the Trust. Over 90 parties were contacted during this
stage of the process, of which approximately 70 parties executed confidentiality
agreements with the Trust and received information relating to the Trust.
Parties contacted included MCL Construction Corporation, an affiliate of
CityFront (together with MCL Chicago Homes, Inc., "MCL"), Newsweb, the
Shareholder that submitted the February Inquiry and numerous
investment/opportunity funds, real estate investment trusts, national/regional
developers, investment advisors and finance companies. Each of parties receiving
information was asked to submit to Lehman Brothers, on or before July 12, 1996,
written preliminary indications of interest for a transaction involving the
Trust.
On July 12, 1996, Lehman Brothers received 13 preliminary indications of
interest with proposed transaction prices ranging in estimated value from
$14.67-$17.29 per Share. Eight of the indications of interest (including an
indication of interest received from Newsweb) involved only cash as the proposed
consideration, two of the indications of interest involved only stock or other
securities as consideration and three of the indications of interest involved an
option of either cash or securities as consideration. Following review of such
indications of interest, the Board of Trustees authorized the Trust to permit 10
of the parties submitting such indications of interest (including MCL and
Newsweb) to proceed to conduct extensive due diligence with respect to the Trust
and to meet with the Trust's management. An additional party was subsequently
also provided an opportunity to conduct extensive due diligence.
Between July 12, 1996 and September 18, 1996, eleven interested parties
were provided opportunities to conduct due diligence. In certain instances,
interested parties also arranged for their financing sources and other advisors
to conduct independent due diligence.
On August 30, 1996, the Trust furnished each of the interested parties a
letter requesting that definitive proposals for a business combination involving
the Trust be submitted to Lehman Brothers by September 18, 1996 and setting
forth certain procedures applicable to the submission of proposals. This letter
was accompanied by a draft merger agreement that each of the interested parties
was invited to mark-up to reflect their respective comments and submit with its
proposal. In early September, four of the eleven interested parties advised
Lehman Brothers that they were withdrawing from the process and would not be
submitting definitive proposals. Two of the interested parties requested an
opportunity to meet with the Special Committee prior to September 18th to
discuss certain aspects of the proposals they intended to submit. Each of these
parties made a presentation to the Special Committee at a meeting held on
September 12, 1996.
On September 18, 1996, Lehman Brothers received seven proposals from
interested parties. Three of these proposals (including the proposal received
from Newsweb) involved the acquisition of all outstanding Shares pursuant to a
cash merger and one proposal ("Proposal A") involved the purchase for cash of
substantially all of the assets of the Trust. The cash consideration to be
received by Shareholders in connection with such four proposals ranged from
$17.50 to $18.50 per Share. Of the three remaining proposals received, the
proposal received from MCL contemplated merger consideration of $17.50 per Share
in cash, coupled with a security to be issued by an entity to be formed solely
to hold the Trust's ground lease on the Sheraton Chicago Hotel & Towers
property, a second proposal contemplated merger consideration of $17.50 per
Share in cash for up to 47% of the Trust's outstanding Shares, the issuance of a
new Class A stock of the Trust in exchange for the remaining outstanding Shares
and the contribution to the Trust of certain real estate properties of the
proposing party and the third proposal ("Proposal B") contemplated a capital
investment in
11
<PAGE> 20
the Trust over a period of years, including an initial capital investment
sufficient to permit the Trust to self-tender for up to 60% of its Shares at a
price not to exceed $15.75 per Share. During the evening of September 18th, the
Special Committee was briefed on the proposals received.
On September 19 and 20, 1996, representatives of the Trust and its
financial and legal advisors reviewed the economic and other terms of the
proposals received, including comments received with respect to the draft merger
agreement. Clarification was sought from the interested parties as to certain of
the terms of their respective proposals. During this same period, one of the
parties who had submitted a proposal for an all cash merger increased its
proposal to $19.00 per Share. In addition, the party who had submitted Proposal
A revised its proposal to reflect the acquisition of all outstanding Shares of
the Trust in a cash merger. In the evening of September 19th and during the
afternoon of September 20th, the Trustees serving on the Special Committee were
updated on developments relating to the proposals received.
On September 21, 1996, the Board of Trustees met to consider the proposals
received. The meeting included a presentation by Lehman Brothers regarding its
preliminary views on the respective valuations of the proposals received and a
presentation by the Trust's legal advisors as to the terms and conditions of the
draft merger agreements received with the proposals. At the meeting, the Board
of Trustees determined that, in light of the relatively similar economic terms
contained in various of the proposals, each of the interested parties should be
provided an opportunity to enhance the economic terms of its proposal and to
negotiate various aspects of the draft merger agreement. It was also determined
that certain of the interested parties offering the then most favorable economic
terms should be approached regarding their interest in acquiring less than 100%
of the Trust. This approach would be made in an effort to determine whether a
greater overall transaction consideration could be realized by Shareholders if,
in lieu of proceeding with a single transaction, the Trust sold only select
assets to one interested party and sold its remaining interests to one or more
other parties.
On the morning of September 22, 1996, the Board of Trustees held a
telephone conference with the Trust's legal and financial advisors. Lehman
Brothers informed the Board that it had contacted certain of the interested
parties to ascertain whether the interested parties had a particular interest in
specific portions of the Trust's business that would enable the Trust to realize
greater value by pursuing multiple transactions than would otherwise be
achievable through a single transaction. Lehman Brothers reported to the Board
that, while the interested parties had been willing to assign values to specific
portions of the Trust's business, the interested parties contacted appeared to
place significant value on acquiring all or substantially all of the Trust's
business and that the pursuit of multiple transactions was unlikely to result in
higher values than the values already reflected in the proposals received with
respect to a single transaction. One of the parties contacted was the party
initially submitting Proposal B ("Party B"). On September 22, 1996, Party B had
again indicated a willingness to purchase less than 100% of the Shares. Lehman
Brothers advised the Board of Trustees on issues concerning the valuation of
such an offer in relation to offers from other interested parties to acquire
100% of the Shares. The Board of Trustees determined that each of the interested
parties should be contacted and asked to submit revised offers for transactions
involving 100% of the Shares as well as alternative transaction structures. Each
of the interested parties was also advised that the Board of Trustees expected
that the revised offers would not be subject to any financing contingencies.
Following the telephone conference, each of the interested parties was contacted
and asked to submit its final and best offer by the end of the day on September
24th. A revised draft merger agreement was also delivered to each of the
interested parties on September 22nd.
On September 24, 1996, four of the interested parties submitted revised
proposals. The proposals ranged from a consideration of $18.20 per Share to
$20.25 per Share and included all cash and certain alternative transaction
structures.
On the morning of September 25, 1996, the Board of Trustees met with the
Trust's financial and legal advisors to review the four revised proposals. Two
of the proposals, one offering $20.25 per Share and another offering $20.00 per
Share, were considered to provide higher value than the other two proposals
received, including a proposal from MCL to acquire all of the Trust's
outstanding Shares for $19.60 per Share. The proposal offering $20.25 per Share,
which had been submitted by Party B, indicated, however, that the
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<PAGE> 21
financing for the proposal would be subject to certain board approvals which
could not be obtained prior to October 7, 1996 due to the need of Party B to
complete certain further financial, legal and environmental due diligence. The
proposal offering $20.00 per Share had been submitted by Newsweb and was not
subject to any material contingencies. In light of the relative closeness in the
economic terms offered, the potential contingency contained in the Party B offer
and the concern that such contingency could possibly affect Lehman Brothers'
ability to render a fairness opinion on the Party B offer, the Board of Trustees
decided to negotiate simultaneously with Party B and Newsweb in an effort to
maximize value, finalize contract provisions and eliminate contingencies that
could affect the Trust's ability to consummate a transaction. On the afternoon
of September 25, 1996, negotiations proceeded with Party B and Newsweb on the
economic and contractual terms of their respective proposals. Lehman Brothers
also contacted the other two parties (including MCL) who had submitted revised
proposals on September 24th and confirmed that such parties were unwilling to
further increase their offers.
On the morning of September 27, 1996, Newsweb advised Lehman Brothers that
it was willing to increase its offer to $21.00 per share for all outstanding
Shares, but that such increased offer would be its final and best offer. Lehman
Brothers subsequently was advised by Party B that Party B's $20.25 per Share
offer represented Party B's final and best offer and that Party B remained
unwilling to eliminate its October 7, 1996 contingency. In the late morning and
afternoon on September 27th, representatives of the Trust and Newsweb met to
negotiate the final terms of the Newsweb Merger Agreement. These negotiations
culminated in an agreement on the terms and conditions contained in the Newsweb
Merger Agreement. The Board of Trustees met and ultimately approved the proposed
transaction with Newsweb and the Newsweb Merger Agreement in the late afternoon
of September 27th. Immediately thereafter, the Newsweb Merger Agreement was
executed and a press release was issued by the Trust announcing the execution of
the Newsweb Merger Agreement.
In the weeks following the execution of the Newsweb Merger Agreement, the
Trust and Newsweb commenced preparations for a meeting of Shareholders of the
Trust to consider and vote upon the Newsweb Merger. The Trust scheduled a
special meeting of Shareholders for January 9, 1997 and established November 11,
1996 as the record date for determining Shareholders entitled to vote at such
meeting. A proxy statement with respect to the Newsweb Merger and such special
meeting was mailed by the Trust to its Shareholders on November 14, 1996.
On November 27, 1996, the Trust received an unsolicited proposal from
CityFront to acquire all of the issued and outstanding Shares of the Trust for a
merger consideration of $22.00 per Share. The CityFront proposal included a copy
of a merger agreement, executed by CityFront, that was virtually identical to
the Newsweb Merger Agreement except that the CityFront version reflected the
$22.00 per Share price and CityFront and Sub, as parties. In accordance with its
obligations under the Newsweb Merger Agreement, the Trust promptly provided
Newsweb with notice of the CityFront proposal.
On November 29, 1996, a meeting of the Board of Trustees was held to review
the CityFront proposal and the Trust's rights and obligations under the Newsweb
Merger Agreement. At the meeting, the Board of Trustees, after consultation with
the Trust's legal and financial advisors, determined that the trustees'
fiduciary duties required them to investigate further the CityFront proposal. A
press release to this effect was issued following the meeting of the Board of
Trustees.
During the week immediately following the November 29, 1996 meeting of the
Board of Trustees, the Trust and its advisors conducted an investigation of the
CityFront proposal, with particular emphasis on confirming CityFront's equity
and debt financing sources. On December 6, 1996, the Trust was advised that
Newsweb had commenced the Newsweb Litigation against CityFront. On December 10,
1996, a meeting of the Board of Trustees was held to review the status of the
CityFront proposal and the Newsweb Litigation. On December 12, 1996, Newsweb
added the Trust and its trustees as defendants in the Newsweb Litigation.
On December 13, 1996, CityFront submitted a revised proposal to the Trust.
The revised proposal offered $23.00 per Share for all the outstanding Shares of
the Trust, and was accompanied by certain financing commitments. A copy of this
revised proposal was forwarded to Newsweb in accordance with the Newsweb Merger
Agreement. On December 14, 16 and 17, 1996, the Board of Trustees met to review
CityFront's revised proposal. At the meeting held on December 17, 1996, the
Board of Trustees, after consultation with
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<PAGE> 22
the Trust's advisors, determined that CityFront's $23.00 per Share offer
constituted a "Superior Proposal" under the Newsweb Merger Agreement and
promptly delivered written notice to Newsweb of such determination.
On December 19 and 20, 1996, a hearing was held in the Circuit Court of
Cook County, Illinois with respect to the Newsweb Litigation. On December 20,
1996, the court denied Newsweb's motion for a preliminary injunction enjoining
the Trust and CityFront from considering and pursuing the CityFront proposal.
The court reserved consideration of the other claims in the Newsweb Litigation.
Following the court's ruling on the motion for preliminary injunction, Newsweb
delivered to the Trust a revised proposal offering to amend the Newsweb Merger
Agreement to provide for merger consideration of $23.00 per Share. Newsweb also
issued a press release regarding the court's ruling and Newsweb's $23.00 per
Share proposal.
On the morning of December 21, 1996, the Trust received a revised proposal
from CityFront offering $25.00 per Share for all outstanding Shares of the
Trust. A meeting of the Board of Trustees was held later that day to review the
revised CityFront proposal. At such meeting, the Board of Trustees, after
consultation with the Trust's advisors, determined that the CityFront $25.00 per
Share offer constituted a "Superior Proposal" under the Newsweb Merger Agreement
and promptly provided written notice to such effect to Newsweb. The Trust also
issued a press release regarding the events of December 20 and 21, 1996
involving Newsweb and CityFront.
Early on the morning of December 27, 1996, the Trust received a letter from
Newsweb indicating that it had declined to further amend its $23.00 per Share
offer for the Trust. Later on the morning of December 27, 1996, the Board of
Trustees met and approved the termination of the Newsweb Merger Agreement and
the execution of the Merger Agreement. Pursuant to the Newsweb Merger Agreement,
the Trust delivered notice to Newsweb of such termination along with the sums of
$750,000, as reimbursement of Newsweb's expenses, and $3,500,000, in payment of
a termination fee, in each case, as required by the Newsweb Merger Agreement.
Concurrently with delivery of the termination fee, the Merger Agreement was
executed. A press release was issued by the Trust announcing the execution of
the Merger Agreement later that day.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
(a) The Board of Trustees, at a meeting held on September 27, 1996,
determined that, as of such date, the terms of the Newsweb Merger were fair to,
and in the best interests of, the Trust and the Shareholders. At such meeting,
the Board of Trustees acted unanimously to approve the Newsweb Merger Agreement,
the Newsweb Merger and the Trust Amendment. The Board of Trustees also approved
the Newsweb Merger Agreement for purposes of Article XI of the Declaration of
Trust. In addition, the Board of Trustees unanimously recommended that the
Shareholders approve the Newsweb Merger and the Trust Amendment.
(b) As discussed under "-- Background of the Merger," following the
above-mentioned meeting of the Board of Trustees the Trust received CityFront's
$25.00 per Share proposal. At a meeting held on December 21, 1996, the Board of
Trustees determined that CityFront's $25.00 per Share proposal constituted a
"Superior Proposal" to Newsweb's then $23.00 per Share proposal and, in
accordance with the Newsweb Merger Agreement, furnished written notice to
Newsweb of the Trust's receipt of such "Superior Proposal." Because Newsweb did
not increase its $23.00 per Share proposal during the three business day
response period provided under the Newsweb Merger Agreement with respect to
"Superior Proposals" as to which the Trust had provided notice to Newsweb, a
meeting of the Board of Trustees was convened on December 27, 1996 to consider
further the CityFront $25.00 per Share proposal. The Board of Trustees, at the
meeting held on December 27, 1996, determined (i) to terminate the Newsweb
Merger Agreement and (ii) that the terms of the CityFront Merger are fair to,
and in the best interests of the Trust and the Shareholders. At such December
27, 1996 meeting, the Board acted unanimously to approve the CityFront Merger
Agreement, the CityFront Merger and the Trust Amendment. The Board of Trustees
also approved the CityFront Merger Agreement for purposes of Article XI of the
Declaration of Trust. In addition, the Board of Trustees withdrew its previous
recommendation of the Newsweb Merger and unanimously recommended that the
Shareholders approve the CityFront Merger Proposal and the Trust Amendment.
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<PAGE> 23
(c) In reaching the determinations described in paragraph (a) and (b)
above, the Board of Trustees considered a number of factors, including the
following:
(1) The current and historical financial condition and results of
operations of the Trust.
(2) The projected financial condition, results of operations,
prospects and strategic objectives of the Trust, as well as the risks
involved in achieving those prospects and objectives in the real estate
industry under current economic and market conditions.
(3) The conclusions of the Consultant as to the strategic options
available to the Trust to maximize Shareholder value, the capital and
increased infrastructure needed to pursue a strategy of developing the
Trust's properties and the risks inherent in pursuing such options.
(4) The presentation of Lehman Brothers to the Board of Trustees at
its meetings on April 11, 1996 and September 21, 1996 and confirmed by
Lehman Brothers to the Board of Trustees at its meetings on September 27,
1996 and December 27, 1996 as to various financial matters deemed relevant
to the Board's consideration, including, among other things, (a) an
analysis of certain historical business and financial information relating
to the Trust, (b) a review of public information with respect to certain
other companies Lehman Brothers believed to be relevant to the business of
the Trust, (c) a review of various financial forecasts and other data
provided to Lehman Brothers by the Trust relating to its business, (d) a
review of the historical stock prices and trading volumes of the Shares,
(e) a discounted cash flow valuation of the Trust, (f) an evaluation of the
specific properties of the Trust with respect to sale of such properties in
an orderly liquidation of the Trust and (g) an analysis of the Merger
Consideration as a multiple of various measures of the Trust's operating
performance.
(5) The fact that the $25.00 per Share to be received by the Trust's
Shareholders in the CityFront Merger represents an approximately 108%
premium over the closing market price of $12.00 per Share on February 27,
1996 (the last trading day prior to the Trust's announcement that it had
retained Lehman Brothers to study strategic alternatives for the Trust);
the fact that the $25.00 per Share to be received by the Shareholders in
the CityFront Merger represents an approximately 61% premium over the
closing market price of $15.50 per Share on September 27, 1996 (the last
trading day prior to the execution of the Newsweb Merger Agreement) and the
fact that the $25.00 per Share to be received by the Shareholders in the
CityFront Merger represents an approximately 19% premium over the $21.00
per Share consideration previously approved by the Board of Trustees in
connection with the Newsweb Merger Agreement.
(6) The relationship of the Merger Consideration to the respective
historical market prices of the Shares and to the Trust's book value and
the net asset value per Share.
(7) Discussions (described above under "-- Background of the Merger")
with, and financial terms of expressions of interest and definitive offers
received from, other parties as to possible transactions as a result of
contacts initiated by the Trust and unsolicited offers.
(8) The Board's view, after consultation with management, counsel to
the Trust and Lehman Brothers, regarding the likelihood of the existence of
other viable offers on terms as favorable as those in the CityFront Merger.
(9) The written opinion, dated December 27, 1996, of Lehman Brothers
to the Board of Trustees that, based upon and subject to various
considerations and assumptions set forth therein, from a financial point of
view the proposed consideration to be received by the Shareholders in
connection with the CityFront Merger is fair to the Shareholders. A copy of
the opinion rendered by Lehman Brothers to the Board of Trustees, setting
forth the procedures followed, the matters considered, the scope of the
review undertaken and the assumptions made by Lehman Brothers in arriving
at its opinion, is attached to this Proxy Statement as Appendix C and
incorporated herein by reference.
(10) The terms and conditions of the CityFront Merger Agreement and
the course of the negotiations resulting in the execution thereof,
including the terms of the CityFront Merger Agreement that permit the Board
of Trustees, in the exercise of its fiduciary duties, (a) to furnish
information to or
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<PAGE> 24
participate in negotiations with any third party that requests such
information or initiates such discussions or negotiations, pursuant to
appropriate confidentiality agreements, in connection with any inquiry,
proposal or offer relating to any direct or indirect acquisition or
purchase of 10% or more of any class of equity securities of the Trust or
any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 10% or more of
any class of equity securities of the Trust or any of its subsidiaries, any
merger, consolidation, business combination, liquidation, dissolution or
similar transaction involving the Trust or any of its subsidiaries
(although the Trust is not permitted by the CityFront Merger Agreement to
initiate, solicit or knowingly encourage any such third party inquiry,
proposal or offer or negotiations regarding the same), and (b) to terminate
the Merger Agreement in certain circumstances. The Board of Trustees noted
that the CityFront Merger Agreement provides that, in certain
circumstances, the Trust would be obligated to pay CityFront a termination
fee of $3,500,000 and expenses of up to an aggregate of $750,000.
(11) The fact that the CityFront Merger cannot be consummated unless
the approval of the holders of at least two-thirds of the outstanding
Shares is obtained.
(12) The likelihood that the proposed acquisition would be
consummated, including the likelihood of satisfaction of the conditions to
the CityFront Merger contained in the CityFront Merger Agreement, the
experience, reputation and financial condition of CityFront and its
affiliates and the risks to the Trust if the acquisition was not
consummated.
OPINION OF FINANCIAL ADVISOR
On February 28, 1996, the Trust engaged Lehman Brothers to act as its
financial advisor to assist in the Board's study of strategic alternatives
available to the Trust. Lehman Brothers acted as the Trust's financial advisor
in soliciting indications of interest in and proposals for a potential business
combination with the Trust and negotiating with interested parties, including
CityFront. Lehman Brothers was also engaged to render its opinion as to the
fairness, from a financial point of view, to the Shareholders of the
consideration to be received by the Shareholders in the CityFront Merger.
On September 27, 1996, in connection with the evaluation of the Newsweb
Merger Agreement and the transactions contemplated thereby by the Board of
Trustees, Lehman Brothers delivered its oral opinion, which opinion was
subsequently confirmed in writing, that, as of September 27, 1996, and subject
to assumptions, factors and limitations as described in that opinion, the
consideration to be received by the Shareholders in the Newsweb Merger was fair,
from a financial point of view, to the Shareholders.
On December 27, 1996, in connection with the evaluation of the CityFront
Merger Agreement and the transactions contemplated thereby by the Board of
Trustees, Lehman Brothers delivered its oral opinion, which opinion was
subsequently confirmed in writing, that, as of December 27, 1996, and subject to
assumptions, factors and limitations as described below, the consideration to be
received by the Shareholders in the CityFront Merger was fair, from a financial
point of view, to the Shareholders.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS WITH RESPECT TO THE
CITYFRONT MERGER, WHICH SETS FORTH ASSUMPTIONS MADE, FACTORS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS
OPINION, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT AND IS INCORPORATED
HEREIN BY REFERENCE. THE SUMMARY OF THE OPINION OF THE FINANCIAL ADVISOR SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
No limitations were imposed by the Trust on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers provided financial advisory services to the Trust
in connection with the CityFront Merger, but was not requested to and did not
make any recommendation to the Board of Trustees as to the form or amount of the
consideration to be offered to the Shareholders in the CityFront Merger, which
was determined through arms'-length negotiations between the Trust and
CityFront. In arriving at its opinion, Lehman Brothers did not ascribe a
specific range of values to the Trust, but made its determination as to the
fairness, from a financial point of view, of the consideration to be offered to
the Shareholders on the basis of the financial and comparative analyses
16
<PAGE> 25
described below. Lehman Brothers' opinion is for the use and benefit of the
Board of Trustees only and was rendered to the Board of Trustees in connection
with its consideration of the Merger Proposal and is not intended to be and does
not constitute a recommendation to any Shareholder as to how such Shareholder
should vote with respect to the Merger Proposal at the Special Meeting. Lehman
Brothers was not requested to opine as to, and its opinion does not in any
manner address, the Trust's underlying business decision to proceed with or
effect the CityFront Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
CityFront Merger Agreement and the terms of the Merger Proposal; (ii) publicly
available information concerning the Trust which Lehman Brothers believed to be
relevant to its analysis; (iii) financial and operating information with respect
to the business, operations and prospects of the Trust furnished to Lehman
Brothers by the Trust; (iv) a trading history of the Shares from December 27,
1993 to the present and a comparison of that trading history with those of other
companies which Lehman Brothers deemed relevant; (v) a comparison of the
historical financial results and present financial condition of the Trust with
those of other companies which Lehman Brothers deemed relevant; (vi) an
evaluation of the specific properties of the Trust with respect to the sale of
such properties in an orderly liquidation of the Trust and (vii) the results of
efforts to solicit indications of interest from third parties with respect to a
purchase of, merger or other business combination with the Trust. In addition,
Lehman Brothers had discussions with the management of the Trust concerning its
business, operations, assets, liabilities, financial condition and prospects and
undertook such other studies, analyses and investigations as Lehman Brothers
deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without assuming any responsibility for independent
verification of such information and further relied upon the assurances of
management of the Trust that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
projections of the Trust provided to Lehman Brothers by the management of the
Trust, Lehman Brothers assumed that such projections were reasonably prepared on
a basis reflecting the best currently available estimates and judgments of the
management of the Trust as to the future financial performance of the Trust and
that the Trust will perform in accordance with such projections. In arriving at
its opinion, Lehman Brothers conducted only a limited physical inspection of the
properties and facilities of the Trust and did not make or obtain any evaluation
or appraisals of the assets or liabilities of the Trust. Upon the advice of the
Trust and its legal and accounting advisors, Lehman Brothers assumed that the
merger consideration to be received by the Shareholders would qualify as a
liquidating dividend within the meaning of Section 562(b) of the Code and
therefore would entitle the Trust to a dividends paid deduction and would
entitle the Shareholders to capital gains treatment. Lehman Brothers' opinion
was necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of its opinion.
In arriving at its opinion, Lehman Brothers also took into account that the
Trust had originally commenced soliciting indications of interest in a potential
business combination in April 1996. Lehman Brothers and the Trust contacted over
90 parties to determine whether such parties had an interest in receiving
detailed financial and other information relating to the Trust. Approximately 70
parties executed confidentiality agreements with the Trust and received
information relating to the Trust. On July 12, 1996, Lehman Brothers received 13
preliminary indications of interest in a potential business combination with the
Trust. Between July 12, 1996 and September 18, 1996, eleven interested parties
were provided opportunities to conduct due diligence. On September 18, 1996,
Lehman Brothers received seven proposals from interested parties. Between
September 18, 1996 and September 27, 1996, Lehman Brothers had various contacts
with interested parties regarding the economic and contractual terms of their
respective proposals, culminating with the execution of the Newsweb Merger
Agreement on September 27, 1996. On November 27, 1996, the Trust received
CityFront's unsolicited offer of $22.00 per Share. Between November 27, 1996 and
December 27, 1996, Lehman Brothers had various discussions with Newsweb and
CityFront regarding the economic and contractual terms of their respective
proposals, culminating with the execution of the CityFront Merger Agreement on
December 27, 1996. See "THE MERGER -- Background of the Merger."
In connection with its opinion of December 27, 1996, Lehman Brothers
performed a variety of financial and comparative analyses, as summarized below.
The preparation of a fairness opinion involves various
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<PAGE> 26
determinations as to the most appropriate and relevant methods of financial and
comparative analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its opinion, Lehman Brothers
did not attribute any particular weight to any analysis and factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In its analyses, Lehman Brothers made numerous assumptions with
respect to industry performance, general business and economic conditions, the
competitive environment in the markets in which the Trust operates and other
matters. Many of these assumptions are beyond the control of the Trust. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Historical Stock Price Analysis. Lehman Brothers considered various
historical data concerning the history of the trading prices for the Shares for
the period from December 27, 1993 to December 26, 1996 (the last trading date
prior to the announcement of the execution of the CityFront Merger Agreement)
and the relationship between price movements of the Shares and the relative
price performance of the Trust as compared to a composite index based upon the
Peer Group (as defined below) for the same period. At December 26, 1996, the
average closing Share price of the Trust for the month, year, two years and
three years previous to the CityFront Merger Agreement was $22.42, $15.38,
$13.31 and $12.20, respectively.
Based on the closing price of $15.50 per Share on September 27, 1996 (the
last trading date prior to the announcement of the execution of the Newsweb
Merger Agreement), the $25.00 per Share offer represents a 61% premium. Based on
the closing price of $12.00 per Share on February 27, 1996 (the last trading day
prior to the Trust's announcement that it had retained Lehman Brothers to study
strategic alternatives for the Trust), the $25.00 per Share offer represents a
108% premium. Based on the average closing Share price for the month, year, two
years and three years prior to December 27, 1996, the $25.00 per Share offer
represents a 12%, 63%, 88% and 105% premium, respectively, over those prices.
Analysis of Selected Relevant Publicly Traded Companies. Using publicly
available information, Lehman Brothers compared selected financial data of the
Trust with similar data of selected publicly-traded real estate investment
trusts engaged in businesses considered by Lehman Brothers to be relevant to
those of the Trust. Specifically, Lehman Brothers included in its review
EastGroup Properties, First Union Real Estate and Mortgage Investors, MGI
Properties, Pennsylvania REIT and Sizzler Property Investors (the "Peer Group").
Lehman Brothers focused on the trading multiples of this group of comparable
companies. Lehman Brothers calculated, among other things, current market price
per share (the "Market Price") as a multiple of each of the latest twelve months
("LTM") funds from operations ("FFO") per share and estimated 1996 and 1997 FFO
per share for each of the Peer Group. The 1996 and 1997 FFO per share estimates
were based upon the median of publicly-available earnings estimates made by
research analysts as provided by First Call Investor Services. Lehman Brothers
also calculated current total capitalization based upon the market value of the
equity ("Market Capitalization") as a multiple of LTM earnings before interest
and taxes plus depreciation and amortization ("EBITDA") for each of the Peer
Group. Lehman Brothers calculated the following multiples of the Peer Group: (i)
a range of 7.9x to 14.3x with a median value of 11.0x for the ratio of Market
Price to LTM FFO per share; (ii) a range of 8.0x to 13.0x with a median value of
11.0x for the ratio of Market Price to 1996 estimated FFO per share; (iii) a
range of 7.6x to 11.4x with a median value of 10.2x for the ratio of Market
Price to 1997 estimated FFO per share; and (iv) a range of 10.2x to 13.5x with a
median value of 12.6x for the ratio of Market Capitalization to LTM EBITDA.
Using the same methodology as in the analysis of the Peer Group, the multiples
derived from this analysis were used to impute a range of values for the Trust.
Because of the lack of truly comparable companies due to inherent
differences in the businesses, operations and prospects of the Trust and the
businesses, operations and prospects of the companies included in the Peer
Group, Lehman Brothers believed it was inappropriate to, and therefore did not,
rely solely on the
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<PAGE> 27
quantitative results of the analysis, and accordingly also made qualitative
judgments concerning differences between the financial and operating
characteristics of the Trust and the companies in the Peer Group, which would
affect the public trading values of the Trust and such other companies.
Discounted Cash Flow Analysis. Lehman Brothers calculated the present value
of the future streams of cash flow that the Trust could be expected to produce
over an approximate ten-year period. The analysis of the Trust utilized
projections provided by management of the Trust. Lehman Brothers calculated
terminal values of the Trust based on multiples of projected fiscal 2007 EBITDA
plus an adjustment for the estimated value of non-income producing property.
Such EBITDA multiples and the discount rates used in this analysis were
determined on the basis of several assumptions regarding factors such as the
inflation rate, interest rates, the inherent business risks of the Trust and the
cost of equity capital.
Based on the three valuation methodologies described above, Lehman Brothers
valued the Trust under four strategic alternative scenarios: the Status Quo
Scenario, the Orderly Liquidation Scenario, the Reposition Business
Plan -- Ownership of Income Property Scenario and the Reposition Business
Plan -- Aggressive Development Scenario. Each of the valuations for the
respective scenarios took into account certain information, including updated
projections provided by management of the Trust and selected financial data and
the trading history of the Trust and selected relevant publicly traded
companies, for the period subsequent to September 27, 1996. See "THE
MERGER -- Background of the Merger."
