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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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ILLINOIS CENTRAL CORPORATION
(NAME OF SUBJECT COMPANY)
ILLINOIS CENTRAL CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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451841100
(CUSIP Number of Class of Securities)
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RONALD A. LANE, ESQ.
ILLINOIS CENTRAL CORPORATION
455 NORTH CITYFRONT PLAZA
CHICAGO, ILLINOIS 60611-5504
(312) 755-7500
(Name, address and telephone number of person authorized
to receive notices and communications on behalf
of the person filing statement)
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Copy to:
John G. Finley, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
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ITEM I. SECURITY AND SUBJECT COMPANY
The name of the subject company is Illinois Central Corporation, a Delaware
corporation ("Illinois Central" or the "Company"), and the address of the
principal executive offices of the Company is 455 North Cityfront Plaza Drive,
Chicago, Illinois 60611-5504. This Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Statement") relates to the Company's Common Stock, par
value $0.001 per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 dated February 13, 1998 (the "Schedule 14D-1"), by
Blackhawk Merger Sub, Inc., a Delaware corporation ("Purchaser") and an indirect
wholly-owned subsidiary of Canadian National Railway Company, a Canadian
corporation ("Canadian National"), to purchase 46,051,761 shares representing
75% of the total number of outstanding Shares at a price of $39.00 per Share,
net to the seller in cash without interest thereon, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated February 13, 1998
(the "Offer to Purchase"), and in the related Letter of Transmittal and any
supplement thereto (which together constitute the "Offer"), each of which are
filed as Exhibits (a)(1) and (a)(2) hereto and are incorporated herein by
reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 10, 1998, among Canadian National, Purchaser and the Company (the
"Merger Agreement"), which provides for the making of the Offer by the
Purchaser, subject to the conditions and upon the terms of the Merger Agreement
and for the subsequent merger of Purchaser with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation (the
"Surviving Corporation"). In the Merger, each Share outstanding at the effective
time of the Merger (the "Effective Time") (other than Shares held in the
treasury of the Company or held by Canadian National or any subsidiary of
Canadian National) will be converted into the right to receive an amount of
Canadian National common stock (the "Canadian National Stock") equal to the
fraction obtained by dividing (1) $39.00 by (2) the average closing price of the
Canadian National Stock (the "Average Closing Price") over the 20 day trading
period ending two trading days prior to the effective time of the Merger;
provided that if such Average Closing Price is less than $43.00, then the
Average Closing Price will be deemed to be $43.00 and if such Average Closing
Price is greater than $64.50, then the Average Closing Price will be deemed to
be $64.50. If less than 75% of the shares are tendered, the Shares outstanding
prior to the Merger will be converted into the right to receive a prorated
amount of stock and cash in order to ensure that the overall aggregate
consideration consists of 75% cash and 25% stock. A copy of the Merger Agreement
is filed as Exhibit (c)(1) to this Statement and is incorporated herein by
reference. The Merger Agreement is also summarized in Section 13 of the Offer to
Purchase.
According to the Schedule 14D-1, the address of the principal executive
offices of Canadian National is 935 de la Gauchetiere St. West, Montreal, Quebec
H3B 2M9 and the address of the principal executive offices of Purchaser is 935
de La Gauchetiere St. West, Montreal, Quebec H3B 2M9.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) (1) General. Certain contracts, agreements, arrangements or
understandings between the Company or its affiliates and certain of its
directors and executive officers are described under the captions "Compensation
of Executive Officers and Directors" and "Ownership of Common Stock and Certain
Transactions" of the Company's Proxy Statement dated March 27, 1997 for its 1997
Annual Meeting of Stockholders (the "1997 Annual Meeting Proxy Statement"). A
copy of the relevant pages of the 1997 Annual Meeting Proxy Statement are filed
as Exhibit (c)(5) hereto and are incorporated herein by reference.
(2) Certain Executive Compensation and Other Employee-Related Matters in
Connection with the Merger.
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CURRENT EMPLOYMENT AGREEMENTS
In January 1997, the Board authorized the Company to enter into employment
agreements with certain senior officers of the Company and the Company
subsequently entered into employment agreements (the "Employment Security
Agreements") with approximately 29 senior officers which provide stated benefits
in the event they are terminated without cause or terminate their employment for
good reason within two years after a change of control. Following a covered
termination, the officer is entitled to two or three years base salary
(depending on salary grade) and an incentive payment target for one year plus a
proration of the current year's salary. Two or three years credit, respectively,
is granted toward the Company's Supplemental Executive Retirement Plan (as
described in the Proxy Statement, the relevant pages of which are attached as
Exhibit (c)(5) hereto and are incorporated herein) and fringe benefits will be
extended. However, prior to their amendment as provided below, payments under
these agreements were limited to 2.99 times the average last five year W-2 wages
(the "Base Amount") to preclude triggering "Excess Parachute Payment" excise
taxes.
EFFECT OF THE MERGER ON EMPLOYEE BENEFIT
AND STOCK PLANS AND EXECUTIVE COMPENSATION
The following is a summary of certain portions of the Merger Agreement
which relate to arrangements among the Company and Canadian National and the
Company's employees, including the Company's executive officers and directors.
Capitalized terms not otherwise defined below shall have the meanings set forth
in the Merger Agreement.
The transactions contemplated by the Merger Agreement will constitute a
"change in control" for purposes of certain Company executive compensation
arrangements which include change in control provisions. As a result, (i) all
outstanding options (except for options granted under the Illinois Central
Corporation Directors Incentive 2000 Option Plan (the "Directors 2000 Option
Plan") (discussed below in clause (iv)) will immediately become vested and
exercisable or payable and the restrictions on all restricted stock awards will
lapse, (ii) all Employment Security Agreements will be triggered, thereby
entitling executives and other key employees covered thereunder to the severance
benefits provided under such agreements if their employment is subsequently
terminated without cause or the employee terminates for "good reason" within
specified periods, (iii) each executive participating in the Illinois Central
Railroad Company Incentive 2000 Plan (the "Incentive 2000 Plan") will receive a
pro-rata payout of his/her award, based upon the number of months completed in
the program period and based upon the higher of such executive's target award or
the Company's actual results (determined by the Company's performance over the
12 months prior to the change in control), (iv) all directors participating in
the Directors 2000 Option Plan shall be vested in a pro-rated portion of their
options, based upon the number of months completed in the program period (such
options have an exercise price of $37.875), (v) all executives participating in
the Illinois Central Corporation Executive Deferred Compensation Program or the
Illinois Central Railroad Company Supplemental Executive Retirement Plan can
elect to withdraw the present value of their accrued benefits, with a 6%
reduction in addition to the present valuation reduction (rather than the 10%
reduction that would be required absent a change in control), and (vi) all
executives participating in the Management Employee Discounted Stock Purchase
Plan shall be fully vested in the portion of their accounts reflecting the
Company's contributions to that plan. The consummation of the Offer will
constitute a "change in control" for purposes of the Company's plans, agreements
and arrangements.
