<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or
Sec. 240.14a-12
Chicago and North Western Holdings Corp.
(Name of Registration as Specified In its Charter)
Chicago and North Western Holdings Corp.
(Name of Person(s) Filing Proxy Statement)
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(j)(2). Payment submitted 3/4/94 by FEDWIRE in connection
with PRE 14A Filing.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and O-11.
1) Title of each class of securities to which transaction applies:
_______________________________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
_______________________________________________________
4) Proposed maximum aggregate value of transaction:
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.<PAGE>
[ ] 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:
_______________________________________________________
- 0 -<PAGE>
Chicago and North Western
Holdings Corp.
165 North Canal Street
Chicago, Illinois 60606-1551
Robert Schmiege
Chairman, President
and Chief Executive Officer
To Our Stockholders:
Our 1994 Annual Meeting of Stockholders will be held at 9:00 A.M., Tuesday,
May 3, 1994, in the auditorium of Harris Trust and Savings Bank, 111 West
Monroe Street, 8th Floor, Chicago, Illinois. Matters to be considered and
acted on at the meeting include: (a) the election of three directors for
terms expiring in 1997; (b) an amendment to the Restated Certificate of
Incorporation to rename the Company; and (c) the 1994 Equity Incentive
Plan. Detailed information concerning these matters is set forth in the
attached Notice of Annual Meeting of Stockholders and Proxy Statement.
To ensure that your vote is counted, please be sure to sign and return the
enclosed proxy card.
Sincerely,
/s/ Robert Schmiege March 28, 1994<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
CHICAGO AND NORTH WESTERN HOLDINGS CORP.
You are hereby notified that the 1994 Annual Meeting of Stockholders of
Chicago and North Western Holdings Corp., a Delaware corporation (the
"Company"), will be held at the Harris Trust and Savings Bank Auditorium,
111 West Monroe Street, 8th Floor, Chicago, Illinois, on Tuesday, May 3,
1994, at 9:00 a.m. (local time), for the following purposes:
1. To elect three Directors for terms of office expiring at the
annual meeting of stockholders in 1997; and
2. To consider and act upon an amendment to the Restated Certificate
of Incorporation which, if adopted, would change the name of the
Company to Chicago and North Western Transportation Company.
3. To consider and act upon a proposal to approve the Chicago and
North Western Holdings Corp. 1994 Equity Incentive Plan.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed March 23, 1994, as the record date for
determination of stockholders entitled to notice of and to vote at the
meeting. Stockholders are urged to date, sign and return the enclosed
proxy promptly, whether or not they expect to attend the meeting.
By Order of the Board of Directors
/s/ James P. Daley
James P. Daley
Senior Vice President,
General Counsel and Secretary
March 28, 1994<PAGE>
CHICAGO AND NORTH WESTERN HOLDINGS CORP.
_________________
PROXY STATEMENT
GENERAL INFORMATION
This statement is furnished to the stockholders of Chicago and North
Western Holdings Corp. (the "Company") in connection with the solicitation
on behalf of the Board of Directors of the Company of proxies for use at
the 1994 Annual Meeting of Stockholders to be held at the Harris Trust and
Savings Bank Auditorium, 111 West Monroe, 8th Floor, Chicago, Illinois at
9:00 A.M. (local time) on May 3, 1994, and at all adjournments thereof, for
the purposes set forth in the attached Notice of Annual Meeting. The
Company's executive offices are located at 165 North Canal Street, Chicago,
Illinois 60606 (Telephone: 312-559-7000).
In each case where a stockholder has appropriately specified how the
proxy is to be voted, it will be voted in accordance with those
instructions. Unless a stockholder specifies otherwise therein, the proxy
will be voted in favor of the election of the three nominees named below to
the Board of Directors of the Company, in favor of an amendment to the
Restated Certificate of Incorporation to change the Company's name, and in
favor of approval of the Chicago and North Western Holdings Corp. 1994
Equity Incentive Plan. Any stockholder has the power to revoke his or her
proxy at any time before it is voted by filing with the Secretary of the
Company a written revocation or duly executed proxy bearing a later date,
or by voting in person at the Annual Meeting.
Only the Company's voting Common Stock, par value $.01 per share, can
be voted at the Annual Meeting, each share entitling the holder thereof to
one noncumulative vote. The record date for the determination of
stockholders entitled to vote at the Annual Meeting is March 23, 1994. On
that date, there were 43,786,787 shares of Common Stock outstanding. Of
these, 12,835,304 are currently non-voting, so that on March 23, 1994,
there were 30,951,483 shares of voting Common Stock outstanding.
The presence in person or by proxy at the Annual Meeting of the
holders of a majority of the issued and outstanding Common Stock entitled
to vote at the meeting will constitute a quorum. Election of a director
requires the affirmative votes of the holders of a plurality of the voting
Common Stock present in person, or represented by proxy, at a meeting (at
which a quorum is present). Therefore, the three persons receiving the
greatest number of votes will be elected as Directors. Since only
affirmative votes count for this purpose, withheld votes will not affect
the outcome, except that they will count in determining the presence of a
quorum.
Approval of the proposal to change the Company's name requires the
affirmative vote of the holders of a majority of the outstanding shares of
voting Common Stock. Approval of the proposal therefore requires that at
least 15,475,742 votes be cast in its favor; abstentions and broker non-
votes will not affect the outcome except in determining the presence of a
quorum and in the sense that they do not contribute to reaching the number
of votes required for approval.
Approval of the Chicago and North Western Holdings 1994 Equity
Incentive Plan requires the affirmative vote of a majority of the shares of
voting Common Stock represented at the meeting and entitled to vote on the
matter (assuming a quorum is present). Proxies marked to abstain from
voting with respect to the matter will have the legal effect of voting
against such matter. Proxies submitted by brokers for shares beneficially
owned by other persons may indicate that all or a portion of the shares
represented by such proxies are not being voted with respect to approval of
the Plan. This is because the rules of the New York Stock Exchange do not
permit a broker to vote stock held in street name with respect to this
matter in the absence of instructions from the beneficial owner of the
stock. The shares represented by broker proxies which are not voted with
respect to the Plan will not be considered represented at the meeting and
entitled to vote on the Plan.
The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telegram by regular employees of the Company. The Company
will reimburse brokers and other record stockholders for their expenses
incurred in forwarding proxy material to beneficial owners and obtaining<PAGE>
voting instructions. The Company plans to engage the services of Morrow &
Co. to assist in solicitation for a fee of $6,000, plus reasonable expenses
estimated at approximately $7,000.
1. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each of which
consists of one-third of the total number of directors constituting the
entire Board of Directors. The terms of three directors expire in 1994,
with one current director continuing in office until 1995, and another
three current directors continuing until 1996. (Two additional persons
have been elected to terms as directors commencing at a future date and
ending in 1995. See "Certain Relationships and Transactions - 1993
Agreement"). The nominees for whom the enclosed proxy is intended to be
voted are set forth below. Unless otherwise instructed by the person
returning the proxy, each proxy in the form enclosed will be voted for
election of the nominees listed below.
NOMINEES FOR ELECTION AS DIRECTORS
TO BE ELECTED FOR A TERM OF THREE YEARS ENDING IN 1997
Age, Business Experience
Name and Other Directorships
James E. Martin age 67, Director since May, 1992; President
of the Belt Railway Company of Chicago
since 1989. President and Chief Operating
Officer of Illinois Central Gulf Railroad
Company from 1983 to 1988.
James J. Mossman age 35, Director since February 1990 and
Vice President, Assistant Treasurer and
Assistant Secretary from October of 1989
through January of 1992; General Partner of
Blackstone Group Holdings L.P. ("BGH")
since 1990; Vice President of The
Blackstone Group L.P. ("The Blackstone
Group") from 1987 to 1989. Mr. Mossman is
a director of Great Lakes Dredge and Dock
Corporation and Transtar Inc.
James R. Thompson age 57, Director since May, 1992; Chairman
of Winston & Strawn since January, 1993;
Partner and Chairman of the Executive
Committee of Winston & Strawn since 1991.
Governor of Illinois from 1977 until 1991.
Governor Thompson is a member of the Board
of Directors of FMC Corporation, United
Fidelity, Inc., Sun-Times Co., Pechiney
International, and Chicago Board of Trade,
and on the International Advisory Board of
the Bank of Montreal.
DIRECTORS CONTINUING IN OFFICE UNTIL 1995*
Robert Schmiege age 52, Chairman and Chief Executive
Officer since August 1988; President and a
Director since July 1988.
* See "Certain Relationships and Transactions - 1993 Agreement."
- 2 -<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1996
Age, Business Experience
Name and Other Directorships
Richard K. Davidson age 52, Director since September 1991;
Chairman and Chief Executive Officer of
Union Pacific Railroad Co. ("UPRC") and
Missouri Pacific Railroad Company (together
with UPRC, "UPRR") since September of 1991;
President and Chief Executive Officer of
UPRR from August of 1991 to September of
1991; Executive Vice President-Operation of
UPRR from 1989 to 1991; Vice President-
Operation of UPRR from 1986 to 1989.
Mr. Davidson is also a director of
FirstTier Financial, Inc. and California
Energy Company, Inc. Mr. Davidson was
designated as a director of the Company by
UP Rail, Inc. The six executive officers
of the Company are obligated to vote their
shares to elect Mr. Davidson and to assure
certain other representation of UP Rail on
the Company's Board of Directors. (See
"Certain Relationships and Transactions".)
Harold A. Poling age 68, Director since November 1993;
Chairman and Chief Executive Officer of
Ford Motor Company from March 1990 until
his retirement in November 1993; Vice
Chairman and Chief Operating Officer from
October 1987 to February 1990. Mr. Poling
is a director of Shell Oil Company, LTV
Corporation, and Kellogg Company, and is a
member of the BHP International Advisory
Council and the VIAG International Board.
Samuel K. Skinner age 55, Director since November 1993;
President and director of Commonwealth
Edison Company since February 1993; prior
to February 1993, General Chairman of the
Republican National Committee, Chief of
Staff to the President of the United
States, and Secretary of Transportation.
Mr. Skinner is a director of LTV
Corporation.
- 3 -<PAGE>
BOARD AND BOARD COMMITTEE MEETINGS,
COMMITTEE FUNCTIONS AND COMPOSITION
The Board of Directors of the Company has an Executive Committee, an
Audit Committee and a Compensation and Stock Option Committee.
The Executive Committee consists of Robert Schmiege, Chairman, James
E. Martin and James R. Thompson. During 1993, the Executive Committee met
once. The Executive Committee may exercise the powers of the Board in the
management of the business and affairs of the Company, subject to certain
limitations of Delaware law.
The Audit Committee consists of James E. Martin, Chairman, Richard K.
