SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-10720
ILLINOIS CENTRAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3545405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 755-7500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
As of March 31, 1996, 61,428,469 common shares were outstanding.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
Three Months Ended March 31, 1996
CONTENTS
Part I - Financial Information: Page
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 11 E-1
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions, except share data)
(Unaudited)
Three Months
Ended March 31,
1996 1995
Revenues $ 162.3 $ 167.5
Operating expenses:
Labor and fringe benefits 47.2 46.8
Leases and car hire 10.1 13.4
Diesel fuel 8.8 8.8
Materials and supplies 8.3 10.1
Depreciation and amortization 9.1 7.5
Casualty, insurance and losses 4.2 6.2
Other taxes 5.1 5.1
Other 9.2 7.1
Operating expenses 102.0 105.0
Operating income 60.3 62.5
Other income (expense), net 0.3 (0.2)
Interest expense, net (7.7) (7.4)
Income before income taxes 52.9 54.9
Provision for income taxes 19.8 20.6
Net income $ 33.1 $ 34.3
Income per share $ 0.54 $ 0.54
Weighted average number of shares
of common stock and common stock
equivalents outstanding 61,742,614 63,820,563
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
ASSETS March 31, 1996 December 31, 1995
Current assets:
Cash and temporary cash
investments $ 11.1 $ 5.0
Receivables, net of allowance
for doubtful accounts of $1.4
in 1996 and $2.0 in 1995 58.6 51.5
Materials and supplies,
at average cost 15.7 14.9
Assets held for disposition - 7.7
Deferred income taxes - current 18.4 19.1
Other current assets 10.2 2.6
Total current assets 114.0 100.8
Investments 13.3 13.6
Properties:
Transportation:
Road and structures,
including land 1,059.9 1,052.1
Equipment 234.5 225.6
Other, principally land 41.6 41.0
Total properties 1,336.0 1,318.7
Accumulated depreciation (43.4) (44.0)
Net properties 1,292.6 1,274.7
Other assets 15.3 15.1
Total assets $1,435.2 $1,404.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt $ 12.7 $ 12.4
Accounts payable 62.3 56.6
Dividends payable 12.3 11.9
Income taxes payable 13.2 5.0
Casualty and freight claims 24.9 24.9
Employee compensation and
vacations 14.0 16.9
Taxes other than income taxes 12.5 16.3
Accrued redundancy reserves 4.3 4.3
Other accrued expenses 32.9 28.6
Total current liabilities 189.1 176.9
Long-term debt 387.4 383.6
Deferred income taxes 252.7 246.2
Other liabilities and reserves 114.9 127.4
Contingencies and commitments
Stockholders' equity:
Common stock, par value $.001,
authorized 100,000,000 shares,
64,288,084 shares issued and
61,428,469 shares outstanding 0.1 0.1
Additional paid-in capital 166.5 166.3
Retained income 389.0 368.2
Treasury stock
(2,859,615 shares) (64.5) (64.5)
Total stockholders' equity 491.1 470.1
Total liabilities and
stockholders' equity $ 1,435.2 $ 1,404.2
The following notes are an integral part of the consolidated financial
statements
ILLINOIS CENTRAL CORPORATION AND SUBSIDIAR
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
Three Months Ended March 31,
1996 1995
Cash flows from operating activities :
Net income $ 33.1 $ 34.3
Reconciliation of net income to
net cash provided by (used for)
operating activities :
Depreciation and amortization 9.1 7.5
Deferred income taxes 7.2 5.2
Equity in undistributed earnings
of affiliates, net of dividends
received 0.1 (0.2)
Net gains on sales of real estate (0.4) 0.1
Cash changes in working capital 2.9 4.8
Changes in other assets (0.3) (0.4)
Changes in other liabilities and
reserves (12.1) 2.4
Net cash provided by operating
activities 39.6 53.7
Cash flows from investing activities :
Additions to properties (25.2) (24.0)
Proceeds from real estate sales 0.8 1.3
Proceeds from equipment sales 0.6 0.6
Proceeds from sales of investments 0.1 0.2
Other (2.0) (0.4)
Net cash (used for) investing
activities (25.7) (22.3)
Cash flows from financing activities :
Proceeds from issuance of debt - -
Principal payments on debt (0.9) (3.5)
Net proceeds in commercial paper 5.0 10.0
Dividends paid (11.9) (10.6)
Stock repurchase program - (16.3)
Purchase of subsidiary's common
stock - (0.1)
Net cash (used for) financing
activities (7.8) (20.5)
Changes in cash and temporary cash
investments 6.1 10.9
Cash and temporary cash investments
at beginning of period 5.0 24.2
Cash and temporary cash investments at
end of period $ 11.1 $ 35.1
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount
capitalized) $ 6.1 $ 9.6
Income taxes $ 4.4 $ 0.7
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
Except as described below, the accompanying unaudited
consolidated financial statements have been prepared in
accordance with accounting policies described in the 1995 Annual
Report on Form 10-K and should be read in conjunction with the
disclosures therein.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. Interim
results are not necessarily indicative of results for the full
year. Certain 1995 amounts have been reclassified to conform
with the presentation used in the 1996 financial statements.
Income Per Share
Income per common share of the Company is based on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the period.
2. Common Stock and Dividends
On March 8, 1996, the Board of Directors approved a quarterly
dividend of $.20 per share which was paid April 9, 1996. The
Board intends to continue its policy of quarterly dividends.
Future dividends may be dependent on the Railroad's ability to
pay dividends to the Company. The Railroad is no longer subject
to specific dividend restrictions. Covenants of the Railroad's
Revolver require specified levels of tangible net worth. At
March 31, 1996, the Railroad exceeded its tangible net worth
covenant by $73.9 million.