In addition, the Merger Agreement provides that:
(i) the Company will pay bonuses for 1998 consistent with its past
practice (aggregate target amount of those bonuses not to exceed $8
million);
(ii) the Company will establish a bonus pool of at least $5 million
to pay retention bonuses to the Company's executives to be paid to each
eligible executive in two installments, with the first occurring on the
earlier of the receipt of regulatory approval or April 1, 1999 and the
second installment paid on January 3, 2000;
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(iii) the Company will use its best efforts to amend the Employment
Security Agreements with its executives so that: (i) if it is determined,
following an employee's termination of employment, that the aggregate
amount of all parachute payments exceeds 105% of the product of 2.99 times
the executive's Base Amount, then the executive would receive a full
gross-up for parachute excise taxes, and (ii) the constructive termination
provision will exclude any change in an executive's duties due solely to a
change in the status of the Company from a publicly traded company to a
privately held company;
(iv) the Illinois Central Corporation 1990 Long Term Incentive Plan
and the Directors 2000 Option Plan will be amended to provide that each
director's options (other than options granted pursuant to the Directors
2000 Option Plan which would not vest as a result of the Merger) will
remain exercisable for their full 10-year term in the event of such
director's termination of service for any reason at or following the
receipt of regulatory approval (or, for Mr. Gilbert H. Lamphere (Chairman
of the Board of the Company)) and Alexander P. Lynch (a Director of the
Company), the time when the Offer is consummated);
(v) as of the receipt of regulatory approval, the Illinois Central
Corporation Directors Retirement Plan shall be terminated and each
non-employee director will be paid $174,780 (except that Mr. Lamphere would
receive $1,223,463), resulting from termination of such plan;
(vi) all unvested options (other than options granted pursuant to the
Directors 2000 Option Plan which would not vest as a result of the
transactions contemplated in the Merger Agreement) shall become exercisable
prior to the consummation of the Offer and a mechanism will be put in place
to permit each holder of such options to exercise the option and tender the
underlying Shares into the Offer;
(vii) during the period from the Effective Time until the end of the
twenty-fourth month following the Effective Time, Canadian National shall
maintain or cause the Surviving Corporation to maintain salary and target
annual bonus levels at no less than such levels in effect immediately prior
to the consummation of the Offer, and maintain employee long term
incentive, pension and welfare plans for the benefit of employees and
former employees of the Company or its Subsidiaries, which are comparable,
in the aggregate, to those in effect immediately prior to the consummation
of the Offer; and
(viii) Canadian National shall assume all of the Company's liabilities
pursuant to the Illinois Central Corporation Directors Deferred
Compensation Plan with respect to Messrs. Lamphere and Lynch (the
"Transferring Directors"). Canadian National shall honor any elections the
Transferring Directors have made with respect to their account balances
under the Director Deferred Compensation Plan, except that any payments due
upon "retirement from the board" shall be due and payable at retirement
from Canadian National's board of directors, not the Company's board of
directors.
(c) Investment Commitment Agreements. In connection with the transaction,
Mr. Lamphere and Mr. Lynch have entered into agreements with Canadian National
pursuant to which Messrs. Lamphere and Lynch have each agreed to roll-over 100%
of their existing options to purchase Shares into options to purchase shares of
Canadian National Stock and to vote their Shares in favor of the adoption by the
stockholders of the Merger Agreement (if any such vote is required). In
addition, Mr. Lamphere has also agreed to acquire, within 90 days following the
date of the consummation of the Merger, no less than 98,150 (including any
shares of Canadian National Stock received pursuant to the Merger) shares of
Canadian National Stock; provided that Mr. Lamphere is not obligated to invest
an amount in excess of $7,000,000 (including the spread value of the options
rolled-over to Canadian National options). Any required acquisitions of shares
by Mr. Lamphere (other than pursuant to the Merger) will be made in the open
market at market prices.
(d) Changes in Management. Pursuant to the terms of the Merger Agreement,
effective upon consummation of the Offer, Canadian National will use it
reasonable best efforts to (i) appoint Mr. E. Hunter Harrison (currently the
President and Chief Executive Officer and a Director of the Company) to the
position of Chief Operating Officer of Canadian National, at which time Mr.
Harrison will resign as an officer of the Company, and (ii) appoint Messrs.
Lamphere and Lynch to the Board of Directors of Canadian National, at which time
Messrs. Lamphere and Lynch will resign as directors of the Company.
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(e) Relationships with Financial Advisors. Mr. Lynch is also a Managing
Director of The Beacon Group Capital Services, LLC ("Beacon"), which has been
retained by the Company's Board of Directors to act as financial advisor to the
Company with respect to the transactions contemplated by the Merger Agreement
and, as part of its role of financial advisor, Beacon has delivered an opinion
to the effect that the consideration to be received in the Offer and the Merger,
taken together, is fair to the Company's stockholders from a financial point of
view. See "Item 5. Persons Retained, Employed or to be Compensated." Mr. Alan H.
Washkowitz, a Director of the Company, is also a Managing Director of Lehman
Brothers Inc. ("Lehman"), which was engaged by the Company's Board of Directors
to provide an opinion as to whether the consideration to be received in the
Offer and the Merger, taken together, is fair to the Company's stockholders from
a financial point of view. Mr. Lynch is the brother-in-law of Mr. Lamphere. See
"Item 5. Persons Retained, Employed or to be Compensated."
Except as set forth in this Item 3, there are, to the best knowledge of the
Company, no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company, its executive officers, directors or affiliates
or (ii) any of Canadian National, Purchaser, their respective executive
officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) At a meeting held on February 10, 1998, the Board of Directors of the
Company unanimously (i) determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are fair
to, advisable and in the best interests of the Company and its stockholders,
(ii) approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger and (iii) resolved to recommend acceptance of
the Offer and adoption of the Merger Agreement by the Company's stockholders.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Company's press release and letter to stockholders with respect to the
Illinois Central Board's recommendation are attached hereto as Exhibits (a)(3)
and (a)(4), respectively, and are incorporated herein by reference.
(b) (1) Background
Over the past several years, there has been a major consolidation of the
rail industry, and as a result certain of the Company's competitors have much
greater critical mass and geographic scope. In light of these changes, the
senior management of the Company and the Board of Directors have reviewed the
Company's strategic plans, including the possibility of making acquisitions,
potential internal investments and entering into joint ventures and business
combinations with other railroads.
In February 1997, Mr. Lamphere and Mr. Paul M. Tellier, the President and
Chief Executive Officer of Canadian National, began discussions concerning
Canadian National's potential interest in pursuing a possible business
combination or other alliance between the Company and Canadian National. Mr.
Tellier indicated to Mr. Lamphere that Canadian National would be interested in
pursuing discussions with the Company.
In March 1997, Mr. Lamphere, Mr. Lynch and Mr. Harrison met with Mr.
Tellier and Mr. Michael J. Sabia, the Executive Vice President and Chief
Financial Officer of Canadian National, to discuss recent developments in the
North American railroad industry, including trends and opportunities with
respect to the consolidation of the railroad industry in the United States. At
this meeting the parties discussed the ongoing development of the joint terminal
facility in Chicago, their respective strategic plans and objectives and the
possibility of a strategic business combination. During March 1997, the parties
had additional discussions regarding possible business opportunities in addition
to the joint terminal facility, including the possibility of a strategic
business combination.
On March 12, 1997, at a regularly scheduled meeting of the Board of
Directors of the Company, the Board was informed of the discussions between the
Company and Canadian National and the rationale for pursuing a potential
business combination with Canadian National.
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The parties rapidly concluded that to make a meaningful assessment of the
benefits of a strategic transaction, they would need to exchange confidential
information. On March 13, 1997, the Company and Canadian National entered into a
joint confidentiality and standstill agreement.
In late March and April 1997, senior officers of the Company and Beacon had
a number of meetings and telephone conversations with senior officers and
advisors of Canadian National to discuss the merits of a potential strategic
transaction. Detailed business reviews were undertaken by both companies and
their advisors.
On May 8, 1997, at a regularly scheduled meeting of the Board of Directors
of the Company, Beacon made a presentation to the Board of Directors of the
Company regarding financial and strategic issues with respect to a potential
business combination transaction with Canadian National. In May 1997, however,
Canadian National advised the Company that Canadian National did not desire to
pursue a business combination with the Company at that time, although it did not
rule out such a transaction in the future.
In July 1997, representatives of Canadian National inquired whether the
Company would have any interest in resuming discussions regarding a possible
business combination and Canadian National was provided information to enable it
to continue its analysis of the Company.
In November 1997, Mr. Tellier informed Mr. Lamphere that Canadian National
was not interested in pursuing the transaction at this time, but that it could
decide to revisit the transaction in the future. Neither party sent a formal
notice terminating discussions pursuant to the joint confidentiality and
standstill agreement.
During each regularly scheduled Board meeting from June through December
1997, the Board was updated on any communication between the Company and
Canadian National.
Discussions and meetings concerning a possible transaction resumed in
December 1997 among certain directors and senior officers of Canadian National
and the Company. The parties agreed to renew discussions of a possible strategic
transaction in January 1998. At a meeting on January 6, 1998, Mr. Lamphere and
Mr. Tellier established a preliminary basis for continuing discussions to seek
to reach an agreement concerning a transaction and for proceeding with a due
diligence review. Following the January 6, 1998 meeting, extensive due diligence
was conducted by the Company, Canadian National and their respective legal,
financial and accounting advisors. In addition, during early to mid-January
there were various discussions between the senior officers and directors of
Canadian National and the Company and their financial and legal advisors
concerning the structure and terms of the transaction.