Davidson and Samuel K. Skinner. During 1993, the Audit Committee met
twice. The Audit Committee recommends the selection of independent public
accountants to the Board for approval, reviews the Company's annual
financial statements and its annual report on Form 10-K, considers matters
relating to accounting policy and internal controls, and reviews the scope
of the annual audit.
The Compensation and Stock Option Committee consists of James R.
Thompson, Chairman, James J. Mossman and Harold A. Poling. During 1993,
the Compensation and Stock Option Committee met twice. The Compensation
and Stock Option Committee determines the salaries and fringe benefits of
the executive officers, reviews the salary administration and benefit
policies, and administers the 1989 Equity Incentive Plan for Key Employees,
the 1992 Equity Incentive Plan, and the Bonus Plan.
During 1993, the Board of Directors of the Company held four meetings.
Each director attended not less than 75 percent of the aggregate
meetings of the Company's Board of Directors and the Company's Board
Committees on which he served, during the period of his service, except
Mr. Poling, who joined the Board in November 1993 and was unable to attend
the meetings of the Board and the Compensation and Stock Option Committee
held on December 8, 1993.
2. CHANGE OF NAME
In order for the Company's name to reflect its business as a
transportation business, the Board of Directors has recommended to
stockholders that the Company's name be changed to Chicago and North
Western Transportation Company. This change would be effected by adoption
of an amendment to the Company's Restated Certificate of Incorporation. If
the amendment is approved by stockholders, the Company will cause its
direct wholly owned operating subsidiary to change its name from Chicago
and North Western Transportation Company to Chicago and North Western
Railway Company ("Railway"). In addition, the Company recently, by merger,
eliminated its intermediate holding company subsidiaries Chicago and North
Western Acquisition Corp. and CNW Corporation.
The Board of Directors recommends a vote FOR approval of the change of
name.
3. HOLDINGS 1994 EQUITY INCENTIVE PLAN
On March 7, 1994, the Board of Directors adopted the Chicago and North
Western Holdings Corp. 1994 Equity Incentive Plan (the "1994 Plan"),
subject to approval of stockholders at the 1994 Annual Meeting. The 1994
Plan provides for the granting of stock options covering an aggregate of
two million shares of Common Stock. Material terms of the 1994 Plan are
summarized below. The full text of the Plan is set forth as Exhibit A to
this Proxy Statement.
The 1994 Plan provides benefits to key employees of the Company and
its subsidiaries as determined by the Compensation and Stock Option
Committee ("Committee"). An option gives the recipient the right to
purchase a specified number of shares of Common Stock within a time period
and at the price specified in the option (not less than 100% of fair market
value on the date of grant), subject to various restrictions. Subject to
the terms of the 1994 Plan, the Committee has the discretion to determine
the terms of the agreements pursuant to which awards are granted. Under
the terms of the 1994 Plan, options on not more than 200,000 shares of
Company Stock may be granted to a single individual in a calendar year.
The 1994 Plan provides that in consideration for the grant of an award the
- 4 -<PAGE>
grantee will remain employed for at least one year after the grant date.
The term of each award may not extend beyond ten years from the date
granted.
It is not contemplated that any of the present executive officers
named in the Option Exercise and Year End Value Table ("Table") will
receive any options under the 1994 Plan. Nor do they hold any options or
related LSARs under the 1992 Equity Incentive Plan. They do, however, hold
options granted them at the time of the 1989 leveraged buy-out of the
Company under the 1989 Equity Incentive Plan for Key Employees and hold
rollover options granted them in that transaction. (See Table)
1994 Plan Options
Both non-qualified options and "incentive" options, within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), may be granted under the 1994 Plan. The Committee may, in its
discretion, direct that shares issued upon exercise of options will be
restricted and non-transferable. In general, options will not be
exercisable earlier than the first anniversary or later than the tenth
anniversary of the date granted.
Payment of the option price may be made in cash, through the exchange
of Common Stock held by the grantee, or through a broker-assisted exercise.
The Committee may allow a grantee to pay the exercise price with restricted
stock held by the grantee.
Accelerated Vesting
Any unexercised option will terminate in the event the grantee's
employment is terminated for "cause" (as defined in the 1994 Plan). If the
grantee's employment is terminated for any other reason, any option, to the
extent otherwise exercisable at the time of termination, will remain
exercisable for a specified period. In the discretion of the Committee,
options may continue to vest or become exercisable subsequent to a
termination of employment. The Committee may also accelerate the
exercisability of or accelerate or waive restrictions and conditions
applicable to awards as it deems appropriate.
Amendment and Termination
The 1994 Plan will terminate on the tenth anniversary of its effective
date. The Board of Directors may before that time terminate the 1994 Plan
and may amend or modify the 1994 Plan without shareholder approval, except
as may be required for purposes of compliance with federal securities laws
or listing requirements of a national securities exchange. Termination of
the 1994 Plan will not affect any options then outstanding.
Tax Withholding
The Company may make such provisions as it deems appropriate to
withhold any taxes due in connection with any Award and may require the
grantee to satisfy any relevant tax requirements before authorizing any
issuance of shares to a grantee. Grantees may elect, subject to Committee
approval, to have shares of Common Stock otherwise issuable to them
withheld to satisfy federal, state and local withholding tax liability with
respect to the exercise of options in the year such exercise becomes
taxable.
Federal Income Tax Consequences of the 1994 Plan
The following discussion is limited to United States federal income
tax laws as in effect on the date hereof, and does not discuss the income
tax laws of any State. There can be no assurance that such federal law
will not change.
The 1994 Plan is not a qualified plan under Section 401(a) of the
Code, and is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
Non-qualified Options
Upon the grant of a non-qualified option under the 1994 Plan ("Non-
qualified Options"), the employee does not realize any taxable income for
- 5 -<PAGE>
federal income tax purposes, nor is any deduction for federal income tax
purposes available to the Company.
Upon exercise of a Non-qualified Option where the purchased shares are
not subject to a substantial risk of forfeiture, the excess of the fair
market value of the purchased shares on the date of exercise over the
option price of those shares will be taxable for federal income tax
purposes as ordinary income to the employee.
Upon the exercise of a Non-qualified Option under which the purchased
shares are subject to a substantial risk of forfeiture, the employee will
not realize any taxable income for federal income tax purposes, nor will
any deduction for federal income tax purposes be available to the Company.
The amount by which the fair market value of the purchased shares exceeds
the option price is taxable to the employee when there is no longer a
substantial risk of forfeiture. However, the employee may elect (by filing
with the IRS not later than 30 days after the date of exercise) to be taxed
as of the date of option exercise on the amount for which the fair market
value of the purchased shares on the date of exercise exceeds the option
price.
The Company will be entitled to a deduction at the time the employee
recognizes income in an amount equal to the amount of ordinary income
recognized by the employee, unless such deduction is not allowed under Code
Section 162(m) which disallows deductions for certain non-performance-based
compensation in excess of $1,000,000 paid to certain executive officers in
any year.
In the event the employee receives cash consideration for the
termination of his/her Non-qualified Option prior to exercise thereof in
the event of a merger or similar transaction involving the Company, the
amount of cash payable to the employee is includable in the employee's
taxable income for the year in which such amount is payable. The Company
is entitled to a deduction in the same year for the same amount.
Upon sale of the shares acquired by the employee upon exercise of a
Non-qualified Option, the excess of the sale price over the fair market
value of the shares on the date the employee was subject to taxation with
respect to the exercise of the Non-qualified Option will be taxable to the
employee as a capital gain. Such capital gain will be long-term if the
shares have been held by the employee for more than one year after the date
the employee becomes subject to taxation with respect to the exercise of
the Non-qualified Option, and short-term if the shares have been held for
less than that period. No tax consequences to the Company will result from
the employee's sale of shares.
Incentive Options
If the requirements for treatment as an incentive option ("Incentive
Option") are met, the grantee will not realize any taxable income for
federal income tax purposes upon either the grant or exercise of an
Incentive Option granted under the 1994 Plan, nor will any deduction for
federal income tax purposes be available to the Company. However, the
difference between the fair market value of the shares purchased upon
exercise of an Incentive Option at the time of exercise and the option
price is an item of tax preference subject to the possible application of
the alternative minimum tax. Upon disposition of the stock acquired
pursuant to an Incentive Option, the grantee will be taxed at long-term
capital gain rates on the difference between the fair market value on the
date of disposition and the option price, provided the grantee has held the
stock for at least two years after the date the Incentive Option was
granted and at least one year after it was exercised (the "holding period
requirements").
If the stock acquired pursuant to the exercise of an Incentive Option
is disposed of before both of the holding requirements are met (a
"disqualifying disposition"), generally, the difference between the fair
market value of the stock at the time of exercise and the option price will
be considered compensation and will be taxed. Any portion of the amount
received upon a disqualifying disposition of the stock which exceeds the
grantee's basis in the shares (as increased by the compensation income
realized by the grantee upon the disqualifying disposition) will be subject
to tax as either long term or short term capital gain depending upon the
length of the period for which the stock was held before the disposition.
In the event of a disqualifying disposition, the Company will be entitled
to a deduction, subject to possible disallowance under Code Section 162(m)
as discussed above, in the amount of the compensation income received by
- 6 -<PAGE>
the grantee provided that the Company withholds the applicable tax from the
grantee.
- 7 -<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth compensation information required for
the six most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
Other Awards All
Annual Long-Term Other
Compen- Restricted Stock Incentive Compensa-
Year Name and Principal Position Salary Bonus sation Stock Options# Payouts tion (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 Robert Schmiege $390,000 $292,500 $- $- - $- $ 75,574
1992 Chairman, President and CEO 390,000 97,500 - - - - 136,586
1991 387,734 388,490 - - - - 70,166
1993 Arthur W. Peters 263,925 198,263 - - - - 49,575
1992 Senior Vice President- 253,500 63,500 - - - - 85,459
1991 Sales and Marketing 241,557 242,038 - - - - 42,009
1993 Robert A. Jahnke 247,271 185,963 - - - - 46,141
1992 Senior Vice President- 231,625 58,021 - - - - 77,669
1991 Operations 220,656 221,104 - - - - 37,967
1993 Thomas A. Tingleff 222,863 156,433 - - - - 41,106
1992 Senior Vice President- 208,750 52,292 - - - - 69,185
1991 Finance and Accounting 195,667 197,111 - - - - 31,746
1993 James P. Daley 222,525 133,730 - - - - 41,036
1992 Senior Vice President, 213,750 53,542 - - - - 71,338
1991 General Counsel and Secretary 203,813 204,208 - - - - 34,743
1993 Jerome W. Conlon 217,350 130,620 - - - - 39,968
1992 Senior Vice President- 208,735 52,288 - - - - 69,515
1991 Administration 198,767 199,178 - - - - 33,764
</TABLE>
(1) Includes amounts earned in fiscal year, whether or not deferred.