The Status Quo Scenario assumed that the Trust continued to operate as a
public company under its current business plan and financial policies. Applying
the three valuation methodologies, Lehman Brothers concluded that the Status Quo
Scenario would yield values of between $10 and $16 per Share under the
historical share price methodology (which gave effect to increases in the Share
price prior to September 27, 1996, the date of execution of the Newsweb Merger
Agreement), between $12 and $15 per Share under the analysis of selected
publicly traded comparable companies methodology and between $12 and $15 per
Share under the discounted cash flow methodology.
The Orderly Liquidation Scenario assumed a liquidation of the Trust over a
three year period, with liquidation proceeds reduced by costs incurred during
the liquidation period. A discounted cash flow analysis (at discount rates
ranging from 13% to 16%) was used to value liquidation proceeds and such
analysis yielded updated valuations ranging from $15 to $18 per Share. Such
discount rates were determined on the basis of several assumptions regarding
factors such as the inflation rate, interest rates, the inherent business risks
of the Trust and the cost of equity capital. Assumptions made in estimating
liquidation proceeds included the following: (i) income producing properties
would be sold immediately, (ii) parcels currently used for parking but held for
long term development were valued based on parking income stream, with terminal
values based on greater of value as parking or development sites, (iii)
remaining parcels would be liquidated over a three year period, with certain
costs of remaining infrastructure requirements incurred over the same period and
(iv) general and administrative expenses would be reduced from $1.5 million in
the last year of liquidation to $500,000 in the final year.
The Reposition Business Plan -- Ownership of Income Property Scenario
assumed the repositioning of the Trust through the sale of land assets and focus
on operating properties. Under this scenario, non- or low-income producing real
estate (primarily land assets) would be sold immediately with values based on
comparable sales and the expected absorption and the remainder of the Trust
could continue in its existing structure. This scenario was estimated to yield
valuations of between $14 and $20 per Share.
The Reposition Business Plan -- Aggressive Development Scenario evaluated a
change in business strategy to an aggressive development scenario. A discounted
cash flow analysis was applied to various projections furnished by management.
These projections were discounted over an approximate ten-year period, with an
adjustment for land valuation. This scenario was estimated to yield valuations
of between $19 and $22 per Share.
Lehman Brothers concluded that the offer of $25.00 exceeded the valuation
ranges of $10-$16 under the Status Quo Scenario, $15-$18 under the Orderly
Liquidation Scenario, $14-$20 under the Reposition Business Plan -- Ownership of
Income Producing Property Scenario and $19-$22 under the Reposition
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Business Plan -- Aggressive Development Scenario. In addition, Lehman Brothers
concluded that the offer of $25.00 was above the range for valuation of the
Trust of $14-$17 reached by Lehman Brothers under the Sale/Merger Scenario and
presented to the Board on April 11, 1996. See "THE MERGER -- Background of the
Merger."
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Board of Trustees selected
Lehman Brothers because of its expertise, reputation and familiarity with the
real estate industry.
As compensation for its services in connection with the Merger, the Trust
has paid Lehman Brothers $100,000 and agreed to pay Lehman Brothers a fee upon
consummation of the Merger based on the aggregate value of the consideration
received by the Shareholders as determined at the time plus the aggregate
principal amount of any indebtedness for money borrowed (excluding certain
classes of such indebtedness) assumed by CityFront in connection with a sale of
the Trust. Based on a price for the Shares of $25.00 per Share, the fee payable
upon consummation of the Merger would total approximately $2.0 million. In
addition, the Trust has agreed to indemnify Lehman Brothers for certain
liabilities that may arise out of its engagement by the Trust and the rendering
of its opinion.
In the ordinary course of its business, Lehman Brothers may trade in the
Shares for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to beneficial owners of Shares and to holders of
Trust Stock Options, and is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing, proposed, temporary and
final treasury regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change (possibly on a retroactive
basis). No attempt has been made to comment on all federal income tax
consequences of the Merger that may be relevant to particular holders, including
those that are subject to special tax rules such as dealers in securities,
mutual funds, insurance companies, tax-exempt entities, holders who do not hold
their Shares as capital assets and holders that, for federal income tax
purposes, are non-resident alien individuals, foreign corporations, foreign
partnerships, foreign estates or trusts or are subject to the alternative
minimum tax.
The tax discussion set forth below is included for general information
only. It is not intended to be, nor should it be construed to be, legal or tax
advice to any particular holder. Holders are advised and expected to consult
with their own legal and tax advisers regarding the federal income tax
consequences of the Merger in light of their particular circumstances, and any
other consequences to them of the Merger under state, local and foreign tax
laws.
In general, each holder of Shares will recognize gain or loss for federal
income tax purposes equal to the difference, if any, between the cash received
pursuant to the Merger and such holder's adjusted tax basis for its Shares. In
general, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the holder has held its Shares for more than one year as
of the Effective Time.
Unless a holder of Shares entitled to receive cash payments pursuant to the
Merger complies with certain reporting and certification procedures, or
otherwise demonstrates to the satisfaction of the Paying Agent that it is an
exempt recipient under applicable withholding provisions of the Code and the
Treasury regulations promulgated thereunder, such holder may be subject to
federal backup withholding at a rate of 31% with respect to all such cash
payments which such holder is entitled to receive. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to 31% backup
withholding will be reduced by the amount of tax withheld.
Pursuant to the Merger Agreement, at the Effective Time, each holder of a
then outstanding Trust Stock Option, whether or not then exercisable, shall be
deemed to have made a disposition of such Trust Stock
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Option to the Trust and shall receive from the Trust for each Share subject to
such Trust Stock Option an amount in cash equal to the excess, if any, of the
Merger Consideration over the per Share exercise price of such Trust Stock
Option. See "THE MERGER AGREEMENT -- Trust Stock Options." Each holder of a
Trust Stock Option will recognize ordinary income on any amounts paid in
exchange for the disposition of such Trust Stock Option.
The obligation of the Trust to effect the Merger is subject to the delivery
by CityFront of the opinion of CityFront's counsel, in form and substance
satisfactory to the Trust, and containing customary qualifications, limitations
and assumptions for opinions of this nature, to the effect that for federal
income tax purposes (i) the Merger will be treated as a sale by the Trust of all
its assets to Sub for the Merger Consideration and the assumption of the Trust's
liabilities, followed by the distribution of the Merger Consideration by the
Trust to the Shareholders in complete liquidation of the Trust, (ii) as to
whether gain or loss will be recognized by the Shareholders measured by the
difference between (x) the amount of the Merger Consideration received by each
such Shareholder and (y) such Shareholder's adjusted basis in its Shares, and
(iii) no portion of the Merger Consideration received by the Shareholders will
be treated as a distribution described in Section 301 of the Code.
ABSENCE OF APPRAISAL RIGHTS
Illinois laws governing Illinois business trusts, such as the Trust, do not
provide appraisal rights to holders of Shares. In addition, the Declaration of
Trust, including the Trust Amendment, does not provide Shareholders the right to
dissent from the Merger and seek an appraisal of their Shares.
ACCOUNTING TREATMENT
The Trust understands that the Merger will be accounted for by CityFront as
a "purchase" under generally accepted accounting principles.
DELISTING AND DEREGISTRATION OF SHARES
If the Merger is consummated, the Shares will no longer be traded on Nasdaq
and will be deregistered under the Exchange Act.
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THE MERGER AGREEMENT
The description of the Merger Agreement contained in this Proxy Statement
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached hereto as Appendix A and
incorporated herein by reference.
THE MERGER
Effective Time. The Merger Agreement provides that following the
satisfaction or waiver of the conditions described below under "-- Conditions to
the Merger," the Trust will be merged with and into Sub at the Effective Time
(as defined below). The Merger shall become effective at such time as the
parties shall file articles of merger or other appropriate documents (the
"Articles of Merger") with the Recorder of Deeds of Cook County, Illinois or at
such other time as Sub and the Trust shall agree should be specified in the
Articles of Merger consistent with the provisions of the Trust's Declaration of
Trust (the "Effective Time"). Following the Effective Time, the separate
existence of the Trust shall cease and Sub shall continue as the Surviving
Company and shall succeed to and assume all of the rights and obligations of the
Trust. Pursuant to the Trust Amendment, as a result of the Merger all of the
rights, privileges, immunities and franchises of the Trust and all property,
real, personal and mixed, and all debts due on whatever account and every other
interest of or belonging to the Trust shall be deemed to be transferred and
vested in the Surviving Company.
Governing Documents; Trustees and Officers. The Declaration of Trust, as
in effect immediately prior to the Effective Time shall be the declaration of
trust of the Surviving Company until thereafter changed or amended as provided
therein or by applicable law. The Bylaws of Sub as in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Company, until
thereafter changed or amended as provided therein or by applicable law. The
trustees of Sub immediately prior to the Effective Time shall be the trustees of
the Surviving Company, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be. The officers of Sub immediately prior to the Effective Time shall be the
officers of the Surviving Company, until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
Exchange Procedures. Prior to the Effective Time, CityFront shall
designate a bank or trust company reasonably acceptable to the Trust to act as
paying agent in the Merger (the "Paying Agent") and shall, at or prior to the
Effective Time, deposit or cause to be deposited with the Paying Agent in a
separate trust fund established for the benefit of the Shareholders (the
"Payment Fund") funds in an amount necessary for the payment of the Merger
Consideration. At the Effective Time, CityFront shall also make available to the
Surviving Company funds in an amount necessary to pay the Option Consideration
(as hereinafter defined). Arrangements shall be made with the Paying Agent such
that Shareholders and holders of Trust Stock Options are deemed to have received
payment of the Merger Consideration and the Option Consideration prior to the
expiration of the Company's taxable year ending with the Merger for federal
income tax purposes.
At or about the Effective Time, the Paying Agent shall mail to each holder
of record of a certificate or certificates that immediately prior to the
Effective Time represented Shares (the "Certificates"), (i) a letter of
transmittal and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor cash in an amount equal to the number of Shares
represented by such Certificate multiplied by the Merger Consideration, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Shares that is not registered in the transfer records
of the Trust, payment may be made to a person other than the person in whose
name the Certificate so surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of such Certificate
or establish to the satisfaction of the Surviving Company that such tax has been
paid or is not applicable. Until surrendered as contemplated by the Merger
Agreement, each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the amount of
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cash, without interest, into which the Shares theretofore represented by such
Certificate shall have been converted pursuant to the Merger Agreement.
Any portion of the Payment Fund which remains undistributed to the
Shareholders for six months after the Effective Time shall be delivered to
CityFront, upon demand, and any Shareholders who have not theretofore complied
with the procedures set forth in the Merger Agreement and the instructions set
forth in the letter of transmittal mailed to such holders after the Effective
Time shall thereafter look only to CityFront for payment of the Merger
Consideration to which they are entitled.
CONDITIONS TO THE MERGER
The Merger Agreement provides that the respective obligations of each party
to effect the Merger are subject to the satisfaction of certain conditions,
including the following: (a) the Merger Agreement and the transactions
contemplated thereby (including the Merger) shall have been approved by the
affirmative vote of the holders of at least two-thirds of the then outstanding
Shares; (b) no statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other federal, state or local government
or any court, tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency, domestic, foreign or
supranational (a "Governmental Entity") preventing the consummation of the
Merger shall be in effect; provided, however, that each of the Trust, CityFront
and Sub shall have used reasonable efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any injunction
or other order that may be entered; and (c) the Trust Amendment shall have been
approved by the affirmative vote of the holders of at least two-thirds of the
then outstanding Shares.
In addition, the Merger Agreement provides that the obligation of the Trust
to effect the Merger is subject to the satisfaction of certain conditions,
including the following: (a) CityFront and Sub shall have performed in all
material respects each of their obligations and complied in all material
respects with each of their agreements and covenants contained in the Merger
Agreement required to be performed or complied with on or prior to the Closing
Date (as defined in the Merger Agreement) and each of the representations and
warranties of CityFront and Sub contained in the Merger Agreement that is
qualified by materiality shall be true and correct on and as of the Closing Date
and each of the representations and warranties of CityFront and Sub that is not
so qualified shall be true and correct in all material respects on and as of the
Closing Date, (b) the opinion received by the Trust from Lehman Brothers to the
effect that the Merger Consideration to be received in the Merger by the
Shareholders is fair to such Shareholders from a financial point of view shall
not have been withdrawn or modified, (c) CityFront shall have furnished to the
Trust the opinion of CityFront's counsel to the effect that for federal income
tax purposes (i) the Merger will be treated as a sale by the Trust of all its
assets to Sub for the Merger Consideration and the assumption of the Trust's
liabilities, followed by the distribution of the Merger Consideration by the
Trust to the Shareholders in complete liquidation of the Trust, (ii) as to
whether gain or loss will be recognized by each of the Shareholders measured by
the difference between (x) the amount of the Merger Consideration received by
such Shareholder and (y) such Shareholder's adjusted basis in its Shares and
(iii) no portion of the Merger Consideration received by the Shareholders will
be treated as a distribution described in Section 301 of the Code and (d)
CityFront and Sub shall have delivered certain customary closing documents to
the Trust.
The obligations of CityFront and Sub to effect the Merger shall be subject
to the satisfaction of certain conditions, including the following: (a) The
Trust shall have performed in all material respects each of its obligations and
complied in all material respects with each of its agreements and covenants
contained in the Merger Agreement required to be performed or complied with on
or prior to the Closing Date and each of the representations and warranties of
the Trust contained in the Merger Agreement that is qualified by materiality
shall be true and correct on and as of the Closing Date and each of the
representations and warranties of the Trust that is not so qualified shall be
true and correct in all material respects on and as of the Closing Date, (b)
from the date of the Merger Agreement until the Closing Date, there shall have
occurred no material adverse change with respect to the Trust, other than
changes relating to the Trust's industry or the economy in general and not
specifically related to the Trust (each of CityFront and Sub having acknowledged
in the Merger Agreement that there may be disruptions to the Trust's business as
a result of the announcement of
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the Merger and any changes attributable thereto shall not constitute a material
adverse change) and (c) the Trust shall have delivered certain customary closing
documents to CityFront.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the terms of the Merger Agreement by
the Shareholders:
(1) by mutual written consent of CityFront and the Trust;
(2) by either CityFront or the Trust if (a) any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger and such order, decree or ruling or other action
shall have become final and nonappealable, (b) at the Special Meeting, the
Merger Agreement, the Merger or the Trust Amendment shall fail to be
adopted and approved by the requisite vote of the Shareholders or (c) the
Merger shall not have been consummated on or before May 31, 1997;
(3) by CityFront or Sub (a) if the Trust shall have failed to perform
in any material respect any material obligation or to comply in any
material respect with any material agreement or covenant of the Trust to be
performed or complied with by it under the Merger Agreement or if there has
been a breach of any of the representations and warranties of the Trust set
forth in the Merger Agreement that are qualified as to materiality or there
has been a material breach of any such representations and warranties that
are not so qualified, in each case which failure or breach is incapable of
being cured or has not been cured within 20 business days after the giving
of written notice thereof to the Trust or (b) if the Board of Trustees or
any committee thereof shall have withdrawn or modified in a manner adverse
to CityFront or Sub its approval or recommendation of the Merger or the
Merger Agreement, or approved or recommended any Takeover Proposal (as
hereinafter defined) or the Board of Trustees shall have resolved to do any
of the foregoing; or
(4) by the Trust (a) in the exercise of its fiduciary duties as
described below under "-- No Solicitation," provided it has complied with
all provisions of the Merger Agreement relating thereto, including the
notice provisions therein, and that it complies with applicable
requirements relating to the payment (including the timing of any payment)
of Expenses and the Termination Fee (each as defined below under "-- Fees
and Expenses") or (b) if CityFront or Sub shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in the Merger Agreement, which
breach or failure to perform is incapable of being cured or has not been
cured within 20 days after the giving of written notice to CityFront or
Sub.
NO SOLICITATION
The Merger Agreement provides that the Trust will not, nor will it permit
any of its subsidiaries to, and it shall use its best efforts to cause its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries not to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing information), or take any other action
to facilitate, any inquiries or the making of any proposal which constitutes, or
would reasonably be expected to lead to, any Takeover Proposal or (ii)
participate in any discussions or negotiations regarding any Takeover Proposal;
provided, however, that if the Board of Trustees determines in good faith, after
consultation with the Trust's outside counsel, that it is necessary in order for
the Board to comply with its fiduciary duties to the Shareholders under
applicable law, the Trust may, in response to a Takeover Proposal, and subject
to compliance with the notification provisions discussed below, (A) furnish
information with respect to the Trust to any person pursuant to a
confidentiality agreement containing terms no less favorable to the Trust than
the form entered into between the Trust and CityFront and (B) participate in
negotiations regarding such Takeover Proposal. The Merger Agreement defines
"Takeover Proposal" as any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of 10% or more of the assets
of the Trust and its subsidiaries or 10% or more of any class of equity
securities of the Trust or any of its subsidiaries, any tender offer or exchange
offer that if consummated would result in any person beneficially
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owning 10% or more of any class of equity securities of the Trust or any of its
subsidiaries, or any merger, consolidation, business combination, sale of
substantially all the assets, recapitalization, liquidation, dissolution or
similar transaction involving the Trust or any of its subsidiaries, other than
the transactions contemplated by the Merger Agreement.
The Merger Agreement provides further that, except as described below,
neither the Board of Trustees nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
CityFront, the approval or recommendation by such Board of Trustees or such
committee of the Merger Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Takeover Proposal or (iii) cause the Trust
to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement (each, an "Acquisition Agreement") related
to any Takeover Proposal. Notwithstanding the foregoing, in the event that the
Board of Trustees determines in good faith, after consultation with outside
counsel, that it is necessary in order for the Board to comply with its
fiduciary duties to the Shareholders under applicable law, such Board may
(subject to the other provisions regarding Takeover Proposals) (A) withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger or
(B) approve or recommend a Superior Proposal (as hereinafter defined) or
terminate the Merger Agreement (and concurrently with or after such termination,
if it so chooses, cause the Trust to enter into an Acquisition Agreement with
respect to any Superior Proposal), but in each of the cases described in this
clause (B), only at a time after the third business day following CityFront's
receipt of written notice (a "Notice of Superior Proposal") advising CityFront
that the Board of Trustees has received a Superior Proposal and specifying the
material terms and conditions of such Superior Proposal. For purposes of the
Merger Agreement, a "Superior Proposal" means any bona fide proposal, not
subject to any material financing contingency, made by a third party to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
all of the Shares then outstanding or all or substantially all the assets of the
Trust and otherwise on terms which the Board of Trustees determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Shareholders than the Merger.
In addition to the obligations of the Trust described in the preceding two
paragraphs, the Merger Agreement provides that the Trust shall promptly advise
CityFront of any request for information (other than documents filed by the
Trust with the SEC) or of any Takeover Proposal and the material terms and
conditions of such request or Takeover Proposal.
The Merger Agreement provides that nothing contained therein shall prohibit
the Trust from taking and disclosing to its Shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Shareholders if, in the good faith judgment of the Board of
Trustees, after consultation with outside counsel, failure to so disclose would
be inconsistent with its fiduciary duties to the Trust's Shareholders under
applicable law; provided, however, that neither the Trust, its Board of Trustees
nor any committee thereof shall, except as permitted by the provisions described
in the second preceding paragraph, withdraw or modify, or propose to withdraw or
modify, its position with respect to the Merger Agreement or the Merger or
approve or recommend, or propose to approve or recommend, a Takeover Proposal.
FEES AND EXPENSES
The Merger Agreement provides that the Trust will pay, or cause to be paid,
in same day funds to CityFront (a) Expenses in an amount up to, but not to
exceed, $750,000 and (b) $3,500,000 (the "Termination Fee") under the
circumstances and at the times set forth as follows: (i) if CityFront or Sub
terminates the Merger Agreement in accordance with the provision described in
clause (b) of paragraph (3) under "-- Termination of the Merger Agreement" above
and at the time of such termination there is no pending Takeover Proposal, the
Trust shall pay the Expenses and the Termination Fee upon demand; (ii) if
CityFront or Sub terminates the Merger Agreement in accordance with the
provision described in clause (b) of paragraph (3) under "-- Termination of the
Merger Agreement" above and at the time of such termination a Takeover Proposal
shall then be pending, the Trust shall pay the Expenses upon demand; in
addition, if within 12 months after such termination, the Trust shall enter into
an Acquisition Agreement
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providing for a Takeover Proposal or a Takeover Proposal shall be consummated,
the Trust shall pay the Termination Fee concurrently with the earlier of the
entering into of such Acquisition Agreement or the consummation of such Takeover
Proposal; (iii) if the Trust terminates the Merger Agreement in accordance with
the provision described in clause (a) of paragraph (4) under "-- Termination of
the Merger Agreement" above, the Trust shall pay the Expenses concurrently
therewith; in addition, if within 12 months after such termination, the Trust
shall enter into an Acquisition Agreement providing for a Takeover Proposal or a
Takeover Proposal shall be consummated, the Trust shall pay the Termination Fee
concurrently with the earlier of the entering into of such Acquisition Agreement
or the consummation of such Takeover Proposal; and (iv) if, at the time of any
other termination of the Merger Agreement (other than by the Trust (A) in
accordance with the provision described in clause (b) of paragraph (4) under
"-- Termination of the Merger Agreement" above or (B) provided the Trust is not
at the time in breach of its obligations described under "-- No Solicitation"
above or "-- Reasonable Efforts" below, in accordance with the provisions
described in paragraph (1) under "-- Termination of the Merger" above, clause
(a) of paragraph (2) under "-- Termination of the Merger" above or clause (c) of
paragraph (2) under "-- Termination of the Merger" above), a Takeover Proposal
shall have been made (other than a Takeover Proposal made prior to December 27,
1996), the Trust shall pay the Expenses, if terminated by the Trust,
concurrently therewith or, if terminated by CityFront, upon demand; in addition,
if within 12 months of such termination, the Trust shall enter into an
Acquisition Agreement providing for a Takeover Proposal or a Takeover Proposal
shall be consummated, the Trust shall pay the Termination Fee concurrently with
the earlier of the entering into of such Acquisition Agreement or the
consummation of such Takeover Proposal. For purposes of the Merger Agreement,
"Expenses" means documented out-of-pocket fees and expenses incurred or paid by
or on behalf of CityFront in connection with the Merger or the consummation of
any of the transactions contemplated by the Merger Agreement, including all fees
and expenses of law firms, commercial banks, investment banking firms,
accountants, experts and consultants to CityFront or Sub.
CONDUCT OF BUSINESS BY THE TRUST
The Merger Agreement provides that, except as otherwise expressly
contemplated by the Merger Agreement or to the extent that CityFront shall
otherwise consent in writing, (a) the Trust and its subsidiaries will carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as theretofore conducted and use all reasonable
efforts to preserve intact their current business organizations, keep available
the services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
them; (b) the Trust will not, and will not permit any of its subsidiaries to,
(i) declare or pay any dividends on, or make other distributions in respect of,
any of its capital stock (other than dividends by a direct or indirect wholly
owned subsidiary of the Trust to its parent or regular quarterly cash dividends
not to exceed $.08 per Share for the dividend payable on December 1, 1996 and
$.10 per Share for each regular quarterly dividend thereafter), (ii) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of the Trust or (iii) repurchase,
redeem or otherwise acquire any shares of capital stock of the Trust or its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities, except the redemption of the
Rights (as hereinafter defined); (c) the Trust will not, and will not permit any
of its subsidiaries to, issue, deliver, sell, pledge or encumber, or authorize
or propose the issuance, delivery, sale, pledge or encumbrance of, any shares of
its capital stock of any class or any securities convertible into, or rights,
warrants, calls, subscriptions or options to acquire, any such shares or
convertible securities, or any other ownership interest in the Trust, other than
(i) the issuance of Shares upon the exercise of stock options to purchase Shares
outstanding on the date of the Merger Agreement in accordance with their terms,
(ii) the issuance to trustees of options to purchase an aggregate of 3,500
Shares pursuant to the 1988 Trustee's Stock Option Plan and (iii) the issuance
of Shares upon the exercise of Rights pursuant to the Rights Agreement (as
hereinafter defined); (d) the Trust will not, and will not permit any of its
subsidiaries to, amend or propose to amend its Declaration of Trust or articles
of incorporation or by-laws (or similar organizational documents); (e) the Trust
will not, and will not permit any of its subsidiaries to, acquire or agree to
acquire (i) (by merger, consolidation, acquisition of stock or assets or by any
other manner) any business, corporation, partnership, limited liability company,
joint
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venture, association, trust or other business organization or division thereof
or (ii) any asset having a value in excess of $25,000 or any assets having an
aggregate value in excess of $250,000, except U.S. Treasury securities with
maturities of less than one year; (f) other than dispositions in the ordinary
course of business consistent with past practice which are not material to the
Trust and its subsidiaries taken as a whole, the Trust shall not, and shall not
permit any of its subsidiaries to sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets; (g) the Trust will not, and will not permit any of its
subsidiaries to, (i) incur or guarantee indebtedness for borrowed money or issue
or sell any debt securities or warrants or rights to acquire any debt securities
of the Trust or any of its subsidiaries, guarantee any debt securities of
others, enter into any "keep-well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for working capital borrowings
incurred in the ordinary course of business consistent with past practice or
(ii) make any loans, advances or capital contributions to, or investments in,
any other person, other than (A) to the Trust or any direct or indirect wholly
owned subsidiary of the Trust or (B) any advances to employees in accordance
with past practice; (h) the Trust shall promptly advise CityFront of any
material adverse change with respect to the Trust and will promptly provide to
CityFront (or its counsel) copies of all filings made by the Trust with any
Governmental Entity in connection with the Merger Agreement and the transactions
contemplated thereby; (i) the Trust will not make any tax election that would
have a material effect on the tax liability of the Trust or any of its
subsidiaries and the Trust shall consult with CityFront before filing or causing
to be filed any material income tax return of the Trust or any of its
subsidiaries; (j) neither the Trust nor any of its subsidiaries will make or
agree to make any new capital expenditure or expenditures that, individually,
exceeds $25,000 or, in the aggregate, exceed $500,000; (k) the Trust will not,
and will not permit any of its subsidiaries to pay, discharge, settle or satisfy
any claims, liabilities or obligations, other than the payment, discharge,
settlement or satisfaction in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities recognized or
disclosed in the most recent consolidated financial statements (or the notes
thereto) of the Trust included in the Trust's documents filed with the SEC or
incurred since the date of such financial statements in the ordinary course of
business consistent with past practice; (1) except in the ordinary course of
business, the Trust will not, and will not permit any of its subsidiaries to,
modify, amend or terminate any material contract or agreement to which the Trust
or such subsidiary is a party, or waive, release or assign any material rights
or claims; (m) neither the Trust nor any of its subsidiaries shall (i) grant any
increases in the compensation of any of its trustees or directors, officers or
key employees, except for increases required under employment agreements
existing on the date of the Merger Agreement, and increases for officers and
employees in the ordinary course of business consistent with past practice that
do not increase such officer's or employee's aggregate compensation by more than
5% over such employee's aggregate compensation in effect on the date of the
Merger Agreement, (ii) pay or agree to pay any pension retirement allowance or
other employee benefit not required or contemplated by any of the existing
benefit plans of the Trust as in effect on the date of the Merger Agreement to
any such trustee or director, officer or key employee, whether past or present,
(iii) enter into any new benefit plan which was not in existence on the date of
the Merger Agreement, or (iv) except as required to comply with applicable law,
become obligated under any new benefit plan which was not in existence on the
date of the Merger Agreement or amend any such plan or arrangement in existence
on the date of the Merger Agreement if such amendment would have the effect of
enhancing any benefits thereunder; (n) the Trust shall not adopt any material
change, other than in the ordinary course of business or as required by the SEC
or by law, in its accounting policies, procedures or practices; and (o) the
Trust shall neither exercise its right to repurchase certain property subject
and pursuant to that certain Agreement of Sale and Purchase between the Trust
and Chicago Dance and Music Theater dated as of August 31, 1994, as amended, nor
modify or amend such agreement in any respect.
In addition to the foregoing, the Trust has agreed that, except as
expressly contemplated or permitted by the Merger Agreement, it will not take
any action, or permit any of its subsidiaries to take any action, that would, or
could reasonably be expected to, result in (a) any of the representations and
warranties of the Trust set forth in the Merger Agreement that are qualified as
to materiality becoming untrue, or (b) any of such representations and
warranties that are not so qualified becoming untrue in any material respect.
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<PAGE> 36
TRUST STOCK OPTIONS
The Merger Agreement provides that, at the Effective Time, each holder of a
then outstanding Trust Stock Option, whether or not then exercisable, shall, in
settlement thereof and without any action by such holder, be deemed to have made
a disposition of such Trust Stock Option to the Trust and shall receive from the
Trust for each Share subject to such Trust Stock Option an amount in cash equal
to the excess, if any, of the Merger Consideration over the per Share exercise
price of such Trust Stock Option (the "Option Consideration"); provided,
however, that with respect to any person subject to Section 16(a) of the
Exchange Act who may incur liability as a result of such disposition, any such
disposition shall be made, and any such amount shall be paid, as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act. Upon receipt of the Option
Consideration, each Trust Stock Option shall be canceled. The disposition of any
Trust Stock Option in exchange for the Option Consideration shall be deemed a
release of any and all rights the holder had or may have had in respect of such
Trust Stock Option. In addition, the Merger Agreement provides that all plans,
programs or arrangements providing for the issuance of capital stock of the
Trust will be terminated as of the Effective Time and that the Trust will take
all actions necessary to ensure that, following the Effective Time, no
participant in the Trust's benefit plans has any right thereunder to acquire
equity securities of the Trust, the Surviving Company, or any subsidiary of the
Trust or the Surviving Company, and to terminate all such benefit plans.
INDEMNIFICATION AND INSURANCE
In the Merger Agreement, CityFront and Sub have agreed that the declaration
of trust and bylaws of the Surviving Company shall contain the provisions with
respect to indemnification set forth in the Declaration of Trust and Bylaws of
the Trust on the date of the Merger Agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of persons who at any time prior to the Effective Time were identified as
prospective indemnitees under the Declaration of Trust or Bylaws of the Trust in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law. The Merger Agreement
provides that, from and after the Effective Time, the Surviving Company will
defend and hold harmless the present and former officers, trustees or directors,
agents and employees of the Trust and its subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of, with the approval of
CityFront and the Surviving Company (which approval shall not be unreasonably
withheld), or otherwise in connection with, any claim, action, suit, proceeding
or investigation based in whole or in part on or pertaining to (i) the fact that
such person is or was such a trustee or director, officer, agent or employee of
the Trust or any subsidiary and arising out of actions or omissions occurring at
or prior to the Effective Time (including the transactions contemplated by the
Merger Agreement), or (ii) the Newsweb Merger Agreement and all actions by any
Indemnified Party in connection therewith, in each case to the fullest extent
permitted under the laws of the State of Illinois and the Declaration of Trust
(and, from and after the Effective Time, shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the fullest extent permitted by the Declaration of Trust and the laws of the
State of Illinois, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by the
Declaration of Trust). CityFront will provide, or cause the Surviving Company to
provide, for a period of not less than six years after the Effective Time, the
Trust's current directors and officers an insurance and indemnification policy
that provides coverage for events occurring at or prior to the Effective Time
(the "D&O Insurance") that is no less favorable than the Company's existing
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that CityFront and the Surviving
Company shall not be required to pay an annual premium for the D&O Insurance in
excess of one and one-half times the last annual premium paid by the Trust prior
to the date of the Merger Agreement, but in such case shall purchase as much
such coverage as possible for such amount.