On January 22, 1998 at a regularly scheduled meeting, the Board of
Directors of the Company analyzed and reviewed, with the Company's management
and financial and legal advisors, among other things, various strategic,
financial, legal and regulatory considerations concerning a possible business
combination, the potential terms of such a transaction and the status of
negotiations. At the January 22 meeting, the Company's directors, management and
financial and legal advisors made presentations to the Board concerning various
aspects of the possible transaction, including various ways to structure a
non-taxable transaction that would consist of at least 45% stock and the
advantages and disadvantages of each structure. Beacon reported to the Board
that Canadian National had on January 20, 1998 indicated a desire to pursue a
transaction that included a cash tender offer for at least a majority of the
Shares. Management and the Company's financial and legal advisors responded to
questions relating to the presentations set forth above and discussions ensued
as to the issues raised in the meeting. The Board also discussed whether this
was an opportune time to enter into a business combination or sell the Company.
No action was taken by the Board with respect to the approval of the
transaction, but it was the consensus of the Board that the Company's management
and advisors should continue to negotiate with Canadian National and report back
to the Board of the Company once the Company's management was prepared to make a
recommendation.
On January 25, 1998, Canadian National informed the Company that it was
only prepared to pursue a transaction that included a tender offer and that it
would not provide collar protection with respect to the value
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of Canadian National Stock issued in the back-end merger if the stock
consideration exceeded 40%-50% of the aggregate consideration to be paid in the
transaction. On January 27, 1998 there was a meeting between representatives of
the Company and representatives of Canadian National at which the Company's
representatives strongly indicated the Company's preference for a non-taxable
business combination pursuant to a one-step merger. There were intense
negotiations between Messrs. Lynch and Sabia with respect to the structure of
the proposed transaction and the implications of the partial tender offer. On
January 28, 1998 Canadian National agreed to provide value protection to the
shares that would be issued in the Merger so long as the aggregate stock
consideration did not exceed 25% of the aggregate consideration to be paid in
the transaction. From January 28 to February 5, 1998 meetings were held among
the senior officers and financial and legal advisors of both companies to
negotiate the terms of the Merger Agreement and the related documentation.
On February 5, 1998, The Wall Street Journal and The Globe and Mail
reported that the Company and Canadian National were conducting discussions with
respect to a business combination that would pay the Company's stockholders 75%
cash and 25% stock with a value in the high $30s per share. The Company and
Canadian National each issued releases confirming that discussions were taking
place between the parties in the high $30s range.
On February 6 and 7, 1998 Mr. Lamphere and Mr. Tellier met to negotiate
various outstanding issues, including price, structure and the range of the
collar protection.
At a special meeting of the Board on February 8, 1998, a presentation
regarding a possible transaction between the Company and Canadian National was
made to the Board by senior management and the Company's legal and financial
advisors which addressed, among other matters, (i) the course of negotiations
and the structure of the transaction; (ii) the financial condition and prospects
of the Company as an independent entity and whether this was an opportune time
to sell the Company; (iii) the current state of the industry consolidation and
potential consolidation opportunities and trends in the foreseeable future; and
(iv) financial presentations from Beacon and Lehman. The General Counsel of the
Company and the Company's outside legal advisors also reviewed the terms of the
transaction and legal and regulatory issues relating to the proposed
transaction. The Company's General Counsel and Chief Financial Officer also
reviewed various due diligence matters with respect to Canadian National. In
addition, Beacon and Lehman indicated that they would be prepared, if requested,
to render opinions to the Board that, as of the date of the Merger Agreement,
the consideration to be received by the stockholders in the Offer and the
Merger, taken together, was fair from a financial point of view to the
stockholders of the Company. Beacon and Lehman presented various analyses
relating to the proposed transaction and responded to questions from the
directors regarding the transaction and certain of their analyses. After
receiving such advice and after reviewing various additional information
relating to the transaction, the Board discussed the advantages and
disadvantages of the proposed transaction and posed various questions to
management and the Company's legal and financial advisors. See Item 4(b)(2)
"Reasons for Recommendation". The Board adjourned without taking any action to
consider the matter further and agreed to meet on a subsequent date to decide on
the matter.
On February 8 through February 10, further negotiations took place between
the senior officers and advisors of the Company and Canadian National to
finalize the terms of the Merger Agreement.
At a special meeting of the Board on February 10, 1998, the Board reviewed
the final terms and conditions of the transaction, including a review of the
final terms of the Merger Agreement, and Beacon and Lehman reviewed the
conclusions of their analyses and delivered their opinions that the
consideration to be received by the stockholders in the Offer and the Merger,
taken together, was fair from a financial point of view to the stockholders of
the Company. The Board discussed the proposed transaction and posed various
questions to the Company's management and its legal and financial advisors. The
Board, in its deliberations, specifically weighed, among other matters, the
benefits of the proposed transaction against the advantages and disadvantages of
remaining independent and passing on the opportunity presented by Canadian
National. The Board then unanimously approved the terms and conditions of the
proposed transaction with Canadian National, including the terms and conditions
of the Merger Agreement and the other transaction documents contemplated
thereby.
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The parties executed the Merger Agreement as of February 10, 1998 and
publicly announced the transaction on February 10, 1998.
(2) Reasons for Recommendation
In making the determination and recommendation described above, the
Company's Board considered a number of factors, including, without limitation,
the following:
(i) the Company's business, its current financial condition and
results of operations, and its future prospects, and the current and
anticipated developments in the railroad industry and the Board's belief,
on the basis of their familiarity with these matters, that the
consideration to be received by the Company's stockholders in the
transaction fairly reflects the Company's intrinsic value, including its
potential for future growth;
(ii) the price being paid in the transaction represents a 21.1%
premium over the $32.20 average closing sale price for the Shares on the
New York Stock Exchange for the 30 calendar days ending January 30, 1998
(the date on which the market initially reacted to rumors of the potential
transaction) and approximates the all-time high for the historical market
prices of the Shares;
(iii) the price being paid in the transaction represents a multiple
of 9.8x operating cash flow which compares favorably to the multiple of
operating cash flow paid in other railroad transactions;
(iv) the challenge of continuing to achieve historical levels of
earnings per share growth in the future because of the difficulty of
relying on revenue growth, rather than reductions in expenses, as was the
case historically;
(v) the industry trend of the last few years of accelerated
consolidations in the American railroad system and the Board's view that
this trend could continue and, together with potential legislative and
regulatory changes, pose a strategic challenge to the Company;
(vi) the structure of the Offer and the use of a voting trust which
allows holders of Shares to receive cash for as much as 75% of their Shares
in as early as 20 business days from the commencement of the Offer and the
Canadian National Stock upon consummation of the Merger in approximately 90
days from the date of the Merger Agreement;
(vii) the structure of the transaction, subject to the receipt of a
favorable informal opinion with respect to the use of a voting trust,
shifts any regulatory risk with respect to the receipt of STB approval to
Canadian National;
(viii) the opinions of Beacon and Lehman to the effect that the
consideration to be received by the Company's shareholders in the Offer and
the Merger, taken together, is fair to such shareholders from a financial
point of view (copies of such opinions setting forth assumptions made and
matters considered by Beacon and Lehman are included as Annex A to this
Statement and are filed as Exhibits (a)(6) and (a)(7), respectively, and
should be read in their entirety);
(ix) the floating exchange ratio with an asymmetrical collar which,
while limiting the opportunity for the Company's stockholders to share in
increases in the price of Canadian National Stock, provides the Company's
stockholders with substantial protection in the event of a decline in the
price of the Canadian National Stock and is designed to ensure parity
between the value of the consideration received for those Shares tendered
and those exchanged in connection with the Merger;
(x) the fact that no party other than Canadian National had made or
expressed any interest in making a proposal to acquire the Company, even
through a potential transaction between the Company and Canadian National
was widely rumored among industry observers in the spring of 1997 and the
existence of active discussions was reported and confirmed by the Company
on February 5, 1998;
(xi) the $72 million termination fee that would be payable by the
Company pursuant to the Merger Agreement upon the occurrence of certain
events, and the ability of the Company to terminate the Merger Agreement
if, prior to the purchase of Shares pursuant to the Offer, the Board
concludes in
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good faith, based on the advice of outside counsel, that such termination
is reasonably necessary for the Board to act in a manner which is
consistent with its fiduciary obligations, including by accepting an
alternate acquisition proposal;
(xii) that while the Company is prohibited from soliciting or
encouraging acquisition proposals, the Company is permitted to furnish
information concerning the Company to a third party and may engage in
discussions or negotiations with a third party to the extent the Board
concludes in good faith, based on the advice of outside counsel, that such
action is reasonably necessary in order for the Board to act in a manner
consistent with its fiduciary obligations;
(xiii) Canadian National's requirement for the provisions relating to
the $72 million termination fee and restrictions on solicitation of
acquisition proposals as a condition to entering into the Merger Agreement
and the Board's conclusion that, based on the advice of Beacon and Lehman,
such provisions should not significantly inhibit an interested third party
from bidding for the Company and are reasonable in light of the benefits of
the Offer and the Merger;
(xiv) the Board's understanding, based upon the advice of Beacon, that
Canadian National was the most likely interested party and that a
solicitation of other parties would have jeopardized the discussions with
Canadian National;
(xv) the favorable timing of a sales transaction in light of the
equity markets being at an all-time high;
(xvi) the termination right if Canadian National Stock falls below $38
is designed to provide the Board with flexibility to terminate the Offer in
the event the Canadian National Stock price falls meaningfully below the
exchange ratio collar;
(xvii) the value to the Company's stockholders of the shares of
Canadian National Stock to be received by them pursuant to the Merger based
upon the review of materials presented to the Board by Beacon and Lehman;
(xviii) the views expressed by management and Beacon that, based upon
their understanding of applicable market conditions and regulatory
constraints, there are only a very limited number of potential buyers at
this time that could reasonably pursue a business combination with the
Company given the regulatory or operational issues that such buyers
confront;
(xix) information with regard to the financial condition, results of
operations, business and prospects of the Company, the regulatory approvals
required to consummate the Merger as well as current economic and market
conditions (including current conditions in the industry in which the
Company is engaged);
(xx) the terms and conditions of the Offer and the Merger;
(xxi) the taxable nature of the transaction; and
(xxii) the benefits provided generally to the Company's customers and
employees and the communities served by the Company.
The Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to and considered by it.
9
<PAGE> 10
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Beacon has been retained by the Board of Directors of the Company to act as
a financial advisor to the Company with respect to the transactions contemplated
by the Merger Agreement and, as part of its role of financial advisor, has
delivered an opinion to the effect that the consideration to be received in the
Offer and the Merger, taken together, is fair to the Company's stockholders from
a financial point of view. Pursuant to the terms of the engagement letter with
Beacon, the Company has paid Beacon a retainer of $250,000 and $2.0 million paid
upon execution of the Merger Agreement. The Company has also agreed to pay
Beacon (i) $10.0 million if the Merger or a similar transaction is consummated
and (ii) if a definitive agreement for the Merger or a similar transaction is
not executed by March 31, 1998, an additional retainer of $750,000. The Company
has also agreed to reimburse Beacon for its out-of-pocket expenses, including
all reasonable fees and disbursements of counsel, and to indemnify Beacon and
certain related persons against certain liabilities in connection with their
engagement, including certain liabilities under the Federal securities laws.
In addition, the Company has engaged Lehman to provide an additional
opinion as to whether the consideration to be received in the Offer and the
Merger, taken together, is fair to the Company's stockholders from a financial
point of view. Pursuant to an engagement letter with Lehman, the Company has
paid Lehman a retainer of $100,000 and an additional fee of $1,650,000 paid upon
delivery of the opinion. The Company has also agreed to reimburse Lehman for its
out-of-pocket expenses, including all reasonable fees and disbursements of
counsel and to indemnify Lehman and certain related persons against certain
liabilities, including certain liabilities under the Federal securities laws.
Beacon has from time to time in the past provided financial advisory and
other services to the Company and has received fees for the rendering of such
services and is expected to do so in the future. Beacon assisted in the
evaluation of and negotiations with Kansas City Southern Industries in 1994 and
the acquisition of and negotiations with CCP Holdings, Inc. in 1996. During
1997, approximately $500,000 was paid to Beacon for services rendered. From 1991
to the present, Mr. Lynch, a Managing Director of Beacon, has been a director of
the Company.
Lehman has from time to time in the past provided financial advisory and
other services to the Company and has received fees for the rendering of such
services and is expected to do so in the future. Lehman managed (i) the public
debt offerings of the Illinois Central Railroad Company, a wholly owned
subsidiary of the Company ("Railroad") in 1995 and 1996, (ii) the debt tender
offer and public debt offering of the Railroad in 1993 and (iii) is one of the
designated dealer's for the Railroad's commercial paper program which started in
November 1993. From 1991 to the present, Mr. Washkowitz, a Managing Director of
Lehman, has been a Director of the Company. In the ordinary course of business,
Lehman and its affiliates may also actively trade in securities of the Company
or Canadian National for their own account and for the account of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to stockholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as set forth in this clause (a), no transactions in Shares have
been effected during the past 60 days by the Company, or, to the best of the
Company's knowledge, any executive officer, director, affiliate or subsidiary of
the Company. On December 22, 1997, Mr. Samuel F. Pryor IV, a Director of the
Company donated 150 shares to a charitable organization.
(b) To the best of the Company's knowledge and to the extent an executive
officer or director has stated an intention, except as set forth in Item 3 and
subject to applicable securities laws and personal considerations (including tax
planning), the Company believes that its executive officers and directors
currently intend to tender their Shares pursuant to the Offer. See "Item 3.
Identity and Background -- Investment Commitment Agreements."
10
<PAGE> 11
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described above, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) Appraisal Rights.
In accordance with Schwabacher v. United States, 334 U.S. 182 (1948),
stockholders of the Company will not have any appraisal or like rights in
connection with the Merger; provided, however, that if the STB or a court of
competent jurisdiction determines that appraisal rights are available to holders
of Shares, then stockholders of the Company shall be provided with appraisal
rights in accordance with the General Corporation Law of the State of Delaware
(to the extent required under such Law).
(b) Offer to Purchase and Related Letter of Transmittal.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, and are incorporated herein by reference in their entirety.
(c) Litigation.
Jay Spinner, Plaintiff, against George D. Gould, Alexander P. Lynch, F. Jay
Taylor, E. Hunter Harrison, Samuel F. Pryor, IV, Alan H. Washkowitz, William B.
Johnson, Gilbert H. Lamphere, John V. Tunney and Illinois Central Corp., C.A.
No. 16184-NC (Del. Ch. Ct., New Castle County). On February 11, 1998, an alleged
owner of the common stock of the Company filed a "Class Action Complaint" in the
Court of Chancery of the State of Delaware against the Company and members of
its Board of Directors arising out of the Company's announcement that it has
reached an agreement to be acquired by Canadian National. Although the body of
the complaint purports to list Canadian National as a defendant, Canadian
National is not listed as a defendant in the caption of the complaint. The
complaint alleges, inter alia, that the individual defendants breached fiduciary
duties allegedly owed to public shareholders of the Company by, among other
things, not adequately evaluating the value of the Company or the terms of the
transaction contemplated by the Offer before approving its terms. The Plaintiff
brings the action on behalf of a reputed class of all common stockholders of the
Company (except the defendants and any person, firm, trust, corporation, or
other entity related to or affiliated with any of the defendants) and their
successors in interest, who are or will be threatened with injury allegedly
arising from defendants' actions as alleged in the complaint. The plaintiff
alleges that he and members of the reputed class will suffer damages if they
receive the Offer consideration, which the complaint characterizes as unfair and
inadequate. The plaintiff has demanded judgment: (1) declaring, inter alia, that
the initiated action is a proper class action, (2) enjoining or rescinding the
transaction contemplated by the Offer, and (3) requiring the Board of Directors
of the Company to place the Company up for auction and/or conduct a market
check.
11
<PAGE> 12
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
*+(a)(1) Offer to Purchase dated February 13, 1998
*+(a)(2) Letter of Transmittal dated February 13, 1998
+(a)(3) Redacted version of press release issued by the Company and Canadian National,
dated February 10, 1998
++*(a)(4) Letter to stockholders of the Company dated February 13, 1998
+(a)(5) Form of Summary Advertisement dated February 13, 1998
++*(a)(6) Opinion of The Beacon Group Capital Services, LLC
++*(a)(7) Opinion of Lehman Brothers Inc.
(b) Not applicable
++(c)(1) Agreement and Plan of Merger dated as of February 10, 1998
+(c)(2) Form of Voting Trust Agreement
+(c)(3) Investment Commitment Agreement entered into between Canadian National and Mr.
Lamphere
+(c)(4) Investment Commitment Agreement entered into between Canadian National and Mr.