Employment agreements ("Employment Agreements") with each of the
executive officers named above, which were terminated on February 22,
1994, provided for salaries determined by the Board of Directors and a
non-competition agreement for two years following the executive's
voluntary termination or termination for cause.
(2) All other Compensation consists of Company contributions under its
qualified profit sharing plan, the Chicago and North Western
Transportation Company Profit Sharing and Retirement Savings Program
(the "Program"), and under its non-qualified unfunded defined
contribution retirement plans (taken together), the Chicago and North
Western Transportation Company Executive Retirement Plan and the
Chicago and North Western Transportation Company Excess Benefit
Retirement Plan. Total benefits are calculated under the formula
defined in the Program. Benefits in excess of certain Internal
Revenue Code limitations are payable through the non-qualified
unfunded defined contribution retirement plans.
- 8 -<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE (4)
<TABLE>
<CAPTION>
Total Number of Total Value of
Number of Unexercised Options(1) Held Unexercised, In-the-Money
Shares at Fiscal Year End Options(1) Held at Fiscal Year End
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable (2) Unexercisable (2)
<S> <C> <C> <C> <C> <C> <C>
Robert Schmiege - $ - 385,183 81,712 $7,364,699 $1,562,333
Arthur W. Peters - - 307,777 (3) 32,792 6,618,486 (3) 626,983
Robert A. Jahnke - - 244,404 (3) 32,792 5,034,077 (3) 626,983
Thomas A. Tingleff 60,000 1,191,450 175,116 (3) 32,792 3,464,541 (3) 626,983
James P. Daley 85,000 1,348,950 44,585 32,792 852,465 626,983
Jerome W. Conlon 100,000 1,337,000 54,585 32,792 1,043,665 626,983
</TABLE>
(1) All options were granted under the Company's 1989 Equity Incentive
Plan for Key Employees, except as otherwise shown in Footnote 3. None
of the named executive officers holds any options or related stock
appreciation rights under the Company's 1992 Equity Incentive Plan.
(2) The dollar values shown are calculated by determining the difference
between the market value of the Company's stock underlying the options
at December 31, 1993 ($25.00) and the option exercise price.
(3) Includes rollover options (all exercisable) received in exchange for
options of the Company's predecessor during 1989 as follows: Mr.
Peters, 153,192 (total value $3,662,821); Mr. Jahnke, 89,819
($2,078,412); Mr. Tingleff, 30,531 ($700,076).
(4) There have been no awards of SARs to the named executive officers
under the Company's stock option plans.
- 9 -<PAGE>
PENSION PLAN
The Supplemental Pension Plan provides a benefit which is the
equivalent of a single life annuity for a participant's life commencing at
age 65 in an amount equal to (1) the product of 1.5% of the employee's
final five years' average annual salary, multiplied by his years of service
(40 years maximum), that product being reduced by (2) the sum of certain
offsets related to other benefits received under the Railroad Retirement
Act and under the Program, the Chicago and North Western Transportation
Company Executive Retirement Plan, and the Chicago and North Western
Transportation Company Excess Benefit Retirement Plan. The Internal
Revenue Service has issued final regulations which when implemented will
require the modification of certain of these offsets. The Company expects
to implement these regulations in a manner which will not result in a
material increase in the amount of benefits provided under the Supplemental
Pension Plan. In the case of the persons named in the Summary Compensation
Table, the modification would be applied retroactively to 1989.
The Program was established in April 1975 and does not provide for
benefits based upon prior service. Therefore, the later the date at which
an employee reaches age 65, the larger the amount the employee could have
accumulated under the Program, and thus, the smaller the amount which would
be payable under the Supplemental Pension Plan. Actuarial projections
indicate that of the persons named in the Summary Compensation Table, only
Mr. Daley will receive benefits under the Supplemental Pension Plan. These
benefits are estimated to be approximately $8,000 per year at age 65.
- 10 -<PAGE>
REPORT ON
EXECUTIVE COMPENSATION OF THE
COMPENSATION AND STOCK OPTION COMMITTEE OF
CHICAGO AND NORTH WESTERN HOLDINGS CORP.
COMPENSATION POLICY
The Company's compensation policies are: to maintain a competitive
compensation program in order to attract and retain well qualified
management; to provide management with the incentive to accomplish the
Company's financial and operating objectives; and to link the interests of
the Company's executive officers and management to the interests of its
stockholders through bonuses tied to performance and through equity-based
incentive plans. The Company regards the deductibility for Federal income
tax purposes of compensation paid to its chief executive officer and each
of its other four highest compensated officers as a factor to be considered
in putting these policies into effect. These policies reflect a continuing
effort to align the interests of the Company's stockholders and its
management, evidenced in the significant equity interests which the
Company's executive officers and key management employees hold in the
Company as a result of their participation in the 1989 leveraged
acquisition of the business of CNW Corporation (the "Acquisition") and in
the Company's 1989 Equity Incentive Plan.
PROCEDURE
The Compensation and Stock Option Committee (the "Committee") approves
the overall compensation package for the Company's executive officers
(including the Chairman and Senior Vice Presidents). The Committee is
responsible for reviewing overall compensation, including base salary and
bonus, for granting and administering options under the Company's 1989
Equity Incentive Plan, and for granting and administering stock options,
restricted stock, SARs, and LSARs under the Company's 1992 Equity Incentive
Plan. In addition to these elements, the Company's compensation package
includes qualified and non-qualified retirement plans, medical, life, and
other insurance and other benefits. In its 1993 review of compensation,
the Committee was assisted by an independent compensation consulting firm
("Compensation Consultant").
APPLICATION OF COMPENSATION POLICIES
In general, cash compensation (base plus bonus) is designed so that
when the Company achieves superior results, total cash compensation for
management will be above the competitive median of the group of railroads
considered to be the most direct competitors for the Company's executive
and managerial talent ("Comparable Railroads"), and when the Company fails
to meet its financial and operating objectives, total cash compensation
will be below that median.
BASE SALARY
The Committee annually reviews Mr. Schmiege's recommendations with
respect to base salaries for executive officers and considers the base
salary competitiveness of the Company's executive officers and management
employees at various levels. At its December 1993, meeting, the Committee
conducted that review with the assistance of the Compensation Consultant.
The Compensation Consultant reported on the effectiveness of the Company's
compensation programs, on compensation comparatives for the Comparable
Railroads and on compensation comparatives for a group of industrial
companies.
In setting Mr. Schmiege's base salary for 1993, the Committee had
accepted Mr. Schmiege's 1992 request that he receive no increase in base,
so that the principal focus of his compensation in 1993 was performance, as
reflected in bonus and in the 1989 Equity Incentive Plan. In doing so, the
Committee had noted, however, that Mr. Schmiege's base salary had not been
increased in 1992 and had expressed its view that an increase in his base
salary for both 1992 and 1993 would certainly have been appropriate. On
the basis of Mr. Schmiege's leadership in a difficult economic environment
and in dealing with the impact of the extraordinary Midwest floods in the
- 11 -<PAGE>
summer of 1993, and on the basis of a comparison to Comparable Railroads
and general industry, the Committee increased Mr. Schmiege's base salary
for 1994 to $450,000, an increase of 15.4% over his base salary for each of
1993 and 1992. The Committee also approved Mr. Schmiege's recommendation
for a 1994 base salary increase of 4.5% for each of the Company's Senior
Vice Presidents, and an average increase of approximately 4.5% for
employees below the level of Senior Vice President.
ANNUAL BONUS
All of the Company's management employees not covered by a labor
agreement are eligible for an annual cash bonus. Corporate performance
objectives at threshold, target and superior bonus level, are established
early in each year. Varying bonus payment levels (reflecting threshold,
target and superior target levels), expressed as a percentage of salary,
are assigned to each performance level, depending on an employee's job
classification. For Group I employees (Chairman and Senior Vice
Presidents), achievement of the threshold, target and superior performance
levels would result in bonus payments of 0%, 50% and 100% of base salary,
respectively. Bonus payments for performance levels between the threshold
and superior levels are determined by proration. The corporate performance
measure for bonus payments in 1993 was based on earnings before interest,
taxes and depreciation ("EBITD") and plan expense and permits exclusion of
extraordinary or non-recurring items which the Committee in its discretion
deems appropriate.
In April of 1993, the 1993 EBITD targets were set at: $265 million
threshold, $285 million target and $315 million superior. At the December
1993, meeting of the Committee, Mr. Schmiege advised that the $285 million
target (cash bonus at 50% of base salary) would be achieved, after an
adjustment of approximately $5,000,000, representing non-recurring cost of
employee buy-outs and relocation allowances. The Committee considered that
adjustment appropriate. Final 1993 EBITD as adjusted for plan expense and
such non-recurring costs was $291.2 million, so that for Mr. Schmiege, this
Committee action resulted in a bonus of $234,000.
The Committee awarded additional bonuses to recognize and encourage
continued long-term commitment to the Company. That action resulted in an
additional bonus of $58,500 to Mr. Schmiege.
STOCK OPTIONS
The 1989 Equity Incentive Plan is administered by the Committee.
Under CNW's 1989 Equity Incentive Plan options were granted on
July 14, 1989, (the "1989 Options") to executives of the Company (including
the Chairman and the Senior Vice Presidents) on 1,820,012 shares of Common
Stock at an exercise price of $5.88 per share, the same price paid by
Blackstone Capital Partners L.P., DLJ Capital Corporation, and members of
senior management in the Acquisition. Options on an additional 247,582
shares of Common Stock were granted on July 30, 1990 (the "1990 Options"),
to other key members of management at the same exercise price. Under the
Plan 37.5% of the options vest on the basis of longevity and the remaining
62.5% on the basis of performance as measured by EBITD targets.
At December 31, 1992, 37.5% of the 1989 Options had vested on the
basis of longevity and, at December 31, 1993, 37.5% of the 1990 Options had
also vested on the basis of longevity.
At December 31, 1992, 32.5% of the 1989 Options and 32.5% of the 1990
Options had vested on the basis of performance, and vesting of the
remaining 30% of the 1989 Options and of the 1990 Options depended on
achievement of performance levels, subject to adjustment of those levels by
the Board, over fiscal 1993 and 1994. For 1993 the Committee had set the
EBITD target for vesting of 12.5% of the 1989 and 12.5% of the 1990 Options
at $293 million and had provisions for partial vesting on achievement of
between 95%-100% of this goal. Recognizing that 1993 EBITD target would
not be achieved because of the increased operating expenses and reduced
revenues resulting from the Midwest floods in June, July and August, 1993,
the Committee approved an adjustment to permit vesting of the full 12.5%.