3. Stock Repurchase Program
In 1995 the Company was in the midst of a $60 million stock
repurchase program. A total of 2,475,000 shares of common stock
were acquired in 1995 with $16.3 million being spent in the three
months ended March 31, 1995. In late 1995, the Board determined
that the capital needs to fund the acquisition of CCP Holdings,
Inc. (see Note 4), the expansion of the intermodal facility in
Chicago and the construction of a bulk terminal facility in
Louisiana preclude stock repurchases in 1996.
4. CCP Holdings, Inc. Acquisition
On January 17, 1996, the Company announced that it had entered
into a definitive agreement to purchase all the stock of CCP
Holdings, Inc., for approximately $125 million in cash, the
assumption of approximately $14 million in net debt and
approximately $18 million of capitalized lease obligations. The
Company expects to fund the acquisition using its credit lines
and debt issued by the Railroad. The Railroad will transfer the
funds to the Company via a combination of dividends and
intercompany loans. On April 30, 1996, the STB announced they
had voted in favor of the acquisition. Formal written approval,
including an effective date of the order, is required before the
transaction can be closed. The Company expects the closing to occur
in late June or early July.
The Company will account for the transaction as a purchase. The
total purchase price is subject to various potential adjustments
for up to one year after the closing date.
CCP Holdings, Inc., has two principal subsidiaries, the Chicago,
Central and Pacific Railroad (CCP) and the Cedar River Railroad
(CRR). These two railroads comprise a Class II freight system
which operates 850 miles of road. CCP operates from Chicago west
to Omaha, Nebraska, with connecting lines to Cedar Rapids and
Sioux City, Iowa. CRR runs north from Waterloo, Iowa to Albert
Lea, Minnesota. CCP Holdings, Inc.'s 1995 revenues were
approximately $76 million, its operating ratio was approximately
70%, and its shareholders' equity was approximately $54 million
at December 31, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below takes into account the financial condition
and results of operations of the Company for the periods presented in
the consolidated financial statements.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March
31, 1995
Revenues for 1996 decreased from the prior year quarter by $5.2
million or 3.1% to $162.3 million. The decrease was a result of a 8.2%
decrease in the number of carloadings partially offset by a .5%
increase in the average freight revenue per carload. In 1996, the
Company experienced decreased carloadings in coal (26.0%), chemicals
(7.9%), paper (4.1%) and grain and grain mill products (12.5%),
partially offset by increased intermodal loads (8.0%).
Operating expenses overall declined in the first quarter of 1996
$3.0 million or 2.9%. On a component basis: labor and fringe costs
rose reflecting the wage increases negotiated with eight of the eleven
unions; leases and car hire declined as a result of decreased traffic
volume and continued conversion to ownership and better car management
stressing better car turnover; the decline in material and supplies
reflects the winding down of the 1995 wheel replacement program;
depreciation reflects the shift to ownership; casualty, insurance and
losses declined despite a significant derailment primarily on the
strength of savings which are a direct result of improved safety and
lower settlement costs; and the increase in Other over 1995 is the
direct result of losses of joint facility income when another carrier
stopped using our track in southern Illinois and an increase in various
equipment related costs.
Operating income for 1996 decreased by $2.2 or 3.5% to $60.3
million for the reasons cited above.
Net interest expense of $7.7 million for 1996 increased 4.1%
compared to $7.4 million in 1995. Increased debt burden primarily
associated with equipment additions and stock repurchases account for
the increase in interest expense.
Liquidity and Capital Resources
Operating Data:
Three Months Ended March 31,
1996 1995
($ in millions)
Cash flows provided by (used for):
Operating activities $ 39.6 $ 53.7
Investing activities (25.7) (22.3)
Financing activities ( 7.8) (20.5)
Net change in cash and
temporary cash investments $ 6.1 $ 10.9
Operating activities in 1996 provided $39.6 million in cash,
primarily from net income before depreciation and deferred taxes.
Additions to property were as follows:
Three Months Ended March 31,
1996 1995
($ in millions)
Communications and signals $ 2.9 $ 1.5
Equipment-rolling stock 10.3 10.0
Track and bridges 9.7 10.6
Other 2.3 1.9
Total $ 25.2 $ 24.0
Property retirements and removals generated proceeds of $1.4
million and $1.9 million in 1996 and 1995, respectively.
The Company anticipates that capital expenditures for 1996 will
be approximately $145 million of which $83 million of base expenditures
will concentrate on track maintenance (i.e., renewal of track
structures such as bridges) and freight car upgrades. Approximately
$20 million will be incurred to expand the Company's intermodal
facility in Chicago to service Canadian National Railway. Another $32
million will be spent to construct a bulk transfer facility along the
Mississippi River in Louisiana. These expenditures are expected to be
met from current operations or other available sources.
The aforementioned capital expenditures excludes the January 1996
announcement of the acquisition of CCP Holdings, Inc. for $125 million
cash and assumption of debt and capital lease obligations.
The Railroad has a commercial paper program whereby a total of
$150 million can be issued and outstanding at any one time. The
program is supported by a $250 million Revolver with the Railroad's
lending group (see below). At March 31, 1996, the commercial paper has
been rated A2, P2 and F2 and $62.0 million was outstanding. The
Railroad views this program as a significant long-term funding source
and intends to issue replacement notes as each existing issue matures.
Therefore, commercial paper borrowings are classified as long-term.
The Railroad's public debt is rated Baa2 by Moody's and BBB by S&P.