Lynch
++(c)(5) Pages 5-16 of the Company's Proxy Statement dated March 27, 1997
(c)(6) Form of Illinois Central Railroad Company Performance Compensation Program
(Incorporated by reference to Exhibit 10.4 to the report on Form 8-K of the
Illinois Central Railroad Company dated as of July 29, 1994. (Commission File
No. 1-7092))
(c)(7) Form of Company Long-Term Incentive Option Plan. (Incorporated by reference to
Exhibit 10.17 to the Registration Statement of the Company and Illinois Central
Railroad Company on Form S-1 dated as of September 26, 1989. (Commission File
Nos. 33-36321 and 33-36321-0100)
(c)(8) Amendments No. 1 and No. 2 to Company Long-Term Incentive Option Plan.
(Incorporated by reference to the Proxy Statement of the Company in connection
with its 12992 Annual Meeting of Stockholders. (Commission File No. 1-10720))
(c)(9) 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 10,
1996 (Commission File No. 1-7092))
(c)(10) Form of Directors 2000 Option Plan (Incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, for the
Company filed on May 10, 1996. (Commission File No. 1-10720)
(c)(11) Form of the Illinois Central Railroad Executive Performance Compensation Program
(Incorporated by reference to Exhibit 10.1 to the report on Form 8-K of the
Illinois Central Railroad Company dated as of July 29, 1994. (Commission File
No. 1-7092))
++(c)(12) Forms of Employment Security Agreements
(c)(13) Form of Company Management Employee Discounted Stock Purchase Plan (Incorporated
by reference to Exhibit 10.7 to the report on Form 10-K of the Company for the
year ended December 31, 1995 (Commission File No. 1-10720)
(c)(14) Form of the Illinois Central Railroad Company Executive Deferred Compensation
Plan (Incorporated by reference to Exhibit 10.3 to the report on Form 8-K of the
Illinois Central Railroad Company dated as of July 29, 1994. (Commission File
NO. 1-7092))
(c)(15) Form of Illinois Central Railroad Company Supplemental Executive Retirement Plan
(Incorporated by reference to Exhibit 10.2 to the report on Form 8-K of the
Illinois Central Railroad Company dated as of July 29, 1994 (Commission File No.
1-7092))
(c)(16) Form of Company Directors Deferred Compensation Plan, as amended and restated
effective May 1, 1997 (Incorporated by reference to Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, for the Company filed
on August 12, 1997 (Commission File No. 1-10720))
(c)(17) Form of Illinois Central Railroad Company Performance Compensation Program
(Incorporated by reference to Exhibit 10.4 to the report on Form 8-K of the
Illinois Central Railroad Company dated as of July 29, 1994 (Commission File No.
1-7092).
</TABLE>
- ---------------
* Included in materials delivered to shareholders of the Company.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated February 13, 1998 and incorporated herein by reference.
++ Filed herewith.
12
<PAGE> 13
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
ILLINOIS CENTRAL CORPORATION
Date: February 13, 1998
By /s/ RONALD A. LANE, ESQ.
------------------------------------
Name: Ronald A. Lane, Esq.
Title: Vice President and General
Counsel
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ----------------------------------------------------------------------------------- ---------
<S> <C> <C>
*+(a)(1) Offer to Purchase dated February 13, 1998
*+(a)(2) Letter of Transmittal dated February 13, 1998
+(a)(3) Redacted version of press release issued by the Company and Canadian
National, dated February 10, 1998
++*(a)(4) Letter to stockholders of the Company dated February 13, 1998
+(a)(5) Form of Summary Advertisement dated February 13, 1998
++*(a)(6) Opinion of The Beacon Group Capital Services, LLC
++*(a)(7) Opinion of Lehman Brothers Inc.
(b) Not applicable
++(c)(1) Agreement and Plan of Merger dated as of February 10, 1998
+(c)(2) Form of Voting Trust Agreement
+(c)(3) Investment Commitment Agreement entered into between Canadian National
and Mr. Lamphere
+(c)(4) Investment Commitment Agreement entered into between Canadian National
and Mr. Lynch
++(c)(5) Pages 5-16 of the Company's Proxy Statement dated March 27, 1997
(c)(6) Form of Illinois Central Railroad Company Performance Compensation
Program (Incorporated by reference to Exhibit 10.4 to the report on
Form 8-K of the Illinois Central Railroad Company dated as of July 29,
1994. (Commission File No. 1-7092))
(c)(7) Form of Company Long-Term Incentive Option Plan. (Incorporated by
reference to Exhibit 10.17 to the Registration Statement of the
Company and Illinois Central Railroad Company on Form S-1 dated as of
September 26, 1989. (Commission File Nos. 33-36321 and 33-36321-0100)
(c)(8) Amendments No. 1 and No. 2 to Company Long-Term Incentive Option Plan.
(Incorporated by reference to the Proxy Statement of the Company in
connection with its 12992 Annual Meeting of Stockholders. (Commission
File No. 1-10720))
(c)(9) 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 10, 1996 (Commission File No.
1-7092))
(c)(10) Form of Directors 2000 Option Plan (Incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, for the Company filed on May 10, 1996.
(Commission File No. 1-10720)
(c)(11) Form of the Illinois Central Railroad Executive Performance
Compensation Program (Incorporated by reference to Exhibit 10.1 to the
report on Form 8-K of the Illinois Central Railroad Company dated as
of July 29, 1994. (Commission File No. 1-7092))
++(c)(12) Forms of Employment Security Agreements
(c)(13) Form of Company Management Employee Discounted Stock Purchase Plan
(Incorporated by reference to Exhibit 10.7 to the report on Form 10-K
of the Company for the year ended December 31, 1995 (Commission File
No. 1-10720)
(c)(14) Form of the Illinois Central Railroad Company Executive Deferred
Compensation Plan (Incorporated by reference to Exhibit 10.3 to the
report on Form 8-K of the Illinois Central Railroad Company dated as
of July 29, 1994. (Commission File NO. 1-7092))
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ----------------------------------------------------------------------------------- ---------
<S> <C> <C>
(c)(15) Form of Illinois Central Railroad Company Supplemental Executive
Retirement Plan (Incorporated by reference to Exhibit 10.2 to the
report on Form 8-K of the Illinois Central Railroad Company dated as
of July 29, 1994 (Commission File No. 1-7092))
(c)(16) Form of Company Directors Deferred Compensation Plan, as amended and
restated effective May 1, 1997 (Incorporated by reference to Exhibit
10 to the Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for the Company filed on August 12, 1997 (Commission File No.
1-10720))
(c)(17) Form of Illinois Central Railroad Company Performance Compensation
Program (Incorporated by reference to Exhibit 10.4 to the report on
Form 8-K of the Illinois Central Railroad Company dated as of July 29,
1994 (Commission File No. 1-7092).
</TABLE>
- ---------------
* Included in materials delivered to shareholders of the Company.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated February 13, 1998 and incorporated herein by reference.
++ Filed herewith.
15
<PAGE> 1
EXHIBIT (A)(4)
ILLINOIS CENTRAL CORPORATION
455 NORTH CITYFRONT PLAZA
CHICAGO, ILLINOIS 60611-5504
February 13, 1998
Dear Stockholders:
I am pleased to inform you that Illinois Central Corporation (the
"Company") and Canadian National Railway Company ("Canadian National") have
entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant
to which Blackhawk Merger Sub, Inc. (the "Purchaser"), a wholly owned subsidiary
of Canadian National, has commenced a tender offer (the "Offer") to purchase
approximately 75% of the outstanding shares of the Company's Common Stock (the
"Shares") at a price of $39.00 per Share. Following completion of the Offer and
subject to satisfaction of customary conditions, the Purchaser will be merged
with and into the Company (the "Merger") and each Share not purchased in the
Offer will be converted into the right to receive an amount of Canadian National
common stock (the "Canadian National Common Stock") equal to the fraction
obtained by dividing (1) $39.00 by (2) the average closing price of the Canadian
National Common Stock (the "Average Closing Price") over the 20 day trading
period ending two trading days prior to the effective time of the Merger;
provided that if such Average Closing Price is less than $43.00, then the
Average Closing Price will be deemed to be $43.00 and if such Average Closing
Price is greater than $64.50, then the Average Closing Price will be deemed to
be $64.50. If less than 75% of the shares are tendered, the Shares outstanding
prior to the Merger will be converted into the right to receive a prorated
amount of stock and cash in order to ensure that the overall aggregate
consideration consists of 75% cash and 25% stock.