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<PAGE> 37
REASONABLE EFFORTS
The Merger Agreement provides that, except as otherwise contemplated
therein, each of the parties thereto will use its reasonable efforts to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements that may be imposed on itself with respect to the Merger and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their subsidiaries in
connection with the Merger and will, and will cause its subsidiaries to, use its
reasonable efforts to take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by any of them or any of
their subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by the Merger Agreement, except that no party need waive
any substantial rights or agree to any substantial limitation on its operations
or to dispose of any assets.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Trust, including, but not limited to, representations and warranties relating to
the Trust's organization and qualification, subsidiaries, capitalization, its
authority to enter into the Merger Agreement and carry out related actions,
required consents and approvals, filings made by the Trust with the SEC under
the Exchange Act and the Securities Act of 1933, as amended (including financial
statements included in documents filed by the Trust), absence of certain
material adverse changes or events, employee benefit plans, litigation,
compliance with applicable laws, tax matters, environmental matters, title to
properties and qualification as a real estate investment trust.
The Merger Agreement also contains various representations and warranties
of CityFront and Sub, including, but not limited to, representations and
warranties relating to CityFront's and Sub's organization, authority to enter
into the Merger Agreement and carry out related actions, required consents and
approvals, liquid net assets, financing necessary to consummate the Merger and
litigation.
SEVERANCE POLICY AND OTHER AGREEMENTS
Pursuant to the Merger Agreement, CityFront has agreed to maintain or cause
the Surviving Company to maintain, with respect to any officer who is covered by
a severance policy separate from the standard severance policy for the Trust's
employees, such severance policy as in effect as of the Effective Time until the
first anniversary of the Effective Time, and as to all other officers and
employees, to maintain the Trust's standard severance policy as in effect as of
the Effective Time for a period of at least six months from the Effective Time.
See "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
CityFront shall honor or cause to be honored all severance agreements,
employment agreements, death benefit agreements and non-competition agreements
with the Trust's officers and employees disclosed to CityFront by the Trust on
the date of the Merger Agreement. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
CityFront shall, until the first anniversary of the Effective Time, provide
reasonable and customary outplacement services to employees of the Trust whose
employment is terminated without cause, which outplacement services provided to
such employees shall include one-on-one counseling and assistance.
GUARANTEES OF OBLIGATIONS OF CITYFRONT AND SUB
In the Merger Agreement, all of the obligations of CityFront and Sub,
including obligations of payment and performance, under the Merger Agreement
have been guaranteed by MCL Chicago Homes, Inc., an affiliate of CityFront. In
addition, certain equity investors in CityFront have guaranteed the obligations,
including obligations of payment and performance, of CityFront and Sub to the
extent of their respective maximum equity commitment amounts in CityFront;
provided, however, that each such investor's obligations with respect to such
guarantee shall be reduced to the extent of any cash amounts actually
contributed by such investor to the equity of CityFront; provided, further, that
each such investor's obligations pursuant to such
29
<PAGE> 38
guarantee shall be increased, up to such person's maximum equity commitment
amount, by the amount of any distribution or return of equity to such investor
or the application of such investor's contribution capital for a purpose not
related to the performance of CityFront's or Sub's obligations under the Merger
Agreement. The equity investors providing guarantees of the obligations of
CityFront and Sub and the respective maximum amounts of such guarantees are:
Dean Buntrock - $5,000,000; Don Flynn - $15,000,000; Lunn Partners L.L.C. --
$5,000,000; John Melk -- $15,000,000; Peer Pederson -- $10,000,000; Jeffrey
Shearer -- $5,000,000; Patrick Ryan -- $10,000,000; and Howard Warren --
$10,000,000.
REDEMPTION OF RIGHTS
The Trust shall take all actions necessary to redeem the rights to purchase
Shares ("Rights") issued pursuant to the Rights Agreement (the "Rights
Agreement") dated as of July 20, 1988 between the Trust and Harris Trust and
Savings Bank, as rights agent, effective immediately prior to the Effective
Time, provided, that the Merger Agreement has not been terminated prior thereto
in accordance with its terms. Pursuant to such redemption, each Shareholder will
receive $.01 for each Right redeemed.
ASSIGNMENT
Pursuant to the Merger Agreement, neither the Merger Agreement nor any of
the rights, interests or obligations thereunder shall be assigned by any of the
parties thereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that CityFront may assign, in its
sole discretion, any or all of its rights, interests and obligations hereunder
to any Affiliate (as defined in the Merger Agreement) of CityFront, provided
CityFront guarantees the obligation of such assignees through the Closing Date.
Subject to the preceding, the Merger Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns. Pursuant to the Merger Agreement, at the election of CityFront, any
direct or indirect wholly owned subsidiary of CityFront may be substituted for
Sub as a constituent company in the Merger. In such event, the parties to the
Merger Agreement shall execute an appropriate amendment to the Merger Agreement
in order to reflect such substitution.
SOURCE AND AMOUNT OF FUNDS
The Merger Agreement contains a representation that CityFront has on hand
or available through committed bank facilities all funds necessary to consummate
the transactions contemplated by the Merger Agreement. CityFront has informed
the Trust that the funds required to consummate the Merger will come from
borrowings under a secured credit facility (the "Credit Facility") and available
working capital from equity commitments to CityFront from its members in an
aggregate amount of approximately $75,000,000.
The Credit Facility consists of a term loan facility pursuant to which Bank
of America Illinois ("BofA") will make available to CityFront or, if acceptable
to BofA, Sub or other affiliates of CityFront (collectively, the "Borrowers"), a
three-year term loan and a two-year term loan in the aggregate amount of
$75,000,000 (collectively, the "Term Loan"). All obligations of the Borrowers
under the Credit Facility will be secured by, among other things, first priority
liens on and security interests in all presently owned and after-acquired
personal property of the Borrowers, and by first mortgage liens on the fee
interests held by the Borrowers and their subsidiaries and assignments of leases
and rents in and to certain of the properties acquired from the Trust.
CERTAIN LITIGATION
NEWSWEB LITIGATION
On December 12, 1996, Newsweb filed a Verified Amended Complaint in the
Circuit Court of Cook County, Illinois against the Trust, its trustees,
CityFront and certain related parties (the complaint was originally filed on
December 6, 1996 against only CityFront and certain related parties). (Newsweb
Corporation, et al. v. CityFront Center, L.L.C., et al., 96 CH 13306 (Cook
County Chancery Division)).
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<PAGE> 39
Newsweb's complaint alleged that the Trust and its trustees breached the Newsweb
Merger Agreement and requested an order enjoining the Trust and its trustees
from, inter alia, modifying, withdrawing their approval of, or terminating the
Newsweb Merger Agreement. Newsweb's complaint also sought injunctive relief
against CityFront and four other related defendants alleging that CityFront and
such defendants had tortiously interfered with, inter alia, Newsweb's
contractual relationship with the Trust. At a hearing with respect to the
Newsweb Litigation held on December 19 and 20, 1996, the court declined to issue
a preliminary injunction to enjoin the Trust and its trustees from modifying,
withdrawing their approval of, or terminating the Newsweb Merger Agreement or
from considering and pursuing CityFront's offer for a merger with the Trust. The
court reserved consideration of all other claims in the Newsweb Litigation
(including claims relating to damages). On December 26, 1996, CityFront entered
into an agreement with Newsweb providing for, among other things, dismissal of
the Newsweb Litigation with prejudice (including all claims against the Trust
and its trustees) upon consummation of the Merger and voting of Shares held by
Newsweb in favor of the CityFront Merger Agreement and the Merger. See "CERTAIN
AGREEMENTS BETWEEN CITYFRONT AND NEWSWEB."
SHAREHOLDER LITIGATION
On December 23, 1996, a purported Shareholder of the Trust filed a class
action complaint against the Trust and its trustees and executive officers.
(Irving Kas v. The Chicago Dock and Canal Trust, et al., 96 CH 13897 (Cook
County Chancery Division)). The complaint, which was filed before the Trust
entered into the Merger Agreement, alleges various breaches of fiduciary duty by
the Trust and its trustees and executive officers, and specifically requests
that the defendants take steps to ensure that Shareholders receive maximum value
as a result of the negotiations with bidders for the Trust. The Trust believes
that the claims contained in the complaint are without merit and intends to
vigorously contest this action if it is pursued by the plaintiff.
CERTAIN AGREEMENTS BETWEEN CITYFRONT AND NEWSWEB
Pursuant to the Asset Purchase Agreement, upon consummation of the Merger,
CityFront has agreed to sell to Newsweb, and Newsweb has agreed to purchase from
CityFront, certain assets currently owned by the Trust, including real estate
and personalty, for a purchase price of $24,000,000, subject to outstanding
mortgage indebtedness, which indebtedness aggregated $22,465,711 as of December
31, 1996. Pursuant to the Asset Purchase Agreement (i) Newsweb has also agreed
to vote all Shares owned by Newsweb and its affiliates in favor of the Merger,
and (ii) Newsweb, CityFront and their respective affiliates have agreed to
dismiss with prejudice and settle the Newsweb Litigation (including all claims
against the Trust and its Trustees), upon consummation of the Merger. The Asset
Purchase Agreement also provides that, should the Effective Time occur later
than the date which is February 19, 1997 plus the number of days between the
filing with the SEC of the Trust's preliminary proxy materials for the CityFront
Merger and the receipt by the Trust of SEC clearance of such proxy materials,
then CityFront will offer to increase the Merger Consideration by an amount
equal to 0.75% of the Merger Consideration for each month, or part thereof, that
the Effective Date is delayed beyond such date, less the amount of cash
dividends by the Trust after such date. The right to receive increased Merger
Consideration may be waived by Newsweb as a party to the Asset Purchase
Agreement, without the consent of the Trust, which is not a party to such
agreement. Following receipt of a copy of the Asset Purchase Agreement, the
Trust sought to obtain CityFront's agreement that the benefit of such potential
increase in the Merger Consideration would be directly enforceable by the Trust
for the benefit of all shareholders. CityFront refused to grant such consent.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Trustees and executive officers of the Trust have interests in the Merger
in addition to their interests solely as Shareholders. Those interests relate to
the receipt of cash in exchange for outstanding Trust Stock Options, amounts
that may become due after the Effective Time under certain employment and non-
competition agreements and the provision of indemnification after the Merger.
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<PAGE> 40
As described herein under "THE MERGER AGREEMENT -- Trust Stock Options," at
the Effective Time outstanding Trust Stock Options, whether or not then
exercisable, will be deemed to have been transferred to the Trust in exchange
for cash. The Trust has granted Trust Stock Options as part of its long-term
incentive compensation program beginning in 1983. All Trust Stock Options were
granted pursuant to plans approved by the Shareholders (with limited exceptions
relating to certain Trust Stock Options granted prior to 1986). In connection
with the Merger, the trustees and executive officers will receive the following
amounts, before any income tax and other required withholdings, upon the
disposition of the Trust Stock Options held by them: Edward McCormick Blair,
Jr., $265,084; Peter J. P. Brickfield, $265,084; Charles R. Gardner, $5,189,080;
John S. Gates, Jr., $63,221; Ogden McC. Hunnewell, $184,334; Charles N.
Seidlitz, $265,084; David R. Tinkham, $1,534,053; Nancy W. Trowbridge, $122,664;
and Robert E. Wood II, $265,084.
The Trust has employment agreements with Messrs. Gardner and Tinkham (the
"Employees"), entered into in April 1993, which, as amended, provide for their
employment through April 30, 1998, at total annual base compensation of not less
than $300,000 and $160,000 respectively. For the period May 1, 1993 to April 30,
1996, 80% of annual base compensation was payable in cash and 20% was payable in
Trust Stock Options thus resulting in a decrease in net cash compensation to the
Employees of 20% from their prior amounts. During the term of the employment
agreements, up to 20% of annual base compensation may, at the discretion of the
Trust, be paid in Trust Stock Options rather than in cash. For the period May 1,
1996 to April 30, 1997, 20% of the base compensation will be paid in Trust Stock
Options rather than cash. The options are issued under the 1993 Employees' Stock
Option Plan and, in accordance with the plan's terms, are valued at 25% of the
fair value of the Shares at the dates of grant.
Each employment agreement has provisions which become effective following
(i) the adoption of a plan of liquidation by the Board of Trustees, (ii)
termination of the employment agreement by the Trust without cause or (iii)
resignation by the employee following a change in control (which, as defined in
such employment agreements, includes the consummation of the Merger).
In the event of the adoption of a plan of liquidation by the Board of
Trustees, the Trust is obligated to grant stock options (the "Liquidation
Options") to purchase 135,000 and 37,500 Shares to Messrs. Gardner and Tinkham,
respectively, at an exercise price equal to the then fair market value of a
Share. The Liquidation Options become exercisable upon the occurrence of a
change in control of the Trust. The Merger Agreement and the Merger do not
constitute a plan of liquidation for purposes of the employment agreements.
Termination of an employment agreement by the Trust without cause prior to
a change in control obligates the Trust to (i) pay the Employee his base
compensation for 36 months thereafter, (ii) pay an amount equal to the present
value of the Employee's additional pension plan benefits accrued through the
third anniversary of the date of termination, (iii) pay an amount equal to the
product of .20 multiplied by the fair market value of a Share on the date of
termination multiplied by 135,000 and 37,500, respectively, to Messrs. Gardner
and Tinkham (unless Liquidation Options have previously been granted), (iv)
cause to vest immediately all then outstanding Trust Stock Options and (v)
continue to provide all other benefits (other than pension plan benefits under
the defined benefit plans) to which the Employee would have otherwise been
entitled during the 36 month period.
If there has been a change in control (including the Merger) and either the
Trust terminates an employment agreement without cause or the Employee
determines that, due to changed circumstances, he is unable to effectively carry
out his duties and thereby resigns, the Trust is obligated to cause to vest
immediately all then outstanding Trust Stock Options held by the Employee. In
addition, a non-competition agreement between such Employee and the Trust
becomes effective. Pursuant to the non-competition agreement, such Employee will
be prohibited in connection with certain of his activities from competing with
the Trust within a three mile radius of the Trust's property in Chicago,
Illinois for three years. The compensation payable by the Trust under the
non-competition agreements is as follows: (i) an aggregate payment of $930,000
and $510,000 to Messrs. Gardner and Tinkham, respectively, (ii) payment of an
amount equal to the present value of the Employee's additional pension plan
benefits accrued through the third anniversary of the effective date of the
non-competition agreement and (iii) an amount equal to the product of .20
multiplied by the fair market value of a Share on the date preceding the change
in control multiplied by
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<PAGE> 41
135,000 and 37,500, respectively, to Messrs. Gardner and Tinkham (unless
Liquidation Options have previously been granted).
Assuming that the Effective Time occurred on March 1, 1997 and the
employment of Messrs. Gardner and Tinkham was terminated effective as of the
Effective Time, Messrs. Gardner and Tinkham would receive an aggregate of
$1,757,236 and $729,397, respectively, pursuant to the employment agreements and
the non-competition agreements, not including amounts paid upon the disposition
of outstanding Trust Stock Options to the Trust pursuant to the Merger
Agreement.
Each trustee and officer of the Trust and its subsidiaries will be entitled
to indemnification from the Surviving Company as described herein under "THE
MERGER AGREEMENT -- Indemnification and Insurance."
MARKET PRICES OF THE SHARES
The Shares are traded on Nasdaq under the symbol "DOCKS." On February 27,
1996, the last trading day prior to the Trust's public announcement that it had
formed the Special Committee to study strategic alternatives available to the
Trust to maximize Shareholder value, the last reported sale price of the Shares,
as reported by Nasdaq, was $12.00 per Share. On September 27, 1996, the last
trading day prior to the execution of the Merger Agreement, the last reported
sale price of the Shares, as reported by Nasdaq, was $15.50 per Share. On
September 30, 1996, the first trading day after announcement of the execution of
the Newsweb Merger Agreement, the last reported sale price of the Shares, as
reported by Nasdaq, was $20.27 per Share. On January , 1997, the last trading
day prior to the date of this Proxy Statement, the last reported sale price of
the Shares, as reported by Nasdaq, was $ per Share. Shareholders are urged
to obtain current market quotations for the Shares.
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices per Share of the Shares and the dividends declared per
Share:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------- ------- ---------
<S> <C> <C> <C>
FISCAL 1995
1st Quarter............................................... $10.25 $ 9.00 $0.01
2nd Quarter............................................... $11.50 $ 9.50 $0.01
3rd Quarter............................................... $12.00 $10.00 $0.01
4th Quarter............................................... $11.50 $10.25 $0.01
FISCAL 1996
1st Quarter............................................... $12.50 $11.375 $0.01
2nd Quarter............................................... $14.50 $10.50 $0.01
3rd Quarter............................................... $11.00 $ 9.50 $0.01
4th Quarter............................................... $15.00 $10.375 $0.07(1)
FISCAL 1997
1st Quarter............................................... $15.25 $13.25 $0.06
2nd Quarter............................................... $20.625 $14.25 $0.08
3rd Quarter (through January , 1997).................... $ $ $0.00[(2)]
</TABLE>
- - ---------------
(1) This amount consists of a $.03 per Share dividend declared February 13,
1996, payable March 1, 1996, which was in addition to the $.01 per Share
dividend declared during the third quarter of fiscal 1996, payable March 1,
1996, and a $.04 per Share quarterly dividend declared April 11, 1996
payable June 1, 1996.
[(2)]
There were approximately [520] record holders of the Shares at the close of
business on the Record Date.
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<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of the Shares at the
Record Date by (i) each person known to the Trust to be the beneficial owner of
more than 5% of the outstanding Shares; (ii) each person who was an executive
officer with cash compensation in excess of $100,000 during the year; (iii) each
Trustee; and (iv) all Trustees and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF SHARES
NAME OWNERSHIP(1) (IF 1% OR GREATER)
---- ------------ ------------------
<S> <C> <C>
United Nations Joint Staff Pension Fund............... 566,812(2) 9.80%
United Nations
New York, New York 10017
Fred Eychaner......................................... 533,200(3) 9.21%
c/o Newsweb Corporation
1645 West Fullerton Avenue
Chicago, Illinois 60614
Private Capital Management, Inc....................... 422,500(4) 7.30%
Bruce Sherman
3003 Tamiami Trail North
Naples, Florida 33940
Halcyon/Alan B. Slifka Management Company LLC......... 331,900(5) 5.74%
James Pasquarelli
477 Madison Avenue, 8th Floor
New York, NY 10022
Edward McCormick Blair, Jr............................ 21,224(6)(7) --
Peter J.P. Brickfield................................. 21,224(6)(8) --
Charles R. Gardner.................................... 282,472(9) 4.67%
John S. Gates, Jr..................................... 5,284(10) --
Ogden McC. Hunnewell.................................. 18,124(11) --
Charles N. Seidlitz................................... 119,069(6)(12) 2.05%
David R. Tinkham...................................... 81,847(13) 1.39%
Nancy W. Trowbridge................................... 25,836(14) --
Robert E. Wood II..................................... 19,424(8) --
All Trustees and Executive Officers as a Group (9 594,504(15) 9.53%
persons)............................................
</TABLE>
- - ---------------
(1) Unless otherwise indicated, the Shares listed are owned directly by the
indicated person and such person has sole voting and investment power as to
such Shares.
(2) The Trust has been advised that the United Nations, on behalf of the United
Nations Joint Staff Pension Fund (the "Fund"), beneficially owns and
retains sole legal power to vote and dispose of 566,812 Shares. However,
because Fiduciary Company International ("Fiduciary"), the appointed
investment advisor to the Fund, often influences these decisions,
dispositive and voting power over these Shares is reported as shared in the
Schedule 13G dated February 13, 1996 filed by Fiduciary. Fiduciary Trust
renders investment advice or has sole or shared voting or dispositive power
on an additional 126,904 Shares.
(3) Fred Eychaner ("Eychaner") individually and on behalf of Newsweb, of which
Eychaner is President and Chief Executive Officer, filed a Schedule 13D
most recently amended on December 30, 1996 reporting the indicated
attributes of beneficial ownership for the following number of Shares:
<TABLE>
<CAPTION>
Eychaner Newsweb
-------- -------
<S> <C> <C>
Sole Voting Power......................................... 533,200 0
Shared Voting Power....................................... 100 100
Sole Dispositive Power.................................... 533,200 0
Shared Dispositive Power.................................. 100 100
</TABLE>
34
<PAGE> 43
On December 26, 1996, Newsweb, Newsweb Sub, CityFront and Sub entered into
the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement,
upon CityFront's acquisition of the Trust, CityFront has agreed to sell to
Newsweb, and Newsweb has agreed to purchase from CityFront, certain assets
currently owned by the Trust for a purchase price of $24,000,000. Pursuant
to the Asset Purchase Agreement, (i) Newsweb has also agreed to vote all
Shares owned by Newsweb and its affiliates in favor of the Merger Proposal
and (ii) Newsweb and CityFront and its affiliates have agreed to dismiss
and settle the Newsweb Litigation upon closing of the transactions
contemplated by the Merger Agreement.
(4) Mr. Sherman is President of Private Capital Management, Inc. ("PCM"). Mr.
Sherman and PCM each have shared dispositive power with respect to 422,500
Shares and no voting power with respect to such Shares based on information
contained in the Schedule 13D filed on December 19, 1996. Mr. Sherman
personally owns no Shares. The Trust has entered into a letter agreement
with Mr. Sherman and PCM which provides, among other things, that neither
of them shall acquire Shares which would result in the ownership by them of
more than 638,900 Shares except in accordance with the Trust's Declaration
of Trust. The letter agreement further provides that with respect to Shares
owned by PCM and/or Mr. Sherman, no one person owns or will own (within the
meaning of ownership under the Internal Revenue Code and Treasury
regulations) more than 9.8% of the Trust's outstanding Shares, except in
accordance with the provisions of the Declaration of Trust.
(5) Halcyon/Alan B. Slifka Management Company LLC ("Halcyon") filed a joint
Schedule 13D on December 10, 1996 on behalf of Halcyon, Alan B. Slifka and
Company, Limited ("ABS & Co.") and Alan B. Slifka ("Slifka"). Halcyon has
sole power to vote and dispose of the Shares. Halcyon's beneficial
ownership of the Shares may be deemed to be attributed to each of ABS & Co.
and Slifka as a result of their respective relationships with Halcyon.
(6) Includes 19,224 Shares subject to acquisition within 60 days by exercise of
Trust Stock Options.
(7) Does not include Shares held by William Blair & Company LLC in its trading
inventories, nor 3,900 Shares owned by Mr. Blair's children as to which
beneficial ownership is disclaimed.
(8) Includes 2,000 Shares held in an Individual Retirement Account for the
benefit of Mr. Brickfield.
(9) Includes 268,728 Shares which Mr. Gardner has the right to acquire within
60 days upon exercise of Trust Stock Options.
(10) Includes 4,284 Shares subject to acquisition within 60 days by exercise of
Trust Stock Options.
(11) Includes 12,724 Shares subject to acquisition within 60 days by exercise of
Trust Stock Options. Does not include 160,735 Shares owned by Mr.
Hunnewell's mother, his aunt and their descendants.
(12) Includes 900 Shares owned in joint tenancy with his wife.
(13) Includes 81,447 Shares which Mr. Tinkham has the right to acquire within 60
days upon exercise of Trust Stock Options. Does not include 1,000 Shares
held by trusts for his children of which his wife is the trustee, as to
which beneficial ownership is disclaimed.
(14) Includes 13,782 Shares owned by Ms. Trowbridge's children and 8,560 Shares
subject to acquisition within 60 days by exercise of Trust Stock Options.
Does not include 11,594 Shares owned by Ms. Trowbridge's husband nor 72,126
Shares owned by a trust of which Ms. Trowbridge's husband is a co-trustee
and a remainderman as to which beneficial ownership is disclaimed. Also
does not include approximately 475,000 Shares held by other relatives of
Ms. Trowbridge.
(15) Includes 452,539 Shares which may be acquired by executive officers and
trustees within 60 days upon exercise of Trust Stock Options. Excluding the
452,539 Shares subject to Trust Stock Options, the executive officers and
trustees beneficially owned an aggregate of 141,965 Shares representing
approximately 2.5% of the Shares outstanding at the Record Date.
35
<PAGE> 44
THE TRUST AMENDMENT
The description of the Trust Amendment contained in this Proxy Statement
does not purport to be complete and is qualified in its entirety by reference to
the Trust Amendment, a copy of which is attached hereto as Appendix B and
incorporated herein by reference.
At the Special Meeting, Shareholders will be asked to consider and vote on
the Trust Amendment. Unlike Illinois business corporations, mergers involving
which are governed by the statutory provisions of the Illinois Business
Corporation Act, mergers involving the Trust are governed by the Declaration of
Trust and Illinois law generally. The purpose of the Trust Amendment is to set
forth and clarify certain procedures to be followed in connection with
consummation of the Merger. The Trust Amendment (i) provides that the merger of
the Trust into any other person (including the Merger) requires the approval of
at least two-thirds of the duly qualified and acting trustees of the Trust and
the favorable vote of the holders of at least two-thirds of the outstanding
Shares, (ii) states that the limitation on ownership of Shares contained in the
Declaration of Trust (limiting ownership per person to 9.8% of the outstanding
Shares) does not apply to the acquisition of Shares pursuant to a merger
involving the Trust (including the Merger), and (iii) sets forth provisions
governing mergers involving the Trust (including the Merger), including (A)
requirements for a plan of merger, (B) requirements for Shareholder approval,
(C) requirements for filing of articles of merger and (D) provisions relating to
the effective date and effect of the merger. The Trust Amendment is based, in
large part, on similar provisions contained in the Illinois Business Corporation
Act. The Trust Amendment, however, does not provide Shareholders the right to
dissent from the Merger and seek an appraisal of their Shares.
Approval of the Trust Amendment by Shareholders is a condition to the
obligations of the Trust, CityFront and Sub under the Merger Agreement to
consummate the Merger. See "THE MERGER AGREEMENT -- Conditions to the Merger."
Pursuant to the Declaration of Trust, approval of the Trust Amendment requires
the affirmative vote of the holders of at least two-thirds of the outstanding
Shares entitled to vote thereon. THE BOARD OF TRUSTEES HAS APPROVED THE TRUST
AMENDMENT AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE TRUST AMENDMENT.
36
<PAGE> 45
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Trust for each of the five years in the period ended April 30, 1996
and for the six-month periods ended October 31, 1996 and October 31, 1995. Such
data have been derived from, and should be read in conjunction with, the audited
Consolidated Financial Statements, including the notes thereto contained herein
and the unaudited consolidated interim financial statements for the six months
ended October 31, 1996, including the notes thereto, also contained herein. See
"CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, FISCAL YEAR ENDED APRIL 30,
------------------- ----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES....................................... $ 12,433 $ 10,763 $ 22,287 $ 22,389 $ 20,714 $ 20,554 $ 19,224
======== ======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS)........................ $ 2,561 $ 449 $ 1,870 $ (1,019) $ 309 $ (1,412) $ 1,484
INVESTMENT AND OTHER INCOME.................... 233 172 334 342 321 376 706
EQUITY IN NET LOSS OF LCD PARTNERSHIP.......... (192) (197) (349) (475) (530) (1,218) (830)
RESTRUCTURING EXPENSES......................... (473) -- (300) -- -- -- --
NET GAIN (LOSS) FROM DISPOSITION OF REAL
ESTATE....................................... -- -- -- (1,729) -- -- 43,849
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... -- -- 1,555 (2,881) 100 (2,254) 45,209
EXTRAORDINARY ITEM:
GAIN FROM EXTINGUISHMENT OF DEBT............... -- -- -- 2,067 -- -- --
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)..................... $ 2,129 $ 424 $ 1,555 $ (814) $ 100 $ (2,254) $ 45,209
======== ======== ======== ======== ======== ======== ========
REAL ESTATE, net............................... $ 78,788 $ 81,069 $ 79,846 $ 82,314 $103,029 $106,329 $110,157
TOTAL ASSETS................................... 126,763 128,966 126,008 123,276 140,156 139,573 138,320
MORTGAGE NOTES PAYABLE......................... 28,107 27,956 28,068 27,369 44,121 42,493 41,080
SHAREHOLDERS' EQUITY........................... 85,220 83,205 83,874 82,897 83,942 84,073 87,773
PER SHARE:
EARNINGS (LOSS)
PRIMARY...................................... .36 .07 .27 (.14) .02 (.39) 7.82
FULLY DILUTED................................ .35 .07 .27 (.14) .02 (.39) 7.82
DIVIDENDS DECLARED............................. .08 .01 .10 .04 .04 .25 .31
BOOK VALUE..................................... 14.73 14.39 14.50 14.33 14.51 14.54 15.18
OTHER SUPPLEMENTAL DATA:
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES......................... $ 2,914 $ 2,502 $ 4,001 $ 2,115 $ 2,468 $ (26) $ 1,145
INVESTING ACTIVITIES......................... (2,084) (1,727) (3,092) 2,225 (2,148) 1,953 (3,290)
FINANCING ACTIVITIES......................... (600) (161) (496) (4,483) (409) (2,033) 1,946
FUNDS FROM OPERATIONS(1)....................... 4,362 2,194 5,403 2,859 4,454 2,328 4,225
</TABLE>
- - ---------------
(1) 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, 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.
The intent of the Board of Governors in the creation of Funds from
Operations was to disregard unusual events in the calculation of Funds
from Operations. Accordingly, the Trust has excluded restructuring
expenses from its calculation of Funds from Operations.
In March 1995, the Board of Governors clarified this definition with
respect to the treatment of certain items, although the clarification
did not affect the Trust's reporting of such funds. The above definition
of Funds from Operations includes certain material non-cash items which
are reported in income and expense of the Trust. Specifically, accrued
environmental remediation, the effect of averaging rental revenue from
the hotel ground lease, and the difference between current interest
payable and contractual interest on the note secured by the rents from
and the land under the hotel, are included in Funds from Operations.
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.
37
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
As of November 1, 1996, East Water Place, L.P., the developer lessee of
East Water Place Townhomes has leased all 56 townhome lots from the Trust.
Initial occupancy of the townhomes occurred in November 1996.
On June 6, 1996, the EPA issued a Unilateral Administrative Order which
requires the remediation of an area in Cityfront Center 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 responded to the
comments. In September, additional drilling began to more precisely define the
area to be remediated. Remediation began in October, 1996, with completion
expected by early 1997. During the remediation, no parking is allowed on the
Tested Site. 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 had
not made a substantial commencement of construction prior to September 1, 1996,
subject to force majeure delays (which date was extended to October 1, 1996,
subject to force majeure delays, by agreement of the Trust and the Theater dated
August 30, 1996 and subsequently extended to March 31, 1997, subject to force
majeure delays, by agreement of the Trust and Theater dated December 30, 1996).