In 1994, the Railroad entered into a revolving agreement to sell
undivided percentage interests in certain of its accounts receivable,
with recourse, to a financial institution. The agreement, which
expires in June 1998, allows for sales of accounts receivable up to a
maximum of $50 million at any one time. The Railroad services the
accounts receivable sold under the agreement and retains the same
exposure to credit loss as existed prior to the sale. At March 31,
1996, $48 million had been sold pursuant to the agreement. Costs
related to the agreement fluctuate with changes in prevailing interest
rates. These costs, which are included in Other Income (Expense), Net,
were $.8 million for each of the three month periods ended March 31,
1996 and 1995.
In April 1996, the Railroad concluded negotiations with its bank
lending group whereby the Railroad's Revolver was amended and restated,
for the fourth time since becoming unsecured in September 1993, to
expire in 2001. Fees and borrowing spreads are predicated on the
Railroad's long-term credit ratings. Currently, the annual facility
fee is 15 basis points and borrowings under this agreement are at
Eurodollar offered rate plus 22.5 basis points. The Revolver will be
used primarily for backup for the Railroad's commercial paper program
but can be used for general corporate purposes. The available amount
is reduced by the outstanding amount of commercial paper borrowings and
any letters of credit issued on behalf of the Railroad under the
facility. No amounts have been drawn under the Revolver. At March 31,
1996, the $250 million was limited to $188.0 million because $62.0
million in commercial paper was outstanding.
The Company has a $50 million 364-day floating-rate revolving
loan agreement which expires in August 1996. To date, no amounts have
been drawn under this agreement. The Company's financing/leasing
subsidiaries have approximately $10.8 million in long-term borrowing
agreements which were used to acquire equipment during 1993 and 1991.
The Company believes that its available cash, cash generated by
its operations and cash available from the facilities described above
will be sufficient to meet foreseeable liquidity requirements.
Additionally, the Company believes it and its primary subsidiary the
Railroad have access to the public debt market if needed.
Various borrowings of the Company's subsidiaries are governed by
agreements which contain financial and operating covenants. All
entities were in compliance with these covenant requirements at March
31, 1996, and management does not anticipate any difficulty in
maintaining such compliance.
Certain covenants of the Railroad's debt agreements require
specific levels of tangible net worth but not a specific dividend
restriction. The Railroad paid dividends to the Company of $107.7
million in 1995, $42.5 million in 1994 and $27.4 million in 1993. At
March 31, 1996, the Railroad's tangible net worth exceeded the required
level by approximately $73.9 million. To date in 1996, the Railroad
has declared and paid dividends of $24.2 million to the Company.
The Railroad has entered into various diesel fuel collar
agreements designed to mitigate significant changes in fuel prices. As
a result, approximately 65% of the Railroad's short-term diesel fuel
requirements through June 1996 and 17% for the period July 1996 through
June 1997 are protected against significant price changes.
The Company continues to negotiate with its three remaining
operating unions on a local level, while no agreements are pending
agreements may be reached that require significant lump sum payments.
It is too early to determine if separate agreements will be reached but
management believes available funding sources will be sufficient to
meet any required payments.
Long-Term Equity Enhancement Program
The Company paid its seventeenth consecutive quarterly cash
dividend on April 9, 1996. The Board believes quarterly dividends are
an integral part of its announced Long-Term Equity Enhancement Program
designed to increase stockholder value through dividend payments and
stock repurchases. Actual dividends are declared by the Board of
Directors based on profitability, capital expenditure requirements,
debt service and other factors. At March 31, 1996, the Railroad
exceeded its tangible net worth covenant by $73.9 million.<PAGE>
During 1995, the Company acquired a total of 2,475,000 shares in
open market transactions for $60 million. While share repurchases were
intended to be an annual component of the Long-Term Equity Enhancement
Program, the Board concluded that alternative funding needs, most
notably the acquisition of CCP Holdings, Inc., the expansion of the
intermodal facility in Chicago, and the construction of a bulk transfer
facility in Louisiana warranted the suspension of share repurchases in
1996. The Board intends to review the level of stock repurchase annually.
Environmental Liabilities
The Company's operations are subject to comprehensive
environmental regulation by federal, state and local authorities.
Compliance with such regulation requires the Company to modify its
operations and expend substantial manpower and financial resources.
Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("Superfund"), and similar state
and federal laws, the Company is potentially liable for the cost of
clean-up of various contaminated sites. The Company has been notified
that it is a Potentially Responsible Party at sites ranging from those
with hundreds of potentially responsible parties to sites at which the
Company is primarily responsible. The Company generally participates
in the clean-up at sites where other substantial parties share
responsibility through cost-sharing arrangements, but under Superfund
and other similar laws the Company can be held jointly and severally
liable for all environmental costs associated with such sites.
The Company is aware of approximately 30 contaminated sites and
various fueling facilities at which it is probably liable for some
portion of the clean-up. The Company paid approximately $6.3 million
in 1995 toward the investigation and remediation of those sites, and
anticipates future expenditures of between $1 million and $2 million
annually. Furthermore, recent amendments to the Clean Air Act require
the Environmental Protection Agency to promulgate regulations
restricting the level of pollutants in locomotive emissions which could
impose significant retrofitting requirements, operational
inefficiencies or capital expenditures in the future.