In doing so, it recognized that the EBITD target would have been achieved
had it not been for these extraordinary Midwest floods, and it also
recognized that the Company's management had achieved significant cost
savings which would benefit the Company in the future. It therefore
approved, and recommended to the Board, vesting of 12.5% of the 1989
Options and 12.5% of the 1990 Options at the end of 1993.
- 12 -<PAGE>
As a result of this action of the Committee, options held by
Mr. Schmiege under the Equity Incentive Plan on 58,361 shares of the
Company's Common Stock vested.
1992 EQUITY INCENTIVE PLAN
In 1993, the Committee awarded no options under the 1992 Equity
Incentive Plan to the Chairman, any of the Senior Vice Presidents, or any
other management employee.
COMPENSATION AND STOCK OPTION COMMITTEE
James Mossman
Harold A. Poling
James R. Thompson
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Comparison of Cumulative Total Shareholder Return
The following is a tabular description of the graph included
in the proxy statement of cumulative total shareholder return
based on $100 being invested at March 31, 1992 in each of the
S&P 500 Index, the S&P Rail Index and Company Stock.
March 31, December 31, December 31,
1992 1992 1993
S&P 500 $100 $110.41 $121.53
S&P Rail Index 100 115.99 143.73
Company Stock 100 100.61 121.95
________________________
NOTE: Assumes the value of the investment in the Company's Common Stock
and in each index was $100 on March 31, 1992 and that all
dividends were reinvested. March 31, 1992 was the first trading
day in connection with the Initial Public Offering of the
Company's Common Stock.
Compensation of Directors
The Company compensated directors who are not officers or employees of the
Company or its principal stockholders (or affiliates thereof) as follows:
until September 30, 1993, with an annual fee of $25,000 and certain meeting
fees; since September 30, 1993, with an annual fee of $50,000. In 1993,
such compensation amounted to $37,750 each for Messrs. Martin and Thompson,
and $4,306 each for Messrs. Mossman, Poling and Skinner. Other directors
of the Company do not receive any fees or separate compensation. All
directors are reimbursed for out-of-pocket expenses. See "Certain
Relationships and Transactions - Compensation Committee Interlocks and
Insider Participation" for a description of annual management fees received
by Blackstone.
Beginning effective January 1, 1994, non-employee Directors may elect
annually in advance to receive fees currently or to defer all or any part
of them under the Chicago and North Western Holdings Corp. Directors'
Pension and Retirement Savings Plan ("Directors' Pension Plan") and the
Chicago and North Western Holdings Corp. Directors' Deferred Compensation
Plan ("Directors' Deferred Compensation Plan"). Pursuant to the Directors'
Pension Plan, participating directors are awarded matching contributions
equal to 50% of the fees which they elect to defer in a year. The
Directors' Pension Plan credits participating directors' accounts with
contributions, dividends, and gains and losses, as if their accounts are
fully invested in shares of the Company's Common Stock. The Directors'
Deferred Compensation Plan credits participating directors' deferred fee
accounts with a rate of return based on London Interbank Offered Rates
(LIBOR) plus one percent.
Both plans are unfunded. However, the Company has established a trust
("Plan Trust") to hold shares of Common Stock in approximately the amount
credited to its participating directors' accounts under the Directors'
Pension Plan. The assets of this trust are subject to the claims of the
Company's creditors in the event of insolvency or bankruptcy, but are
otherwise used to discharge the Company's liabilities under the Directors'
Pension Plan. Each of the participating directors votes any shares held in
the trust in the proportion that his account balance under the Directors'
Pension Plan is to all account balances under that plan.
Distributions of a director's account balances under both plans are
made, in cash, promptly after he retires or otherwise ceases to be a
director of the Company. Under the Directors' Deferred Compensation Plan a
director may elect, at the time of his election to defer fees for a year,
to be paid at the end of a shorter fixed deferral period.
- 14 -<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of March 1, 1994, with respect to
the persons or groups which are known to be the beneficial owners of more
than 5% of the Company's Common Stock.
Name Number of Shares Percent(5)
________________________ ________________ __________
UP Rail (1) 12,835,304 29.4
FMR Corp. (2) 5,756,425 13.2
Neuberger and Berman (3) 3,726,534 8.6
The Capital Group (4) 2,206,500 5.1
(1) UP Rail's current stock ownership consists of Non-voting Common
Stock. Subsequent to approval by the Interstate Commerce
Commission ("ICC"), UP Rail may convert its shares into voting
Common Stock on a share-for-share basis. On January 29, 1993, UP
Rail filed an application for such approval with the ICC. The
Non-voting Common Stock would automatically convert into voting
Common Stock in the event of its transfer to an entity not
regulated by the ICC. See "Certain Relationships and
Transactions-UP Rail and UP." The address of UP Rail is UP Rail,
Inc., c/o Union Pacific Corporation, Martin Tower, Eighth and
Eaton Ave., Bethlehem, Pennsylvania 18018.
(2) Based on information contained in the Schedule 13-G dated
February 11, 1994 filed by FMR Corp., 82 Devonshire Street,
Boston, MA 02109
(3) Based on information contained in the Schedule 13-G dated
January 31, 1994 filed by Neuberger & Berman, 605 Third Avenue,
New York, New York 10158.
(4) Based on information contained in the Schedule 13-G dated
February 11, 1994 filed by The Capital Group, 333 South Hope
Street, Los Angeles, CA 90071.
(5) Assumes the conversion of Non-voting Common Stock into Common
Stock.
Set forth below is certain information as of March 1, 1994 regarding
beneficial ownership of the Company's Common Stock by each of the Company's
directors, by each of the Company's named executive officers, and by all of
the Company's directors and executive officers as a group:
Name Number of Shares Percent(5)
__________________________ _______________ __________
Richard K. Davidson (1) 0 0
James E. Martin (2) 2,735 *
James J. Mossman (2) 735 *
Harold A. Poling 0 0
Robert Schmiege (3) 538,375 1.2
Samuel K. Skinner (2) 735 *
James R. Thompson (2) 885 *
Jerome W. Conlon (3) 132,277 *
James P. Daley (3) 185,953 *
Robert A. Jahnke (3) 232,777 *
Arthur W. Peters (3) 307,777 *
Thomas A. Tingleff (3) 172,623 *
All executive officers
and directors as a group
(12 persons) (4) 1,547,872 3.6
*Less than 1%
____________________________________
(1) Mr. Davidson is Chairman and Chief Executive Officer of UPRR.
Share data for Mr. Davidson does not include any of the shares in
the previous table beneficially owned by UP Rail.
(2) Includes, for each of Messrs. Martin, Mossman, Skinner and
Thompson, 735 shares held in the Plan Trust which are voted by
such respective directors but with respect to which such
directors do not have the right of disposition.
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(3) Includes shares which may be acquired within 60 days through the
exercise of options for Messrs. Schmiege, 385,183; Conlon,
54,585; Daley, 44,585; Jahnke, 169,404; Peters, 307,777; and
Tingleff, 155,116. Also includes 22,512 shares held by Mr.
Daley's spouse, of which Mr. Daley disclaims beneficial
ownership.
(4) Share data includes 1,116,650 shares which may be acquired within
60 days through the exercise of options. Excludes shares
included in the previous table for UP Rail.
(5) Assumes the conversion of Non-voting Common Stock into Common
Stock.
___________________________
Beneficial ownership of shares reflected in tables above includes the right
to vote and to dispose of such shares, except as otherwise noted.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company was acquired in a going-private transaction (the
"Acquisition") in 1989 involving the issuance and sale of Common Stock to
Blackstone Capital Partners, L.P. ("Blackstone"), Donaldson, Lufkin &
Jenrette Capital Corporation ("DLJCC") and certain members of the Company's
management, including the six executive officers, and the issuance and sale
of Convertible Preferred Stock to UP Rail. Blackstone and DLJCC and
certain of their respective affiliates (collectively, "Former Principal
Stockholders") sold substantially all of their Common Stock in July 1993,
500,000 of such shares (the "UP Purchase") to UP Rail (which converted the
shares into Non-voting Common Stock) and the balance in a public offering
(the "Offering"). UP Rail exchanged its Preferred Stock (and an additional
cash investment in the Company of $28 million) for 10,153,304 shares of
Non-voting Common Stock as part of a recapitalization transaction in 1992.
Compensation Committee Interlocks and Insider Participation
During the last fiscal year, Mr. Mossman served as a member of the
Compensation and Stock Option Committee commencing November 29, 1993 (the
date of his reelection to the Board), and he and James R. Birle served as
members of that Committee's predecessors, the separate Stock Option
Committee and Compensation Committee, until July 28, 1993, when they
resigned as directors. They are General Partners of BGH which received $1
million from the Company for management and advisory services for each of
the 12 month periods ending July 1993 and July 1994 and will receive $1
million for such services for the 12 months ending July 1995. Mr. Mossman
is also a former officer of the Company.
An agreement among Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC"), an affiliate of DLJCC, The Blackstone Group and the Company
entered into in connection with the Acquisition provided for DLJSC and The
Blackstone Group to act as co-investment bankers to the Company with
respect to certain transactions and receive investment banking compensation
in connection with such transactions to be shared equally between DLJSC and
The Blackstone Group. DLJSC's rights described above terminated in July
1992 and Blackstone's in March 1994.
Blackstone and its affiliates are also parties to the Stockholders
Agreement, the 1993 Agreement and the Registration Rights Agreement,
defined and discussed below.
Stockholders Agreement
The provisions of the Second Amended and Restated Stockholders
Agreement ("Stockholders Agreement") among the Former Principal
Stockholders, the Company's executive officers, UP Rail and the Company,
requiring the Former Principal Stockholders and such officers to vote their
shares for designees to the Company's Board of Directors of the Former
Principal Stockholders, the executive officers and UP Rail, terminated in
July 1993 following the Offering (except for such officers' obligation to
vote their Common Stock for the election of one UP designee to the Board of
Directors). At that time, the four directors designated by Blackstone,
including Mr. Mossman, and the director designated by DLJCC resigned from
the Board; however, Mr. Mossman was reelected to the Board in November
1993.