The Theater began site preparation with its existing funds on an interim basis
prior to October 1, 1996.
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
were lower than the estimate reflected as of April 30, 1996.
During the first six months of fiscal 1997, the Mid-Rise and High-Rise
buildings of Cityfront Place continued their strong performances. Average
occupancy during the period was 95% 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
rose to 96% and 100%, respectively, at October 31, 1996.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED OCTOBER 31, 1996 VERSUS SIX MONTHS
ENDED OCTOBER 31, 1995
Revenues. Revenue from rental property increased for the six months ended
October 31, 1996 compared to the same period in the prior year primarily due to
additional 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 period
revenues from these lots increased $1,309,000 over the same period in the prior
year. Current period revenues also exceeded revenues from the first six months
of fiscal 1996 for the Mid-Rise, the Ogden Plaza parking facility, Waterplace
Park and Lincoln Garden by a total of $470,000. The current period also reflects
revenues generated by the East Water Place Townhomes of $93,000. No townhome
revenue was recorded during the first six months of fiscal 1996. Finally, the
Trust recorded $75,000 in percentage rent from the Sheraton Chicago Hotel &
Towers during the current period. No percentage rent was recorded during the
first six months of fiscal 1996.
Under the terms of the lease with System Parking, Inc., the Trust has the
obligation to pay 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 period. Real estate taxes payable by lessees are also reflected as an
expense, and therefore, do not affect net income.
38
<PAGE> 47
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 six months
of fiscal 1997, which ended October 31, 1996, reflects the building's operations
from January 1, 1996 through June 30, 1996, the first six months of New Street
Joint Venture's fiscal year. The current period 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 expenses decreased by only $42,000 this
period compared to the first six months of fiscal 1996, two major differences
exist between the periods. First, actual calendar 1995 real estate tax bills
were lower than the estimate reflected as of April 30, 1996. 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.
General and administrative expense decreased for the current period
primarily due to lower legal and accounting fees and lower trustee meeting
expenses not associated with restructuring efforts.
Restructuring expenses consist primarily of legal and consulting fees and
trustee meeting expenses related to the solicitation of indications of interest
for a potential business combination involving the Trust, which led to the
execution of the Merger Agreement.
RESULTS OF OPERATIONS -- FISCAL 1996 VERSUS FISCAL 1995
Revenues. Revenue from rental property increased in fiscal 1996 compared
to fiscal 1995 primarily due to revenue generated by the Trust's surface parking
lots. As a result of a new lease with System Parking, Inc. for four surface
parking lots and as a result of the early termination of a prior lease with
North Pier Chicago for the parcel P-9 surface parking lot, fiscal 1996 revenues
increased by $1,607,000 over fiscal 1995 revenues. Revenue from the Mid-Rise
also increased during fiscal 1996 by $427,000 due to a combination of higher
rates and higher occupancy compared to fiscal 1995. These increases were
partially offset by the disposition of One Michigan Avenue in December 1994. The
Trust recorded no revenue from One Michigan Avenue in fiscal 1996 compared to
$1,477,000 recorded in fiscal 1995.
Due to the termination of the lease with respect to parcel P-9 effective
July 31, 1995 and due to the terms of the new lease with System Parking, Inc.,
effective January 1, 1996 for four surface parking lots, the Trust became liable
for real estate taxes on these parcels. As a result, real estate taxes payable
by lessees decreased by $605,000 compared to the same period in the prior year.
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 fiscal 1996 loss reflects the building's
operations from January 1, 1995 through December 31, 1995, New Street Joint
Venture's fiscal year. The reduction in the loss compared to fiscal 1995
primarily results from increased rental rates. The fiscal 1996 loss had no
impact on Trust cash flows since New Street Joint Venture had positive cash flow
and because of the cash flow priority of LCD's partner in New Street Joint
Venture.
Expenses. The disposition of One Michigan Avenue in December 1994, is the
most significant factor in the reductions in property operating expenses,
depreciation and amortization expense and interest expense in fiscal 1996
compared to fiscal 1995.
The increase in real estate taxes results primarily from the Trust assuming
the responsibility for the taxes under the terms of the new lease with System
Parking, Inc. 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. This increase was partially offset by the disposition
of One Michigan Avenue in December 1994.
General and administrative expense increased for fiscal 1996 primarily as a
result of higher legal expense, higher trustee expense due to an increase in the
number of meetings, an increase in bonuses, higher pension expense, and an
increase in the cost of printing and distributing shareholder reports.
39
<PAGE> 48
Restructuring expenses consist of the combination of hiring FPL Associates
to assist the Trust in its long range planning process, retaining Lehman
Brothers to assist the Trust in studying strategic alternatives designed to
enhance shareholder value, and other related expenses.
RESULTS OF OPERATIONS -- FISCAL 1995 VERSUS FISCAL 1994
Revenues. Revenue from rental property decreased in fiscal 1995 compared
to fiscal 1994 primarily due to the disposition of One Michigan Avenue in
December 1994. Furthermore, revenues at One Michigan Avenue declined in fiscal
1995 prior to the disposition, due to the decrease in occupancy and rental rate
under the terms of IBM's new lease at the property. The combination of these two
factors resulted in a decrease in revenue from One Michigan Avenue during fiscal
1995 of $1,054,000.
The increase in real estate taxes payable by lessees during fiscal 1995
reflects an increase in the estimated tax assessment on the Sheraton Chicago
Hotel & Towers. 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 fiscal 1995 loss reflects the building's
operations from January 1, 1994 through December 31, 1994, New Street Joint
Venture's fiscal year. The 1995 loss had no impact on Trust cash flows since New
Street Joint Venture had positive cash flow and because of the cash flow
priority of LCD's partner in New Street Joint Venture.
Expenses. Real estate taxes increased in fiscal 1995 compared to fiscal
1994 due to refunds of prior year real estate taxes received in fiscal 1994.
Refunds of prior year real estate taxes received during fiscal 1995 were
significantly less. The fiscal 1995 increase was partially offset by the
disposition of One Michigan Avenue in December 1994 and by the sale in December
1994 of a parcel of land located in Cityfront Center to the Chicago Music and
Dance Theater, Inc.
The decreases in property operating expenses and in depreciation and
amortization expense during fiscal 1995 reflect the disposition of One Michigan
Avenue in December 1994. The Trust stopped recording these expenses on December
16, 1994, the date of the sale by foreclosure of One Michigan Avenue.
Accordingly, for fiscal 1995, the Trust recorded only seven and a half months of
these expenses compared to twelve months for fiscal 1994.
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 an agreement with KMCC (as expanded and
superseded by the agreement between the Trust and KMCC dated January 18, 1996,
the "Reimbursement Agreement"). No such expense was recorded during fiscal 1994.
This amount includes the Trust's share of testing and legal costs related to a
2.8 acre site in Cityfront Center currently used as a parking lot (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 excludes 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.
Interest expense for fiscal 1995 decreased compared to fiscal 1994
primarily due to the disposition of One Michigan Avenue in December 1994.
Although the Trust suspended regular debt service on the One Michigan Avenue
note subsequent to the September 1, 1993 payment, the Trust continued to accrue
interest on the loan through the date of the disposition of the property. See
Note 5 to the Consolidated Financial Statements for a more complete discussion
of the One Michigan Avenue note. The decrease in interest expense was partially
offset by an increase in interest expense on the note secured by the rents from
and the land under the Sheraton Chicago Hotel & Towers due to the increased
principal balance of this note resulting from the additional accrual of interest
under the terms of the note.
Net Loss From Disposition of Real Estate and Gain From Extinguishment of
Debt. The Trust recognized a gain of $1,603,000 from the sale of a parcel of
land to the Chicago Music and Dance Theater, Inc. during the third quarter of
fiscal 1995. Total consideration from the sale equaled $2,638,000 which
consisted of cash received of $1,250,000 plus the value of a construction
obligation of $1,388,000 assumed by
40
<PAGE> 49
the Theater which will benefit the surrounding parcels still owned by the Trust.
This construction obligation is a pedestrian concourse through the theater site
which was required under the Planned Development Ordinance affecting the Trust's
land at Cityfront Center.
During the third quarter of fiscal 1995, the Trust also recognized a net
loss of $1,265,000 as a result of the sale by foreclosure of One Michigan
Avenue. The net loss consisted of a loss from disposition of real estate of
$3,332,000 and an extraordinary gain from the extinguishment of debt of
$2,067,000. The loss from disposition of real estate represents the difference
between the carrying value of the property and the estimated fair market value
of the property on the date of foreclosure. The extraordinary gain represents
the difference between the principal amount of the note plus accrued interest
and the estimated fair market value of the property on the date of the
foreclosure.
LIQUIDITY AND CAPITAL RESOURCES -- SIX MONTHS ENDED
OCTOBER 31, 1996 VERSUS SIX MONTHS ENDED OCTOBER 31, 1995
Cash Flows:
Operating. Cash flows from operating activities increased in the first six
months of fiscal 1997 compared to the same period in the prior year due
primarily to an increase in cash flows from parking operations. This increase
was partially offset due to the delay last year by Cook County, from September
1995 until November 1995, in the date that the second installment of real estate
taxes was due for all property owners in the county.
Investing. Cash flows used in investing activities increased for the
current six month period due to an increase in the acquisition of unrestricted
short-term investments. These acquisitions were made possible by the increase in
operating cash flows. Cash flows used in the acquisition of short-term
investments -- restricted declined in the current period. This reflects the
delay last year in making payment from the escrow account used to fund real
estate tax payments due on the CityFront Place Mid-Rise. This delay was caused
by the delay in the date that the second installment of real estate taxes was
due.
Financing. Cash flows used in financing activities increased during the
current six month period 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, 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 $4,362,000 for the six months ended October
31, 1996 compared to $2,194,000 for the same period in the prior fiscal year.
This increase of $2,168,000 is primarily due to the increase in net income from
parking operations, improved operating results at the Mid-Rise and Waterplace
Park, and revenues from the East Water Place Townhomes.
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.
LIQUIDITY AND CAPITAL RESOURCES -- FISCAL 1996 VERSUS FISCAL 1995
Cash Flows:
Operating. The increase in cash flows from operating activities in fiscal
1996 compared to fiscal 1995 was due primarily to an increase in cash flows from
parking operations and from the Mid-Rise.
41
<PAGE> 50
The effect of averaging hotel rental revenue represents the difference
between base rent recognized and cash base rent received during the year on the
hotel ground lease. In both fiscal year 1996 and 1995 the Trust recorded base
rent of $4,848,000. However, in fiscal 1996 the Trust received cash base rent of
$1,625,000, while receiving $150,000 in fiscal 1995.
The difference between current interest payable and contractual interest
represents the difference between interest expense on the note secured by the
rents from and the land under the hotel, and the interest paid on this note.
This difference was $1,132,000 less in fiscal 1996 due primarily to the increase
in the cash interest paid on the loan. The monthly cash interest paid equals the
prior month's minimum cash base rent from the hotel ground lease through
December 31, 1998.
Investing. Cash flows from investing activities decreased in fiscal 1996
compared to fiscal 1995 due to several factors. First, during fiscal 1996 the
Trust acquired a net $2,248,000 of short-term investments; during fiscal 1995,
the Trust sold United States Treasury Notes with a par value of $1,250,000 to
facilitate the paydown of the $4,000,000 balance on its line of credit with
First Bank, N.A. Second, the Trust received $1,250,000 in fiscal 1995 from the
sale of land to the Chicago Music and Dance Theater, Inc. Finally, the
$1,000,000 One Michigan Avenue loan escrow funded during fiscal 1994 was
returned to the Trust during fiscal 1995.
Additions to investments in real estate during fiscal 1996 consisted
primarily of tenant improvements at the office properties in Indianapolis and
Tampa of $284,000, improvements to parcel P-7 for a surface parking lot of
$132,000 and building improvements at the Mid-Rise, Waterplace Park and Lincoln
Garden of $126,000. In contrast, fiscal 1995 additions to investments in real
estate consisted primarily of tenant improvements at the office properties of
$694,000 and building improvements of $245,000.
Financing. Cash flows used in financing activities decreased in fiscal
1996 compared to fiscal 1995 due to the paydown of the Trust's $4,000,000
advance on its line of credit with First Bank, N.A., during fiscal 1995. Earlier
in fiscal 1995 the Trust repaid the $4,000,000 Cityfront Place Mid-Rise note
issued February 25, 1992, using the proceeds from a $4,000,000 draw on its
available $20,000,000 line of credit with First Bank, N.A.
Funds From Operations. Funds from Operations increased during fiscal 1996
compared to fiscal 1995 by $2,544,000 primarily due to the increase in net
income from parking and from the Mid-Rise. Fiscal 1996 Funds from Operations
also increased because the Trust recorded environmental remediation expense of
$1,035,000 during fiscal 1995. 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 with KMCC. No such expense was recorded
during fiscal 1996. For fiscal 1996 the calculation of Funds from Operations
excludes restructuring expenses of $300,000. 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.
LIQUIDITY AND CAPITAL RESOURCES -- FISCAL 1995 VERSUS FISCAL 1994
Cash Flows:
Operating. Cash flows from operating activities decreased in fiscal 1995
compared to fiscal 1994 by $353,000. This decrease was primarily due to a
decrease during fiscal 1995 of $359,000 in refunds of prior year real estate
taxes. The amount of refunds received during fiscal 1994 was unusually high.
During fiscal 1994 the Trust received $473,000 in refunds compared to just
$114,000 received during fiscal 1995.
Cash flows from operating activities from the Mid-Rise increased during
fiscal 1995 due to lower real estate tax payments. Fiscal 1994 payments were
unusually high due to the change in the assessment of the Mid-Rise site from
partially developed. This increase in fiscal 1995 cash flows was partially
offset by higher real estate tax payments on the Trust's other Cityfront Center
land. Cash flows from operating activities for the Trust's other operating
properties as a group were substantially unchanged from fiscal 1994 to fiscal
1995.
42
<PAGE> 51
No change occurred from fiscal 1994 to fiscal 1995 in the effect of
averaging hotel rental revenue. This item represents the difference between
revenue recognized and cash rent received during the year on the hotel ground
lease. In both fiscal years the Trust recorded revenue of $4,848,000 while
receiving cash of $150,000.
The difference between current interest payable and contractual interest
represents the difference between interest expense on the note secured by the
rents from and the land under the hotel, and the interest paid on this note.
This difference was $160,000 greater in fiscal 1995 due to the increase in the
outstanding principal balance of the loan. The monthly cash interest paid equals
the prior month's minimum cash rent from the hotel ground lease through December
31, 1998.
Investing. Cash flows from investing activities increased in fiscal 1995
compared to fiscal 1994 due to several factors. First, cash received from the
sale of land to the Chicago Music and Dance Theater, Inc. equaled $1,250,000
during fiscal 1995. Second, the $1,000,000 One Michigan Avenue loan escrow
funded during fiscal 1994 was returned to the Trust during fiscal 1995. Finally,
the Trust sold United States Treasury Notes with a par value of $1,250,000 to
facilitate the paydown of the $4,000,000 advance on its line of credit with
First Bank, N.A.
Additions to investments in real estate during fiscal 1995 consisted
primarily of tenant improvements of $694,000 and building improvements of
$245,000. In contrast, fiscal 1994 additions to investments in real estate
consisted primarily of tenant improvements of $254,000, costs related to
environmental matters of $203,000 and building improvements of $90,000.
Financing. Cash flows used in financing activities increased in fiscal
1995 compared to fiscal 1994 due to the paydown of the Trust's $4,000,000
advance on its line of credit with First Bank, N.A., during fiscal 1995. Earlier
in fiscal 1995 the Trust prepaid the $4,000,000 Cityfront Place Mid-Rise note
issued February 25, 1992, using the proceeds from a $4,000,000 advance on its
available $20,000,000 line of credit with First Bank, N.A.
Funds From Operations. Funds from Operations decreased during fiscal 1995
compared to fiscal 1994 by $1,595,000 primarily due to three factors. First, the
Trust recorded environmental remediation expense of $1,035,000 during fiscal
1995. 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 with KMCC. No such expense was recorded during fiscal 1994. Second,
refunds of prior year real estate taxes decreased during fiscal 1995 by
$359,000. Third, interest expense increased by $160,000 during fiscal 1995 on
the note secured by the rents from and the land under the Sheraton Chicago Hotel
& Towers due to the increasing balance of this note resulting from the
additional accrual of interest under the terms of the note. 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.
LIQUIDITY AND CAPITAL RESOURCES -- 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 October 31, 1996, the full amount of the
facility was 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 October 31, 1996 the balance in this account equaled
$204,000.
At October 31, 1996, total interest bearing debt of the Trust equaled
$28,107,000, all of which was fixed rate debt.
43
<PAGE> 52
While the Trust may not, under federal tax law applicable to real estate
investment trusts, hold property for sale in the ordinary course of business,
its policy is to evaluate periodically its portfolio of properties which might
be considered for sale, lease or exchange.
In January 1994, the Trust entered into a consent order with the EPA
regarding preliminary testing to be performed on 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 with KMCC regarding
the financial responsibilities of the parties for the remediation of the Tested
Site, which agreement was expanded and superseded by 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 responded to the comments. In September, additional drilling began to more
precisely define the area to be remediated. Remediation began in October 1996,
with completion expected by the end of calendar year 1996 or early 1997. During
the remediation, no parking is allowed on the Tested Site. 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, Illinois,
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.
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), 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.
44
<PAGE> 53
The recent renovation of nearby Navy Pier has increased demand for parking
in the surrounding area. As a result, the Trust has received 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 has experienced 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
recognized revenue of $96,000 in percentage rent. For the first six months of
fiscal 1997, the Trust recognized revenue of $75,000 in percentage rent.
The New Street Joint Venture Agreement obligates LCD and Northwestern
Mutual to contribute, if necessary, their pro rata shares of funds related to
the operation of the High-Rise building. As of October 31, 1996, LCD had funded
$335,000 as its share of additional capital contributions, all of which was
contributed prior to fiscal 1994. LCD currently holds approximately $940,000 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 held by LCD is not subject to any such priorities.
On October 15, 1996, the Board of Trustees of the Trust declared a
quarterly dividend of $.08 per Share payable December 2, 1996. This followed
increases in the Trust's per Share quarterly dividend to $.06 on September 1,
1996 and to $.04 on 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 October 31, 1996 is
adequate to meet its operating needs and commitments.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Trust with the SEC are incorporated
into this Proxy Statement by reference:
1. The Trust's Annual Report on Form 10-K for the year ended April 30,
1996, filed on July 9, 1996;
2. The Trust's Quarterly Reports on Form 10-Q for the quarters ended
July 31, 1996 and October 31, 1996, filed on September 13, 1996 and
December 13, 1996, respectively;
3. The Trust's Proxy Statement on Schedule 14A, filed on August 27,
1996; and
4. The Trust's Current Reports on Form 8-K, filed on October 1, 1996
and December 30, 1996.
All documents or reports subsequently filed by the Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part of this Proxy Statement
from the date of filing of such document. Any statement contained herein, or in
a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
45
<PAGE> 54
The Trust will provide without charge to any person to whom this Proxy
Statement is delivered, or on the written or oral request of such person and by
first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any of or all the foregoing documents
incorporated by reference (other than exhibits not specifically incorporated by
reference into the texts of such documents). Requests for such documents should
be directed to: David R. Tinkham, The Chicago Dock and Canal Trust, 455 East
Illinois Street, Suite 565, Chicago, Illinois 60611, (312) 467-1870.
INDEPENDENT AUDITORS
Arthur Andersen LLP is the Trust's independent auditors. Representatives of
Arthur Andersen LLP are expected to be present at the Special Meeting to respond
to appropriate questions of Shareholders and make a statement if they so desire.
OTHER MATTERS
The Board is not aware of any business which will be presented at the
Special Meeting other than those matters set forth in the accompanying Notice of
Special Meeting. If any other matters are properly presented at the Special
Meeting for action, it is intended that the persons named in the accompanying
proxy and acting thereunder will vote in accordance with their best judgment on
such matters. Proposals of Shareholders intended to be presented at the next
Annual Meeting of Shareholders must be received by the Trust not later than
April 23, 1997 in order to be eligible for inclusion in the proxy statement and
form of proxy for that meeting.
46
<PAGE> 55
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of April 30, 1996 and 1995............................. F-3
Consolidated Statements of Income for the years ended April 30, 1996, 1995 and 1994... F-4
Consolidated Statements of Cash Flows for the years ended April 30, 1996, 1995 and
1994................................................................................ F-5
Consolidated Statements of Shareholders' Equity for the years ended April 30, 1996,
1995
and 1994............................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Balance Sheets (unaudited) as of October 31, 1996 and April 30, 1996..... F-21
Consolidated Statements of Income (unaudited) for the six months ended October 31,
1996 and 1995....................................................................... F-22
Consolidated Statements of Cash Flows (unaudited) for the six months ended October 31,
1996 and 1995....................................................................... F-23
Notes to Consolidated Financial Statements (unaudited)................................ F-24
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
The Chicago Dock and Canal Trust:
We have audited the accompanying consolidated balance sheets of The Chicago
Dock and Canal Trust and Subsidiaries as of April 30, 1996 and 1995, and the
related consolidated statements of income, cash flows, and shareholders' equity
for each of the three years in the period ended April 30, 1996. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Chicago
Dock and Canal Trust and Subsidiaries as of April 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
June 19, 1996
F-2
<PAGE> 57
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
INVESTMENT IN REAL ESTATE, at cost:
Developed properties (Note 4)......................................... $ 70,246 $ 70,487
Land and land improvements held for development (Note 4).............. 16,961 16,901
Land subject to ground leases (Note 4)................................ 6,743 6,564
Less -- Accumulated depreciation and amortization..................... (14,104) (11,638)
-------- --------
Net investment in real estate................................. 79,846 82,314
-------- --------
OTHER ASSETS:
Cash and cash equivalents............................................. 757 344
-------- --------
Investments available for sale, at cost (approximate market value of
$6,000 and $3,721 in 1996 and 1995, respectively).................. 5,973 3,725
-------- --------
Short-term investments -- restricted, at cost (and at approximate
market value) (Note 13)............................................ 203 130
-------- --------
Security deposit cash................................................. 808 1,330
-------- --------
Receivables --
Tenants (including $29,355 and $25,887 of accrued but unbilled
rents in 1996 and 1995, respectively) (Note 4).................... 29,647 26,193
Real estate taxes payable by lessees............................... 5,931 5,828
Land improvements (Note 4)......................................... 1,388 1,388
Interest........................................................... 45 91
Other.............................................................. 225 506
-------- --------
Total receivables............................................. 37,236 34,006
-------- --------
Other assets, net....................................................... 1,185 1,427
-------- --------
$126,008 $123,276
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses:
Real estate taxes.................................................. $ 4,946 $ 4,882
Real estate taxes payable by lessees............................... 5,931 5,828
Accrued environmental remediation costs (Note 14).................. 750 750
Other.............................................................. 2,208 1,492
Cash dividends payable................................................ 231 58
Mortgage notes payable (Note 5)....................................... 28,068 27,369
-------- --------
Total liabilities............................................. 42,134 40,379
-------- --------
SHAREHOLDERS' EQUITY (Note 6):
Common shares of beneficial interest:
No par value, 20,000,000 authorized, 5,944,200 issued.............. 3,101 3,101
-------- --------
Preferred shares of beneficial interest:
No par value, 1,000,000 authorized, none issued.................... -- --
-------- --------
Undistributed income before net gain from sale of real estate
properties......................................................... 9,020 7,870
Undistributed net gain from sale of real estate properties............ 72,372 72,545
-------- --------
Total undistributed net income................................ 81,392 80,415
-------- --------
Less --
Treasury shares of beneficial interest, at cost -- 160,400 at April
30, 1996 and 1995................................................. (619) (619)
-------- --------
Total shareholders' equity.................................... 83,874 82,897
-------- --------
$126,008 $123,276
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 58
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Revenue from rental property.................................... $16,079 $15,525 $16,546
Real estate taxes payable by lessees............................ 6,208 6,864 4,168
------- ------- -------
Total revenues.......................................... 22,287 22,389 20,714
------- ------- -------
EXPENSES:
Real estate taxes............................................... 3,115 3,097 3,003
Real estate taxes payable by lessees............................ 6,208 6,864 4,168
Property operating expenses..................................... 3,106 3,307 3,444
Environmental remediation expense (Note 14)..................... -- 1,035 --
General and administrative...................................... 2,085 1,857 1,865
Depreciation and amortization................................... 3,020 3,497 3,781
Interest expense................................................ 2,883 3,751 4,144
------- ------- -------
Total expenses.......................................... 20,417 23,408 20,405
------- ------- -------
Operating income (loss)........................................... 1,870 (1,019) 309
INVESTMENT AND OTHER INCOME....................................... 334 342 321
EQUITY IN NET LOSS OF LCD PARTNERSHIP (Note 3).................... (349) (475) (530)
RESTRUCTURING EXPENSES (Note 15).................................. (300) -- --
NET LOSS FROM DISPOSITION OF REAL ESTATE (Note 4)................. -- (1,729) --
------- ------- -------
Net income (loss) before extraordinary item............. 1,555 (2,881) 100
EXTRAORDINARY ITEM:
Gain from extinguishment of debt (Note 4)....................... -- 2,067 --
------- ------- -------
Net income (loss)............................................... $ 1,555 $ (814) $ 100
======= ======= =======
EARNINGS (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM............... $ 0.27 $ (0.50) $ 0.02
======= ======= =======
EARNINGS (LOSS) PER SHARE......................................... $ 0.27 $ (0.14) $ 0.02
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 59
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ 1,555 $ (814) $ 100
Add (deduct) -- Adjustments to reconcile net income to net cash
flows from operating activities:
Net loss from disposition of real estate..................... -- 1,729 --
Gain from extinguishment of debt............................. -- (2,067) --
Depreciation and amortization................................ 3,020 3,497 3,781
Environmental remediation costs.............................. -- 953 --
Effect of averaging hotel rental revenue..................... (3,223) (4,698) (4,698)
Equity in net loss of LCD Partnership........................ 349 475 530
Changes in receivables....................................... 515 (871) 1,815
Changes in accounts payable and accrued expenses............. 933 1,834 (898)
Difference between current interest payable and contractual
interest.................................................... 790 1,922 1,762
Amortization of loan fees.................................... 82 155 90
Other........................................................ (20) -- (14)
------- ------- -------
Cash flows provided by (used in) operating activities............. 4,001 2,115 2,468
------- ------- -------
Cash flows from investing activities:
Proceeds from sales and maturities of investments available for
sale......................................................... 500 1,755 500
Purchases of investments available for sale..................... -- (1,963) (1,006)
Net (acquisition) disposition of short-term investments......... (2,748) 1,506 273
Net (acquisition) disposition of short-term
investments -- restricted.................................... (73) 870 (1,000)
Additions to investments in real estate......................... (649) (1,099) (620)
Music and Dance Theater land sale............................... -- 1,250 --
Lease commissions and other..................................... (122) (94) (295)
------- ------- -------
Cash flows provided by (used in) investing activities............. (3,092) 2,225 (2,148)
------- ------- -------
Cash flows from financing activities:
Cash dividends declared......................................... (578) (231) (231)
Change in dividends payable..................................... 173 -- --
Proceeds from bank line of credit............................... -- 4,000 --
Payment of mortgage loan fees................................... -- (168) (44)
Principal payments on loans..................................... (91) (8,084) (134)
------- ------- -------
Cash flows provided by (used in) financing activities............. (496) (4,483) (409)
------- ------- -------
Increase (decrease) in cash and cash equivalents.................. 413 (143) (89)
Cash and cash equivalents, beginning of period.................... 344 487 576
------- ------- -------
Cash and cash equivalents, end of period.......................... $ 757 $ 344 $ 487
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 60
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNDISTRIBUTED
INCOME BEFORE UNDISTRIBUTED
COMMON NET GAIN FROM NET GAIN FROM TREASURY
SHARES OF SALE OF REAL SALE OF REAL SHARES OF
BENEFICIAL ESTATE ESTATE BENEFICIAL
INTEREST PROPERTIES PROPERTIES INTEREST TOTAL
---------- ------------- ------------- ---------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE, April 30, 1993.................... $3,101 $ 9,153 $72,438 $ (619) $84,073
Net income for the year.................. -- 100 -- -- 100
Cash dividends declared, $.04 per
share................................. -- (231) -- -- (231)
------ ------- ------- ----- -------
BALANCE, April 30, 1994.................... 3,101 9,022 72,438 (619) 83,942
Net income (loss) for the year........... -- (1,152) 338 -- (814)
Cash dividends declared, $.04 per
share................................. -- -- (231) -- (231)
------ ------- ------- ----- -------
BALANCE, April 30, 1995.................... 3,101 7,870 72,545 (619) 82,897
Net income for the year.................. -- 1,555 -- -- 1,555
Cash dividends declared, $.10 per
share................................. -- (405) (173) -- (578)
------ ------- ------- ----- -------
BALANCE, April 30, 1996.................... $3,101 $ 9,020 $72,372 $ (619) $83,874
====== ======= ======= ===== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 61
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
(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 April 30, 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
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Trust and
its wholly owned subsidiaries. All material intercompany accounts are eliminated
in consolidation.
(B) INCOME TAXES
The Trust has elected to be taxed as a real estate investment trust and
intends to make distributions to its shareholders so as to be relieved of
substantially all federal income taxes relating to ordinary income under
provisions of current tax regulations (See Note 7).
(C) EARNINGS PER SHARE
The computation of earnings per share is based on 5,783,800 shares
outstanding for 1996, 1995 and 1994.
(D) ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(E) INVESTMENTS IN REAL ESTATE
Real estate investments are stated at the cost incurred to acquire the
properties. In addition, costs to develop the properties, including interest,
taxes, development, legal and architectural fees are added to the cost of land
or buildings, as appropriate. No interest or taxes were capitalized in fiscal
1996, 1995 or 1994.
Costs incurred for improving tenant spaces in the Trust's office buildings
in conjunction with new leases and renewals are capitalized. Costs incurred in
connection with leasing apartments in the Trust's residential building such as
painting and carpeting are charged to expense when incurred.
F-7
<PAGE> 62
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
(F) ENVIRONMENTAL REMEDIATION COSTS
In general, the Trust charges environmental remediation costs to expense.
However, the Trust capitalizes these costs, if recoverable and if one of the
following criteria is met:
1. The costs extend the life, increase the capacity, or improve the
safety or efficiency of property owned by the company. However, the
condition of the property after the costs are incurred must be improved as
compared with the condition of the property when originally constructed or
acquired, if later.
2. The costs mitigate or prevent environmental contamination that has
yet to occur.
3. The costs are incurred in preparing for sale property currently
held for sale.
The Trust accrues for losses related to environmental remediation, if it is
probable that a liability has been incurred and if the amount of the loss can be
reasonably estimated. If the amount of the liability falls within a range and no
amount within that range can be determined to be the better estimate, the Trust
recognizes the minimum amount of the range. The Trust does not discount
environmental liabilities unless the amount of the liability and the timing of
cash payments are fixed or reliably determinable. The Trust does not offset
claims for potential recoveries against environmental remediation costs.