For all known sites of environmental contamination where Company
loss or liability is probable, the Company has recorded an estimated
liability at the time when a reasonable estimate of remediation cost
and Company liability can first be determined. Adjustments to initial
estimates are recorded as necessary based upon additional information
developed in subsequent periods. Estimates of the Company`s potential
financial exposure for environmental claims or incidents are
necessarily imprecise because of the difficulty of determining in
advance the nature and extent of contamination, the varying costs of
alternative methods of remediation, the regulatory clean-up standards
which will be applied, and the appropriate allocation of liability
among multiple responsible parties. At March 31, 1996, the Company
estimated the probable range of its estimated liability to be $12.6
million to $48.5 million, and in accordance with the provisions of
SFAS No. 5 had a reserve of $12.6 million for environmental
contingencies. This amount is not reduced for potential insurance
recoveries or third-party contribution where the Company is primarily
liable.
The risk of incurring environmental liability in connection with
both past and current activities is inherent in railroad operations.
Decades-old railroad housekeeping practices were not always consistent
with contemporary standards, historically the Company leased
substantial amounts of property to industrial tenants, and the Railroad
continues to haul hazardous materials which are subject to occasional
accidental release. Because the ultimate cost of known contaminated
sites cannot be definitively established and because additional
contaminated sites yet unknown may be discovered or future operations
may result in accidental releases, no assurance can be given that the
Company will not incur material environmental liabilities in the
future. However, based on its assessments of the facts and
circumstances now known, management believes that it has recorded
adequate reserves for known liabilities and does not expect future
environmental charges or expenditures to have a material adverse effect
on the Company`s financial position, results of operations, cash flow
or liquidity.
CCP Holdings, Inc. Acquisition
On January 17, 1996, the Company announced that it had entered into
a definitive agreement to purchase all the stock of CCP Holdings, Inc.,
for approximately $125 million in cash and the assumption of approximately
$14 million in net debt and approximately $18 million of capital lease
obligations. The Company expects to fund the acquisition using funds from
its existing line of credit and the proceeds of public debt issued by
the Railroad. The Railroad will transfer the funds to the Company via a
combination of dividends and intercompany loans. On April 30, 1996, the
STB announced they had voted in favor of the acquisition. Formal written
approval, including an effective date of the order, is required before
the transaction can be closed. The Company expects the closing to
occur in late June or early July.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 121 - Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held or used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable.
Adoption of this standard on January 1, 1996 did not require adjustment
to the carrying amount of any long-lived assets or intangibles.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a
fair value based method of accounting for stock-based compensation
plans. The Company has elected to measure compensation cost using the
intrinsic value based method as permitted under SFAS 123.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 8, 1996, the Registrant held its Annual Meeting of Stockholders.
At the meeting, the stockholders' were asked to vote on three (3)
proposals -- (1) the election of Class II Directors until 1999; (2)
approval of Illinois Central Railroad Company Incentive 2000 Plan and
(3) approval of Illinois Central Corporation's Directors Incentive 2000
Option Plan.
Description Vote Recap
Proposal No. 1 The election of William B. Johnson, For 35,357,643
Gilbert H. Lamphere, and John V. Against 286,077
Tunney as Class II directors
until 1999
Proposal No. 2 The approval of Illinois Central For 34,743,238
Railroad Company Incentive 2000 Plan Against 625,851
Abstain 274,630
No 1
Proposal No. 3 The approval of Illinois Central For 32,144,892
Corporation's For Against 3,171,901
Directors Incentive 2000 Option Plan Abstain 326,927
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index on page E-1
(b) Reports on Form 8-K:
A copy of the press release announcing the proposed acquisition
of CCP Holdings, Inc. was filed on January 31, 1996.
ILLINOIS CENTRAL CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned hereto duly authorized.
ILLINOIS CENTRAL CORPORATION
/s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President & Chief
Financial Officer
/s/ JOHN V. MULVANEY
John V. Mulvaney
Controller
Date: May 9, 1996
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
10.1 Form of Illinois Central Corporation Directors
Incentive 2000 Option Plan. A
10.2 Form of Illinois Central Railroad Company
Incentive 2000 Plan (Incorporated by reference
to Exhibit 10 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 1996,
for the Illinois Central Railroad Company
filed on May xx, 1996. (SEC File No. 1-7092)
11 Computation of Income per common share E-2
(A) Included herein as filed but not reproduced.
EXHIBIT 11
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
($ in millions, except share data)
Three Months
Ended March
1996 1995
Net income $ 33.1 $ 34.3
Calculation of average number
of shares outstanding:
Primary:
Weighted average number of common shares
outstanding 61,425,461 63,623,493
Effect of shares issuable under stock
options 317,153 197,070
Fully diluted:
Weighted average number of common shares
outstanding 61,742,614 63,820,563
Effect of shares issuable under stock
options (1) 377,548 206,843
Income per common share:
Primary:
Net income $ 0.54 $ 0.54
Fully diluted:
Net income $ 0.54 $ 0.54
(1) Such items are included in primary calculation. Additional shares
represent price of common stock for the period and the end of period
price.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11100
<SECURITIES> 0
<RECEIVABLES> 58600
<ALLOWANCES> 1400
<INVENTORY> 15700
<CURRENT-ASSETS> 114000
<PP&E> 1292600
<DEPRECIATION> 43400
<TOTAL-ASSETS> 1435200
<CURRENT-LIABILITIES> 189100
<BONDS> 387400
<COMMON> 0
0
0
<OTHER-SE> 367600
<TOTAL-LIABILITY-AND-EQUITY> 1435200
<SALES> 162300
<TOTAL-REVENUES> 162300
<CGS> 102000
<TOTAL-COSTS> 102000
<OTHER-EXPENSES> (300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7700
<INCOME-PRETAX> 52900
<INCOME-TAX> 19800
<INCOME-CONTINUING> 33100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33100
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
ILLINOIS CENTRAL CORPORATION
DIRECTORS INCENTIVE 2000 OPTION PLAN
Article 1
Establishment, Purpose and Duration
1.1 Establishment of the Plan. Illinois Central Corporation
(the "Company") hereby establishes an incentive compensation plan to be
known as the Illinois Central Corporation Directors Incentive 2000 Option
Plan (the "Plan") for certain non-employee directors of the Company. The
Plan provides for the grant of non-qualified stock options, subject to the
terms and provisions set forth herein.