AS MORE FULLY DESCRIBED IN THE ATTACHED SCHEDULE 14D-9, YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT
COMPANY STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES.
In reaching its conclusion, the Board considered, among other factors, the
Company's business, its current financial condition and results of operations,
and its future prospects, and the current and anticipated developments in the
railroad industry and the Board's belief, on the basis of its familiarity with
these matters, that the consideration to be received by the Company's
stockholders in the transaction fairly reflects the Company's intrinsic value.
The enclosed Offer to Purchase and related Letter of Transmittal set forth
in detail the terms and conditions of the Offer and the Merger and provide
instructions on how to tender your Shares. Attached is a copy of the Schedule
14D-9 filed by the Company with the Securities and Exchange Commission. The
Schedule 14D-9 describes the reasons for the Board's conclusions and contains
other important information relating to the Offer. I urge you to consider the
enclosed information carefully.
Sincerely,
LOGO
Gilbert H. Lamphere
Chairman
<PAGE> 1
ANNEX A
399 Park Avenue
New York, New York 10022
(212) 339 9100
Fax: (212) 339 9109
THE BEACON GROUP
CAPITAL SERVICES, LLC
February 10, 1998
Board of Directors
Illinois Central Corporation
455 N. Cityfront Plaza Drive
Chicago, Il 60611-5504
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock, par value $0.001
per share (the "Shares"), of Illinois Central Corporation (the "Company") of the
Aggregate Consideration (as defined below) to be received by such holders
pursuant to the Agreement and Plan of Merger, dated as of February 10, 1998
among Canadian National Railway Company ("CN"), Blackhawk Merger Sub, Inc.
("Merger Subsidiary"), an indirect wholly-owned subsidiary of CN, and the
Company (the "Agreement").
The Agreement provides for a tender offer for up to 75% of the Shares
outstanding (the "Tender Offer") pursuant to which Merger Subsidiary will pay
$39.00 per Share in cash for each Share accepted. The Agreement further provides
that following the completion of the Tender Offer, Merger Subsidiary will be
merged with and into the Company (the "Merger") and each outstanding Share
(other than Shares already owned by Merger Subsidiary) will be converted into
the right to receive that number of shares (or fraction thereof) of common stock
of CN (the "CN Shares") equal to the fraction obtained by dividing $39.00 by the
CN Average Closing Price (as defined in the Agreement); provided, however, that
the number of CN Shares into which each Share is converted shall not exceed
0.9070 CN Shares and shall not be less than 0.6047 CN Shares. The aggregate of
the cash and stock consideration to be received by all of the holders of
outstanding Shares pursuant to the Tender Offer and the Merger is referred to
herein as the "Aggregate Consideration."
The Beacon Group Capital Services, LLC ("Beacon"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, financings,
private placements, principal investments and other purposes. We are familiar
with the Company, with certain professionals of Beacon having previously been
affiliated with an entity which acted as the Company's financial advisor from
time to time, including in connection with the Company's acquisition of CCP
Holdings, Inc. in 1996. Alexander P. Lynch, a managing director of Beacon, has
been a director of the Company since 1989 and is the owner of
<PAGE> 2
Illinois Central Corporation
February 10, 1998
Page 2
125,683 Shares. Mr. Lynch has entered into a binding agreement with CN pursuant
to which Mr. Lynch has agreed to convert all options to acquire Shares into
options to acquire CN Shares and to vote all of his shares in favor of the
adoption of the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to shareholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1996; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its stockholders; and certain internal financial analyses
and forecasts for the Company prepared by its management. We have also reviewed,
among other things, Annual Reports to shareholders and Annual Reports on Form
40-F of CN for the two years ended December 31, 1996; the Prospectus issued by
CN in connection with its initial public offering on November 17, 1995; certain
interim reports to stockholders and Quarterly Reports on Form 6-K; certain other
communications from CN to its stockholders; and certain internal financial
analyses and forecasts for CN prepared by its management. We also have held
discussions with members of the senior management of the Company and CN
regarding the past and current business operations, financial condition and
future prospects of their respective companies. Furthermore, we have considered
the views of senior management of the Company and CN regarding the strategic
importance of, and potential synergies expected to be realized from, the Merger.
In addition, we have reviewed the reported price and trading activity for the
Shares and the CN Shares, compared certain financial and stock market
information for the Company and CN with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the railroad industry and
performed such other studies and analyses as we considered appropriate.
We have assumed and relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by us
for purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or CN or
any of their respective subsidiaries and we have not been furnished with any
such evaluation or appraisal. Our advisory services and opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transactions contemplated by
the Agreement and do not constitute a recommendation to any shareholder as to
how such shareholder should respond to the Tender Offer or vote on the Merger.
Our opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and could be evaluated as of, the date hereof. In
arriving at our opinion, we were not authorized to solicit, and did not solicit,
interest from any party with respect to a business combination involving the
Company.
Based upon and subject to the foregoing and such other matters as we consider
relevant, it is our opinion that, as of the date hereof, the Aggregate
Consideration to be received by the holders of Shares (other than CN and its
affiliates) pursuant to the Tender Offer and the Merger, considered as a unitary
transaction, is fair from a financial point of view to such holders.
Very truly yours,
The Beacon Group Capital Services, LLC
<PAGE> 1
LEHMAN BROTHERS LETTERHEAD
February 10, 1998
Board of Directors
Illinois Central Corporation
455 N. Cityfront Plaza Drive
Chicago, Illinois 60611-5504
Members of the Board:
We understand that Illinois Central Corporation ("Illinois Central" or the
"Company") proposes to enter into an Agreement and Plan of Merger (the
"Agreement") with Canadian National Railway Company ("Canadian National")
pursuant to which a subsidiary of Canadian National (the "Acquisition Sub") will
commence a tender offer (the "Tender Offer") to acquire up to 75% of the
outstanding shares of common stock of Illinois Central ("Illinois Central Common
Stock") for $39.00 per share in cash (the "Tender Offer Consideration").
Following consummation of the Tender Offer, the Acquisition Sub will be merged
with and into Illinois Central (the "Merger", and together with the Tender
Offer, the "Proposed Transaction") and upon the effectiveness of the Merger,
each outstanding share of Illinois Central Common Stock (other than shares
already owned by the Acquisition Sub) will be converted into the right to
receive that number of shares of common stock of Canadian National (the "Stock
Consideration") equal to the fraction obtained by dividing $39.00 by the Buyer
Average Closing Price as defined in the Agreement; provided that if the Buyer
Average Closing Price is less than $43.00 then the Buyer Average Closing Price
shall be deemed to be $43.00 and if the Buyer Average Closing Price is greater
than $64.50 then the Buyer Average Closing Price shall be deemed to be $64.50.
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Tender Offer Consideration and Stock Consideration
to be received by such stockholders, taken together, in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does not
in any manner address the Company's underlying business decision to proceed with
or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) such publicly available
information concerning the Company and Canadian National that we believe to be
relevant to our analysis, (3) financial and operating information with respect
to the business, operations and prospects of the Company furnished to us by the
Company, (4) financial and operating information with respect to the business,
operations and prospects of Canadian National furnished to us by Canadian
National, (5) a trading history of the Company Common Stock from 1995 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (6) a trading history of Canadian National Common Stock
from 1995 to the present and a comparison of that trading history with those of
other companies that we deemed relevant, (7) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies that we deemed relevant, (8) a comparison of the historical
financial results and present financial condition of Canadian National with
those of other companies that we deemed relevant, and (9) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other recent transactions that we deemed relevant. In addition, we have had
discussions with the managements of the Company and Canadian National concerning
their respective businesses, operations, assets, financial conditions and
prospects and the cost savings and other strategic benefits expected to result
from a combination of the businesses of Illinois Central and Canadian National
and have undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of
<PAGE> 2
such information and have further relied upon the assurances of management of
the Company that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading in any material respect. With
respect to the financial projections of the Company, upon advice of the Company
we have assumed that such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company
and we have relied upon such projections in performing our analysis. However,
for purposes of our analysis, we also have applied a sensitivity analysis to
certain assumptions which resulted in certain adjustments to the estimates of
the future financial performance of the Company. With respect to the financial
projections of Canadian National, upon advice of Canadian National and the
Company, we have assumed that such projections have been reasonably prepared on
a basis reflecting the best currently available estimates and judgments of the
management of Canadian National as to the future financial performance of
Canadian National and we have relied upon such projections in rendering our
opinion. In arriving at our opinion, we have not conducted physical inspection
of the properties and facilities of the Company or Canadian National and have
not made or obtained any evaluations or appraisals of the assets or liabilities
of the Company or Canadian National. In addition, you have not authorized us to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase to all or a part of the Company's business.