(G) DEPRECIATION AND AMORTIZATION
Developed properties and infrastructure improvements are depreciated over
their estimated useful lives, using the straight-line method of depreciation.
Depreciation of leasehold improvements is computed using the straight-line
method over the terms of the related leases and commences when the improvements
are placed in service. Amortization of leasing commissions is computed using the
straight-line method over the terms of the related leases.
(H) REAL ESTATE TAXES
In Chicago and certain other jurisdictions in which the Trust owns
property, real estate taxes are assessed on a calendar-year basis, one year in
arrears. At April 30, 1996 the Trust has accrued $10,877,000 as its estimate of
unpaid 1995 and 1996 real estate taxes including $5,931,000 payable by lessees
pursuant to ground leases. The Trust does not believe that the difference
between the actual real estate taxes and the current estimates will be material
to the financial statements.
(I) RENTAL INCOME RECOGNITION
Aggregate rentals from tenant leases are recognized as revenue ratably over
the lives of the leases when collection of all amounts is reasonably assured.
Rental payments received prior to their recognition as income are classified as
deferred rental income and are included in other accrued expenses. Rental
revenues recognized prior to their billing are classified as unbilled rents and
are included in tenant receivables.
(J) CONSOLIDATED STATEMENTS OF CASH FLOWS
In fiscal 1996, 1995 and 1994, the Trust, in non-cash transactions, retired
fully depreciated leasehold improvements of $252,000, $170,000 and $843,000,
respectively. In fiscal 1995, the Trust, in a non-cash transaction, eliminated
net investment in real estate of $17,332,000, accrued interest payable of
$1,477,000 and mortgage note payable of $14,590,000 related to the One Michigan
Avenue foreclosure. In fiscal 1995, the Trust received total consideration of
$2,638,000 from the sale to the Chicago Music and Dance Theater, Inc. Total
consideration included a non-cash transaction of $1,388,000 which represents the
assumption by the Theater of an obligation under the Planned Development
Ordinance affecting the Trust's land at Cityfront
F-8
<PAGE> 63
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
Center to construct a pedestrian concourse adjacent to the theater site. The
Trust paid $2,011,000, $977,000 and $1,646,000 in interest on borrowings in
fiscal 1996, 1995 and 1994, respectively.
(K) CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Balance Sheets and Consolidated Statements
of Cash Flows, Cash and Cash Equivalents consist of amounts held in demand
deposit and money market accounts.
(L) INVESTMENTS
The Trust has designated all unrestricted investment securities as
available for sale. As of April 30, 1996 the cost of these securities
approximated market value.
(M) RECLASSIFICATIONS
Certain reclassifications have been made to prior year statements to make
them comparable with the classifications used in fiscal 1996.
(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 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.
OMA LANSING CORPORATION
OMA Lansing Corporation (the "Lansing Corp.") was formed by the Trust
during fiscal 1994 as a wholly owned subsidiary. Lansing Corp. owned One
Michigan Avenue, a 148,000 sq. ft. office building located in Lansing, Michigan,
until December 16, 1994 when the Trust agreed to permit the sale by foreclosure
of the building to its lender, Pacific Mutual Life Insurance Company. The Trust
consolidates the operations of the Lansing 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
F-9
<PAGE> 64
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
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
distributions 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 December 31, 1995, total assets and liabilities of NSJV were
$46,460,000 and $38,666,000, respectively. For the year ended December 31, 1995,
NSJV recorded gross revenues of $6,942,000 and total expenses of $8,173,000,
which resulted in a net loss of $1,231,000. Included in total expenses is
depreciation and amortization expense, which for the year equaled $1,730,000.
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
DEVELOPED PROPERTIES
At April 30, 1996 and 1995, the Trust's investment in developed properties,
including improvements owned by the Trust on leasehold interests, its
partnership interest in LCD (which is accounted for under the equity method),
but excluding properties of which the Trust is the ground lessor consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN 000'S) (IN 000'S)
<S> <C> <C>
Apartment buildings.............................................. $ 51,311 $ 51,648
Office buildings................................................. 16,132 16,036
Parking facility................................................. 2,803 2,803
-------- -------
70,246 70,487
Accumulated depreciation and amortization........................ (10,974) (9,046)
-------- -------
Net developed properties....................................... $ 59,272 $ 61,441
======== =======
</TABLE>
Cityfront Place Mid-Rise -- On December 17, 1991, the Trust acquired the
Mid-Rise apartment complex and related leasehold. The acquisition of the
Mid-Rise was part of a transaction in which the Trust exchanged its 62%
undivided interest in the Equitable Building in Chicago for the Mid-Rise. The
Mid-Rise is a residential complex located in Cityfront Center in downtown
Chicago. It consists of two 12-story buildings containing a total of 424 rental
units. The Mid-Rise was acquired at a total cost of $52.5 million. The price was
determined pursuant to a Sale Option Agreement dated August 31, 1989, between
the Trust and Levin.
F-10
<PAGE> 65
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
The Equitable Life Assurance Society of the United States ("Equitable")
acquired the Trust's 62% interest in the Equitable Building pursuant to an
option granted to Equitable as part of the dissolution of the Chicago
Dock-Equitable Venture. In December 1990, Equitable exercised its option under
the Option Agreement to acquire the Trust's interest in the Equitable Building
and acquired the Trust's interest on December 17, 1991. The price for such
interest was $50 million.
One Michigan Avenue -- On December 16, 1994 the Trust permitted the sale by
foreclosure of One Michigan Avenue, an office building in Lansing, Michigan to
its lender, Pacific Mutual Life Insurance Company, in full satisfaction of the
note secured by One Michigan Avenue. The Trust conducted extensive negotiations
with the lender including modifications to the note in March 1994 and again in
August 1994 (the "August modification"), in an effort to restructure the loan.
However, the Trust concluded that the property's reasonably estimated future
value was insufficient to warrant the additional capital investment required to
satisfy the terms of the August modification agreement to the loan. The loan was
non-recourse with respect to the Trust. Accordingly, the Trust's financial
exposure was limited to the loss of the building. The Trust recognized a net
loss of $1,265,000 on the transaction; of this, $3,332,000 was recorded as a
loss from disposition of real estate representing the difference between the
carrying value of the property and the fair market value of the property on the
date of the foreclosure. An extraordinary gain from the extinguishment of
indebtedness of $2,067,000 was also recorded during the third quarter of fiscal
1995, representing the difference between the principal amount of the note plus
accrued interest and the fair market value of the property on the date of the
foreclosure.
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
the 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 14). Real estate taxes for the most recent known
period, calendar year 1994, totaled $975,000 on the four surface parking lots.
Under the terms of the prior arrangement, for calendar 1995 the Trust reported
net income of $528,000 after real estate tax expense.
Music and Dance Theater Site -- On December 30, 1994, the Chicago Music and
Dance Theater, Inc. (the "Theater") acquired from the Trust a parcel of land
containing approximately 41,000 square feet, located in Cityfront Center which
is planned to be the site of a new 1,500 seat performing arts theater. The Trust
received $1,250,000 in cash shortly after the closing. The contract also
obligates the Theater to construct a pedestrian concourse through the theater
site. This concourse is an obligation under the Planned Development Ordinance
affecting the Trust's land at Cityfront Center and will benefit not only the
theater site but also the future buildings planned for the sites owned by the
Trust adjacent to the theater. The estimated cost of this work is $1,500,000.
The Theater is required to commence construction by September 1, 1996, and
complete construction by September 1, 1999, in each case subject to force
majeure delays. The Theater is currently raising funds and seeking debt
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 by September 1, 1996 or a substantial completion of construction by
September 1, 1999, in each case subject to force majeure delays.
F-11
<PAGE> 66
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
In computing the gain on the sale of $1,603,000, which was recorded during
the third quarter of fiscal 1995, total consideration included the cash received
plus the value of the construction obligation assumed by the Theater which will
benefit the surrounding parcels still owned by the Trust.
The Trust, together with other businesses near the theater site, agreed to
provide the Theater with an annual operating subsidy for up to twenty years. The
Trust agreed to provide up to $50,000 in the first year of the theater's
operation. This amount increases annually in years 2 through 10 by the increase
in the Consumer Price Index, but no more than 5% over the prior year amount.
During years 11 through 14, the amount is the same as the year 10 amount. The
amount declines during the 15th through 20th years. The amount of the subsidy
may be reduced based on the number of annual public performances at the theater.
The Trust agreed to provide the subsidy in light of the anticipated increase in
parking revenues at its Ogden Plaza parking facility from the theater patrons.
In management's opinion this increase in parking revenues will equal or exceed
the subsidy on an annual basis. The parking facility is adjacent to the theater
site and will be connected to the theater at grade level providing direct access
to the parking facility from the theater.
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 totaled $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 the following
applicable percentages:
<TABLE>
<CAPTION>
APPLICABLE PERCENTAGES
-----------------------------------------
ROOM FOOD BEVERAGE OTHER
DATE REVENUES REVENUES REVENUES REVENUES
--------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
July 1, 1995 -- March 31, 1999..................... 3.50% 2.00% 3.00% 3.00%
April 1, 1999 -- March 31, 2001.................... 3.75% 2.50% 3.25% 3.50%
April 1, 2001 -- March 31, 2003.................... 4.00% 3.00% 3.50% 4.00%
April 1, 2003 -- March 31, 2007.................... 4.50% 4.50% 4.50% 4.50%
April 1, 2007 and after............................ 5.00% 5.00% 5.00% 5.00%
</TABLE>
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, but not less than 5% nor more than 10% per year or (ii) the highest
annual ground rent payable during
F-12
<PAGE> 67
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
the thirty-six month period preceding the closing date divided by the following
Applicable Capitalization Rates:
<TABLE>
<CAPTION>
APPLICABLE
CAPITALIZATION
OPTION EXERCISE DATE RATE
------------------------------------------------------------------------ --------------
<S> <C>
April 1, 2003 -- March 31, 2004......................................... 7.5%
April 1, 2004 -- March 31, 2007......................................... 7.2%
April 1, 2007 -- March 31, 2008......................................... 7.3%
April 1, 2008 and after................................................. 7.5%
</TABLE>
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 fiscal 1996 equaled $1,625,000. The Trust also received
percentage rent during fiscal 1996 of $226,000, of which $96,000 was recognized
as revenue. The remaining $130,000 is a prepayment of future percentage rent.
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 (See Note 3). 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 (See Note 5).
OPTION
Open areas -- In December 1988, the Trust dedicated to the Chicago Park
District a portion of the Ogden Slip Turning Basin and the three major open
areas called for in the Planned Development Ordinance for Cityfront Center: (1)
Approximately 1.3 acres of River Esplanade extending east along the north bank
of the Chicago River from Columbus Drive to Lake Shore Drive; (2) Ogden Plaza,
approximately 1.2 acres of land adjacent to Columbus Drive; and (3) Du Sable
Park, which consists of approximately 3 acres of land east of Lake Shore Drive.
The dedication restricts all of these areas for use as public parks. However,
the Trust has the right and is exercising this right to lease the area under
Ogden Plaza for parking. The Trust is responsible for the construction of the
infrastructure as described in the Planned Development Ordinance. The Trust is
obligated to contribute $600,000 for improvements to be made in Du Sable Park.
These improvements are expected to be completed during calendar 1996. The Trust
retained an option to lease a portion of Du Sable Park to construct and operate
a public facility such as a restaurant.
(5) MORTGAGE NOTES PAYABLE
At April 30, 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.
F-13
<PAGE> 68
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
The principal balance of the Kraft Building note issued in May 1987, was
$5,721,000 at April 30, 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 April 30, 1996 equaled
$15,000.
At April 30, 1996, the principal balance of the note secured by the rents
from and the land under the Sheraton Chicago Hotel & Towers was $22,347,000. 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 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 April 30, 1996 was $34,519,000 and consisted of land, the depreciated basis
in land improvements and accrued but unbilled rent.
On December 16, 1994, the Trust permitted the sale by foreclosure of One
Michigan Avenue, an office building in Lansing, Michigan to its lender, Pacific
Mutual Life Insurance Company, in full satisfaction of the note secured by One
Michigan Avenue. The One Michigan Avenue note, issued in August 1987, modified
in March 1994 (the "March modification") and further modified in August 1994
(the "August modification") had an interest rate of 10% and a carrying value at
December 15, 1994 of $14,590,000.
Due to the significant reduction in cash flow from One Michigan Avenue
after the IBM (the building's largest tenant) lease renewal took effect, the
Trust suspended regular debt service subsequent to the September 1, 1993
payment. Under the terms of the March modification agreement, the lender
received the cash flow from the property from September 1, 1993 to August 31,
1994, in place of regular debt service. Under the terms of the August
modification agreement, cash flow from the property also replaced regular debt
service to the lender from September 1, 1994 to December 15, 1994.
The Trust continued to accrue interest on the loan at the contractual rate
through the effective date of the March modification agreement. Subsequent to
the date of the March modification agreement and up until the date of the August
modification agreement, the Trust accrued interest at a rate which applied a
constant effective interest rate to the carrying amount of the note for each
period from the March modification date to the maturity of the note taking into
account the accrued interest to be forgiven under the March modification
agreement. This constant effective interest rate was approximately 5.5%. After
the August modification agreement was signed and through the date of the
foreclosure sale on December 16, 1994, the Trust accrued interest on the loan at
the original contractual rate of 10%. At December 15, 1994, accrued interest on
this note equaled $1,477,000.
This loan was non-recourse with respect to the Trust. Accordingly, the
Trust's financial exposure was limited to the loss of the property. The Trust
recognized a net loss of $1,265,000 during the third quarter of fiscal 1995 as a
result of the sale by foreclosure.
Principal repayments are due on the two outstanding notes as follows during
the next five years:
<TABLE>
<CAPTION>
FISCAL
YEAR AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1997.............................................................. $101,000
1998.............................................................. 111,000
1999.............................................................. 168,000
2000.............................................................. 256,000
2001.............................................................. 282,000
</TABLE>
F-14
<PAGE> 69
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
REVOLVING CREDIT FACILITY
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 April 30, 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 April 30, 1996 equaled
$46,177,000.
(6) SHAREHOLDERS' EQUITY
On July 20, 1988, the Board of Trustees of the Trust declared a dividend of
one Right for each common share of the Trust entitling the holder to purchase
from the Trust one common share at a price of $75.00 per share, subject to
adjustment. The Rights are not exercisable until a date (the "Distribution
Date") ten days after a person (or group of affiliated persons) acquires 25% or
more of the common shares and thereby becomes an "Acquiring Person" or announces
its intention to make a tender offer which would result in the beneficial
ownership by a person of greater than 30% of the Trust's common shares. If the
Distribution Date has occurred and a person becomes an Acquiring Person, each
holder of a Right, other than the Rights held by the Acquiring Person, will,
thereafter, have the right to receive upon exercise that number of common shares
having a market value of two times the exercise price of the Right. The Rights
may be redeemed in whole at a price of one cent per Right by the Board of
Trustees at any time until ten days following the public announcement that a
person has become an Acquiring Person, and any exercise of the Rights is subject
to such redemption right.
Included in undistributed income before net gain from the sale of real
estate properties is approximately $2,385,000, representing total retained
earnings at January 22, 1962, the date on which The Chicago Dock and Canal
Company converted to a REIT.
The classification of cash dividends declared in fiscal 1996 reflects the
final status for Federal income tax purposes for such dividends as capital gain
or ordinary income.
(7) INCOME TAXES
In order to retain its status as a qualified real estate investment trust,
the Trust is required to distribute at least 95% of taxable ordinary income
computed in accordance with Federal income tax laws and regulations. The amount
of taxable income differs from reported net income due to differences in the
treatment of certain items for tax and financial reporting purposes. Dividends
paid may be applied to different fiscal years for tax and financial reporting
purposes.
F-15
<PAGE> 70
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
The following analysis reconciles reported net income for fiscal 1996 to
estimated taxable loss for that period:
<TABLE>
<CAPTION>
PER
TOTAL SHARE
---------- -----
(IN 000'S)
<S> <C> <C>
Net income per statement of income.................................. $ 1,555 $ .27
Adjustments required to determine taxable income --
Accrued rent on hotel ground lease................................ (3,223) (.56)
Book depreciation in excess of tax................................ 1,046 .18
Prepaid rent...................................................... 568 .10
Other, net........................................................ 415 .07
------- -----
Taxable income before net operating loss deduction and deduction for
dividends paid.................................................... 361 .06
Net operating loss deduction...................................... (1,002) (.17)
Deduction for dividends paid...................................... (231) (.04)
------- -----
Taxable loss........................................................ $ (872) $(.15)
======= =====
</TABLE>
Dividends for financial reporting purposes for fiscal 1996 of $.10 per
share reflect the application of dividends among years as follows:
<TABLE>
<CAPTION>
PER
TOTAL SHARE
---------- -----
(IN 000'S)
<S> <C> <C>
Total dividends applicable to fiscal 1996 for tax purposes.......... $ 231 $ .04
Dividends paid September 1, 1995 and December 1, 1995, included in
fiscal 1996 for financial reporting purposes but in fiscal 1995
for tax purposes.................................................. 116 .02
Dividend paid June 1, 1996, included in fiscal 1996 for financial
reporting purposes but in fiscal 1997 for tax purposes............ 231 .04
---- ----
Total dividends applicable to fiscal 1996 for financial reporting
purposes.......................................................... $ 578 $ .10
==== ====
</TABLE>
The tax status of dividends for Federal income tax purposes (including the
final status for fiscal 1995 and 1994) for each of the last three fiscal years
was:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ordinary income.................................................... $.08 $ -- $.03
Capital gain....................................................... .02 .04 .01
---- ---- ----
Total.................................................... $.10 $.04 $.04
==== ==== ====
</TABLE>
(8) PENSION PLANS
The Trust adopted two defined benefit pension plans in fiscal 1987 which
have been subsequently amended: (1) The Chicago Dock and Canal Trust Retirement
Plan which covers all employees of the Trust; and (2) The Chicago Dock and Canal
Trust Supplemental Executive Retirement Plan which covers the executive officers
of the Trust. The total pension expense for fiscal 1996, 1995 and 1994 was
$113,128, $87,480 and $91,634, respectively, of which $0, $0 and $19,842, was
funded in fiscal 1996, 1995 and 1994, respectively.
F-16
<PAGE> 71
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
A comparison of accumulated plan benefits and plan net assets for the plans, at
April 30, 1996, is presented below:
<TABLE>
<CAPTION>
SUPPLEMENTAL
EXECUTIVE
RETIREMENT RETIREMENT
PLAN PLAN
---------- ------------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested....................................................... $189,751 $101,580
Non-vested................................................... 17,786 14,814
-------- --------
$207,537 $116,394
======== ========
Net assets available for benefits.............................. $249,940 $188,631
======== ========
</TABLE>
The assumed rate of return used in determining the actuarial present value
of accumulated plan benefits was 8% for 1996, 1995 and 1994.
(9) RELATED-PARTY TRANSACTIONS
The Trust incurred legal fees of approximately $317,000, $209,000 and
$309,000, with the law firm of Wilson & McIlvaine for services rendered in
fiscal 1996, 1995 and 1994, respectively. Michael F. Csar, who has served as
Secretary or Assistant Secretary of the Trust since 1992, is a partner in Wilson
& McIlvaine.
The Trust incurred management fees of approximately $118,000, $109,000 and
$108,000, with the Habitat Company, for property management services for the
Mid-Rise, in fiscal 1996, 1995 and 1994, respectively, pursuant to a long term
management agreement with the Habitat Company. The Habitat Company is
substantially owned by Daniel E. Levin, a partner in LCD Partnership ("LCD"),
along with the Trust's wholly owned subsidiary, CDCT Residence Corporation. LCD
entered into a joint venture, NSJV, with Northwestern Mutual Life Insurance
Company. NSJV, which owns the High-Rise, retained the Habitat Company to provide
property management services for the High-Rise. NSJV incurred management fees
for the HighRise of approximately $173,000, $166,000 and $157,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. The Habitat Company has
retained LCD to provide consulting services regarding operation of the
High-Rise. The Habitat Company paid LCD fees of approximately $43,000, $41,000
and $39,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
(10) FUTURE MINIMUM RENTALS
The following is a schedule of minimum lease payments receivable under
operating leases signed as of April 30, 1996 that have initial or noncancelable
lease terms in excess of one year, reported on a cash basis:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
<S> <C>
1997........................................................... $ 4,779,000
1998........................................................... 4,370,000
1999........................................................... 4,025,000
2000........................................................... 3,772,000
2001........................................................... 3,797,000
Thereafter..................................................... 316,495,000
------------
$337,238,000
============
</TABLE>
In addition to the above listed amounts, certain tenants are required to
pay a portion of executory costs, including real estate taxes, insurance,
maintenance and other operating expenses. Real estate taxes payable by
F-17
<PAGE> 72
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
all tenants under "net" leases, which are reflected as both revenue and expense,
were $6,208,000, $6,864,000 and $4,168,000, in fiscal 1996, 1995 and 1994,
respectively.
Revenues recognized during fiscal 1996 from Cityfront Hotel Associates for
average minimum base rent, percentage rent and real estate taxes payable were
$4,848,000, $96,000 and $5,302,000, respectively, for a total of $10,246,000 or
46% of total revenues of $22,287,000. In management's opinion the collection of
this lease obligation is reasonably assured, given that the Trust's interest in
the land is not subordinated to any of the debt or equity invested in the
improvements. Accordingly, the Trust will either collect the rent due under the
lease, or in the case of a default and termination of the lease, succeed to
ownership of the improvements not subject to any of the debt. Gross revenues
from operations of the hotel equaled $65 million during calendar 1995 and $58
million during calendar 1994. Average occupancy during calendar 1995 equaled 72%
and during calendar 1994 equaled 68%.
The following tenants comprise a significant amount of the total minimum
rentals disclosed above (See Note 4):
<TABLE>
<CAPTION>
AMOUNT PERCENT
------------ -------
<S> <C> <C>
Cityfront Hotel Associates (Sheraton Chicago Hotel & Towers).... $313,848,000 93.1%
Kraft........................................................... 12,800,000 3.8%
------------ ----
$326,648,000 96.9%
============ ====
</TABLE>
(11) EMPLOYEE STOCK OPTIONS
At April 30, 1996, there are outstanding, under both incentive and
non-qualified plans, options to purchase 554,740 Shares of Beneficial Interest
which were granted to certain key employees. The exercise prices of the options
range from $9.00 to $24.75 per share, which represent the fair market values at
the dates of grant. Generally, the non-qualified options have a term of 20 years
and become exercisable at the rate of 10% per year starting one year from the
date of grant. Incentive stock options have a term of 10 years and become
exercisable at the rate of 20% per year starting one year from the date of
grant.
On April 14, 1993, the Trust amended the employment agreements for Messrs.
Gardner and Tinkham allowing up to 20% of stipulated cash compensation to be
paid in stock options in lieu of cash at the discretion of the Trust. On
February 13, 1996, for fiscal 1997, options to purchase 22,724 and 12,120 shares
were granted to Messrs. Gardner and Tinkham, respectively, in lieu of cash
pursuant to the terms of The Chicago Dock and Canal Trust 1993 Employees' Stock
Option Plan. Twenty-five percent of these options first become exercisable
quarterly in the applicable fiscal year, starting August 1, and the options have
a term of 20 years. During fiscal 1996, 20% of stipulated cash compensation for
Messrs. Gardner and Tinkham was replaced with options to purchase 20,316 and
8,804 shares, respectively. During fiscal 1995, 20% of stipulated cash
compensation for Messrs. Gardner and Tinkham was replaced with options to
purchase 22,588 and 9,788 shares, respectively. During fiscal 1994, 20% of
stipulated cash compensation for Messrs. Gardner and Tinkham was replaced with
options to purchase 24,000 and 10,400 shares, respectively.
At April 30, 1996, no options had been exercised; options granted and
outstanding pursuant to all plans covering 282,667 shares had vested and were
exercisable.
(12) TRUSTEE STOCK OPTIONS
At April 30, 1996, there are outstanding options to purchase 26,500 Shares
of Beneficial Interest which were granted to non-employee Trustees pursuant to
The Chicago Dock and Canal Trust 1988 Trustees' Stock Option Plan. The exercise
prices of the options range from $9.25 to $25.00 per share, which represent the
fair
F-18
<PAGE> 73
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
market values at the dates of grant. The options generally become exercisable
one year after their grant except in the case of death or qualified retirement
of a Trustee, in which case they become exercisable immediately.
On February 13, 1996, the Trustees unanimously voted to replace the annual
cash retainer for fiscal 1997 with the grant of Trustee stock options pursuant
to The Chicago Dock and Canal Trust 1993 Trustees' Stock Option Plan. Each
Trustee received a grant to purchase 3,784 shares at $10.56 per share, the
market price on the date of grant. During fiscal 1996, 1995 and 1994, stock
options also replaced the annual cash retainer for the Trustees at exercise
prices equal to the market price on the dates of grant. Each Trustee received a
grant to purchase 3,676 shares at $10.875 per share during fiscal 1996, 3,764
shares at $10.625 per share during fiscal year 1995 and 4,000 shares at $10.00
per share during fiscal year 1994. Twenty-five percent of these options first
become exercisable quarterly, in the applicable fiscal year, starting May 1, and
the options have a term of 20 years.
At April 30, 1996, no options had been exercised; options granted and
outstanding pursuant to both plans equaled 139,788, of which 109,300 shares were
exercisable.
(13) 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 April 30, 1996, and
April 30, 1995, the balance in this account equaled $203,000 and $130,000,
respectively.
(14) 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.
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 estimated cost of the most likely 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
F-19
<PAGE> 74
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1996, 1995 AND 1994
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. The Order also requires the
submission of a work plan to the EPA including the expected timetable for the
remediation. The Trust anticipates remediation will be completed during fiscal
1997, at which time two parcels, currently used as surface parking lots, will be
taken out of service for approximately two to three months according to the
anticipated work plan.
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.
(15) 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.
(16) RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued FASB No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
Additionally, in 1995, the Financial Accounting Standards Board issued FASB
No. 123, "Accounting for Stock-Based Compensation," for which management
currently intends to elect to continue the use of the intrinsic value method and
make the disclosures required by FASB No. 123 in the notes to consolidated
financial statements.
Implementation of these statements is effective for fiscal years beginning
after December 1995. Accordingly, the Trust will implement these statements for
fiscal year 1997. Implementation of these statements is not expected to be
material to the Trust's results of operations or the statement of financial
position.
F-20
<PAGE> 75
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER APRIL
31, 30,
1996 1996
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE, at cost:
Developed properties................................................. $ 70,514 $ 70,246
Land and land improvements held for development...................... 16,523 16,961
Land subject to ground leases........................................ 7,244 6,743
Less: Accumulated depreciation and amortization...................... (15,493) (14,104)
-------- --------
Net investment in real estate................................ 78,788 79,846
-------- --------
OTHER ASSETS:
Cash and cash equivalents............................................ 987 757
-------- --------
Investments available for sale, at cost (approximate market value of
$7,532 at October 31, 1996)....................................... 7,502 5,973
-------- --------
Short term investments -- restricted, at cost (and at approximate
market
value)............................................................ 204 203
-------- --------
Security deposit cash................................................ 356 808
-------- --------
Receivables:
Tenants (including $30,453 of accrued but unbilled rents at
October 31, 1996)............................................... 30,729 29,647
Real estate taxes payable by lessees.............................. 5,652 5,931
Land improvements................................................. 1,388 1,388
Interest.......................................................... 55 45
Other............................................................. 189 225
-------- --------
38,013 37,236
-------- --------
Other assets, net.................................................... 913 1,185
-------- --------
$126,763 $126,008
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses:
Real estate taxes................................................. $ 4,375 $ 4,946
Real estate taxes payable by lessees.............................. 5,652 5,931
Accrued environmental remediation costs........................... 725 750
Other............................................................. 2,221 2,208
Cash dividends payable............................................... 463 231
Mortgage notes payable............................................... 28,107 28,068
-------- --------
Total liabilities............................................ 41,543 42,134
-------- --------
SHAREHOLDERS' EQUITY:
Common shares of beneficial interest:
No par value, 20,000,000 authorized, 5,944,200 issued............. 3,121 3,101
-------- --------
Preferred shares of beneficial interest:
No par value, 1,000,000 authorized, none issued................... -- --
-------- --------
Undistributed income before net gain from sale of real estate
properties........................................................ 10,339 9,020
Undistributed net gain from sale of real estate properties........... 72,372 72,372
-------- --------
Total undistributed net income............................... 82,711 81,392
-------- --------
Less:
Treasury shares of beneficial interest, at cost -- 157,900 and
160,400 at October 31 and April 30, 1996, respectively........... (612) (619)
-------- --------
Total shareholders' equity................................... 85,220 83,874
-------- --------
$126,763 $126,008
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
F-21
<PAGE> 76
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C>
REVENUES:
Revenue from rental property................................ $ 9,386 $ 7,439
Real estate taxes payable by lessees........................ 3,047 3,324
------- -------
Total revenues...................................... 12,433 10,763
------- -------
EXPENSES:
Real estate taxes........................................... 1,430 1,472
Real estate taxes payable by lessees........................ 3,047 3,324
Property operating expenses................................. 1,575 1,565
General and administrative.................................. 869 1,012
Depreciation and amortization............................... 1,501 1,506
Interest expense............................................ 1,450 1,435
------- -------
Total expenses...................................... 9,872 10,314
------- -------
Operating income.............................................. 2,561 449
INVESTMENT AND OTHER INCOME................................... 233 172
EQUITY IN NET LOSS OF LCD PARTNERSHIP......................... (192) (197)
RESTRUCTURING EXPENSES........................................ (473) --
------- -------
Net income.......................................... $ 2,129 $ 424
======= =======
EARNINGS PER SHARE:
Primary..................................................... $ 0.36 $ 0.07
Fully diluted............................................... $ 0.35 $ 0.07
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-22
<PAGE> 77
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 2,129 $ 424
Add (deduct) -- adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization............................ 1,501 1,506
Effect of averaging hotel rental revenue................. (1,374) (1,799)
Equity in net loss of LCD partnership.................... 192 197
Changes in receivables................................... 1,048 (3,434)
Changes in accounts payable and accrued expenses......... (862) 4,795
Difference between current interest payable and
contractual interest................................... 88 632
Amortization of loan fees................................ 41 41
Other.................................................... 151 140
------- -------
Cash flows provided by operating activities................... 2,914 2,502
------- -------
Cash flows from investing activities:
Net (acquisition) disposition of short-term
investments............................................ (1,529) (774)
Net (acquisition) disposition of short-term
investments -- restricted.............................. (1) (600)
Additions to investments in real estate.................. (522) (314)
Lease commissions and other.............................. (32) (39)
------- -------
Cash flows (used in) investing activities..................... (2,084) (1,727)
------- -------
Cash flows from financing activities:
Cash dividends declared.................................. (810) (116)
Change in dividends payable.............................. 232 --
Proceeds from exercise of stock options.................. 27 --
Principal payments on loans.............................. (49) (45)
------- -------
Cash flows (used in) financing activities..................... (600) (161)
------- -------
Increase in cash and cash equivalents......................... 230 614
Cash and cash equivalents, beginning of period................ 757 344
------- -------
Cash and cash equivalents, end of period...................... $ 987 $ 958
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-23
<PAGE> 78
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(UNAUDITED)
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 October 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 six 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 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
F-24
<PAGE> 79
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1995
(UNAUDITED)
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 June 30, 1996, total assets and liabilities of NSJV were $45,724,000
and $38,599,000, respectively. For the six months ended June 30, 1996, NSJV
recorded gross revenues of $3,558,000 and total expenses of $4,227,000, which
resulted in a net loss of $669,000. Included in total expenses is depreciation
and amortization expense, which for the six months ended June 30, 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, as a result, the Trust
has received 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 initially
provided for minimum rent of $3,600,000. However, due to the remediation of the
Tested Site (See Note 7), the minimum rent for calendar year 1996 was adjusted
to $3,200,000. The minimum annual rent for calendar year 1997 is $3,600,000. The
minimum monthly rental during calendar 1997 will be reduced by 50% during each
month that the Tested Site is undergoing remediation.