1.2 Purpose of the Plan. The purpose of the Plan is to
promote the achievement of the Company's Plan2000 by linking the personal
financial interests of the non-employee directors to attainment of those
goals. This incentive will promote creation of stockholder value, reward
high performance and assist in unifying the efforts of directors and
senior managers. This Plan is intended to mirror the Illinois Central
Railroad Company Incentive 2000 Plan with the purpose that Directors
benefits hereunder will vest in the year 2001 only and in the same
proportion that senior management Awards become payable thereunder.
1.3 Effective Date and Duration of the Plan. The Plan has
been adopted and authorized by the Board of Directors of the Company for
submission to the stockholders of the Company. If the Plan is approved
by the affirmative vote of a majority of the shares of the voting stock
of the Company entitled to be voted by the holders of stock represented
at a duly held stockholders' meeting, it shall be deemed to have become
effective as of March 8, 1996 (the"Effective Date"). The date of grant
of the options granted under the Plan prior, but subject, to approval of
the Plan by stockholders of the Company shall be determined without
reference to the date of approval of the Plan by the stockholders of the
Company. The Plan shall remain in effect, subject to the right of the
Board of Directors to terminate the Plan at any time pursuant to Article
7 hereof, until all Shares (as defined in Section 2.21 hereof) subject to
the Plan shall have been purchased or acquired or shall have expired or
otherwise been terminated in accordance with this Plan. For purposes of
operating the Plan, the Company intends to rely on Rule 16b-3 (as defined
in Section 2.22 hereof) as in effect on April 30, 1991, until the
Commission (as defined in Section 2.6) may otherwise require.
Article 2
Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below:
2.1 Award Agreement. "Award Agreement" shall mean any
written agreement entered into by and between the Company and an Outside
Director, or other document or instrument, setting forth the terms and
provisions applicable to an Option granted under the Plan.
2.2 Beneficial Owner. "Beneficial Owner" shall have the
meaning given such term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
2.3 Board or Board of Directors. "Board" or "Board of
Directors" shall mean the board of directors of the Company.
2.4 Change in Control. A "Change in Control" of the Company
shall be deemed to have occurred upon the occurrence of any of the
following:
(a) any Person is or becomes the Beneficial Owner (except that
a person shall be deemed to be the "beneficial owner" of all shares
that any such person has the right to acquire pursuant to any
agreement or arrangement or upon exercise of conversion rights,
warrants, options or otherwise, without regard to the sixty day
period referred to in Rule 13d-3), directly or indirectly, of
securities representing 25% or more of the combined voting power of
the Company's then outstanding securities; provided, however, that
the following acquisitions shall not constitute a Change in Control:
(i) any acquisition directly from the Company, (ii) any acquisition
by the Company or (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company; or
(b) at any time during any period of two consecutive years
(not including any period prior to January 1, 1996) individuals who
at the beginning of such period constituted the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to such date whose election, or
nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Board.
2.5 Code. "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
2.6 Commission. "Commission" shall mean the United States
Securities and Exchange Commission or any successor agency thereto.
2.7 Committee. "Committee" shall mean the Compensation
Committee of the Board of Directors.
2.8 Company. "Company" shall mean Illinois Central
Corporation, a Delaware corporation, or any successor thereto as provided
in Section 8.5 herein.
2.9 Director. "Director" shall mean any individual who is
a member of the Board of Directors of the Company.
2.10 Disability. "Disability" shall mean disabled as
determined in the sole discretion of the Committee.
2.11 Effective Date. "Effective Date" shall have the meaning
set forth in Section 1.3 hereof.
2.12 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time, or any successor act
thereto.
2.13 Fair Market Value. "Fair Market Value" shall mean the
closing sales price of the Shares on the relevant date, as reported on the
consolidated tape of the New York Stock Exchange.
2.14 Measurement Area. "Measurement Areas" shall mean the
areas of IC's performance that are measured for purposes of determining
whether Options will vest under the Plan, as follows:
(a) The return on total capital, for the year ended
December 31, 2000, calculated as follows: (i) the Company's
net income after giving effect to both the financial impact,
if any, of the options granted herein and awards earned
pursuant to the Illinois Central Railroad Company Incentive
2000 Plan but before giving effect to special or extraordinary
items or changes in accounting rules, plus after-tax interest
expense; divided by (ii) the average of the Company's total
assets less non-interest bearing current liabilities at the
beginning and end of such year ("ROTC");
(b) The Company's primary earnings per share for the
year ended December 31, 2000, as reported in the Company's
audited financial statements, after giving effect to both the
financial impact, if any, of the options granted herein and
awards earned pursuant to the Illinois Central Railroad
Company Incentive 2000 Plan but before giving effect to
special or extraordinary items or changes in accounting rules
("EPS"); and
(c) The highest consecutive average twenty-day closing
price of the Common Stock for the sixteen-month period ending
April 30, 2001, determined concurrently with or after the
period when such closing price has been not less than $43 for
twenty consecutive days, as such closing prices are reported
on the consolidated tape of the New York Stock Exchange
("Stock Price").
2.15 Option. "Option" shall mean a nonqualified stock option
to purchase Shares, granted pursuant to Article 6 herein.