Our opinion necessarily is based upon market, economic and other conditions as
they exist on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Tender Offer Consideration
and the Stock Consideration to be received by the stockholders of the Company in
the Proposed Transaction, taken together, is fair to such stockholders.
Lehman Brothers will receive a fee upon the delivery of this opinion. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. We also have performed various
investment banking services for the Company in the past and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the debt and equity securities of the Company and Canadian
National for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Alan Washkowitz, a Managing Director of Lehman Brothers, is a member of the
Board of Directors of Illinois Central.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
whether to accept the consideration to be offered to such stockholder in
connection with the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
<PAGE> 1
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
dated as of
February 10, 1998
among
CANADIAN NATIONAL RAILWAY COMPANY
BLACKHAWK MERGER SUB, INC.
AND
ILLINOIS CENTRAL CORPORATION
<PAGE> 2
TABLE OF CONTENTS(1)
PAGE
<TABLE>
<S> <C>
SECTION 1.01. The Offer........................... 2
SECTION 1.02. IC Action........................... 3
SECTION 1.03. Voting Trust........................ 4
SECTION 1.04. Alternative Transaction Structures.. 5
SECTION 2.01. The Merger.......................... 6
SECTION 2.02. Conversion of Shares................ 6
SECTION 2.03. The Exchange Agent.................. 8
SECTION 2.04. Surrender and Payment............... 8
SECTION 2.05. No Appraisal Rights................. 10
SECTION 2.06. Fractional Shares................... 10
SECTION 2.07. Stock Options....................... 10
SECTION 2.08. Withholding Rights.................. 12
SECTION 3.01. Certificate of Incorporation........ 12
SECTION 3.02. Bylaws.............................. 12
SECTION 3.03. Directors and Officers.............. 13
SECTION 4.01. Corporate Existence and Power....... 14
SECTION 4.02. Corporate Authorization............. 14
SECTION 4.03. Governmental Authorization.......... 14
SECTION 4.04. Non-Contravention................... 15
SECTION 4.05. Capitalization...................... 15
SECTION 4.06. Subsidiaries........................ 16
SECTION 4.07. SEC Filings......................... 16
SECTION 4.08. Financial Statements................ 17
</TABLE>
(1)The Table of Contents is not a part of this Agreement.
<PAGE> 3
SECTION 4.09. Disclosure Documents................. 17
SECTION 4.10. Absence of Certain Changes........... 18
SECTION 4.11. No Undisclosed Material Liabilities.. 19
SECTION 4.12. Litigation........................... 20
SECTION 4.13. Taxes................................ 20
SECTION 4.14. Employee Benefit Plans............... 20
SECTION 4.15. Labor Matters........................ 22
SECTION 4.16. Takeover Statutes; Rights Plans...... 23
SECTION 4.17. Compliance with Laws................. 23
SECTION 4.18. Finders' Fees........................ 23
SECTION 4.19. Environmental Matters................ 23
SECTION 4.20. Opinion of Financial Advisor......... 25
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CN AND MERGER SUBSIDIARY
SECTION 5.01. Corporate Existence and Power........ 26
SECTION 5.02. Corporate Authorization...............26
SECTION 5.03. Governmental Authorization............26
SECTION 5.04. Non-Contravention.....................26
SECTION 5.05. Capitalization........................27
SECTION 5.06. Subsidiaries..........................27
SECTION 5.07. SEC Filings...........................28
SECTION 5.08. Financial Statements..................29
SECTION 5.09. Disclosure Documents..................29
SECTION 5.10. Absence of Certain Changes............30
SECTION 5.11. No Undisclosed Material Liabilities...31
SECTION 5.12. Litigation............................31
SECTION 5.13. Taxes.................................31
SECTION 5.14. Employee Benefit Plans................32
SECTION 5.15. Compliance with Laws..................32
SECTION 5.16. Finders' Fees.........................33
SECTION 5.17. Environmental Matters.................33
SECTION 5.18. Ownership of IC Common Stock..........33
SECTION 5.19. Sufficiency of Funds..................33
SECTION 5.20. Labor Matters.........................33
ARTICLE 6
COVENANTS OF IC
SECTION 6.01. Conduct of IC.........................34
SECTION 6.02. Access to Information.................38
<PAGE> 4
SECTION 6.03. Other Offers............................39
SECTION 6.04. Notices of Certain Events...............40
SECTION 6.05. Registration Rights.....................40
SECTION 6.06. Antitakeover Statutes...................41
ARTICLE 7
COVENANTS OF CN
SECTION 7.01. Conduct of CN...........................42
SECTION 7.02. Access to Information...................43
SECTION 7.03. Notices of Certain Events...............43
SECTION 7.04. Obligations of Merger Subsidiary........43
SECTION 7.05. Voting of Shares........................44
SECTION 7.06. Director and Officer Liability..........44
SECTION 7.07. Stock Exchange Listing..................44
ARTICLE 8
COVENANTS OF CN AND IC
SECTION 8.01. Reasonable Best Efforts..................45
SECTION 8.02. STB Approval.............................45
SECTION 8.03. Certain Filings..........................45
SECTION 8.04. Public Announcements.....................46
SECTION 8.05. Dividends................................46
SECTION 8.06. Auditors' Letters........................46
SECTION 8.07. Treatment of IC Employees and Directors..46
SECTION 9.01. Preparation of the.......................50
Form F-4; Proxy or Information
Statement; Action by Written Consent
SECTION 9.02. Fees and Expenses........................51
SECTION 9.03. Further Assurances.......................52
ARTICLE 10
CONDITIONS TO THE MERGER
SECTION 10.01. Conditions to the Obligations of Each Party to
the Merger....................................52
SECTION 10.02. Additional Condition to the Obligations of IC......52
ARTICLE 11
TERMINATION
<PAGE> 5
SECTION 11.01. Termination............................ 53
SECTION 11.02. Effect of Termination.................. 55
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Notices................................ 56
SECTION 12.02. Definitions............................ 57
SECTION 12.03. Survival............................... 60
SECTION 12.04. Amendments; No Waivers; Continuing
Directors........................... 61
SECTION 12.05. Successors and Assigns................. 61
SECTION 12.06. Governing Law.......................... 62
SECTION 12.07. Counterparts; Effectiveness............ 62
SECTION 12.08. Entire Agreement; No Third Party
Beneficiaries....................... 62
SECTION 12.09. Submission to Jurisdiction; Waivers.... 63
SECTION 12.10. Enforcement............................ 63
SECTION 12.11. Guarantee of Merger Subsidiary......... 63
SECTION 12.12. Disclosure Schedules................... 63
<TABLE>
<S> <C>
EXHIBIT A Form of Voting Trust Agreement
EXHIBIT B Certificate of Incorporation of Surviving Corporation
EXHIBIT C Bylaws of Surviving Corporation
EXHIBIT D Terms and Conditions of Alternate Merger
</TABLE>
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") dated as of February 10,
1998 among Canadian National Railway Company, a Canadian corporation ("CN"),
Blackhawk Merger Sub, Inc., a Delaware corporation and an indirect wholly-owned
subsidiary of CN ("MERGER SUBSIDIARY") and Illinois Central Corporation, a
Delaware corporation ("IC").