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
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<PAGE> 80
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1995
(UNAUDITED)
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, 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 land is acquired at its
earliest date, July 30, 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 six months of fiscal 1997 equaled $1,050,000.
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 October 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
$5,672,000 at October 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 October 31, 1996 equaled
$15,000.
At October 31, 1996, the principal balance of the note secured by the rents
from and the land under the Sheraton Chicago Hotel & Towers was $22,435,000. 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
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<PAGE> 81
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1995
(UNAUDITED)
Sheraton lease. The difference between current interest payable and the
contractual interest is added to principal. Starting in 1999, debt 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 October 31,
1996 was $35,809,000 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 October 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 October 31, 1996
equaled $45,421,000.
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 October 31, 1996,
the balance in this account equaled $204,000.
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 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.
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,
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<PAGE> 82
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1995
(UNAUDITED)
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 responded to the comments. In September, additional drilling began to more
precisely define the area to be remediated. Remediation began in October 1996,
with completion expected by the end of calendar year 1996 or early 1997. During
the remediation, no parking is allowed on the Tested Site. 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.
8. AGREEMENT AND PLAN OF MERGER
On September 27, 1996, the Trust entered into a definitive Agreement and
Plan of Merger (the "Merger Agreement") with Newsweb Corporation providing for
the purchase of all outstanding shares of the Trust by Newsweb Corporation for
$21.00 per share in cash. The Trust has called a special meeting of its
shareholders for January 9, 1997 to vote on the proposed merger with Newsweb
Corporation.
On November 29, 1996, the Trust announced that it had received an
unsolicited proposal from CityFront Center, L.L.C. ("CityFront") to acquire all
of the outstanding shares of the Trust for $22.00 in cash. On December 10, 1996,
the Trust announced that it had received a revised proposal from CityFront to
acquire all of the outstanding shares of the Trust for $23.00 per share in cash.
The Trust's press releases dated November 29, 1996 and December 10, 1996 are
included as exhibits hereto and incorporated herein by this reference. Each of
the Trust's press releases disclosed that the Board of Trustees of the Trust had
determined that, in order to comply with its fiduciary duties to the Trust's
shareholders under applicable law, the Trust, consistent with its rights under
the Merger Agreement, would meet with representatives of CityFront regarding its
proposal. There can be no assurance that any discussions or negotiations with
CityFront will result in a definitive agreement between CityFront and the Trust.
9. EARNINGS PER SHARE
Primary earnings per share is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The number of common shares is increased by the
number of shares issuable on the exercise of stock options if the market price
of the common stock exceeds the exercise price of the options. This increase in
the number of common shares is reduced by the number of common shares that are
assumed to have been purchased with the proceeds from the exercise of the
options. These purchases are assumed to have been made at the average price of
common
F-28
<PAGE> 83
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1996 AND 1995
(UNAUDITED)
stock during the period. Fully diluted earnings per share is determined in the
same manner except that the stock price at the end of the period is used.
The number of shares used in the primary earnings per share computation for
the six months ended October 31, 1996 was 5,996,232. The number of shares used
in the fully diluted earnings per share computation for the six months ended
October 31, 1996 was 6,056,892. The number of shares used for the prior year
computation was 5,783,800 in all cases.
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<PAGE> 84
APPENDIX A
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
CITYFRONT CENTER, L.L.C.,
CITYFRONT ACQUISITION TRUST
AND
THE CHICAGO DOCK AND CANAL TRUST
DATED AS OF DECEMBER 27, 1996
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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<PAGE> 85
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
THE MERGER
SECTION 1.01. The Merger........................................................... A-5
SECTION 1.02. Closing.............................................................. A-5
SECTION 1.03. Effective Time....................................................... A-5
SECTION 1.04. Effects of the Merger................................................ A-6
SECTION 1.05. Declaration of Trust and By-laws..................................... A-6
SECTION 1.06. Trustees............................................................. A-6
SECTION 1.07. Officers............................................................. A-6
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
SUB AND THE COMPANY; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock.............................................. A-6
SECTION 2.02. Exchange of Certificates............................................. A-6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization......................................................... A-8
SECTION 3.02. Subsidiaries......................................................... A-8
SECTION 3.03. Capitalization....................................................... A-8
SECTION 3.04. Authority............................................................ A-8
SECTION 3.05. Consent and Approvals; No Violations................................. A-9
SECTION 3.06. SEC Reports and Financial Statements................................. A-9
SECTION 3.07. Absence of Certain Changes or Events................................. A-10
SECTION 3.08. No Undisclosed Liabilities........................................... A-10
SECTION 3.09. Information Supplied................................................. A-10
SECTION 3.10. Benefit Plans........................................................ A-10
SECTION 3.11. Contracts; Indebtedness.............................................. A-12
SECTION 3.12. Litigation........................................................... A-12
SECTION 3.13. Compliance with Applicable Law....................................... A-12
SECTION 3.14. Tax Matters.......................................................... A-12
SECTION 3.15. State Takeover Statutes.............................................. A-13
SECTION 3.16. Environmental Matters................................................ A-13
SECTION 3.17. Real Property........................................................ A-14
SECTION 3.18. Leases............................................................... A-14
SECTION 3.19. Title to Property.................................................... A-14
SECTION 3.20. REIT Qualification................................................... A-14
SECTION 3.21. Required Vote........................................................ A-14
SECTION 3.22. Brokers.............................................................. A-14
SECTION 3.23. Opinion of Financial Advisor......................................... A-14
SECTION 3.24. Violations; Eminent Domain........................................... A-15
</TABLE>
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<PAGE> 86
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
SECTION 4.01. Organization......................................................... A-15
SECTION 4.02. Authority............................................................ A-15
SECTION 4.03. Consents and Approvals; No Violations................................ A-15
SECTION 4.04. Information Supplied................................................. A-15
SECTION 4.05. Interim Operations of Sub............................................ A-16
SECTION 4.06. Brokers.............................................................. A-16
SECTION 4.07. Financing............................................................ A-16
SECTION 4.08. Litigation........................................................... A-16
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of the Company............................................. A-16
SECTION 5.02. No Solicitation...................................................... A-18
SECTION 5.03. Other Actions........................................................ A-19
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Shareholder Approvals; Preparation of Proxy Statement................ A-20
SECTION 6.02. Access to Information................................................ A-20
SECTION 6.03. Reasonable Efforts................................................... A-20
SECTION 6.04. Company Stock Options................................................ A-21
SECTION 6.05. Fees and Expenses.................................................... A-21
SECTION 6.06. Indemnification; Directors and Officers Insurance.................... A-22
SECTION 6.07. Obligations of Sub................................................... A-23
SECTION 6.08. Certain Litigation................................................... A-23
SECTION 6.09. Severance Policy and Other Agreements................................ A-23
SECTION 6.10. Redemption of Rights................................................. A-23
SECTION 6.11. Payment of Certain Fees and Expenses................................. A-23
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Each Party's Obligation To Effect the Merger........... A-24
SECTION 7.02. Conditions to the Company's Obligation to Effect the Merger.......... A-24
SECTION 7.03. Conditions to the Parent's and Sub's Obligations to Effect the A-25
Merger...............................................................
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01. Termination.......................................................... A-26
SECTION 8.02. Effect of Termination................................................ A-26
SECTION 8.03. Amendment............................................................ A-26
SECTION 8.04. Extension; Waiver.................................................... A-27
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Nonsurvival of Representations, Warranties and Agreements............ A-27
SECTION 9.02. Notices.............................................................. A-27
SECTION 9.03. Interpretation....................................................... A-28
SECTION 9.04. Counterparts......................................................... A-28
SECTION 9.05. Entire Agreement; No Third Party Beneficiaries....................... A-28
SECTION 9.06. Governing Law........................................................ A-28
SECTION 9.07. Publicity............................................................ A-29
SECTION 9.08. Assignment........................................................... A-29
SECTION 9.09. Enforcement.......................................................... A-29
SECTION 9.10. Exculpation of Shareholders, Trustees, Officers, Agents and A-29
Beneficiaries........................................................
</TABLE>
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<PAGE> 88
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 27, 1996 among CityFront
Center, L.L.C., a Delaware limited liability company ("Parent"), CityFront
Acquisition Trust, an Illinois business trust and a 99% owned subsidiary of
Parent ("Sub"), and The Chicago Dock and Canal Trust, an Illinois business trust
(the "Company").
WHEREAS the board of directors of Parent and the respective trustees of Sub
and the Company have approved the acquisition of the Company by Parent on the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Company, Newsweb Corporation, an Illinois corporation
("Newsweb"), and CDCT Acquisition Trust, an Illinois business trust, were
parties to that certain Agreement and Plan of Merger (the "Prior Merger
Agreement"), dated as of September 27, 1996, that the Company has terminated in
accordance with the terms thereof;
WHEREAS, in furtherance of the acquisition of the Company by Parent, the
board of directors of Parent and the respective trustees of Sub and the Company
have each approved the merger of the Company with and into Sub (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement,
whereby each issued and outstanding Common Share of beneficial interest, without
par value, of the Company (a "Share"), other than Shares owned directly or
indirectly by the Company, will be converted into the right to receive $25.00
per share in cash;
WHEREAS, the trustees of the Company have adopted resolutions approving the
Merger and recommending that the Company's shareholders approve this Agreement
and the Merger;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, the Company shall be merged with and into Sub at
the Effective Time (as defined in Section 1.03). Following the Effective Time,
the separate existence of the Company shall cease and Sub shall continue as the
surviving trust (the "Surviving Company") and shall succeed to and assume all of
the rights and obligations of the Company. At the election of Parent, any direct
or indirect wholly owned subsidiary (as defined in Section 9.03) of Parent may
be substituted for Sub as a constituent company in the Merger. In such event,
the parties agree to execute an appropriate amendment to this Agreement in order
to reflect the foregoing.
SECTION 1.02. Closing. The closing of the Merger will take place at 10:00
a.m. on a date to be mutually agreed by Parent and the Company (and, failing
such agreement, on the second business day) after satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date"), at the offices of
Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file articles of merger or other appropriate documents (in any such case,
the "Articles of Merger") executed in accordance with the relevant provisions of
the Amended and Restated Declaration of Trust, as amended (including the
amendment contemplated by the Trust Amendment described in Section 7.01), of the
Company (as so amended, the "Declaration of Trust") and any applicable laws of
the State of Illinois and shall make all other filings or recordings required
under the
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<PAGE> 89
Declaration of Trust and the laws of the State of Illinois. The Merger shall
become effective at such time as the Articles of Merger are duly filed with the
Recorder of Deeds of Cook County, Illinois, or at such other time as Sub and the
Company shall agree should be specified in the Articles of Merger consistent
with the provisions of the Declaration of Trust (the time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. Upon consummation of the Merger, the
Surviving Company shall have all of the rights, privileges, immunities and
franchises, as of a public or a private nature, of each of the constituent
companies and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares of capital stock, and all
other choses in action, and all and every other interest, of or belonging to or
due to each of the constituent companies, shall be taken and deemed to be
transferred to and vested in such Surviving Company without further act or deed,
and the title to any real estate, or any other interest therein, vested in
either of the constituent companies shall not revert or be in any way impaired
by reason of such Merger, and such Merger shall have the other effects set forth
in the Declaration of Trust or applicable law.
SECTION 1.05. Declaration of Trust and By-laws. (a) The Declaration of
Trust, as in effect immediately prior to the Effective Time shall be the
declaration of trust of the Surviving Company until thereafter changed or
amended as provided therein or by applicable law.
(b) The Bylaws of Sub as in effect immediately prior to the Effective Time
shall be the bylaws of the Surviving Company, until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.06. Trustees. The trustees of Sub immediately prior to the
Effective Time shall be the trustees of the Surviving Company, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Company, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
SUB AND THE COMPANY; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
Shares or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one fully paid and
nonassessable Common Share of beneficial interest, without par value, of
the Surviving Company.
(b) Cancellation of Treasury Stock. Each Share that is owned by the
Company or by any subsidiary of the Company shall automatically be canceled
and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Shares. Each Share issued and outstanding (other
than Shares to be canceled in accordance with Section 2.01(b)) shall be
converted into the right to receive $25.00 in cash (the "Merger
Consideration"). As of the Effective Time, all such Shares shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
Shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration, without interest.
SECTION 2.02. Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, Parent shall designate LaSalle National Bank (or such other bank
or trust company reasonably acceptable to the Company) to act as paying agent in
the Merger (the "Paying Agent"), and Parent shall, at or prior to the Effective
Time, deposit or cause to be deposited with the Paying Agent in a separate fund
established for the
A-6
<PAGE> 90
benefit of the holders of Shares (the "Payment Fund") funds in an amount
necessary for the payment of the Merger Consideration upon surrender of
certificates representing Shares as part of the Merger pursuant to Section 2.01
(it being understood that any and all interest earned on funds made available to
the Paying Agent pursuant to this Agreement shall be turned over to Parent). At
the Effective Time, Parent shall also make available to the Surviving Company
funds in an amount necessary for the payment of the Option Consideration (as
defined in Section 6.04). Arrangements shall be made with the Paying Agent such
that holders of Shares and Company Stock Options are deemed to have received
payment of the Merger Consideration and Option Consideration prior to the
expiration of the Company's taxable year ending with the Merger for Federal
income tax purposes.
(b) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented Shares (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Parent and the
Company may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor the amount of cash into which the
Shares theretofore represented by such Certificate shall have been converted
pursuant to Section 2.01, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, payment may be made to a
person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of such Certificate or establish to the satisfaction of
the Surviving Company that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without interest, into which the
Shares theretofore represented by such Certificate shall have been converted
pursuant to Section 2.01. No interest will be paid or will accrue on the cash
payable upon the surrender of any Certificate.
(c) No Further Ownership Rights in Shares. All cash paid upon the surrender
of Certificates in accordance with the terms of this Article II shall be deemed
to have been paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such Certificates. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers on the stock transfer books of the Surviving Company
of the Shares that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving Company or
the Paying Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.
(d) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of Shares for six months after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Shares who have not theretofore complied with this Article II and the
instructions set forth in the letter of transmittal mailed to such holders after
the Effective Time shall thereafter look only to Parent for payment of the
Merger Consideration to which they are entitled.
(e) No Liability. None of Parent, Sub, the Company or the Paying Agent
shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
payment pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 3.05)), the cash
payment in respect of such Certificate shall, unless otherwise provided by
applicable law, become the property of the Surviving Company, free and clear of
all claims or interests of any person previously entitled thereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 3.01. Organization. The Company is a business trust duly
organized, validly existing and in good standing under the laws of the State of
Illinois and has all requisite trust power and authority to carry on its
business as now being conducted. The Company is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a material adverse effect (as defined in Section 9.03) on the Company or
prevent or materially delay the consummation of the Merger. The Company has
delivered to Parent a complete and correct copy of its Declaration of Trust, as
in effect on the date of this Agreement.
SECTION 3.02. Subsidiaries. Item 3.02 of the letter from the Company to
Parent dated the date hereof, which letter relates to this Agreement and is
designated therein as the Company Disclosure Letter (the "Company Disclosure
Letter"), lists each subsidiary of the Company. Except as set forth in Item 3.02
of the Company Disclosure Letter, all of the outstanding shares of capital stock
of each such subsidiary are owned by the Company, by another wholly owned
subsidiary of the Company or by the Company and another wholly owned subsidiary
of the Company, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), and are duly authorized, validly issued, fully paid and
nonassessable. Except for the capital stock of its subsidiaries and except as
set forth in Item 3.02 of the Company Disclosure Letter, the Company does not
own, directly or indirectly, any capital stock or other ownership interest in
any corporation, partnership, joint venture or other entity.
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 Shares and 1,000,000 Preferred Shares of beneficial
interest, without par value (the "Preferred Shares"). At the close of business
on August 30, 1996, (i) 5,783,800 Shares were issued and outstanding, (ii)
160,400 Shares were held by the Company in its treasury and (iii) options to
purchase 694,028 Shares ("Company Stock Options") issued pursuant to the
Company's stock option plans and agreements were outstanding. As of the date
hereof there are no Preferred Shares outstanding. Except as set forth above, as
of the date of this Agreement, no shares of capital stock or other voting
securities of the Company are issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all shares which may
be issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except for Company
Stock Options and the rights to purchase Shares (the "Rights") issued pursuant
to the Rights Agreement dated as of July 20, 1988 between the Company and Harris
Trust and Savings Bank, as rights agent (the "Rights Agreement"), and except as
set forth in Item 3.03 of the Company Disclosure Letter, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party or by which any of them is bound
obligating the Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or of any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except for redemption of the Rights
pursuant to Section 6.10 and except as set forth on Item 3.03 of the Company
Disclosure Letter, as of the date of this Agreement, there are no outstanding
contractual obligations of the Company or any of its subsidiaries (i) to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or (ii) to vote or to dispose of any shares of the capital stock of any
of the Company's subsidiaries.
SECTION 3.04. Authority. The trustees of the Company, at a meeting duly
called and held, at which all trustees were present, have duly and unanimously
adopted resolutions approving this Agreement, the Trust Amendment and the
Merger, determining that the terms of the Merger are fair to, and in the best
interests of
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the Company's shareholders and recommending that the Company's shareholders
approve and adopt this Agreement, the Trust Amendment and the Merger. The
Company has the requisite trust power and authority to execute and deliver this
Agreement and, subject to the approval and adoption of this Agreement, the Trust
Amendment and the Merger by the holders of at least two-thirds of the Shares
outstanding and entitled to vote thereon (the "Company Shareholder Approvals"),
to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation by the Company of the Merger
and of the other transactions contemplated hereby have been duly authorized by
all necessary trust action on the part of the Company and no other trust
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated (in each case, other than,
with respect to the Merger, the Company Shareholder Approvals). This Agreement
has been duly executed and delivered by the Company and, assuming this Agreement
constitutes a valid and binding obligation of Parent and Sub, constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally and to
general principles of equity.
SECTION 3.05. Consent and Approvals; No Violations. Except as set forth
in Item 3.05 of the Company Disclosure Letter, except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including the filing with the Securities and Exchange
Commission ("SEC") of a proxy statement in definitive form relating to any
required Company Shareholder Approval (the "Proxy Statement")), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the laws of the State of Illinois, the laws of other states in which the
Company is qualified to do or is doing business and state takeover laws, and
except for the Company Shareholder Approvals and the filing with the Recorder of
Deeds of Cook County, Illinois of the Trust Amendment and the Articles of Merger
following receipt of the Company Shareholder Approvals, neither the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the Declaration of Trust or Bylaws of
the Company or of the similar organizational documents of any of its
subsidiaries, (ii) require any filing with, or permit, authorization, consent or
approval of, any Federal, state or local government or any court, tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, domestic, foreign or supranational (a "Governmental
Entity") (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings would not have a material adverse
effect on the Company or would not reasonably be expected to prevent or
materially delay the consummation of the Merger), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license, contract, partnership agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their properties or assets may be bound or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its subsidiaries or any of their properties or
assets, except in the case of clauses (iii) or (iv) for violations, breaches or
defaults that would not, individually or in the aggregate, have a material
adverse effect on the Company or that would not, individually or in the
aggregate, be reasonably expected to prevent or materially delay the
consummation of the Merger.
SECTION 3.06. SEC Reports and Financial Statements. The Company and each
of its subsidiaries has filed with the SEC, and has heretofore made available to
Parent true and complete copies of, all forms, reports, schedules, statements
and other documents required to be filed by it since April 30, 1995, under the
Exchange Act or the Securities Act of 1933, as amended (the "Securities Act")
(such forms, reports, schedules, statements and other documents, including any
financial statements or schedules included therein, are referred to as the
"Company SEC Documents"). The Company SEC Documents, at the time filed, (a) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the
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SEC thereunder. Except to the extent revised or superseded by a subsequently
filed Company Filed SEC Document (as defined in Section 3.07), none of the
Company SEC Documents contains an untrue statement of a material fact or omits
to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of the Company and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended.
SECTION 3.07. Absence of Certain Changes or Events. Except as disclosed
in the Company SEC Documents filed and publicly available prior to the date of
this Agreement (the "Company Filed SEC Documents") or as disclosed in Item 3.07
of the Company Disclosure Letter, since April 30, 1996, the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course, and there has not been (i) through the date hereof any material adverse
change with respect to the Company, (ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to its capital stock
or any redemption, purchase or other acquisition of any of its capital stock,
other than the Company's regular quarterly dividend of $.04 per Share paid on
June 1, 1996, $.06 per Share paid on September 1, 1996 and $.08 per Share paid
on December 2, 1996, (iii) any split, combination or reclassification of any of
its capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has or reasonably could be expected to have a material adverse
effect on the Company, (v) any revaluation by the Company of any of its material
assets or (vi) any material change in accounting methods, principles or
practices by the Company.
SECTION 3.08. No Undisclosed Liabilities. Except as and to the extent set
forth in the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1996 previously filed with the SEC under the Exchange Act, as of April
30, 1996, neither the Company nor any of its subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by generally accepted accounting principles to be reflected on
a consolidated balance sheet of the Company and its subsidiaries (or disclosed
in the notes thereto). Since April 30, 1996 and to the date of this Agreement,
except as and to the extent set forth in the Company Filed SEC Documents or as
disclosed in Item 3.08 of the Company Disclosure Letter, neither the Company nor
any of its subsidiaries has incurred any liabilities of any nature, whether or
not accrued, contingent or otherwise, that would be required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its subsidiaries (or disclosed in the notes thereto) and that
would be reasonably expected to have a material adverse effect on the Company.
SECTION 3.09. Information Supplied. None of the information supplied or
to be supplied by the Company specifically for inclusion or incorporation by
reference in the Proxy Statement, will, at the time the Proxy Statement is first
mailed to the Company's shareholders or at the time of the Shareholders Meeting
(as defined in Section 6.01), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, except that no representation or warranty is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference therein. The Proxy Statement will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder.
SECTION 3.10. Benefit Plans. (a) Except as disclosed in the Company Filed
SEC Documents or as disclosed in Item 3.10 of the Company Disclosure Letter,
since the date of the most recent audited financial statements included in the
Company Filed SEC Documents, there has not been any adoption or amendment
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in any material respect by the Company or any of its subsidiaries of any
collective bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee, officer or trustee or director of the Company or any of its
subsidiaries (collectively, "Benefit Plans"). Except as disclosed in the Company
Filed SEC Documents or in Item 3.10 of the Company Disclosure Letter, there
exist no employment, consulting, severance, termination or indemnification
agreement, arrangements or understandings between the Company or any of its
subsidiaries and any current or former employee, officer or director of the
Company or any of its subsidiaries.
(b) Item 3.10 of the Company Disclosure Letter contains a list and brief
description of all "employee pension benefit plans" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee welfare benefit
plans" (as defined in Section 3(1) of ERISA) and all other Benefit Plans
maintained, or contributed to, by the Company or any of its subsidiaries for the
benefit of any current or former employees, officers or trustees or directors of
the Company or any of its subsidiaries. The Company has delivered to Parent
true, complete and correct copies of (i) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (ii) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (iii) the most recent summary
plan description for each Benefit Plan for which such summary plan description
is required and (iv) each trust agreement and group annuity contract relating to
any Benefit Plan.
(c) Except as disclosed in Item 3.10 of the Company Disclosure Letter, all
Pension Plans (i) have been the subject of determination letters from the
Internal Revenue Service to the effect that such Pension Plans are qualified and
exempt from Federal income taxes under Section 401(a) and 501(a), respectively,
of the Internal Revenue Code of 1986, as amended (the "Code"), and no such
determination letter has been revoked nor, to the best knowledge of the Company,
has revocation been threatened, nor has any such Pension Plan been amended since
the date of its most recent determination letter or application therefor in any
respect that would adversely affect its qualification or materially increase its
costs, (ii) currently comply in all material respects in form and in operation
with all applicable laws, including but not limited to ERISA and the Code and
have been operated and administered in accordance with their respective terms,
and (iii) have been operated so as to qualify, where appropriate, for both
Federal and state tax purposes, for income tax exclusions to its participants,
tax-exempt income for its funding vehicle and the allowance of deductions and
credits with respect to contributions thereto.
(d) Except as disclosed in Item 3.10 of the Company Disclosure Letter, no
Pension Plan that the Company or any of its subsidiaries maintains, or to which
the Company or any of its subsidiaries is obligated to contribute, other than
any Pension Plan that is a "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA; collectively, the "Multiemployer Pension Plans"),
had, as of the respective last annual valuation date for each such Pension Plan,
an "unfunded benefit liability" (as such term is defined in Section 4001(a)(18)
of ERISA), based on actuarial assumptions which have been furnished to Parent.
None of the Pension Plans has an "accumulated funding deficiency" (as such term
is defined in Section 302 of ERISA or Section 412 of the Code), whether or not
waived. None of the Company, any of its subsidiaries, any officer of the Company
or any of its subsidiaries or any of the Benefit Plans which are subject to
ERISA, including the Pension Plans, any trusts created thereunder or any trustee
or administrator thereof, has engaged in a "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) or any
other breach of fiduciary responsibility that could subject the Company, any of
its subsidiaries or any officer of the Company or any of its subsidiaries to any
material tax or penalty on prohibited transactions imposed by such Section 4975
or to any material liability under Section 502(i) or (1) of ERISA. None of such
Benefit Plans or trusts has been terminated, nor has there been any "reportable
event" (as that term is defined in Section 4043 of ERISA) with respect thereto,
during the last five years. Neither the Company nor any of its subsidiaries has
suffered or otherwise caused a "complete withdrawal", or a "partial withdrawal"
(as such terms are defined in Section 4203 and Section 4205, respectively, of
ERISA) since the effective date of such Sections 4203 and 4205 with respect to
any of the Multiemployer Pension Plans.
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(e) With respect to any Benefit Plan that is an employee welfare benefit
plan, except as disclosed in Item 3.10 of the Company Disclosure Letter, (i) no
such Benefit Plan is unfunded or funded through a "welfare benefits fund", as
such term is defined in Section 419(e) of the Code, (ii) each such Benefit Plan
that is a "group health plan", as such term is defined in Section 5000(b)(1) of
the Code, complies with the applicable requirements of Section 4980B(f) of the
Code or state continuation coverage laws and (iii) each such Benefit Plan
(including any such Plan covering retirees or other former employees) may be
amended or terminated without material liability to the Company or any of its
subsidiaries on or at any time after the consummation of the Merger.
SECTION 3.11. Contracts; Indebtedness. (a) Except as disclosed in the
Company Filed SEC Documents or as set forth in Item 3.11 of the Company
Disclosure Letter, there are no contracts or agreements that are material to the
business, properties, assets, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole. Neither the Company nor any
of its subsidiaries is in violation of or in default under (nor does there exist
any condition which upon the passage of time or the giving of notice would cause
such a violation of or default under) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or any other
contract, agreement, arrangement or understanding, to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that could not reasonably be expected to result in a material adverse
effect on the Company.
(b) Set forth in Item 3.11 of the Company Disclosure Letter is (i) a list
of all agreements, instruments and other obligations pursuant to which any
indebtedness for borrowed money or capitalized lease obligations of the Company
or any of its subsidiaries in an aggregate principal amount in excess of
$100,000 is outstanding or may be incurred and (ii) the respective principal
amounts outstanding thereunder.
SECTION 3.12. Litigation. As of the date of this Agreement, except as
disclosed in Item 3.12 of the Company Disclosure Letter there is no suit, claim,
action, proceeding or investigation pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries or any of
their respective properties that could reasonably be expected to have a material
adverse effect on the Company or prevent or materially delay the consummation of
the Merger. As of the date of this Agreement, neither the Company nor any of its
subsidiaries or any of their respective properties is subject to any outstanding
order, writ, injunction or decree that could reasonably be expected to have a
material adverse effect on the Company or prevent or materially delay the
consummation of the Merger.
SECTION 3.13. Compliance with Applicable Law. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders,
concessions, franchises, and approvals of all Governmental Entities necessary
for the lawful conduct of their respective businesses (the "Company Permits"),
except for failures to hold such permits, licenses, variances, exemptions,
orders, concessions, franchises and approvals that would not have a material
adverse effect on the Company or prevent or materially delay the consummation of
the Merger. The Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure so to comply would not have a
material adverse effect on the Company or prevent or materially delay the
consummation of the Merger. Except as disclosed in the Company Filed SEC
Documents, to the best knowledge of the Company, the businesses of the Company
and its subsidiaries are not being conducted in violation of any law, ordinance
or regulation of any Governmental Entity, except for possible violations that
would not have a material adverse effect on the Company or prevent or materially
delay the consummation of the Merger. Except as set forth in Item 3.13 of the
Company Disclosure Letter, as of the date of this Agreement, to the best
knowledge of the Company no investigation or review by any Governmental Entity
with respect to the Company or any of its subsidiaries is pending or threatened,
nor has any Governmental Entity indicated an intention to conduct any such
investigation or review, other than, in each case, those the outcome of which
would not be reasonably expected to have a material adverse effect on the
Company or prevent or materially delay the consummation of the Merger.
SECTION 3.14. Tax Matters. Except as set forth in Item 3.14 of the
Company Disclosure Letter:
(a) The Company and each of its subsidiaries has filed all Federal
income tax returns and all other material income tax returns and reports
required to be filed by it. The Company and each of its
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subsidiaries has paid (or the Company has paid on its subsidiaries' behalf)
all income taxes shown as due on such returns.
(b) No material income tax return of the Company or any of its
subsidiaries is under audit or examination by any taxing authority, and no
written notice of such an audit or examination has been received by the
Company or any of its subsidiaries. Each material deficiency resulting from
any audit or examination relating to income taxes by any taxing authority
has been paid, except for deficiencies being contested in good faith. No
material issues relating to income taxes were raised in writing by the
relevant taxing authority during any presently pending audit or
examination, and no material issues relating to income taxes were raised in
writing by the relevant taxing authority in any completed audit or
examination that can reasonably be expected to recur in a later taxable
period.