2.16 Option Price. "Option Price" shall mean the price at
which a Share may be purchased under an Option.
2.17 Outside Director. "Outside Director" shall mean any
individual who is a member of the Board of Directors of the Company, but
who is not otherwise an employee of the Company or any of the Company's
subsidiaries.
2.18 Participant. "Participant" shall mean an Outside
Director who has outstanding an Option granted under the Plan.
2.19 Permitted Transferee. "Permitted Transferee" shall have
the meaning set forth in Section 6.11 hereof.
2.20 Person. "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d).
2.21 Plan. "Plan" shall mean the Illinois Central
Corporation Directors Incentive 2000 Option Plan, as set forth herein and
as hereinafter amended from time to time.
2.22 Retirement. "Retirement" shall mean the voluntary
termination of further service as a director after completion of one or
more full three-year terms as determined in the sole discretion of the
Committee.
2.23 Rule 16b-3. Rule 16b-3 shall mean Rule 16b-3
promulgated by the Commission under the Exchange Act, or any successor
rule or regulation thereto.
2.24 Securities Act. "Securities Act" shall mean the
Securities Act of 1933, as amended from time to time, or any successor act
thereto.
2.25 Shares. "Shares" shall mean shares of common stock of
the Company, par value $.001 per share.
Article 3
Administration of the Plan
3.1 Appointment of the Committee. The Plan shall be
administered by the Committee, subject to the restrictions set forth
herein.
3.2 Authority of the Committee. The Committee shall have
all power, discretion, and authority necessary to interpret and administer
the Plan in a manner which is consistent with the Plan's provisions;
provided, however, that in no event shall the Committee have the power to
determine the criteria for eligibility to participate in the Plan, the
number of Options or Shares subject to Options granted under the Plan, the
timing of the grant of Options under the Plan or the Option Price, all of
which determinations shall be automatically made pursuant to the
provisions of the Plan. The Committee may, subject to the provisions of
the Plan, establish such rules and regulations as it deems necessary or
advisable for the proper administration of the Plan, and may make
determinations and may take such other action in connection with or in
relation to the Plan as it deems necessary or advisable. Each
determination and decision made by the Committee shall presumptively be
final, conclusive, and binding for all purposes and upon all Persons.
Article 4
Shares Subject to the Plan
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.2 herein, the total number of Shares available for grant under
the Plan shall be three hundred thousand (300,000). Shares issued
pursuant to the Plan may consist of authorized and unissued Shares or
Shares which have been or may be held by the Company in treasury, as
determined from time to time by the Board. The grant of an Option shall
reduce the number of Shares available for grant under the Plan by the
number of Shares subject to such Option.
4.2 Adjustments in Authorized Shares. The number of Shares
subject to the Plan and to Options granted under the Plan shall be
adjusted as follows: (a) in the event that the number of outstanding
Shares is changed by any stock dividend, stock split or combination of
Shares, the number of Shares subject to the Plan and to Options previously
granted thereunder shall be proportionately adjusted, (b) in the event of
any merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted on an equitable
basis as determined by the Board of Directors, in its sole discretion, for
each Share then subject to the Plan and for each Share then subject to an
Option granted under the Plan, the number and kind of shares of stock,
other securities, cash or other property to which the holders of Shares
of the Company are entitled pursuant to the transaction, and (c) in the
event of any other change in the capitalization of the Company, the
Committee shall provide for an equitable adjustment in the number of
Shares then subject to the Plan and to each Share then subject to an
Option granted under the Plan. In the event of any such adjustment, the
exercise price per Share shall be proportionately adjusted.
Article 5
Eligibility
5.1 Eligibility. Persons eligible to participate in the
Plan are Outside Directors serving on the Board on March 8, 1996 and
continuing in office after the 1996 Annual Meeting of Stockholders.
Article 6
Options
6.1 Grant of Options. Subject to the subsequent approval
of the Plan by the stockholders of the Company as set forth in Section
1.3, each individual who is an Outside Director on the Effective Date and
continuing in office after the 1996 Annual Meeting of Stockholders shall
be granted, on the Effective Date, an Option to purchase thirty-seven
thousand five hundred (37,500) Shares.
6.2 Limitation on Grant of Options. Other than those grants
of Options set forth in Section 6.1 herein, no additional Options shall
be granted under the Plan.
6.3 Award Agreement. Each Option shall be evidenced by a
written Award Agreement that shall specify the Option Price, the terms for
payment of the Option Price, the expiration date of the Option, and the
number of Shares subject to the Option, and such other terms and
conditions established by the Committee, in its sole discretion, not
inconsistent with the Plan.
6.4 Option Price. The exercise price per Share for each
Share which may be purchased pursuant to an Option shall equal 150% of the
Fair Market Value of a Share on the date the Option is granted, which is
$37.875.
6.5 Expiration of Options. Each Option shall expire, and
all rights to purchase Shares thereunder shall cease, on the date ten (10)
years from the date on which the Option was granted.
6.6 Performance Goals for Vesting. Vesting of granted
options to Participants shall be determined solely by reference to the
extent the Company attains the goals relating to each of the Measurement
Areas. Subject to the provisions of Section 6.9, the goals relating to
each of the Measurement Areas are as follows: ROTC: 14%; EPS $4; and
Stock Price minimum and target goals, $43 and $50, respectively. The
percentage of the Option that will vest and shall be exercisable under the
Plan relating to each of the Measurement Areas is 70% -- Stock Price; 15%
- -- ROTC; and 15% -- EPS. Whether an Option vests and is exercisable under
the Plan will be first determined by reference to the Stock Price goals.