- 16 -<PAGE>
Under the Stockholders Agreement, subject to certain exceptions: (i)
if UP Rail wishes to sell or otherwise dispose of any of its shares of
Common Stock (the "Transfer Securities") to a person other than a party to
the Stockholders Agreement or a permitted transferee of such party (a
"Third Party") (excluding, in the case of UP Rail, a sale or spinoff to the
stockholders of UP) in one transaction or from time to time in different
transactions or (ii) if the Company wishes to sell or otherwise dispose of
all or substantially all of its assets or all or a part of the East-West
Main Line, whether or not a part of the sale of any other assets ("Transfer
Assets") (any Transfer Securities together with any Transfer Assets being
referred to herein as the "Offered Assets"), then (a) UP Rail or a
permitted transferee, in the case of a proposed sale by the Company of any
Transfer Assets, and (b) the Company, in the case of a proposed sale of
Transfer Securities by UP Rail or any of its permitted transferees, shall
have a right of first refusal with respect to the Offered Assets at a price
specified by UP Rail or the Company, as the case may be (the "Seller"),
exercisable for a period of 45 days following written notice from the
Seller of the terms of such proposed sale of Offered Assets (the "Sale
Notice"). Following a party's failure to exercise its right of first
refusal, for a period of 400 days from the date of the Sale Notice, the
Offered Assets may be sold to a Third Party on terms and conditions no more
favorable than those offered to the person having the right of first
refusal (each, a "Rights Offeree"), provided that such sale (x) is at a
price in excess of 82.5% of the price at which the Offered Assets were
offered to the Rights Offeree and (y) is otherwise on the same general
terms and conditions as such offer to the Rights Offeree.
UP Rail's right of first refusal with respect to the proposed sale of
any Transfer Assets is subject to certain limitations and exceptions and is
also subject to ICC approval or exemption. See "UP Rail and UP." In
addition, UP Rail's right of first refusal with respect to the East-West
Main Line terminates if, under certain circumstances, UP Rail fails to
exercise its right, and its right of first refusal with respect to the
Transfer Assets (except with respect to the East-West Main Line) terminates
if UP Rail, together with its permitted transferees, ceases to own
approximately 2,840,000 or more shares of the Non-voting Common Stock or
Common Stock.
1993 Agreement
Pursuant to an agreement, dated as of June 21, 1993 (the "1993
Agreement") among the parties to the Stockholders Agreement, the Company
has agreed to use its best efforts to cause two members of UP's senior
management (the "Additional Nominees"), to be appointed to the Board of
Directors as members of the class of Directors serving for a term ending on
the date of the Annual Meeting to be held in 1995. The Board of Directors
has so elected the Additional Nominees, such election to be effective upon
the obtaining of any approval, exemption or declaratory order of the ICC
necessary for the election of such individuals to become effective (the
"Effective Time"). UP is seeking such approval in connection with its
application, described herein, filed on January 29, 1993, for an order
authorizing the common control, within the meaning of the Act, of the rail
subsidiaries of the Company and of UP. In addition, the Company has agreed
to use its best efforts to ensure that there will at all times be three
nominees of UP Rail on the Board of Directors (and, if the Company shall
continue to have a staggered Board of Directors, one such nominee will be
in Class I (current term expiring in 1996) and two such nominees will be in
Class III (current term expiring in 1995)), such efforts to include, if
necessary, expanding the Board of Directors, and filling vacancies on the
Board of Directors with, and nominating and soliciting proxies for the
election as Directors at each annual meeting of the Company's stockholders
of, UP Rail nominees. The Company has also agreed to use its best efforts
to ensure that the Board of Directors consists of nine Directors (including
the Additional Nominees), provided that the number of authorized Directors
may be increased in certain instances to permit the election of UP Rail
nominees.
Pursuant to the 1993 Agreement, the executive officers have agreed to
vote their shares of Common Stock and otherwise use their best efforts to
ensure that there will at all times be three nominees of UP Rail on the
Board of Directors, provided that such obligation will not restrict sales
of Common Stock held by the executive officers and will cease with respect
to any executive officer if he ceases to be an employee of the Company.
The provisions of the 1993 Agreement described above will terminate
(i) with respect to the two additional UP Rail nominees to the Board of
Directors provided for by the 1993 Agreement, if UP Rail ceases to own at
least 20% of the capital stock of the Company of any class or classes, the
- 17 -<PAGE>
holders of which are entitled to vote generally in the election of the
members of the Board of Directors, and any securities of the Company
presently convertible into, or exercisable or exchangeable for, any such
capital stock of the Company, including but not limited to the Common Stock
and the Non-Voting Common Stock (whether or not presently convertible), and
(ii) with respect to one of such additional UP Rail nominees, if UP Rail
ceases to own at least 25%, but continues to own at least 20% of such
capital stock and securities.
The 1993 Agreement terminates an agreement entered into in December
1990 among the Company, certain of its subsidiaries, UP and certain
affiliates of UP, which restricted the Company from paying dividends and
making other distributions in respect of Common Stock. The Company remains
subject to other agreements with lenders which restrict its ability to pay
dividends.
Pursuant to the 1993 Agreement, in connection with the Offering, the
parties to the Stockholders Agreement agreed to the UP Purchase and
otherwise waived certain rights of first refusal and restrictions
concerning transfers of Common Stock by the Former Principal Stockholders
set forth in the Stockholders Agreement and subscription agreements entered
into by the Company with the Former Principal Stockholders.
Pursuant to the 1993 Agreement, the parties thereto also confirmed and
agreed to eliminate restrictions on transfers of Common Stock and related
options held by the executive officers set forth in the Stockholders
Agreement and in subscription agreements between the Company and such
officers.
Registration Rights Agreement
UP Rail has the right, pursuant to the Registration Rights Agreement,
to require that the Company effect the registration under the Securities
Act of all or any part of its shares of Common Stock, and UP Rail and the
executive officers of the Company have certain piggyback registration
rights at such time or times as the Company publicly offers securities.
The Former Principal Stockholders also had registration rights under the
Registration Rights Agreement until after the Offering.
DLJCC
Donaldson, Lufkin and Jenrette Securities Corporation, an affiliate of
DLJCC, acting as co-lead underwriter in the Offering, realized as such $2.3
million in aggregate selling concessions.
UP Rail and UP
A Standstill Agreement under which UP Rail agreed, among other things,
that it would not, prior to April 6, 1994, acquire or agree to acquire more
than 30% of the aggregate outstanding Common Stock and Non-voting Common
Stock terminated in July 1993.
Provisions of the Interstate Commerce Act (the "Act") require the ICC
to approve the acquisition of control over an entity, such as the Company,
that controls one or more railroads by an entity, such as UP Rail, that is
under common control with one or more other railroads. The ICC has, in
certain of its decided cases, held that even the ownership of a minority
percentage of voting stock, such as UP Rail will hold in the Company upon
conversion of the Non-voting Common Stock into Common Stock, can constitute
such "control" within the meaning of the Act, depending on all the relevant
facts and circumstances, including the other existing relationships. UP
has advised the Company that it wishes to convert the shares of Non-voting
Common Stock into shares of Common Stock and to vote such shares of Common
Stock. In this connection, UP has applied to the ICC for an order (on
which ICC action is expected this year) authorizing the common control
within the meaning of the Act of UP's rail subsidiaries, which will permit
such conversion and voting. Obtaining ICC control authority would
eliminate any uncertainty as to UP Rail's ability to vote the Common Stock
to the extent that the right to vote the Common Stock, in conjunction with
UP's and its subsidiaries' other existing relationships with the Company
and its subsidiaries, might be considered to constitute common control
within the meaning of the Act. UP has requested that the ICC issue an
order that would permit UP to, among other things, acquire further Common
Stock and (subject to approval of the Company) coordinate further the
services of the railroad subsidiaries of UP and the Company, without the
possible need to obtain any further control authorization from the ICC,
although particular coordinations may require other ICC approvals or
exemptions. The Company and the stockholders party to the Stockholders
- 18 -<PAGE>
Agreement (but not Blackstone and DLJCC since the Offering in July 1993)
have agreed to cooperate with UP in such a control proceeding, and in any
other ICC proceedings necessary to UP's conversion of Non-voting Common
Stock hereafter owned by it to Common Stock and UP's voting of that Common
Stock.
Additionally, UP Rail has a right of first refusal with respect to a
proposed sale of certain assets of the Company. (See "Stockholders
Agreement"). Such right is subject to certain limitations and exceptions,
including UP's continuing to maintain ownership of approximately 2,840,000
or more shares of the Non-voting Common Stock or Common Stock.
Pursuant to a Trackage Rights Agreement, approved by the ICC, among
UPRR and the Company, as supplemented and amended by a Supplemental Form of
Agreement for UP Trackage Rights, dated as of January 31, 1990 (the
"Trackage Rights Agreement"), the Company hauls certain traffic over the
east-west main line for UPRR using Company employees, engines and
facilities under terms that preserve the Company's revenue on that traffic
and at the same time provide the Company with increased revenues in the
event of increased UPRR usage under the Trackage Rights Agreement. The
Trackage Rights Agreement was further amended by the amendment dated as of
December 20, 1990. The Trackage Rights Agreement, as so amended, requires
the Company to maintain 90% of the east-west main line at Class V Federal
Railroad Administration ("FRA") standards by the end of 1994. Since
December 31, 1992, this condition has been met. In addition, UPRR has
agreed that if it determines by the end of 1994 that further upgrading of
the east-west main line is desirable, it will provide $35 million of
additional debt financing to help the Company achieve the maintenance of
100% of the east-west main line at Class V FRA standards by 1996. As
discussed below, implementation of the Trackage Rights Agreement has been
approved by the ICC.
The trackage rights granted to UPRR under the Trackage Rights
Agreement run for a term of 999 years and consist of bridge rights (i.e.,
rights to haul freight from one end of the east-west main line to the
other, but not to originate, terminate or interchange traffic at
intermediate points) between Fremont, Nebraska/Council Bluffs, Iowa and
points in and around Chicago, Illinois, and full rights throughout the
Chicago area, each subject to certain limitations. UPRR retains the option
of working with the Company and other railroads on an interline basis
rather than handling traffic via the trackage rights. UPRR is allowed to
interchange with all rail and non-rail transportation companies in the
Chicago area for traffic to and from points not served by the Company or
FRVR Corporation (a Wisconsin regional railroad which purchased its line
from the Company).
The Trackage Rights Agreement also calls for provision by the Company
of terminal services, including switching for UPRR to connecting railroad
companies and to and from selected terminal and shipper's facilities.
Other services to be provided to UPRR by the Company include locomotive
servicing and fueling, locomotive and train inspection, derailment cleanup,
bad order repair and clerical services.
As compensation for the rights and services afforded thereunder, the
Trackage Rights Agreement obligates UPRR to pay the Company its revenue per
unit (by traffic classifications) of the first quarter of 1989 net of
refunds and all appropriate allowance payments, with the level of such
compensation to be adjusted upward or downward (subject to a defined
minimum rate) in accordance with the percentage increase or decrease of
UPRR's net revenue per unit for each trackage right traffic classification.