(c) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any income
taxes and no power of attorney with respect to any income taxes has been
executed or filed with any taxing authority.
(d) No material liens for taxes exist with respect to any assets or
properties of the Company or any of its subsidiaries, except for statutory
liens for taxes not yet due.
(e) None of the Company or any of its subsidiaries is a party to or is
bound by any tax sharing agreement, tax indemnity obligation or similar
agreement.
SECTION 3.15. State Takeover Statutes. The provisions of Section 5/11.75
of the IBCA are inapplicable to the Merger and this Agreement and the
transactions contemplated by this Agreement. To the best knowledge of the
Company, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement or any of the
transactions contemplated by this Agreement.
SECTION 3.16. Environmental Matters. (a) Except as set forth in Item 3.16
of the Company Disclosure Letter, neither the Company nor any of its
subsidiaries has (i) to the knowledge of the Company, placed, held, located,
released, transported or disposed of any Hazardous Substances (as defined below)
on, under, from or at any of the Company's or any of its subsidiaries'
properties or any other properties, other than in a manner that would not
reasonably be expected to result in a material adverse effect on the Company,
(ii) any knowledge or reason to know of the presence of any Hazardous Substances
on, under or at any of the Company's or any of its subsidiaries' properties or
any other property but arising from the Company's or any of its subsidiaries'
properties, other than in a manner that would not reasonably be expected to
result in a material adverse effect on the Company, or (iii) received any
written notice (A) of any violation of any statute, law, ordinance, regulation,
rule, judgment, decree or order of any Governmental Entity relating to any
matter of pollution, protection of the environment, environmental regulation or
control or regarding Hazardous Substances on, under or emanating from any of the
Company's or any of its subsidiaries' properties or any other properties
(collectively, "Environmental Laws"), (B) of the institution or pendency of any
suit, action, claim, proceeding or investigation by any Governmental Entity or
any third party in connection with any such violation, (C) requiring the
response to or remediation of Hazardous Substances at or arising from any of the
Company's or any of its subsidiaries' properties or any other properties or (D)
demanding payment for response to or remediation of Hazardous Substances at or
arising from any of the Company's or any of its subsidiaries' properties or any
other properties, except in each case for the notices set forth in Item 3.16 of
the Company Disclosure Letter and except for notices relating to matters that
are not material. For purposes of this Agreement, the term "Hazardous Substance"
shall mean any toxic or hazardous materials or substances, including asbestos,
buried contaminants, chemicals, flammable explosives, radioactive materials,
petroleum and petroleum products and any substances defined as, or included in
the definition of, "hazardous substances", "hazardous wastes," "hazardous
materials" or "toxic substances" under any Environmental Law.
(b) Except as set forth in Item 3.16 of the Company Disclosure Letter, no
Environmental Law imposes any obligation upon the Company or its subsidiaries
arising out of or as a condition to any transaction contemplated by this
Agreement including any requirement to modify or to transfer any permit or
license, any requirement to file any notice or other submission with any
Governmental Entity, the placement of any notice, acknowledgment or covenant in
any land records, or the modification of or provision of notice under any
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agreement, consent order or consent decree. No Lien has been placed upon any of
the Company's or it subsidiaries' properties under any Environmental Law.
SECTION 3.17. Real Property. Item 3.17 of the Company Disclosure Letter
contains a brief description of each parcel of real property owned by the
Company or its subsidiaries (the "Company Real Property") (showing the record
title holder, legal description, permanent index number, location, improvements,
the uses being made thereof and any indebtedness secured by a mortgage or other
encumbrance thereon) and of each option held by the Company or its subsidiaries
to acquire any real property.
SECTION 3.18. Leases. (a) Item 3.18 of the Company Disclosure Letter
contains (i) a list of each parcel of Company Real Property that is subject to
or encumbered by any lease (a "Company Lease"), and (ii) a list of each lease or
similar agreement under which the Company or any of its subsidiaries is lessee
of, or holds or operates, any real property owned by any third person, in each
case, which sets forth the parties to the lease, annual rental, expiration date,
renewal and purchase options, if any, uses being made thereof and the location
and legal description of the real property covered by such lease.
(b) Except as set forth in Item 3.18 of the Company Disclosure Letter, (i)
all rental payments due under each Company Lease have been paid during the
period from May 1, 1996 through August 31, 1996, and (ii) to the Company's
knowledge, no lessee is in material default, and no condition or event exists
which with the giving of notice or the passage of time, or both, would
constitute a material default by any lessee, under any Company Lease.
(c) The Company has delivered to Sub and Parent, or has given Sub and
Parent an opportunity to inspect, true, correct and complete copies of each
Company Lease and the copies so delivered or made available for inspection
constitute in each case the entire agreement of the parties thereto.
SECTION 3.19. Title to Property. Except as set forth in Item 3.19 of the
Company Disclosure Letter, the Company and its subsidiaries have good, and with
respect to the Company Real Property, marketable title to all of the material
assets reflected on the consolidated financial statements of the Company
included in the Company Filed SEC Documents as being owned by the Company or its
subsidiaries and all material assets thereafter acquired by the Company or its
subsidiaries (except to the extent that such assets have thereafter been
disposed of in the ordinary course of business consistent with past practice),
subject to no Liens.
SECTION 3.20. REIT Qualification. The Company (i) has elected to be taxed
as a real estate investment trust (a "REIT") within the meaning of the Code and
has qualified as a REIT at all times from January 22, 1962 through April 30,
1996, (ii) except for the transactions contemplated by this Agreement, has
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the period from May 1, 1996 through the day prior to the Effective
Time, and (iii) except for the transactions contemplated by this Agreement, has
not taken or omitted to take any action which is likely to result in a challenge
to its status as a REIT. Each of the wholly owned subsidiaries of the Company is
a "qualified REIT subsidiary", as defined in Section 856(i) of the Code.
SECTION 3.21. Required Vote. The affirmative vote of the holders of at
least two-thirds of the Shares outstanding is the only vote of the holders of
any class or series of capital stock of the Company necessary under applicable
law or otherwise to approve the Merger and this Agreement and the transactions
contemplated hereby.
SECTION 3.22. Brokers. No broker, investment banker, financial advisor or
other person, other than Lehman Brothers Inc., the fees and expenses of which
will be paid by the Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
SECTION 3.23. Opinion of Financial Advisor. The Company has received the
opinion of Lehman Brothers Inc., dated the date of this Agreement, to the effect
that, as of the date of this Agreement, the Merger Consideration to be received
in the Merger by the Company's shareholders is fair to the Company's
shareholders from a financial point of view, and such opinion has not been
withdrawn or modified.
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SECTION 3.24. Violations; Eminent Domain. Except as set forth in Item
3.24 of the Company Disclosure Letter, there are no pending, or to the Company's
knowledge, threatened (a) zoning, building, fire or health code violations or
violations of other governing requirements or regulations with respect to the
Company Real Property that have not previously been corrected, or (b) eminent
domain, condemnation or other governmental taking of the Company Real Property.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
SECTION 4.01. Organization. Parent is a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite limited liability company
power and authority to carry on its business as now being conducted. Sub is a
business trust duly organized, validly existing and in good standing under the
laws of the State of Illinois and has all requisite trust power and authority to
carry on its business as now conducted.
SECTION 4.02. Authority. Parent and Sub have requisite limited liability
company or trust power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary limited liability
company or trust action on the part of Parent and Sub (including approval of the
Merger and this Agreement by the board of directors of Parent) and no other
limited liability company or trust proceedings on the part of Parent and Sub are
necessary to authorize this Agreement or to consummate such transactions. No
vote of Parent's members is required to approve this Agreement or the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and Sub, as the case may be, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding obligation of each of Parent and Sub enforceable against them in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally and to
general principles of equity.
SECTION 4.03. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, the laws of the
State of Illinois, the laws of other states in which Parent is qualified to do
or is doing business and state takeover laws, neither the execution, delivery or
performance of this Agreement by Parent and Sub nor the consummation by Parent
and Sub of the transactions contemplated hereby will (i) conflict with or result
in any breach of any provision of the respective certificate of incorporation or
declaration of trust or bylaws of Parent and Sub, (ii) require any filing with,
or permit, authorization, consent or approval of, any Governmental Entity
(except where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not be reasonably expected to prevent or
materially delay the consummation of the Merger), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any loan or
credit agreement, note, bond, mortgage, indenture, permit, concession,
franchise, license, lease, contract, agreement or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of its
subsidiaries or any of their properties or assets, except in the case of clauses
(iii) and (iv) for violations, breaches or defaults which would not,
individually or in the aggregate, be reasonably expected to prevent or
materially delay the consummation of the Merger.
SECTION 4.04. Information Supplied. None of the information supplied or
to be supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will, at the time the Proxy Statement is first
mailed to the Company's shareholders or at the time of the Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein
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or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 4.05. Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.06. Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or Sub.
SECTION 4.07. Financing. (a) Parent has on hand or available through
committed bank facilities all funds necessary to purchase all of the Shares
pursuant to the Merger and to pay all fees and expenses related to the
transactions contemplated by this Agreement. True and correct copies of all such
financing commitments have been furnished to the Company.
(b) Parent has liquid net assets of at least $25 million as of the date
hereof and will have at least such amount of liquid net assets at all times
while this Agreement is in effect up to and including the date funds are
deposited into the Payment Fund by Parent in an amount necessary to pay the
Merger Consideration and the date funds are made available to the Surviving
Company to pay the Option Consideration.
SECTION 4.08. Litigation. As of the date of this Agreement except as
disclosed in Item 4.08 of letter from Parent to the Company dated the date
hereof, which letter relates to this Agreement and is designated therein as the
Parent Disclosure Letter (the "Parent Disclosure Letter"), there is no suit,
claim, action, proceeding or investigation pending or, to the best knowledge of
Parent, threatened against Parent or any of its subsidiaries that could
reasonably be expected to prevent or materially delay the consummation of the
Merger. As of the date of this Agreement, neither Parent nor any of its
subsidiaries is subject to any outstanding order, writ, injunction or decree
that could reasonably be expected to prevent or materially delay the
consummation of the Merger.
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of the Company. Except as set forth on Item 5.01
of the Company Disclosure Letter, during the period from the date of this
Agreement through the Effective Time, the Company agrees as to itself and its
subsidiaries that (except as expressly contemplated or permitted by this
Agreement, or to the extent that Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted and shall use all reasonable efforts to preserve intact their
present business organizations, keep available the services of their
present officers and key employees and preserve their relationships with
persons having business dealings with the Company and its subsidiaries.
(b) Dividends; Changes in Stock. The Company shall not, and shall
not permit any of its subsidiaries to, (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock except
for dividends by a direct or indirect wholly owned subsidiary of the
Company to its parent or regular quarterly dividends on the Shares in an
amount not to exceed $.08 per Share for the dividend payable on December 1,
1996 and $.10 per Share for each regular quarterly dividend thereafter,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities, except
the redemption of the Rights pursuant to Section 6.10.
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(c) Issuance of Securities. The Company shall not and shall not
permit any of its subsidiaries to, issue, deliver, sell, pledge or
encumber, or authorize or propose the issuance, delivery, sale, pledge or
encumbrance of, any shares of its capital stock of any class or any
securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any
other ownership interest (including stock appreciation rights or phantom
stock), other than the issuance of Shares upon the exercise of Company
Stock Options outstanding on the date of this Agreement, the issuance to
trustees of the Company of options to purchase an aggregate of 3,500 Shares
pursuant the 1988 Trustee's Stock Option Plan and the issuance of Shares
upon the exercise of Rights pursuant to the Rights Agreement.
(d) Governing Documents. Except for the Trust Amendment, the Company
shall not, and shall not permit any of its subsidiaries to, amend or
propose to amend its Declaration of Trust or articles of incorporation or
bylaws (or similar organizational documents).
(e) No Acquisitions. The Company shall not, and shall not permit any
of its subsidiaries to, acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, limited liability company, joint venture,
association, trust or other business organization or division thereof or
(ii) any asset having a value in excess of $25,000 or any assets having an
aggregate value in excess of $250,000, except U.S. Treasury securities with
maturities of less than one year.
(f) No Dispositions. Other than dispositions in the ordinary course
of business consistent with past practice which are not material to the
Company and its subsidiaries taken as a whole, the Company shall not, and
shall not permit any of its subsidiaries to, sell, lease, license, encumber
or otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of its assets.
(g) Indebtedness. The Company shall not, and shall not permit any of
its subsidiaries to, (i) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any of
its subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for working capital
borrowings incurred in the ordinary course of business consistent with past
practice, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than (A) to the Company or any
direct or indirect wholly owned subsidiary of the Company or (B) any
advance to employees in accordance with past practice.
(h) Advice of Changes; Filings. The Company shall promptly advise
Parent of any material adverse change with respect to the Company. The
Company shall provide to Parent (or its counsel) copies of all filings made
by the Company with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
(i) Tax Matters. The Company shall not make any tax election that
would have a material effect on the tax liability of the Company or any of
its subsidiaries. The Company shall, before filing or causing to be filed
any material income tax return of the Company or any of its subsidiaries,
consult with Parent and its advisors as to the positions and elections that
may be taken or made with respect to such return, and shall take such
positions or make such elections as the Company and Parent shall jointly
agree or, failing such agreement, shall take positions or make elections
consistent with its past practices.
(j) Capital Expenditures. Neither the Company nor any of its
subsidiaries shall make or agree to make any new capital expenditure or
expenditures that, individually, exceeds $25,000 or, in the aggregate,
exceed $500,000.
(k) Discharge of Liabilities. The Company shall not, and shall not
permit any of its subsidiaries to, pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, in the ordinary course of business consistent
with past practice or in accordance with their terms, of liabilities
recognized or disclosed in the most recent consolidated financial
statements (or the notes thereto) of the
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Company included in the Company Filed SEC Documents or incurred since the
date of such financial statements in the ordinary course of business
consistent with past practice.
(l) Material Contracts. Except in the ordinary course of business,
neither the Company nor any of its subsidiaries shall (i) enter into,
modify in any material respect, amend in any material respect or terminate
any material contract or agreement to which the Company or such subsidiary
is a party or (ii) waive, release or assign any material rights or claims.
(m) Employee Matters. Neither the Company nor any of its subsidiaries
shall (i) grant any increases in the compensation of any of its trustees or
directors, officers or key employees, except for increases required under
employment agreements existing on the date hereof, and increases for
officers and employees in the ordinary course of business consistent with
past practice that, in any event, do not increase such officer's or
employee's aggregate compensation by more than 5% over such employee's
aggregate compensation in effect on the date hereof, (ii) pay or agree to
pay any pension retirement allowance or other employee benefit not required
or contemplated by any of the existing Benefit Plans as in effect on the
date hereof to any such trustee or director, officer or key employee,
whether past or present, (iii) enter into any new, or materially amend any
existing, employment, severance or termination agreement with any such
trustee or director, officer or key employee or (iv) except as required to
comply with applicable law, become obligated under any new Benefit Plan
which was not in existence on the date hereof, or amend any such plan or
arrangement in existence on the date hereof if such amendment would have
the effect of enhancing any benefits thereunder. The Company shall provide
Parent with copies of any amendments to any Benefit Plan prior to the
Effective Time.
(n) Accounting. The Company shall not adopt any material change,
other than in the ordinary course of business consistent with past practice
or as required by the SEC or by law, in its accounting policies, procedures
or practices.
(o) Agreement with respect to Chicago Music and Dance Theater,
Inc. The Company acknowledges its right to repurchase certain property
subject and pursuant to that certain Agreement of Sale and Purchase between
the Company and Chicago Music and Dance Theater, Inc. dated as of August
31, 1994, as amended (the "Theater Agreement"). The Company shall neither
exercise any such right to repurchase the subject property nor modify or
amend the Theater Agreement in any respect without the prior consent of
Parent, which consent shall not be unreasonably withheld.
In the event the Company shall request Parent to consent in writing to an
action otherwise prohibited by this Section 5.01, Parent shall use its
reasonable best efforts to respond in a prompt and timely fashion, but may
otherwise respond affirmatively or negatively in its sole discretion.
SECTION 5.02. No Solicitation. (a) The Company and its subsidiaries and
their respective officers, trustees, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, financial
advisor, attorney or accountant retained by the Company or any of its
subsidiaries) shall immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Takeover Proposal (as hereinafter
defined). The Company shall not, nor shall it permit any of its subsidiaries to,
and it shall use its best efforts to cause its officers, trustees, employees,
agents, affiliates or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its subsidiaries not
to, directly or indirectly, (i) solicit, initiate or knowingly encourage
(including by way of furnishing information, other than the Company SEC
Documents), or knowingly take any other action to facilitate, any inquiries or
the making of any proposal which constitutes, or would reasonably be expected to
lead to, any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if the
trustees of the Company determine in good faith, after consultation with the
Company's outside counsel, that such action is necessary in order for the
trustees of the Company to comply with their fiduciary duties to the Company's
shareholders under applicable law, the Company may, in response to an
unsolicited Takeover Proposal, and subject to compliance with Section 5.02(c),
(x) furnish information with respect to the Company to any person pursuant to a
confidentiality agreement containing terms no less favorable to the Company than
the form entered into between the Company and Parent and (y) participate in
negotiations regarding such Takeover Proposal. For purposes of this Agreement,
"Takeover Proposal" means any inquiry,
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proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 10% or more of the assets of the Company and its subsidiaries
taken as a whole or 10% or more of any class of equity securities of the Company
or any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 10% or more of any
class of equity securities of the Company or any of its subsidiaries, or any
merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by this Agreement.
(b) Except as set forth in this Section 5.02, neither the trustees of the
Company nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by such trustees or such committee of the Merger or this
Agreement, (ii) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each,
an "Acquisition Agreement") with respect to any Takeover Proposal.
Notwithstanding the foregoing, in the event that the trustees of the Company
determine in good faith, after consultation with the Company's outside counsel,
that such action is necessary in order for the trustees of the Company to comply
with their fiduciary duties to the Company's shareholders under applicable law,
the trustees of the Company may (subject to the following sentences) withdraw or
modify their approval or recommendation of the Merger and this Agreement (or not
recommend it before the Proxy Statement is sent to shareholders), approve or
recommend a Superior Proposal (as defined below) or terminate this Agreement,
but in each case only at a time that is after the third business day following
Parent's receipt of written notice (a "Notice of Superior Proposal") advising
Parent that the trustees of the Company have received a Superior Proposal and
specifying the material terms and conditions of such Superior Proposal. In
addition, if the Company proposes to terminate this Agreement, it shall upon
such times set forth in Section 6.05(b) pay to Parent the Expenses and
Termination Fee (each as defined in Section 6.05(b)). For purposes of this
Agreement, a "Superior Proposal" means any bona fide proposal, not subject to
any material financing contingency, made by a third party to acquire, directly
or indirectly, for consideration consisting of cash and/or securities, all of
the Shares then outstanding or all or substantially all the assets of the
Company and otherwise on terms which the trustees of the Company determine in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
shareholders than the Merger.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 5.02, the Company shall promptly advise Parent of
any request for information (other than the Company SEC Documents) or of any
Takeover Proposal and the material terms and conditions of such request or
Takeover Proposal.
(d) Nothing contained in this Section 5.02 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the trustees of the
Company, after consultation with the Company's outside counsel, failure so to
disclose would be inconsistent with their fiduciary duties to the Company's
shareholders under applicable law; provided, however, neither the Company nor
its trustees nor any committee thereof shall, except as permitted by Section
5.02(b), withdraw or modify, or propose to withdraw or modify, its or their
position with respect to this Agreement or the Merger or approve or recommend,
or propose to approve or recommend, a Takeover Proposal.
SECTION 5.03. Other Actions. The Company shall not, and shall not permit
any of its subsidiaries to, take any action that would, or that could reasonably
be expected to, result in (i) any of the representations and warranties of the
Company set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect, or (iii) any of the
conditions set forth in Section 7.01 or Section 7.03 not being satisfied
(subject to the Company's right to take actions specifically permitted by
Section 5.02).
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Shareholder Approvals; Preparation of Proxy
Statement. (a) The Company shall as soon as practicable following the date
hereof, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Shareholders Meeting") for the purpose of obtaining the
Company Shareholder Approvals. The Company shall, through its trustees,
recommend to its shareholders that the Company Shareholder Approvals be given;
provided, that in the event that the trustees of the Company determine in good
faith, after consultation with the Company's outside counsel, that such action
is necessary in order for the trustees of the Company to comply with their
fiduciary duties to the Company's shareholders under applicable law, the
trustees of the Company may decline to make such recommendation.
(b) The Company shall as soon as practicable following the date hereof,
prepare and file a preliminary Proxy Statement with the SEC and shall use its
reasonable efforts to respond to any comments of the SEC or its staff and cause
the Proxy Statement to be mailed to the Company's shareholders as promptly as
practicable after responding to all such comments to the satisfaction of such
staff. Parent shall as soon as practicable following the date hereof supply such
information for inclusion in the Proxy Statement as shall reasonably be
requested by the Company. The Company shall notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information, will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger and will cooperate with Parent and its representatives in the preparation
of any responses to such correspondence. If at any time prior to the
Shareholders Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company shall promptly
prepare and mail to its shareholders such an amendment or supplement. The
Company shall give Parent and its counsel the opportunity to review any Proxy
Statement, or any amendment or supplement thereto, prior to its being filed with
the SEC.
(c) At the Shareholders Meeting, Parent agrees to cause all Shares owned by
Parent or any affiliate of Parent to be voted in favor of the Company
Shareholder Approvals.
SECTION 6.02. Access to Information. Upon reasonable notice and subject
to restrictions contained in confidentiality agreements to which the Company is
subject, the Company shall, and shall cause each of its subsidiaries to, afford
to Parent and to the officers, employees, accountants, counsel and other
representatives of Parent (including, without limitation, surveyors, structural
engineers, appraisers and other consultants) access, during normal business
hours during the period prior to the Effective Time, to all their respective
properties, books, contracts, commitments and records and, during such period,
the Company shall (and shall cause each of its subsidiaries to) furnish promptly
to Parent (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirement
of the Federal or state securities laws or the Federal tax laws and (b) all
other information concerning its business, properties and personnel as Parent
may reasonably request. Notwithstanding anything contained herein to the
contrary, the Company shall not be required to provide access to its properties
for the purpose of enabling Parent or its authorized representatives to conduct
further environmental-related tests, observations, reviews, surveys or soil
borings or otherwise cooperate with Parent or any of its representatives with
respect to any of the same. Except as otherwise agreed to by the Company, unless
and until the consummation of the Merger, and notwithstanding termination of
this Agreement, the terms of the Confidentiality Agreement dated as of June 26,
1996 between MCL Construction Corporation, an affiliate of Parent, and the
Company (the "Confidentiality Agreement"), which Parent has agreed to be bound
by pursuant to the letter agreement dated as of December 2, 1996 from Parent to
the Company, shall apply to all information furnished thereunder or hereunder.
SECTION 6.03. Reasonable Efforts. Each of the Company, Parent and Sub
agree to use its reasonable efforts to take, or cause to be taken, all actions
necessary to comply promptly with all legal requirements that may be imposed on
itself with respect to the Merger (which actions shall include furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other
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Governmental Entity) and shall promptly cooperate with and furnish information
to each other in connection with any such requirements imposed upon any of them
or any of their subsidiaries in connection with the Merger. Each of the Company,
Parent and Sub shall, and shall cause its subsidiaries to, use its reasonable
efforts to take all reasonable actions necessary to obtain (and shall cooperate
with each other in obtaining) any consent, authorization, order or approval of,
or any exemption by, any Governmental Entity or other public or private third
party required to be obtained or made by Parent, Sub, the Company or any of
their subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement, except that no party need waive any
substantial rights or agree to any substantial limitation on its operations or
to dispose of any assets.
SECTION 6.04. Company Stock Options. At the Effective Time, each holder
of a then outstanding Company Stock Option, whether or not then exercisable,
shall, in settlement thereof and without any action by such holder, be deemed to
have made a disposition of such Company Stock Option to the Company and shall
receive from the Company for each Share subject to such Company Stock Option an
amount (subject to any applicable withholding tax) in cash equal to the excess,
if any, of the Merger Consideration over the per Share exercise price of such
Company Stock Option (such amount being hereinafter referred to as the "Option
Consideration"); provided, however, that with respect to any person subject to
Section 16(a) of the Exchange Act who may incur liability as a result of such
disposition, any such disposition shall be made, and any such amount shall be
paid, as soon as practicable after the first date payment can be made without
liability to such person under Section 16(b) of the Exchange Act. Any option to
purchase Shares which prior to the date hereof has ceased to be exercisable by
reason of the termination of employment or service with the Company of any
employee or trustee of the Company shall not be deemed to be an outstanding
Company Stock Option for purposes of this Section 6.04. Upon receipt of the
Option Consideration, each Company Stock Option shall be canceled. The
disposition of any Company Stock Option to the Company in exchange for the
Option Consideration shall be deemed a release of any and all rights the holder
had or may have had in respect of such Company Stock Option. Prior to the
Effective Time, the Company shall use its best efforts to obtain all necessary
consents or releases from holders of Company Stock Options and to take all such
other lawful action as may be necessary to give effect to the transactions
contemplated by this Section 6.04 (except for such action that may require the
approval of the Company's shareholders). Except as otherwise agreed to by the
parties, (a) the Company's 1982, 1986, 1988, 1991 and 1993 Employees' Stock
Option Plans and 1988 and 1993 Trustee's Stock Options Plans shall terminate as
of the Effective Time and the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company shall be canceled as of the Effective Time
and (b) the Company shall take all action necessary to ensure that following the
Effective Time no participant in the Company's 1982, 1986, 1988, 1991 and 1993
Employees' Stock Option Plans and 1988 and 1993 Trustees' Stock Option Plans or
other plans, programs or arrangements shall have any right thereunder to acquire
equity securities of the Company, the Surviving Company or any subsidiary of the
Company or the Surviving Company and to terminate all such plans, programs or
arrangements.
SECTION 6.05. Fees and Expenses. (a) Except as provided below in this
Section 6.05, all fees and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such fees or expenses, whether or not the Merger is
consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to Parent
the sum of (x) the Expenses (as hereinafter defined) and (y) $3,500,000 (the
"Termination Fee") under the circumstances and at the times set forth as
follows:
(i) if Parent or Sub terminates this Agreement under Section 8.01(e),
and at the time of such termination there is no pending Takeover Proposal,
the Company shall pay the Expenses and the Termination Fee upon demand;
(ii) if Parent or Sub terminates this Agreement under Section 8.01(e)
and at the time of such termination a Takeover Proposal shall then be
pending, the Company shall pay the Expenses, upon demand; in addition, if
within twelve months after such termination, the Company shall enter into
an
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Acquisition Agreement providing for a Takeover Proposal or a Takeover
Proposal shall be consummated, the Company shall pay the Termination Fee
concurrently with the earlier of the entering into of such Acquisition
Agreement or the consummation of such Takeover Proposal;
(iii) if the Company terminates this Agreement under Section 8.01(f),
the Company shall pay the Expenses concurrently therewith; in addition, if
within twelve months after such termination, the Company shall enter into
an Acquisition Agreement providing for a Takeover Proposal or a Takeover
Proposal shall be consummated, the Company shall pay the Termination Fee
concurrently with the earlier of the entering into of such Acquisition
Agreement or the consummation of such Takeover Proposal; and
(iv) if, at the time of any other termination of this Agreement (other
than (A) a termination by the Company pursuant to Section 8.01(g) or (B)
provided that the Company is not at the time of such termination in breach
of its obligations under Section 5.02 or Section 6.03, a termination
pursuant to Section 8.01(a), Section 8.01(b)(i) or Section 8.01(b)(iii)), a
Takeover Proposal shall have been made (other than a Takeover Proposal made
prior to the date hereof), the Company shall pay the Expenses, if
terminated by the Company, concurrently therewith or, if terminated by
Parent, upon demand; in addition, if within twelve months of such
termination, the Company shall enter into an Acquisition Agreement
providing for a Takeover Proposal or a Takeover Proposal shall be
consummated, the Company shall pay the Termination Fee concurrently with
the earlier of the entering into of such Acquisition Agreement or the
consummation of such Takeover Proposal.
"Expenses" shall mean documented out-of-pocket fees and expenses up to an
aggregate $750,000 incurred prior to any termination of this Agreement or
otherwise paid by or on behalf of Parent or Sub in connection with the Merger or
the consummation of any of the transactions contemplated by this Agreement,
including all fees and expenses of law firms, commercial banks, investment
banking firms, accountants, experts and consultants to Parent or Sub. In no
event shall more than one Termination Fee be payable.
SECTION 6.06. Indemnification; Directors and Officers Insurance. (a) The
declaration of trust and bylaws of the Surviving Company shall contain the
provisions with respect to indemnification set forth in the Declaration of Trust
and Bylaws of the Company on the date of this Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of persons who at any time prior to the Effective Time were
identified as prospective indemnitees under the Declaration of Trust or Bylaws
of the Company in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement), unless such modification is required by law.
(b) From and after the Effective Time, the Surviving Company shall
indemnify, defend and hold harmless the present and former officers, trustees or
directors, agents and employees of the Company and its subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of, with the
approval of Parent and the Surviving Company (which approval shall not be
unreasonably withheld), or otherwise in connection with, any claim, action,
suit, proceeding or investigation (a "Claim"), based in whole or in part on or
pertaining to (i) the fact that such person is or was such a trustee or
director, officer, agent or employee of the Company or any subsidiary and
arising out of actions or omissions occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement) or (ii) the Prior
Merger Agreement and all actions by any Indemnified Party in connection
therewith, in each case to the fullest extent permitted under the laws of the
State of Illinois and the Declaration of Trust (and, from and after the
Effective Time, shall pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the fullest extent
permitted by the Declaration of Trust and the laws of the State of Illinois,
upon receipt from the Indemnified Party to whom expenses are advanced of the
undertaking to repay such advances contemplated by the Declaration of Trust).
Parent hereby guarantees the Surviving Company's obligations to the Indemnified
Parties pursuant to this Section 6.06.
(c) Parent will provide, or cause the Surviving Company to provide, for a
period of not less than six years after the Effective Time, the Company's
current trustees and officers an insurance and indemnification policy
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(copies of which shall be provided to such trustees and officers prior to the
Closing Date) that provides coverage for events occurring at or prior to the
Effective Time (the "D&O Insurance") that is no less favorable than the
Company's existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that Parent and the
Surviving Company shall not be required to pay an annual premium for the D&O
Insurance in excess of one and one-half times the last annual premium paid by
the Company prior to the date hereof, but in such case shall purchase as much
such coverage as possible for such amount.
(d) This Section 6.06 shall survive the consummation of the Merger and is
intended to be for the benefit of, and shall be enforceable by, the Indemnified
Parties referred to herein, their heirs and personal representatives and shall
be binding on Parent and Sub and the Surviving Company and their respective
successors and assigns.