If Company performance fails to attain the minimum Stock Price goal, no
Options shall vest. Accordingly, the percentages of an Option that may
vest under the Plan relating to ROTC and EPS will not vest unless the
minimum Stock Price is attained.
6.7 Vesting of Shares Subject to Option. Except as
otherwise provided in Section 6.8 hereof, each Option granted under the
Plan shall vest and first become exercisable on April 30, 2001 pursuant
to the following schedule: (a) if the Stock Price is less than $43, zero
percent (0%) of each Option shall vest and become exercisable; (b) if the
Stock Price is $43, options on 7,031 shares (70% of 25%) of the total
grant shall vest and become exercisable; (c) if the Stock Price is $50 or
higher, options on 26,250 shares (70% of 100%) of the total grant shall
vest and become exercisable; and (d) if the Stock Price is between $43 and
$50, the percentage of each Option that shall vest and become exercisable
shall be interpolated. In addition, if the ROTC or EPS goal is attained,
the number of Options which would otherwise vest by virtue of the Stock
Price will be increased by an additional 15% of the applicable vesting
amount for each of the two goals achieved.
6.8 Vesting Upon a Change in Control. In the event of a
Change in Control, one hundred percent (100%) of each Option granted under
the Plan shall vest and become fully exercisable, prorated for the number
of completed months between the Effective Date and the date of the Change
in Control.
6.9 Adjustment of Option Price. In the event that the
number of outstanding Shares is changed by any stock dividend, stock split
or combination of Shares, the Option Price, the EPS goal and the Stock
Price minimum and target goals shall be proportionably adjusted, and in
the event of any other change in the capitalization of the Company, the
Committee shall provide for a proportionate adjustment to such Option
Price, the EPS goal and the Stock Price minimum and target goals.
6.10 Effect of Termination of Directorship. In the event
that a Participant ceases to be a Director on or before April 30, 2001 for
any reason, Options held by such Participant or such Participant's
Permitted Transferees will vest and become exercisable to the extent such
Options would have vested and become exercisable under the terms of the
Plan if the Participant had remained a Director until April 30, 2001, but
prorated according to the number of full months the Director actually
served during the period from the Effective Date to the date of
termination.
6.11 Exercise of Options. A person entitled to exercise an
Option may do so by delivery of a written notice to that effect specifying
the number of Shares with respect to which the Option is being exercised
and any other information the Committee may prescribe. The notice shall
be accompanied by payment and the Participant's copy of any and all Award
Agreements. All notices or requests provided for herein shall be
delivered to the Secretary of the Company.
Except as otherwise provided in an Award Agreement, the
Participant may pay the Option Price per Share upon exercise of any Option
(a) in cash, (b) in cash received from a broker-dealer to whom the
Participant has submitted an exercise notice consisting of a fully
endorsed Option (however, in the case of a Participant subject to Section
16 of the Exchange Act, this payment option shall only be available to the
extent such Participant complies with Regulation T issued by the Federal
Reserve Board), (c) by delivering Shares having an aggregate Fair Market
Value on the date of exercise equal to the Option Price, (d) by directing
the Company to withhold such number of Shares otherwise issuable upon
exercise of such Option having an aggregate Fair Market Value on the date
of exercise equal to the Option Price, or (e) by any combination of (a),
(b), (c) and (d). In the case of an election pursuant to (a) or (b)
above, cash shall mean cash or a check issued by a federally insured bank
or savings and loan, and made payable to Illinois Central Corporation.
In the case of a Participant who is subject to Section 16 of the Exchange
Act and who elects payment pursuant to (d) above, to the extent required
under Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder, the election must be made in writing either (i)
within the ten (10) business days beginning on the third business day
following release of the Company's quarterly or annual summary of earnings
and ending on the twelfth business day following such day, or (ii) at
least six (6) months prior to the date of exercise of such Option. In
lieu of a separate election governing each exercise of an Option, a
Participant may file a blanket election with the Committee which shall
govern all future exercises of Options until revoked by the Participant.
The Company shall issue, in the name of the Participant, stock
certificates representing the total number of Shares issuable pursuant to
the exercise of an Option as soon as reasonably practicable after such
exercise, provided that any Shares purchased by a Participant through a
broker-dealer pursuant to clause (b) above shall be delivered to such
broker-dealer in accordance with 12 C.F.R. Sect. 220.3(e)(4) or any other
applicable provision of law.
6.12 Taxes. At the time of the exercise of any Option, as
a condition of the exercise of such Option, the Company may require the
Participant to pay the Company an amount equal to the amount of the tax
the Company or any subsidiary may be required to withhold to obtain a
deduction for federal and state income tax purposes as a result of the
exercise of such Option by the Participant or to comply with applicable
law.
At any time when a Participant is required to pay an amount
required to be withheld under applicable income tax or other laws in
connection with the exercise of an Option, the Participant may satisfy
this obligation in whole or in part by (a) in cash, (b) directing the
Company to withhold such number of Shares otherwise issuable upon exercise
of such Option having an aggregate Fair Market Value on the date of
exercise equal to the amount of tax required to be withheld, (c)
delivering Shares having an aggregate Fair Market Value equal to the
amount required to be withheld, or (d) by any combination of (a), (b) or
(c). In the case of payment of taxes pursuant to (a) above, cash shall
mean cash or a check issued by a federally insured bank or savings and
loan, and made payable to Illinois Central Corporation. In case of
payment of taxes pursuant to (b) or (c) above, the Participant's election
must be made on or prior to the date of exercise and shall be irrevocable.