The aforementioned level of compensation will be adjusted every five years
to reflect productivity per unit where such adjustment would not reduce the
revenue to variable cost ratio below the level prevailing on the date of
the Trackage Rights Agreement. In order to provide UPRR with an incentive
to increase the traffic subject to the Trackage Rights Agreement, the
compensation described above is to be adjusted to reflect UPRR's increase
in usage (volume as measured in carloads, trailers or containers) by
traffic classification for trackage rights traffic using the East-West Main
Line. In addition, the Company is entitled to supplementary compensation
for handling empty returns in excess of the number of loads handled. The
Trackage Rights Agreement also requires UPRR to reimburse the Company for
additional costs associated with certain special services.
In order to insure provision by the Company of the high level of
service and maintenance required under the Trackage Rights Agreement, any
material breach of the service or maintenance standards incorporated
therein, which is not cured within the period allotted therefor, will
result in the entitlement of UPRR to expanded rights in respect of the
trackage right lines, including, under certain circumstances, the right to
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undertake maintenance therefor, to make capital improvements to insure
continued maintenance at Class V standards, the immediate right to fully
operate its own trains over such lines, and corresponding changes in the
compensation provisions for trackage rights.
The Trackage Rights Agreement further provides that, except in the
event of a material breach of the agreement (in which event control of
train operations will be held by the party with the greater usage and UP
will be permitted to utilize its own train crews), the Company will be
solely responsible for control of train operations on the lines subject to
the Trackage Rights Agreement and will conduct the same in a non-
discriminatory manner. Absent breach, the Company will also be obligated
to provide crews for UP trains and will in any event bear the same
liability for trackage rights traffic as it would have had if such traffic
had moved in interline service.
The Company and UP and certain of its subsidiaries are also parties to
certain agreements originally entered into in connection with UP's
participation in the financing of Western Railroad Properties, Incorporated
("WRPI") in 1982 and restated in December of 1990 when WRPI completed a
refinancing (the "WRPI Refinancing") of indebtedness incurred in connection
with the construction of WRPI's rail lines. Under these agreements, a
trust for the benefit of a subsidiary of UP (the "WRPI Trust") owns
approximately one-half of the track constituting the WRPI line and certain
support facilities and leases them to WRPI pursuant to the Lease. During
1993, WRPI paid $22.6 million to WRPI Trust for lease payments and
contingent rent. In order to secure the performance of WRPI's obligations
under the Lease (including rental payments in respect of indebtedness
incurred by the WRPI Trust in connection with the WRPI Refinancing) and the
other agreements entered into as part of the WRPI Refinancing, all of the
capital stock of WRPI is currently pledged to the WRPI Trust. Under the
pledge agreement with the WRPI Trust, the Company is required (subject to
certain exceptions) to obtain the consent of the WRPI Trust or UP to any
transfer of capital stock of WRPI at any time prior to April of 2001. In
addition, the WRPI Trust has a right of first refusal with respect to
transfers of the capital stock of WRPI under this agreement and would have
the right, unless prohibited by law, to acquire the capital stock of WRPI
at the lower of the fair market value and the book value of such shares in
the event of: (i) a material breach of the participation and loan agreement
entered into in connection with the WRPI Refinancing, which, in the case of
a non-monetary breach, would, after expiration of a 60-day grace period,
have a material adverse effect on UP or its affiliates or its interest in
WRPI; or (ii) a continuing event of default under the Lease.
In addition to the foregoing, the Company has a substantial operating
relationship with UPRR. Approximately 65% of the Company's total loads in
1993 were interchanged with UPRR railroad lines at the Company's Omaha
gateway and at the south end of WRPI. The east-west main line also links
UPRR's primary western routes with eastern railroads in Chicago, providing
the most direct freight service available between Chicago and West Coast
points in the nation's central corridor.
INDEPENDENT PUBLIC ACCOUNTANTS
On recommendation of the Audit Committee, Arthur Andersen & Co. has
been selected by the Board of Directors as independent auditors for the
Company for 1994. Representatives of Arthur Andersen & Co. are expected to
be present at the Annual Meeting of Stockholders and to be available to
respond to questions. Those representatives will be given the opportunity
to make statements if they so desire.
STOCKHOLDER PROPOSALS
Stockholder Proposals submitted for inclusion in proxy materials for
the 1995 Annual Meeting of Stockholders should be addressed to the
Company's Senior Vice President, General Counsel and Secretary, 165 North
Canal Street, Chicago, Illinois 60606, and must be received by November 28,
1994.
OTHER MATTERS
While the Notice of the 1994 Annual Meeting of Stockholders calls for
transaction of such other business as may properly come before the Meeting,
the Board of Directors has no knowledge of any matters to be presented for
action by the stockholders at the Meeting other than as hereinabove set
forth. The enclosed proxy gives discretionary authority, however, in the
event that any additional matter should be presented.
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By Order of the Board of Directors,
/s/ James P. Daley
JAMES P. DALEY
Senior Vice President,
General Counsel and Secretary
- 21 -<PAGE>
CHICAGO AND NORTH WESTERN HOLDINGS CORP.
165 North Canal Street
One North Western Center
Chicago, Illinois 60606
Proxy Solicited on Behalf of the Board of Directors
Annual Meeting of Stockholders - May 3, 1994
The undersigned stockholder hereby appoints ROBERT SCHMIEGE, JAMES P.
DALEY, AND ROBIN BOURNE-CARIS, or any of them, with full power of
substitution (the action of one, if only one be present and acting, to be
in any event controlling), the proxies of the undersigned to represent the
undersigned at the Annual Meeting of Stockholders of Chicago and North
Western Holdings Corp., to be held at the hour of 9:00 A.M. local time, on
May 3, 1994 and at any and all adjournments thereof, and to vote all shares
which the undersigned would be entitled to vote thereat as designated
below, with all powers which the undersigned would possess if personally
present.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If properly executed, but no
direction is made, this proxy will be voted for the election of all
nominees listed and for Proposals No. 2 and No. 3
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE
(Continued, and to be signed, on the other side)
- -----------------------------------------------------------------
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
The Board of Directors Recommends a Vote "FOR" Each of the Listed
Proposals.
1. ELECTION OF DIRECTORS
Nominees: JAMES E. MARTIN, JAMES J. MOSSMAN and
JAMES R. THOMPSON
[ ] FOR ALL [ ] WITHHOLD FOR ALL
(To withhold authority to vote for any individual nominee, write that
nominee's name on the space provided below)
____________________________________________________________
2. Approval of amendment to Restated Certificate of Incorporation to
change the Company's name to Chicago and North Western Transportation
Company
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of 1994 Equity Incentive Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
DATED: ________________________, 1994
______________________________________
Signature
______________________________________
Signature if held jointly
Please sign exactly as name appears on this card.
When shares are held by joint tenants, only one
need sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such.
- 22 -<PAGE>
EXHIBIT 22
CHICAGO AND NORTH WESTERN HOLDINGS CORP.
1994 EQUITY INCENTIVE PLAN
The Plan. Chicago and North Western Holdings Corp., a
Delaware corporation (the "Company"), hereby establishes the
Chicago and North Western Holdings Corp. 1994 Equity Incentive
Plan as set forth herein and as it may from time to time be
amended (the "Plan"), effective March 7, 1994, subject to
shareholder approval.
1. Purpose. The purpose of the Plan is to provide a means
by which key employees of the Company and its Subsidiaries can
acquire and maintain Stock ownership, thereby strengthening their
commitment to the success of the Company and their desire to
remain employed by the Company and its Subsidiaries. It is
anticipated that the acquisition of such Stock ownership will
stimulate the efforts of such employees on behalf of the Company,
strengthen their desire to continue in the service of the Company
and encourage shareholder and entrepreneurial perspectives
through employee stock ownership. It is also anticipated that
the opportunity to obtain such Stock ownership will prove
attractive to promising new key employees and will assist the
Company in attracting such employees.
2. Definitions.
As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings
provided by such definitions and the terms set forth below shall
have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms
defined):
(a) "Award" means options granted under the Plan.
(b) "Award Agreement" has the meaning specified in
Section 4(b)(v).
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" includes termination based on the commission of
any act or acts involving dishonesty, fraud, illegality or moral
turpitude, or the Grantee's habitual neglect of his duties.
(e) "Code" means the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder. References to a
particular section of the Code shall include references to
successor provisions.
- 1 -<PAGE>
(f) "Committee" means the committee of the Board appointed
pursuant to Section 4.
(g) "Company" has the meaning set forth in the introductory
paragraph.
(h) "Disability" means, as relates to the exercise of an
incentive stock option after Termination of Employment, a
disability within the meaning of Section 22(e)(3) of the Code,
and for all other purposes, a mental or physical condition which,
in the opinion of the Committee, renders a Grantee unable or
incompetent to carry out the job responsibilities which such
Grantee held or the tasks to which such Grantee was assigned at
the time the disability was incurred, and which is expected to be
permanent or for an indefinite duration exceeding one year.
(i) "Effective Date" means March 7, 1994.
(j) "Fair Market Value" of any security of the Company
means, as of any applicable date the closing price, regular way,
of the security as reported on the New York Stock Exchange
Composite Tape, or if no such reported sale of the security shall
have occurred on such date, on the next preceding date on which
there was such a reported sale.
(k) "Grant Date" means the date on which an Award shall be
duly granted, as determined in accordance with Section 6(a)(i).
(l) "Grantee" means an individual who has been granted an
Award.
(m) "including" or "includes" means "including, without
limitation," or "includes, without limitation."
(n) "Minimum Consideration" means $.01 per share (other
than treasury shares) or such larger amount determined pursuant
to resolution of the Board to be capital within the meaning of
Section 154 of the Delaware General Corporation Law.
(o) "1934 Act" means the Securities Exchange Act of 1934,
as amended. References to a particular section of, or rule
under, the 1934 Act shall include references to successor
provisions.
(p) "Option Price" means the per share purchase price of
Stock subject to an option.
(q) "Plan" has the meaning set forth in the introductory
paragraph.
(r) "SEC" means the Securities and Exchange Commission.
- 2 -<PAGE>
(s) "Section 16 Grantee" means a person subject to
potential liability under Section 16(b) of the 1934 Act with
respect to transactions involving equity securities of the
Company.
(t) "Share Withholding" has the meaning set forth in
Section 12(a).
(u) "Stock" means the common stock of the Company, par
value $.01 per share.
(v) "Subsidiary" means (i) with respect to incentive stock
options, a corporation as defined in Section 424(f) of the Code
with the Company being treated as the employer corporation for
purposes of this definition, and (ii) for all other purposes any
entity in which the Company directly or through intervening
subsidiaries owns twenty-five percent (25%) or more of the total
combined voting power or value of all classes of stock or, in the
case of an unincorporated entity, a twenty-five percent (25%) or
more interest in the capital and profits.
(w) "Taxable Event" has the meaning set forth in
Section 12(a).