SECTION 6.07. Obligations of Sub. Subject to the terms and conditions set
forth in this Agreement, Parent shall take all actions necessary to cause Sub to
perform its obligations under this Agreement and to consummate the Merger on the
terms and conditions set forth in this Agreement.
SECTION 6.08. Certain Litigation. The Company agrees that it shall not
settle any litigation commenced after the date hereof against the Company or any
of its trustees by any shareholder of the Company relating to the Merger or this
Agreement, without the prior written consent of Parent. In addition, the Company
shall not voluntarily cooperate with any third party that may hereafter seek to
restrain or prohibit or otherwise oppose the Merger and shall cooperate with
Parent and Sub to resist any such effort to restrain or prohibit or otherwise
oppose the Merger, unless the trustees of the Company determine in good faith,
after consultation with the Company's outside counsel, that failing so to
cooperate with such third party or cooperating with Parent or Sub, as the case
may be, would be inconsistent with their fiduciary duties under applicable law.
SECTION 6.09. Severance Policy and Other Agreements. (a) With respect to
any officer who is covered by a severance policy separate from the standard
severance policy for the Company's employees (which separate severance policy is
described in Item 6.09 of the Company Disclosure Letter), Parent shall maintain
(or shall cause the Surviving Company to maintain) such separate policy as in
effect as of the Effective Time until the first anniversary of the Effective
Time, and, as to all other officers and employees, Parent shall maintain (or
shall cause to be maintained) the Company's standard severance policy as in
effect as of the Effective Time for a period of at least six months from the
Effective Time.
(b) Parent shall honor or cause to be honored all severance agreements,
employment agreements, death benefit agreements and non-competition agreements
with the Company's officers and employees disclosed in Item 6.09 of the Company
Disclosure Letter.
(c) Parent and its subsidiaries shall, until the first anniversary of the
Effective Time, provide reasonable and customary outplacement services
("Outplacement Services") to employees of the Company whose employment is
terminated without cause, which Outplacement Services provided to such employees
shall include one-on-one counseling and assistance.
SECTION 6.10. Redemption of Rights. The Company shall take all actions
necessary to redeem the Rights pursuant to the terms of the Rights Agreement
effective immediately prior to the Effective Time, provided, that this Agreement
has not been terminated prior thereto in accordance with its terms.
SECTION 6.11. Payment of Certain Fees and Expenses. Parent hereby
acknowledges that the Company has terminated the Prior Merger Agreement and that
as a result of such termination and the execution of this Agreement the Company
has become liable to Newsweb for a fee equal to $3,500,000 (the "Breakup Fee")
and up to an aggregate of $750,000 of Expenses (as defined in Section 6.05(b) of
the Prior Merger Agreement) (the "Breakup Expenses"). In addition, Parent agrees
that liability for and payment of the Breakup Fee and the Breakup Expenses by
the Company shall not be deemed a breach of any representation or warranty,
covenant or agreement or a failure to comply with any condition to the Merger
contained in this Agreement.
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ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Company Shareholder Approvals. The Company Shareholder Approvals
shall have been obtained.
(b) HSR Period. The waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(c) No Injunctions Or Restraints. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used reasonable
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any injunction or other order that may be
entered.
(d) Trust Amendment. The Amendment set forth in Exhibit I hereto (the
"Trust Amendment") of the Amended and Restated Declaration Trust (as
amended and in effect on the date of this Agreement) shall have been
approved by the holders of at least two-thirds of the Shares outstanding
and entitled to vote thereon at the Shareholders Meeting and the Trust
Amendment shall have been duly filed with the Recorder of Deeds of Cook
County, Illinois.
SECTION 7.02. Conditions to the Company's Obligation to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Parent
and Sub shall have performed in all material respects each of their
obligations and complied in all material respects with each of their
agreements and covenants contained in this Agreement required to be
performed or complied with on or prior to the Closing Date, each of the
representations and warranties of Parent and Sub contained in this
Agreement that is qualified by materiality shall be true and correct on and
as of the Closing Date as if made on and as of such date (other than to the
extent that any such representation and warranty, by its terms, is
expressly limited to a specific date, in which case such representation and
warranty shall be true and correct as of such date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Closing Date as if made
on and as of such date (other than to the extent that any such
representation and warranty, by its terms, is expressly limited to a
specific date, in which case such representation and warranty shall be true
and correct as of such date), in each case except as contemplated or
permitted by this Agreement.
(b) Officer's Certificate. Parent shall have furnished to the Company
a certificate, dated the Closing Date, signed on behalf of Parent by an
appropriate officer of Parent, certifying to the effect that the conditions
set forth in this Section 7.02, insofar as they relate to Parent, have been
satisfied in full.
(c) Other Documents. Parent and Sub shall have furnished to the
Company at the closing of the Merger such other customary documents,
certificates or instruments as the Company may reasonably request
evidencing compliance by Parent and Sub with the terms of this Agreement.
(d) Fairness Opinion. The opinion received by the Company from Lehman
Brothers Inc., dated the date of this Agreement, to the effect that the
Merger Consideration to be received in the Merger by the Company's
shareholders is fair to the Company's shareholders from a financial point
of view shall not have been withdrawn or modified.
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(e) Tax Opinion. Parent shall have furnished to the Company the
opinion of Parent's counsel, in form and substance satisfactory to the
Company, and containing customary qualifications, limitations and
assumptions for opinions of this nature, to the effect that for Federal
income tax purposes:
(i) the Merger will be treated as a sale by the Company of all its
assets to Sub for the Merger Consideration and the assumption of the
Company's liabilities, followed by the distribution of the Merger
Consideration by the Company to the Company's shareholders in complete
liquidation of the Company;
(ii) as to whether gain or loss will be recognized by each of the
Company's shareholders measured by the difference between (x) the amount
of Merger Consideration received by such shareholder and (y) such
shareholder's adjusted basis in its Shares of the Company; and
(iii) no portion of the Merger Consideration received by the
Company's shareholders will be treated as a distribution described in
Section 301 of the Code.
SECTION 7.03. Conditions to the Parent's and Sub's Obligations to Effect
the Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
additional conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
obligations and complied in all material respects with each of its
agreements and covenants contained in this Agreement required to be
performed or complied with on or prior to the Closing Date, each of the
representations and warranties of the Company contained in this Agreement
that is qualified by materiality shall be true and correct on and as of the
Closing Date as if made on and as of such date (other than to the extent
that any such representation and warranty, by its terms, is expressly
limited to a specific date, in which case such representation and warranty
shall be true and correct as of such date) and each of the representations
and warranties that is not so qualified shall be true in all material
respects on and as of the Closing Date as if made on and as of such date
(other than to the extent that any such representation and warranty is, by
its terms, expressly limited to a specific date, in which case such
representation and warranty shall be true and correct as of such date), in
each case except as contemplated or permitted by this Agreement.
(b) Absence of Certain Changes. Since the date of this Agreement,
there shall have occurred no material adverse change with respect to the
Company, other than changes relating to the Company's industry or the
economy in general and not specifically related to the Company and its
subsidiaries and changes described in Item 7.03(b) of the Company
Disclosure Letter. Each of Parent and Sub acknowledges that there may be
disruptions to the Company's business as a result of the announcement of
the Merger and any changes attributable thereto shall not constitute a
material adverse change.
(c) Officer's Certificate. The Company shall have furnished to Parent
a certificate, dated the Closing Date, signed by an appropriate officer of
the Company, certifying to the effect that the conditions set forth in this
Section 7.03, insofar as they relate to the Company, have been satisfied.
(d) Estoppel Certificates. To the extent the Company is entitled to
receive same under the terms of the agreements specified in Item 7.03(d) of
the Company Disclosure Letter, the Company shall have furnished to Parent
estoppel certificates addressed to Parent and Sub, dated not more than 30
days prior to the Closing Date from the persons listed in Item 7.03(d) of
the Company Disclosure Letter, in the form required under the terms of such
agreements to be delivered by each such person.
(e) Consent. The Company shall have obtained consents to the Merger
from each of the persons described in Item 7.03(e) of the Company
Disclosure Letter.
(f) Other Documents. The Company shall have furnished to Parent at the
closing of such Merger such other customary documents, certificates or
instruments as Parent may reasonably request evidencing compliance by the
Company with the terms of this Agreement.
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ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the Shareholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the consummation of the Merger and such order,
decree or ruling or other action shall have become final and
nonappealable;
(ii) if, at the Shareholders Meeting (including any adjournment
thereof) (x) this Agreement and the Merger or (y) the Trust Amendment
shall fail to be adopted and approved by the requisite vote of the
shareholders of the Company;
(iii) if the Merger shall not have been consummated on or before
May 31, 1997, unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement;
(c) by Parent or Sub, if the Company shall have failed to perform in
any material respect any material obligation or to comply in any material
respect with any material agreement or covenant of the Company to be
performed or complied with by it under this Agreement, which failure cannot
be or has not been cured within 20 business days after the giving of
written notice thereof to the Company;
(d) by Parent or Sub, if there has been a breach of any of the
representations and warranties of the Company set forth in this Agreement
that are qualified as to materiality or there has been a material breach of
any such representations and warranties that are not so qualified, in each
case which breach cannot be or has not been cured within 20 business days
after the giving of written notice thereof to the Company;
(e) by Parent or Sub, if (i) the trustees of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Sub their approval or recommendation of the Merger or this
Agreement, or approved or recommended any Takeover Proposal or (ii) the
trustees of the Company or any committee thereof shall have resolved to do
any of the foregoing;
(f) by the Company in accordance with Section 5.02(b), provided it has
complied with all provisions thereof, including the notice provisions
therein, and that it complies with applicable requirements relating to the
payment (to the extent required to be paid upon such termination) of the
Expenses and the Termination Fee; or
(g) by the Company, if Sub or Parent shall have (i) failed to perform
in any material respect any material obligation or to comply in any
material respect with any material agreement or covenant of Sub or Parent
to be performed or complied with by it under this Agreement or (ii)
breached in any material respect any of their respective representations or
warranties contained in this Agreement, which failure or breach described
in clause (i) or (ii) above is incapable of being cured or has not been
cured within 20 business days after the giving of written notice thereof to
Parent or Sub, as applicable.
SECTION 8.02. Effect of Termination. In the event of a termination of
this Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to Section 3.22, Section 4.06, the
last sentence of Section 6.02, Section 6.05, this Section 8.02 and Article IX;
provided, however, that nothing herein shall relieve any party for liability for
any breach hereof.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective trustees or board of
directors at any time before or after obtaining the
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Company Shareholder Approvals (if required by law or the Declaration of Trust),
but, after any such approval, no amendment shall be made which by law or the
Declaration of Trust requires further approval by such Shareholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective trustees
or board of directors, may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Nonsurvival of Representations, Warranties and
Agreements. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 9.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time of the
Merger.
SECTION 9.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Sub, to
CityFront Center, L.L.C.
1337 West Fullerton
Chicago, Illinois 60614
Attention: Daniel E. McLean
Telecopy No.: 312/525-3823
with a copy to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
Suite 2900
Chicago, Illinois 60601
Attention: David A. Grossberg
Telecopy No.: 312/207-6400
(b) if to the Company, to
The Chicago Dock and Canal Trust
455 E. Illinois Street, Suite 565
Chicago, Illinois 60611
Attention: Charles R. Gardner
Telecopy No.: 312/467-9647
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with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Larry A. Barden
Telecopy No: 312/853-7036
and:
Wilson & McIlvaine
500 Madison Street, #3700
Chicago, Illinois 60661
Attention: Michael F. Csar
Telecopy No: 312/715-5155
SECTION 9.03. Interpretation. When a reference is made in this Agreement
to an Article or a Section, such reference shall be to an Article or a Section
of this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. As used in this Agreement, the term "subsidiary" of any person
means another person, an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if there are no
such voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first person. As used herein, "knowledge," as it
relates to the Company, means, with respect to any matter, that any executive
officer or trustee of the Company has actual knowledge of such matter. As used
in this Agreement, "material adverse change" or "material adverse effect" means,
when used in connection with the Company, any change or effect (or any
development that, insofar as can reasonably be foreseen is likely to result in
any change or effect) that, individually or in the aggregate with any such other
changes or effects, is materially adverse to the business, properties, assets,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole; provided, however, that in determining whether a material
adverse effect has occurred there shall be excluded any effect on the Company
and its subsidiaries caused by, relating to or arising out of the actions taken
or omitted to be taken by the Company and its officers, trustees, employees,
representatives and agents in connection with the Company's pursuit, prior to
the date hereof, of strategic alternatives other than a business combination
transaction with Parent or any of its affiliates (including without limitation
the execution of the Prior Merger Agreement and the other documents executed in
connection therewith and any actions taken in connection therewith or in respect
thereof), in each case including without limitation all attorneys', investment
bankers', accountants' and other fees and expenses incurred in connection
therewith or as a result of any actions, suits or proceedings relating thereto.
SECTION 9.04. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 9.05. Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the Confidentiality Agreement and the other documents and
the instruments referred to herein) (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Sections 6.04, 6.06, and 6.09, are not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
SECTION 9.06. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Illinois without regard to
any applicable conflicts of law.
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SECTION 9.07. Publicity. Except as otherwise required by law or the rules
of the Nasdaq Stock Market, for so long as this Agreement is in effect, neither
the Company nor Parent shall, or shall permit any of its subsidiaries to, issue
or cause the publication of any press release or other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
SECTION 9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Parent may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
Affiliate of Parent, provided Parent guarantees the obligation of such assignees
through the Closing Date. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
SECTION 9.09. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in the United States District Court
for the Northern District of Illinois or in a Illinois state court located in
Cook County, Illinois, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto (i)
consents to submit such party to the personal jurisdiction of the United States
District Court for the Northern District of Illinois or any Illinois state court
located in Cook County, Illinois in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (ii) agrees that such
party will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (iii) agrees that such party will
not bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than the United States District Court for
the Northern District of Illinois or a Illinois state court located in Cook
County, Illinois and (iv) waives any right to trial by jury with respect to any
claim or proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
SECTION 9.10. Exculpation of Shareholders, Trustees, Officers, Agents and
Beneficiaries. In furtherance of and not in limitation of Section 5.2 and
Article VIII of the Declaration of Trust, Parent, Sub and the Company expressly
acknowledge and agree that no shareholder, trustee, officer, agent or
beneficiary of the Company shall be or be held personally liable for or on
account of any demand, contract, debt, liability, tort, claim, damage, judgment
or decree arising out of, or preservation of, the property of the Company, the
conduct of the business of the Company, the transactions contemplated by this
Agreement or the Prior Merger Agreement and all actions taken in connection
therewith. Every act or thing that shall be done or omitted, and every power
exercised or obligation incurred by the trustees of the Company, or any of them,
in the administration of the Company or in connection with any business,
property or concerns of the Company, whether ostensibly in their own names or in
their trust capacity, shall be deemed to have been done, omitted, exercised or
incurred by them as trustees and not as individuals; and every person
contracting or dealing with the trustees or having any debt, claim or judgment
against them or any of them shall look only to the funds and property of the
Company for payment or satisfaction.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
CITYFRONT CENTER, L.L.C.
By /s/ DANIEL E. MCLEAN
------------------------------------
Name: Daniel E. McLean
Title: Manager
CITYFRONT ACQUISITION TRUST
By: CityFront Center, L.L.C.
Its: Trustee
By /s/ DANIEL E. MCLEAN
------------------------------------
Name: Daniel E. McLean
Title: Manager
THE CHICAGO DOCK & CANAL TRUST
By /s/ CHARLES R. GARDNER
------------------------------------
Name: Charles R. Gardner
Title: President
Subject as hereinafter provided, each of the undersigned hereby
unconditionally guarantees all of the obligations, including obligations of
payment and performance, of Parent and Sub under the foregoing Agreement and
Plan of Merger among CityFront Center, L.L.C., CityFront Acquisition Trust and
The Chicago Dock & Canal Trust dated December 27, 1996 (the "Agreement"). The
obligations of MCL Chicago Homes, Inc. ("MCL"), hereunder shall be unlimited as
to amount. The obligations of each of the undersigned (other than MCL) pursuant
to this guarantee shall be limited to their respective maximum equity commitment
amounts in Parent as set forth opposite each of their respective names and each
such person's obligations in respect of such guarantee shall be reduced to the
extent of any cash amounts actually contributed by such person to the equity of
Parent, provided however each such persons's obligations hereunder shall be
increased by any distributions or return of equity to such persons or the
application of such contribution capital for a purpose not related to the
performance of Parent's or Sub's obligations under the
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Agreement. This guarantee may be signed in counterparts and each such person
shall be bound upon delivery to the Company of the counterpart containing such
signature.
MCL CHICAGO HOMES, INC.
By /s/ DANIEL E. MCLEAN
------------------------------------
Name: Daniel E. McLean
Title: President
/s/ JOHN MELK
--------------------------------------
John Melk $15,000,000
/s/ PEER PEDERSON
--------------------------------------
Peer Pederson $10,000,000
/s/ DON FLYNN
--------------------------------------
Don Flynn $15,000,000
/s/ HOWARD WARREN
--------------------------------------
Howard Warren $10,000,000
/s/ PATRICK RYAN
--------------------------------------
Patrick Ryan $10,000,000
/s/ DEAN BUNTROCK
--------------------------------------
Dean Buntrock $5,000,000
/s/ JEFFREY SHEARER
--------------------------------------
Jeffrey Shearer $5,000,000
LUNN PARTNERS L.L.C.
$5,000,000
By: /s/ ROBERT J. LUNN
------------------------------------
Its: President
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<PAGE> 115
APPENDIX B
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
THE CHICAGO DOCK AND CANAL TRUST
The Chicago Dock and Canal Trust does hereby certify that the Amended and
Restated Declaration of Trust dated September 16, 1986 and recorded in the
office of the Recorder of Deeds of Cook County, Illinois on September 16, 1986
as Doc. No. 86-418338, as amended by Certificate of Amendment of Declaration of
Trust dated September 19, 1989 and recorded in the office of the Recorder of
Deeds of Cook County, Illinois on October 6, 1989 as Doc. No. 89-476310 and as
subsequently amended by Certificate of Amendment of Declaration of Trust dated
September 22, 1993 and recorded in the office of the Recorder of Deeds of Cook
County, Illinois on October 4, 1993 as Doc. No. 93-789669 is hereby further
amended as follows:
1. Numbered clause 3 of the second paragraph of Article III is hereby
amended and restated in its entirety as follows:
"3. to sell and convey, mortgage, pledge, lease as lessor, with
leases commencing immediately or in futuro and for terms extending
beyond the term of this trust, and otherwise dispose of all or any part
of the property and assets of this trust; provided, however, that no
real property owned by the trustees may be sold without the favorable
vote or written approval of two-thirds ( 2/3) of the duly qualified and
acting trustees; and provided further that (i) any sale, conveyance,
lease or other disposition of all or substantially all of the property
and assets of this trust (otherwise than by mortgage or pledge), (ii)
any sale of all or any part of the property and assets of this trust for
any shares, bonds or other securities or obligations of the purchaser,
or any other consideration, as a step in proceedings looking toward the
merger, consolidation, dissolution or termination of this trust or the
carrying out of any plan of reorganization or rearrangement of the
business or properties conducted or held hereunder or (iii) any merger
of this trust into or with any Person (as defined in Article XI) or any
merger of any Person into or with this trust, may be made only upon the
favorable vote or written approval of two-thirds ( 2/3) of the duly
qualified and acting trustees, and upon the favorable vote of the
holders of at least two-thirds ( 2/3) the outstanding common shares of
this trust (and upon any favorable vote required by the provisions of
any series of preferred shares which may at the time be outstanding), or
their proxies, voting at a meeting called for that purpose, pursuant to
notice as hereinafter provided."
2. The third sentence of Section 4.7 is hereby amended and restated in
its entirety to read as follows:
"The limitation on beneficial ownership of common shares set forth
in this Section 4.7 shall not apply to any (i) acquisition of common
shares pursuant to a cash tender offer made for all outstanding shares
of the trust (including securities convertible into shares) in
conformity with applicable federal and state securities laws where
two-thirds ( 2/3) of the outstanding shares (not including shares or
securities convertible into shares held by the tender offeror and/or any
Affiliate or Associate (each as defined in Article XI hereof) thereof)
are duly tendered and accepted pursuant to the cash tender offer, (ii)
acquisition of common shares pursuant to a merger involving this trust
consummated in compliance with the provisions of Article XIII or (iii)
acquisition of common shares by an underwriter in a public offering of
common shares."
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3. A new Article XIII is hereby added which shall read in its entirety
as follows:
"ARTICLE XIII
MERGERS INVOLVING THE TRUST
Sec. 13.1. Procedure for Merger. This trust may be merged into or
with any Person (as defined in Article XI) or any Person may be merged
into or with this trust, in each case in the following manner (such
Person into or with which this trust is to be merged or such Person to
be merged into or with this trust, as the case may be, being hereinafter
designated as the "Merging Person"):
The trustees of this trust shall, by resolution adopted by the
favorable vote or written approval of at least two-thirds ( 2/3) of
the duly qualified and acting trustees of this trust, and the board
of directors, trustees or other appropriate governing body of the
Merging Person shall duly, approve a plan of merger setting forth:
1. The name of this trust and the name of the Merging Person
proposing to merge, and a statement identifying whether this
trust or the Merging Person is to be the surviving entity in such
merger (such surviving entity being hereinafter designated as the
"Surviving Entity").
2. The terms and conditions of the proposed merger and the
mode of carrying the same into effect.
3. The manner and basis of converting the shares of this
trust and the shares or other equity interests of the Merging
Person into shares, obligations or other securities of the
Surviving Entity, or into shares, obligations or other securities
of any Person which immediately before or immediately after the
merger is effected is the owner of all of the outstanding voting
securities of the Surviving Entity, or into cash or other
property, or into any combination of the foregoing.
4. A statement of any changes in the declaration of trust or
articles of incorporation of the Surviving Entity to be effected
by such merger.
5. Such other provisions with respect to the proposed merger
as are deemed necessary or desirable by the trustees of this
trust and the board of directors, trustees or other appropriate
governing body of the Merging Person, including provisions, if
any, under which the proposed merger may be abandoned prior to
the filing of articles of merger in accordance with Section 13.4.
In connection with any merger effected pursuant to the provisions of
this trust, this trust shall comply with the provisions in this trust
and the merging Person shall comply with the applicable provisions of
the laws of the state under which it is organized or its declaration
of trust, as the case may be.
Sec. 13.2. Call of Shareholders' Meeting. The trustees of this
trust, upon approving such plan of merger, shall by resolution, direct
that the plan be submitted to a vote at a meeting of shareholders of
this trust, which may be either an annual or a special meeting. Written
notice shall be given to each shareholder of record entitled to vote at
such meeting in accordance with the provisions of this trust for the
giving of notice of meetings of shareholders. Such notice, whether the
meeting be an annual or special meeting, shall include a copy or a
summary of the plan of merger.
Sec. 13.3. Approval by Shareholders. The plan of merger shall be
approved by the shareholders of this trust upon receiving the favorable
vote of the holders of at least two-thirds ( 2/3) of the outstanding
common shares of this trust (and upon receiving any favorable vote
required by the provisions of any series of preferred shares which may
at the time be outstanding), or their proxies, voting at a meeting
called for that purpose, pursuant to notice as herein provided.
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<PAGE> 117
Sec. 13.4. Filing of Articles of Merger. Upon any required
approval of the plan of merger upon behalf of this trust or the Merging
Person, articles of merger shall be executed by this trust and the
Merging Person and filed in the office of the Recorder of Deeds of Cook
County, Illinois. Such articles of merger shall set forth:
(1) The plan of merger; and
(2) A statement that, with respect to each party to such plan of
merger whose shareholders shall be entitled to vote thereon, that
such plan of merger was duly adopted by the affirmative vote of the
holders of outstanding shares or other equity interests of such party
having not less than the minimum number of votes necessary to adopt
such plan.
Sec. 13.5. Effective Date of Merger. The merger contemplated by
the plan of merger shall become effective upon the filing of an executed
copy of the articles of merger described in Section 13.4 relating to the
merger in the office of the Recorder of Deeds of Cook County, Illinois,
or on a later specified date, not later than 30 days subsequent to such
date of filing of such articles of merger, as provided in such plan of
merger.
Sec. 13.6. Effect of Merger. Whenever a merger involving this
trust has been effected in accordance with the provisions of this trust
and a plan of merger, (i) the several parties to such plan of merger
shall be a single entity, which shall be that entity designated in such
plan of merger as the Surviving Entity, (ii) the separate existence of
all parties to such plan of merger, except the Surviving Entity, shall
cease, (iii) the Surviving Entity shall thereupon and thereafter possess
all the rights, privileges, immunities, and franchises, as of a public
or a private nature, of each of the merging parties and all property,
real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all other choses in action and
all and every other interest of or belonging to or due to each of the
parties so merged shall be taken and deemed to be transferred to and
vested in such single Surviving Entity without further act or deed and
title to any real estate, or any interest therein, vested in any of such
parties shall not revert or be in any way impaired by reason of such
merger, (iv) such Surviving Entity shall thenceforth be responsible and
liable for all the liabilities and obligations of each of the parties so
merged and any claim existing or action or proceeding pending by or
against any of such parties may be prosecuted to judgment as if such
merger had not taken place or such Surviving Entity may be substituted
in its place and neither the rights of creditors nor any liens upon the
property of any of such parties so merged shall be impaired by such
merger, (v) the provisions of this trust shall be deemed to be amended
to the extent, if any, that changes in this trust are stated in such
plan of merger and (vi) when such merger has been effected, the shares
or other equity interests of the entity to be converted under the terms
of such plan of merger shall cease to exist and the holders of such
shares or other equity interests so converted shall be entitled only to
the money, securities or other property into which those shares or other
equity interests shall have been converted in accordance with such plan
of merger."
IN WITNESS WHEREOF, said The Chicago Dock and Canal Trust has caused this
certificate to be executed by its President and its Secretary as of this
day of , 1997.
--------------------------------------
Charles R. Gardner
President
Attest:
-------------------------
Secretary
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<PAGE> 118
APPENDIX C
LEHMAN BROTHERS
December 27, 1996
Board of Trustees
The Chicago Dock & Canal Trust
455 East Illinois, Suite 565
Chicago, Illinois 60611
Members of the Board:
We understand that you propose to enter into an agreement providing for a
merger of The Chicago Dock and Canal Trust (the "Company") with and into
CityFront Acquisition Trust ("Sub"), a wholly-owned subsidiary of CityFront
Center, L.L.C. ("CityFront"), pursuant to which the shareholders of the Company
will receive consideration of $25.00 in cash per common share (the "Proposed
Transaction"). The terms and conditions of the Proposed Transaction are set
forth in more detail in the Agreement and Plan of Merger dated December 27, 1996
among CityFront, Sub and the Company (the "Agreement").
We have been requested by the Board of Trustees of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
shareholders of the Company of the consideration to be received by such
shareholders in the Proposed Transaction. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company that we believe to be relevant to our
analysis, (3) financial and operating information with respect to the business,
operations and prospects of the Company furnished to us by the Company, (4) a
trading history of the Company's common shares from December 27, 1993 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (5) a comparison of the historical financial results
and present financial condition of the Company with those of other companies we
deemed relevant, (6) an evaluation of the specific properties of the Company
with respect to the sale of such properties in an orderly liquidation of the
Company, and (7) the results of our efforts to solicit indications of interest
and proposals from third parties with respect to a purchase of, merger or other
business combination with the Company. In addition, we have had discussions with
the management of the Company concerning its business, operations, assets,
liabilities, financial condition and prospects and have undertaken such other
studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial projections of the Company, upon
advice of the Company we have assumed that such projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the
LEHMAN BROTHERS INC.
3 WORLD FINANCIAL CENTER NEW YORK, NY 10285
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<PAGE> 119
Board of Trustees December 27, 1996
The Chicago Dock & Canal Trust Page 2
management of the Company as to the future financial performance of the Company
and that the Company will perform in accordance with such projections. In
arriving at our opinion, we have conducted only a limited physical inspection of
the properties and facilities of the Company and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company. Upon
advice of the Company and its legal and accounting advisors, we have assumed
that the merger consideration to be received by shareholders will qualify as a
liquidating dividend within the meaning of Section 562(b) of the Internal
Revenue Code of 1986, as amended, and therefore will entitle the Company to a
dividends paid deduction and will entitle the shareholders to capital gains
treatment. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the shareholders of the Company in the Proposed Transaction is fair
to such shareholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we may trade
in the equity securities of the Company for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
This opinion is for the use and benefit of the Board of Trustees of the
Company and is rendered to the Board of Trustees in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any shareholder of the Company as to
how such shareholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
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<PAGE> 120
PRELIMINARY COPY DATED January 10, 1997
THE CHICAGO DOCK AND CANAL TRUST
455 EAST ILLINOIS STREET - SUITE 565 - CHICAGO, ILLINOIS 60611
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ____________, 1997
Charles R. Gardner and Edward McCormick Blair, Jr., or either of them, hereby
are appointed proxy and each is authorized to vote, as hereinafter specified,
all Common Shares of beneficial interest, without par value, that the
undersigned is entitled to vote at the Special Meeting of Shareholders of The
Chicago Dock and Canal Trust (the "Trust"), to be held at 10:00 A.M., Chicago
time, on _____________, 1997, at the Sheraton Chicago Hotel & Towers, 301 East
North Water Street, Superior Room, Chicago, Illinois, or at any adjournment
thereof.
Please mark, date and sign this proxy and return it promptly in the
accompanying business reply envelope.
THIS PROXY, IF SIGNED AND RETURNED, WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE. IF NO SPECIFICATION IS MADE, YOUR SHARES WILL BE VOTED FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER (COLLECTIVELY "THE MERGER
PROPOSAL") AND THE TRUST AMENDMENT.
IMPORTANT: PLEASE SIGN AND DATE ON THE REVERSE SIDE.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE> 121
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
(CONTINUED FROM OTHER SIDE)
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE PROPOSALS TO APPROVE AND ADOPT
THE MERGER PROPOSAL AND THE TRUST AMENDMENT.
1. Approve and adopt the Agreement and Plan of Merger, FOR AGAINST ABSTAIN
dated as of December 27, 1996 (the "Merger / / / / / /
Agreement"), among CityFront Center, L.L.C.,
a Delaware limited liability company ("CityFront"),
CityFront Acquisition Trust, an Illinois business
trust and a 99% owned subsidiary of CityFront ("Sub"),
and the Trust and the transactions contemplated thereby,
including the merger of the Trust into Sub, with Sub
being the surviving trust.
The proxies named herein will have discretion to vote upon such other matters
as may properly come before the Special Meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders to be held on ________, 1997 and the related Proxy Statement.
2. Approve and Adopt the Certificate of Amendment of FOR AGAINST ABSTAIN
Declaration of Trust of the Chicago Dock and / / / / / /
Canal Trust.
Dated:______________,1997
Signature(s)___________________________
_______________________________________
Please sign above exactly as name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee, or
guardian, please give full title as
such. If signing in the name of a
corporation or partnership, please
sign full corporate or partnership
name and indicate title of authorized
signatory.