The Committee may disapprove any election or delivery or may suspend or
terminate the right to make elections or deliveries. In the case of a
Participant who is subject to Section 16 of the Exchange Act, to the
extent required by Section 16 and the rules and regulations promulgated
thereunder, an election to withhold Shares must be made in writing either
(a) six months prior to the exercise date, (b) during a period beginning
on the third business day following the date of release for publication
of the Company's quarterly or annual summary consolidated statements of
revenue and income and ending on the twelfth business day following such
date or (c) more than six months and one day from the later of the date
of the grant of the Option hereunder to such person or the date of the
most recent transaction by such person which is treated as a purchase of
Shares pursuant to the Exchange Act and the rules and regulations
thereunder, and which is not exempt from Section 16(b) of the Exchange
Act. In lieu of a separate election governing each exercise of an Option,
a Participant may file a blanket election with the Committee which shall
govern all future exercises of Options until revoked by the Participant.
6.13 Transferability of Options. No Option granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated, other than (a) by will or by the laws of descent and
distribution, or (b) to the extent permitted by Rule 16b-3 and solely for
the purposes of estate planning by or on behalf of the Participant, by
transfer to members of such Participant's family, family partnerships or
trusts, provided that the sole beneficiaries of such trusts consist of the
Participant and members of the Participant's family. Any person or entity
to which an Option has been transferred in accordance with clause (a) or
(b) of the preceding sentence is referred to elsewhere in this Plan as a
"Permitted Transferee." All Options granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant or such Participant's Permitted Transferees.
6.14 Postponement of Exercise. The Committee may postpone
any exercise of an Option for such time as the Committee in its sole
discretion may deem necessary in order to permit the Company (a) to
effect, amend or maintain any necessary registration of the Plan or the
Shares issuable upon the exercise of an Option under the Securities Act
or the securities laws of any applicable jurisdiction, (b) to permit any
action to be taken in order to (i) list such Shares on a stock exchange
if Shares are then listed on such exchange or (ii) comply with
restrictions or regulations incident to the maintenance of a public market
for its Shares, including any rules or regulations of any stock exchange
on which the Shares are listed, or (c) to determine that such Shares and
the Plan are exempt from such registration or that no action of the kind
referred to in (b)(ii) above needs to be taken; and the Company shall not
be obligated by virtue of any terms and conditions of any Option or any
provision of the Plan to recognize the exercise of an Option or to sell
or issue Shares in violation of the Securities Act or the securities laws
of any applicable jurisdiction thereof.
Article 7
Amendment or Termination of the Plan
7.1 Termination or Amendment. The Board or Committee may
terminate, suspend, or amend the Plan, in whole or in part, from time to
time, without the approval of the stockholders of the Company to the
extent allowed by law; provided, however, that (a) no Plan amendment shall
be effective until approved by the stockholders of the Company insofar as
stockholder approval thereof is required in order to the Plan to continue
to satisfy the requirements of Rule 16b-3 under the Exchange Act, and (b)
the provisions of the Plan relating to the number of Options or Shares
subject to Options granted under the Plan, the timing of the grant of
Options under Plan or the Option Price may not be amended more than once
every six (6) months, except to comply with changes in the Code and the
Employee Retirement Income Security Act, or the rules and regulations
under each.
The Committee may correct any defect or supply an omission or
reconcile any inconsistency in the Plan or in any Option granted hereunder
in the manner and to the extent it shall deem desirable, in its sole
discretion, to effectuate the Plan.
7.2 Options Previously Granted. Unless required by law, no
termination, amendment, or modification of the Plan shall in any material
manner adversely affect the rights of any holder of an Option previously
granted under the Plan, without the written consent of the Participant
holding such Option.
Article 8
Miscellaneous
8.1 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular shall
include the plural.
8.2 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal or invalid
provisions had not been included. This Plan is intended to comply with
all applicable requirements of Rule 16b-3 or its successors under the 1934
Act, insofar as Participants subject to Section 16 of the 1934 Act are
concerned. To the extent any provision of the Plan does not so comply,
the provision shall, to the extent permitted by law and deemed advisable
by the Committee, be deemed null and void with respect to such
Participants.
8.3 Beneficiary Designation. Each Participant under the
Plan may, from time to time, name any beneficiary or beneficiaries (who
may be named contingently or successively) to whom any benefit under the
Plan is to be paid in the event of his or her death (and/or who may
exercise the Participant's vested Options following his or her death).
Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his or her lifetime. In the absence of any such designation or in
the event that all designated beneficiaries have predeceased the
Participant, benefits remaining unpaid at the Participant's death shall
be paid to the Participant's estate (and, subject to the terms and
provisions of the Plan, any unexercised vested Options may be exercised
by the administrator or executor of the Participant's estate).
8.4 No Right of Nomination. Nothing in the Plan shall be
deemed to create any obligation on the part of the Board to nominate any
Director for reelection by the Company's stockholders.
8.5 Successors. All obligations of the Company under the
Plan with respect to Options granted hereunder shall be binding on any
successor to the Company, whether as a result of a Change in Control or
otherwise.
8.6 Governing Law. To the extent not preempted by Federal
law, the Plan and all agreements hereunder shall be construed in
accordance with and governed by the laws of the State of Illinois.
8.7 Rights as Stockholders. A Participant or a Permitted
Transferee shall have no rights as a stockholder with respect to any
Shares covered by an Option or receivable upon the exercise of an Option
until the Participant or Permitted Transferee shall become the holder of
record of such Shares, and no adjustments shall be made for dividends in
cash or other property or other distributions or rights in respect to such
Shares for which the record date is prior to the date on which the
Participant shall have in fact become the holder of record of the Shares
acquired pursuant to the Option.