(x) "Tax Date" has the meaning set forth in
Section 12(b)(iii).
(y) "Tendered Restricted Stock" has the meaning specified
in Section 9(a).
(z) "10% Owner" means a person who owns stock (including
stock treated as owned under Section 424(d) of the Code)
possessing more than 10% of the total combined voting power of
all classes of stock of the Company.
(aa) "Termination of Employment" occurs the first day an
individual is for any reason entitled to severance payments under
the Company's or any Subsidiary's personnel policies or is no
longer employed by the Company or any of its Subsidiaries, in
each case as determined by the Committee.
3. Scope of the Plan.
(a) An aggregate of 2,000,000 shares of Stock is hereby
made available and is reserved for delivery on account of the
exercise of Awards. Such shares may be treasury shares or newly
issued shares, as may be determined from time to time by the
Board or the Committee.
(b) If and to the extent an Award shall expire or terminate
for any reason without having been exercised in full or shall be
forfeited, without, in either case, the Grantee having enjoyed
- 3 -<PAGE>
any of the benefits of stock ownership (other than voting rights
or dividends that are likewise forfeited), the shares of Stock
associated with such Award shall become available for other
Awards.
4. Administration.
(a) The Plan shall be administered by a committee
("Committee") which shall consist of not less than two persons
(or not less than such larger number of persons as is required to
permit transactions in stock pursuant to the Plan to be exempt
from liability under Section 16(b) of the 1934 Act pursuant to
Rule 16b-3 thereunder, as from time to time applicable) who are
directors of the Company. Membership on the Committee shall be
subject to such other limitations as the Board deems appropriate,
whether to permit transactions in Stock pursuant to the Plan to
be exempt from liability under Section 16(b) of the 1934 Act
pursuant to Rule 16b-3 thereunder as from time to time
applicable, or otherwise.
(b) The Committee shall have full and final authority, in
its discretion, but subject to the express provisions of the
Plan, as follows:
(i) to grant Awards;
(ii) to determine (A) when Awards may be granted, and
(B) whether or not specific Awards shall be identified with
other specific Awards, and if so whether they shall be
exercisable cumulatively with or alternatively to such other
specific Awards;
(iii) to interpret the Plan and to make all
determinations necessary or advisable for the administration
of the Plan;
(iv) to prescribe, amend, and rescind rules and
regulations relating to the Plan, including rules with
respect to the exercisability and nonforfeitability of
Awards upon the Termination of Employment of a Grantee;
(v) to determine the terms and provisions and any
restrictions or conditions (including specifying any
performance criteria as the Committee deems appropriate, and
imposing restrictions with respect to Stock acquired upon
exercise of an option, which restrictions may continue
beyond the Grantee's Termination of Employment) of the
written agreements by which all Awards shall be evidenced
("Award Agreements") which need not be identical and, with
the consent of the Grantee, to modify any such Award
Agreement at any time;
- 4 -<PAGE>
(vi) to accelerate the exercisability of, and to
accelerate or waive any or all of the restrictions and
conditions applicable to, any Award, or any group of Awards
for any reason;
(vii) to make such adjustments or modifications to
Awards to Grantees working outside the United States as are
necessary and advisable to fulfill the purposes of the Plan;
and
(viii) to impose such additional conditions,
restrictions, and limitations upon the grant, exercise or
retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate,
including requiring simultaneous exercise of related
identified Awards, and limiting the percentage of Awards
which may from time to time be exercised by a Grantee.
The determination of the Committee on all matters relating to the
Plan or any Award Agreement shall be conclusive and final. No
member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
Award.
5. Eligibility. Awards may be granted to any employee of
the Company or any of its Subsidiaries. In selecting the
individuals to whom Awards may be granted, as well as in
determining the number of shares of Stock subject to, and the
other terms and conditions applicable to, each Award, the
Committee shall take into consideration such factors as it deems
relevant in promoting the purposes of the Plan.
6. Conditions to grants.
(a) General conditions.
(i) The Grant Date of an Award shall be the date
on which the Committee grants the Award or such later
date as specified in advance by the Committee.
(ii) The term of each Award (subject to
Section 6(c) with respect to incentive stock options)
shall be a period of not more than 10 years from the
Grant Date, and shall be subject to earlier termination
as herein provided.
(iii) A Grantee may, if otherwise eligible, be
granted additional Awards in any combination.
(b) Grant of options and option price. No later than
the Grant Date of any option, the Committee shall determine the
Option Price of such option. The Option Price of an option shall
- 5 -<PAGE>
not be less than 100% of the Fair Market Value of the Stock on
the Grant Date. Such price shall be subject to adjustment as
provided in Section 20. A Grantee shall not be granted options
for a total of more than 200,000 shares of Stock in a calendar
year.
(c) Grant of incentive stock options. At the time of
the grant of any option, the Committee may designate that such
option shall be made subject to additional restrictions to permit
it to qualify as an "incentive stock option" under the
requirements of Section 422 of the Code. Any option designated
as an incentive stock option:
(i) shall have an Option Price of (A) not less than
100% of the Fair Market Value of the Stock on the Grant Date
or (B) in the case of a 10% Owner, not less than 110% of the
Fair Market Value of the Stock on the Grant Date;
(ii) shall be for a period of not more than 10 years
(five years, in the case of a 10% Owner) from the Grant
Date, and shall be subject to earlier termination as
provided herein or in the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value
(determined for each incentive stock option at its Grant
Date) of Stock with respect to which incentive stock options
are exercisable for the first time by such Grantee during
any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any parent or
Subsidiary thereof ("Other Plans")), determined in
accordance with the provisions of Section 422 of the Code,
which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of
Stock (determined on the Grant Date) with respect to all
incentive stock options previously granted under the Plan
and any Other Plans ("Prior Grants") and any incentive stock
options under such grant (the "Current Grant") which are
exercisable for the first time during any calendar year
would exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant exercisable
for the first time by the Grantee during any calendar
year which would, when added to any portions of any
Prior Grants first exercisable in such year, be
exercisable for the first time by the Grantee during
such calendar year with respect to Stock which would
have an aggregate Fair Market Value (determined as of
the respective Grant Date for such options) in excess
of the $100,000 Limit shall, notwithstanding the terms
of the Current Grant, be exercisable for the first time
by the Grantee in the first subsequent calendar year or
- 6 -<PAGE>
years in which it could be exercisable for the first
time by the Grantee when added to all Prior Grants
without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current
Grant, any portion of a Current Grant could not be
exercised under the provisions of the immediately
preceding sentence during any calendar year commencing
with the calendar year in which it is first exercisable
through and including the last calendar year in which
it may by its terms be exercised, such portion of the
Current Grant shall not be an incentive stock option,
but shall be exercisable as a separate option at such
date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier
of the date the Plan is adopted or the date the Plan is
approved by the stockholders of the Company;
(vi) shall require the Grantee to notify the Committee
of any disposition of any Stock issued pursuant to the
exercise of the incentive stock option under the
circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10
days of such disposition; and
(vii) shall by its terms not be assignable or
transferable other than by will or the laws of descent and
distribution and may be exercised, during the Grantee's
lifetime, only by the Grantee; provided, however, that the
Grantee may, to the extent provided in the Plan in any
manner specified by the Committee, designate in writing a
beneficiary to exercise his incentive stock option after the
Grantee's death.
Notwithstanding the foregoing and Section 4(b)(v), the Committee
may, without the consent of the Grantee, at any time before the
exercise of an option (whether or not an incentive stock option),
take any action necessary to prevent such option from being
treated as an incentive stock option.
7. Grantee's agreement to serve. Each Grantee who is
granted an Award shall, by executing such Grantee's Award
Agreement, agree that such Grantee will remain in the employ of
the Company or any of its Subsidiaries for at least one year
after the Grant Date. No obligation of the Company or any of its
Subsidiaries as to the length of any Grantee's employment shall
be implied by the terms of the Plan, any grant of an Award
hereunder or any Award Agreement. The Company and its
Subsidiaries reserve the same rights to terminate employment of
any Grantee as existed before the Effective Date.
- 7 -<PAGE>
8. Non-transferability. Except as provided in Section
6(c)(vii), each Award granted hereunder shall not be assignable
or transferable other than by will or the laws of descent and
distribution provided, however, that a Grantee may in a manner
specified by the Committee and to the extent provided in the Plan
designate in writing a beneficiary to exercise his Award after
the Grantee's death.
9. Exercise.
(a) Exercise of options. Subject to Sections 4(b)(vi) and
13 and such terms and conditions as the Committee may impose,
each option shall be exercisable in one or more installments
commencing not earlier than the first anniversary of the Grant
Date of such option.
Each option shall be exercised by delivery to the Company of
written notice of intent to purchase a specific number of shares
of Stock subject to the option. The Option Price of any shares
of Stock as to which an option shall be exercised shall be paid
in full at the time of the exercise. Payment may, at the
election of the Grantee, be made in any one or any combination of
the following:
(i) cash;
(ii) with the approval of the Committee, Stock valued
at its Fair Market Value on the date of exercise;
(iii) through simultaneous sale through a broker of
shares acquired on exercise, as permitted under Regulation T
of the Federal Reserve Board; or
(iv) with the approval of the Committee, shares of
restricted stock valued at the Fair Market Value of a share
of Stock on the date of exercise;
including, with the consent of the Committee, by pyramiding
(i.e., paying the Option Price with shares of Stock
simultaneously acquired by option exercise).
If restricted stock ("Tendered Restricted Stock") is used to
pay the Option Price for Stock subject to an option, then the
Committee may, but need not, specify that (i) all the shares of
Stock acquired on exercise of the option shall be subject to the
same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option, or (ii) a number of shares
of Stock acquired on exercise of the option equal to the number
of shares of Tendered Restricted Stock shall, unless the
Committee provides otherwise, be subject to the same restrictions
as the Tendered Restricted Stock, determined as of the date of
exercise of the option.
- 8 -<PAGE>
(b) Special rules for Section 16 Grantees. No option shall
be exercisable by a Section 16 Grantee during the first six
months after its Grant Date, except as exempted from Section 16
of the 1934 Act under Rule 16a-2(d) under the 1934 Act.
10. Notification under Section 83(b). The Committee may,
on the Grant Date or any later date, prohibit a Grantee from
making the election described below. If the Committee has not
prohibited such Grantee from making such election, and the
Grantee shall, in connection with the exercise of any option,
make the election permitted under Section 83(b) of the Code
(i.e., an election to include in such Grantee's gross income in
the year of transfer the amounts specified in Section 83(b) of
the Code), such Grantee shall notify the Company of such election
within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of
Section 83(b) of the Code.
11. Mandatory withholding taxes.
(a) Whenever under the Plan, shares of Stock are to be
delivered upon exercise of an Award, the Company shall be
entitled to require as a condition of delivery (i) that the
Grantee remit an amount sufficient to satisfy all federal, state,
and local withholding tax requirements related thereto, (ii) the
withholding of such sums from compensation otherwise due to the
Grantee or from any shares of Stock due to the Grantee under the
Plan or (iii) any combination of the foregoing.
(b) If any disqualifying disposition described in
Section 6(c)(vi) is made with respect to shares of Stock acquired
under an incentive stock option granted pursuant to the Plan or
any election described in Section 11 is made, then the person
making such disqualifying disposition or election shall remit to
the Company an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in
lieu of or in addition to the foregoing, the Company shall have
the right to withhold such sums from compensation otherwise due
to the Grantee or from any shares of Stock due to the Grantee
under the Plan.
12. Elective share withholding.
(a) Subject to Section 12(b), a Grantee may elect the
withholding ("Share Withholding") by the Company of a portion of
the shares of Stock otherwise deliverable to such Grantee upon
the exercise or payment of an Award (each a "Taxable Event")
having a Fair Market Value equal to:
(i) the minimum amount necessary to satisfy required
federal, state, or local withholding tax liability
- 9 -<PAGE>
attributable to the Taxable Event (in 1994, the minimum
amount required by federal tax withholding rules is 28% of
the Grantee's taxable income); or
(ii) with the Committee's prior approval, a greater
amount, not to exceed the estimated total amount of such
Grantee's tax liability with respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be
subject to the following restrictions:
(i) any Grantee's election shall be subject to the
Committee's right to revoke such election of Share
Withholding by such Grantee at any time before the Grantee's
election if the Committee has reserved the right to do so in
the Award Agreement;
(ii) if the Grantee is a Section 16 Grantee, such
Grantee's election shall be subject to the disapproval of
the Committee at any time, whether or not the Committee has
reserved the right to do so;
(iii) the Grantee's election must be made before the
date (the "Tax Date") on which the amount of tax to be
withheld is determined;
(iv) the Grantee's election shall be irrevocable;
(v) except to the extent such condition may be waived
by the General Counsel of the Company, a Section 16 Grantee
may not elect Share Withholding within six months after the
grant of the related option (except if the Grantee dies or
incurs a Disability before the end of the six-month period);
and
(vi) except to the extent such condition may be waived
by the General Counsel of the Company, any election of Share
Withholding by a Section 16 Grantee must be made either six
months before the Tax Date or during the ten business day
period beginning on the third business day after the release
of the Company's quarterly or annual summary statement of
sales and earnings.
13. Termination of Employment.
(a) For any reason other than Cause, death, retirement or
Disability. If a Grantee has a Termination of Employment for a
reason other than for Cause, death of the Grantee, the Grantee's
retirement or Disability, any unexercised option, to the extent
exercisable on the date of the Grantee's Termination of
Employment, may be exercised in whole or in part, not later than
the 90th day following the Grantee's Termination of Employment;
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provided that if such 90th day is not a business day, such option
may be exercised not later than the first business day following
such 90th day, and:
(i) For Cause. If a Grantee has a Termination of
Employment for Cause, any unexercised option shall thereupon
terminate upon the date of the Grantee's Termination of
Employment.
(ii) On account of death. If a Grantee has a
Termination of Employment on account of the Grantee's death,
then, except as otherwise provided in the Award Agreement,
any unexercised option, whether or not exercisable on the
date of such Termination of Employment may be exercised, in
whole or in part, at any time within one year after such
Termination of Employment by the Grantee, or after the
Grantee's death, by (A) his personal representative or by
the person to whom the option is transferred by will or the
applicable laws of descent and distribution, or (B) the
Grantee's beneficiary designated in accordance with Section
6(c)(vii) or 8.
(iii) On account of retirement. If a Grantee has a
Termination of Employment on account of retirement, any
unexercised option which is then exercisable at the date of
such Termination of Employment may be exercised, in whole or
in part, at any time within 90 days after the Grantee's
Termination of Employment; provided that, if the Grantee
dies after such Termination of Employment and before the end
of such 90-day period, such option may be exercised by the
deceased Grantee's personal representative or by the person
to whom the option is transferred by will or the applicable
laws of descent and distribution within one year after the
Grantee's Termination of Employment.
(iv) On account of Disability. If a Grantee has a
Termination of Employment on account of Disability, any
unexercised option, to the extent exercisable on the date of
such Termination of Employment, may be exercised, in whole
or in part, at any time within one year after the Grantee's
Termination of Employment provided that, if the Grantee dies
after such Termination of Employment and before the end of
such one-year period, such option may be exercised within
one year after the Grantee's Termination of Employment, or,
if later, within 180 days after the Grantee's death by (A)
the deceased Grantee's personal representative or by the
person to whom the option is transferred by will or the
applicable laws of descent and distribution, or (B) the
Grantee's beneficiary, if any, designated in accordance with
Section 6(c)(vii) or 8.
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(b) Exceptions at the Discretion of the Committee. If the
Grantee has a Termination of Employment for any reason other than
Cause, the Committee may provide on or after the Grant Date
(including after a Grantee's Termination of Employment, but
before the expiration of the term specified in the applicable
Award Agreement) for one or more of the following:
(i) that any unexercised option, to the extent
exercisable on the date of such Termination of Employment,
may be exercised, in whole or in part, at any time within a
period specified by the Committee after the date of such
Termination of Employment;
(ii) that any option which is not exercisable on or
before the date of such Termination of Employment (A) will
continue to become exercisable, as if such Termination of
Employment had not occurred, after such date for a period
specified by the Committee and (B) to the extent such option
has become exercisable during such period, may be exercised,
in whole or in part, at or before the end of such period;
(iii) that if the Grantee dies after such Termination
of Employment and before the expiration of the period
specified under clause (i) or (ii) of this Section 13(b),
such option may be exercised within the specified period
after the Grantee's Termination of Employment, or, if later,
within 180 days after the Grantee's death by (A) the
deceased Grantee's personal representative or by the person
to whom the option is transferred by will or the applicable
laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Section 6(c)(vii)
or 8;
provided that the Committee may after having taken action under
this Section 13(b) take further action to limit these rights but
only if such limitation is consented to by the Grantee.
(c) Maximum Extension. Notwithstanding the foregoing,
no Award shall be exercisable beyond the maximum term permitted
under the original Award Agreement unless the Committee
explicitly extends such original term, in which case such term
shall not be extended beyond the maximum term permitted by the
Plan.
14. Securities law matters.
(a) If the Committee deems necessary to comply with the
Securities Act of 1933, the Committee may require a written
investment intent representation by the Grantee and may require
that a restrictive legend be affixed to certificates for shares
of Stock.
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(b) If, based upon the opinion of counsel for the Company,
the Committee determines that the exercise or nonforfeitability
of, or delivery of benefits pursuant to, any Award would violate
any applicable provision of (i) federal or state securities laws
or (ii) the listing requirements of any national securities
exchange on which are listed any of the Company's equity
securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the
Company shall use its best efforts to cause such exercise,
nonforfeitability or delivery to comply with all such provisions
at the earliest practicable date.
15. Funding. Benefits payable under the Plan to any
person shall be paid directly by the Company. The Company shall
not be required to fund, or otherwise segregate assets to be used
for payment of, benefits under the Plan.
16. No employment rights. Neither the establishment of the
Plan, nor the granting of any Award shall be construed to
(a) give any Grantee the right to remain employed by the Company
or any of its Subsidiaries or to any benefits not specifically
provided by the Plan or (b) in any manner modify the right of the
Company or any of its Subsidiaries to modify, amend, or terminate
any of its employee benefit plans.
17. Rights as a stockholder. A Grantee shall not, by
reason of any Award have any right as a stockholder of the
Company with respect to the shares of Stock which may be
deliverable upon exercise or payment of such Award until such
shares have been delivered to him.
18. Nature of payments. Any and all grants or deliveries
of shares of Stock hereunder shall constitute special incentive
payments to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee for
the purposes of determining any pension, retirement, death or
other benefits under (a) any pension, retirement, profit-sharing,
bonus, life insurance or other employee benefit plan of the
Company or any of its Subsidiaries or (b) any agreement between
the Company or any Subsidiary, on the one hand, and the Grantee,
on the other hand, except as such plan or agreement shall
otherwise expressly provide.
19. Non-uniform determinations. Neither the Committee's
nor the Board's determinations under the Plan need be uniform and
may be made by the Committee or the Board selectively among
persons who receive, or are eligible to receive, Awards (whether
or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled,
among other things, to make non-uniform and selective
determinations, to enter into non-uniform and selective Award
Agreements as to (a) the identity of the Grantees, (b) the terms
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and provisions of Awards, and (c) the treatment, under
Section 13, of terminations of employment. Notwithstanding the
foregoing, the Committee's interpretation of Plan provisions
shall be uniform as to similarly situated Grantees.
20. Adjustments. The Committee shall make equitable
adjustment of:
(a) the aggregate numbers of shares of Stock available
under Section 3;
(b) the number of shares of Stock covered by an Award; and
(c) the Option Price
to reflect a stock dividend, stock split, reverse stock split,
share combination, recapitalization, merger, consolidation,
acquisition of property or shares, separation, asset spin off,
reorganization, stock rights offering, liquidation or similar
event, of or by the Company.
21. Amendment of the Plan. The Board may from time to time
in its discretion amend or modify the Plan without the approval
of the stockholders of the Company, except as such stockholder
approval may be required (a) to permit the grant of Awards under,
and transactions in Stock pursuant to, the Plan to be exempt from
liability under Section 16(b) of the 1934 Act or (b) under the
listing requirements of any national securities exchange on which
are listed any of the Company's equity securities.
22. Termination of the Plan. The Plan shall terminate on
the tenth (10th) anniversary of the Effective Date or at such
earlier time as the Board may determine. Any termination,
whether in whole or in part, shall not affect any Award then
outstanding under the Plan.
23. No illegal transactions. The Plan and all Awards
granted pursuant to it are subject to all laws and regulations of
any governmental authority which may be applicable thereto; and
notwithstanding any provision of the Plan or any Award, Grantees
shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any
Stock or pay any benefits to a Grantee if such exercise,
delivery, receipt or payment of benefits would constitute a
violation by the Grantee or the Company of any provision of any
such law or regulation.
24. Controlling law. The law of the State of Illinois,
except its law with respect to choice of law, shall be
controlling in all matters relating to the Plan.
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25. Severability. If all or any part of the Plan is
declared by any court or governmental authority to be unlawful or
invalid, such unlawfulness or invalidity shall not serve to
invalidate any portion of the Plan not declared to be unlawful or
invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such Section or part of a
Section to the fullest extent possible while remaining lawful and
valid.
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