The parties hereto agree as follows:
WHEREAS, IC operates a rail freight transportation business through
Illinois Central Railroad Company, an Illinois corporation and a wholly-owned
subsidiary of IC, CCP Holdings, Inc., a Delaware corporation and a wholly-owned
subsidiary of IC, and IC Financial Services Corporation, a Delaware corporation
and a wholly-owned subsidiary of IC (Illinois Central Railroad Company, CCP
Holdings, Inc. and IC Financial Services Corporation collectively, the
"RAILROAD SUBSIDIARIES");
WHEREAS, the Board of Directors of IC (at a meeting duly called and held),
has unanimously determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger (as hereinafter
defined) are fair to, and in the best interests of, the holders of shares of
Blackhawk Common Stock (as hereinafter defined) and recommended acceptance of
the Offer and adoption of this Agreement by the stockholders of IC;
WHEREAS, the respective Boards of Directors of Merger Subsidiary and CN
have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the business combination contemplated
hereby upon the terms and subject to the conditions set forth herein;
WHEREAS, it is intended that, except as provided in Section 1.04, the
business combination contemplated hereby be accomplished by having Merger
Subsidiary commence a cash tender offer for an aggregate of 46,051,761
outstanding shares of common stock, par value $0.001 per share, of IC ("IC
COMMON STOCK"), representing 75% of the currently outstanding shares of IC
Common Stock, to be followed by a merger of Merger Subsidiary with and into IC,
upon the terms and subject to the conditions set forth herein;
WHEREAS, on the date hereof, Messrs. Gilbert H. Lamphere and Alexander P.
Lynch have entered into binding agreements with CN (the "INVESTMENT COMMITMENT
AGREEMENTS") with respect to the shares of IC Common Stock and options to
purchase shares of IC Common Stock owned by them, pursuant to which they agree
(i) to consent to (or vote their shares of IC Common Stock in favor of) the
<PAGE> 7
adoption of this Agreement, (ii) to roll over 100% of their options into
options to purchase shares of CN Common Stock (as hereinafter defined) and
(iii), in the case of Mr. Lamphere, to invest a certain portion of the proceeds
received in the Merger in shares of CN Common Stock (as hereinafter defined)
within 90 days of the Effective Time (as hereinafter defined);
WHEREAS, IC, Merger Subsidiary and CN desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to
the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties, intending to
be legally bound, agree as follows:
ARTICLE 1
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not have
been terminated and nothing shall have occurred that would result in a failure
to satisfy any of the conditions set forth in Annex I hereto, Merger Subsidiary
shall, as promptly as practicable after the date hereof, but in no event later
than five business days following the public announcement of the terms of this
Agreement, commence an offer (the "OFFER") to purchase an aggregate of
46,051,761 outstanding shares of IC Common Stock at a price of $39.00 per
share, net to the seller in cash. The Offer shall be subject to the condition
that there shall be validly tendered in accordance with the terms of the Offer
prior to the expiration date of the Offer and not withdrawn a number of shares
which, together with the shares then owned by CN, represents at least 50.1% of
the outstanding shares of IC Common Stock on a fully diluted basis (the
"MINIMUM CONDITION") and to the other conditions set forth in Annex I hereto.
Merger Subsidiary reserves the right to waive any of the conditions to the
Offer, to extend the Offer if any conditions to this Offer are not satisfied
and to make any change in the terms or conditions of the Offer; provided that,
except as provided in Section 1.04, no waiver or change may be made without the
prior written consent of IC which (i) increases or decreases the number of
shares of IC Common Stock sought in the Offer, (ii) changes the form of
consideration to be paid or decreases the price per share, (iii) waives the
Minimum Condition, (iv) waives the conditions set forth in paragraph (a), (b)
or (e) of Annex I hereto, (v) waives the condition relating to the expiration
of the waiting period (if any) under the Hart-Scott Rodino Antitrust
Improvements
2
<PAGE> 8
Act of 1976 (the "HSR ACT") or the receipt of a favorable informal advisory
opinion from the STB, (vi) is adverse to the holders of IC Common Stock or
modifies any of the conditions to the Offer or (vii) imposes any conditions to
the Offer in addition to those set forth in Annex I. CN agrees that, if the
Offer shall not have been consummated at the scheduled expiration thereof due
to the failure to satisfy (i) any of the conditions to the Offer set forth in
clauses (a) or (b) of Annex I, (ii) the condition to the Offer relating to
expiration of the waiting period under the HSR Act or (iii) the condition
relating to the receipt of the favorable informal advisory opinion from the STB
staff, CN will, at the request of IC, cause Merger Subsidiary to extend the
Offer for a period of up to twenty business days.
(b) Subject to the terms and conditions of the Offer (including, without
limitation, the Minimum Condition) and the terms of this Agreement, CN shall
provide the funds to Merger Subsidiary and Merger Subsidiary shall pay, as
promptly as practicable after the expiration of the Offer, for all shares of IC
Common Stock properly tendered and not withdrawn pursuant to the Offer that
Merger Subsidiary is obligated to purchase.
(c) As soon as practicable on the date of commencement of the Offer, CN
and Merger Subsidiary shall file with the Securities and Exchange Commission
(the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer which will contain the offer to purchase and form of the related letter
of transmittal (together with any supplements or amendments thereto,
collectively the "OFFER DOCUMENTS"). CN and IC each agrees promptly to correct
any information provided by it for use in the Offer Documents if and to the
extent that it shall have become false or misleading in any material respect.
CN agrees to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to holders of IC
Common Stock, in each case as and to the extent required by applicable federal
securities laws. IC and its counsel shall be given an opportunity to review and
comment on the Schedule 14D-1 prior to its being filed with the SEC.
SECTION 1.02. IC Action. (a) IC hereby consents to the Offer and
represents that its Board of Directors, at a meeting duly called and held, has
unanimously (i) determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger (as defined in Section
2.01), are fair to, advisable and in the best interests of IC's stockholders,
(ii) approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, in accordance with the requirements of the
General Corporation Law of the State of Delaware (the "DELAWARE LAW"), and
(iii) resolved to recommend acceptance of the Offer and adoption of this
Agreement by its stockholders; provided, however, that prior to the earlier of
(x) the consummation of the Offer or (y) the adoption of this Agreement by the
3
<PAGE> 9
stockholders of IC, the Board of Directors of IC may modify, withdraw or change
such recommendation to the extent that the Board of Directors concludes in good
faith, based on the advice of outside counsel, that such action is reasonably
necessary in order for the Board of Directors to act in a manner consistent
with the Board's fiduciary duties under applicable law. IC further represents
that Lehman Brothers Inc. and The Beacon Group Capital Services LLC have
delivered to IC's Board of Directors their written opinions that the
consideration to be received in the Offer and the Merger taken together is fair
to the holders of shares of IC Common Stock from a financial point of view. To
the knowledge of IC, all of the directors and executive officers of IC intend
either to tender their shares of IC Common Stock pursuant to the Offer or to
consent to or vote in favor of the adoption of the Agreement.
(b) As soon as practicable after the Offer is commenced IC will file with
the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"SCHEDULE 14D-9") which shall reflect the recommendations of IC's Board of
Directors referred to above; provided, however, that prior to the earlier of
(x) the consummation of the Offer or (y) the adoption of this Agreement by the
stockholders of IC, the Board of Directors of IC may modify, withdraw or change
such recommendation to the extent that the Board of Directors concludes in good
faith, based on the advice of outside counsel, that such action is reasonably
necessary in order for the Board of Directors act in a manner consistent with
the Board's fiduciary duties under applicable law. IC and CN each agree
promptly to correct any information provided by it for use in the Schedule
14D-9 if and to the extent that such information shall have become false or
misleading in any material respect. IC agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of shares of IC Common Stock, in each case as and to
the extent required by applicable federal securities laws. CN and its counsel
shall be given an opportunity to review and comment on the Schedule 14D-9 prior
to its being filed with the SEC.
SECTION 1.03. Voting Trust. The parties agree that, (i) simultaneously
with the purchase by CN, Merger Subsidiary or their Affiliates of shares of IC
Common Stock pursuant to the Offer or otherwise, such shares shall be deposited
in an irrevocable voting trust (the "VOTING TRUST") in accordance with the
terms and conditions of a voting trust agreement (the "VOTING TRUST AGREEMENT")
substantially in the form attached hereto as Exhibit A and (ii) upon
consummation of the Merger, all outstanding shares of the Surviving Corporation
shall be deposited in the Voting Trust. Subject to applicable law and to the
rules, regulations and practices of the United States Surface Transportation
Board (the "STB"), the Voting Trust Agreement may be modified or amended at any
time by CN in its sole discretion; provided that (i) prior to the Effective
Time, the Voting Trust Agreement may not be modified or amended without the
prior written
4
<PAGE> 10
approval of IC unless such modification or amendment is not inconsistent with
this Agreement and is not adverse to IC or its stockholders and would not
reasonably be expected to have an adverse effect on receipt of a favorable
informal advisory opinion from the STB and (ii) prior to or after the Effective
Time, the Voting Trust Agreement may not be modified or amended without the
prior written approval of IC if such modification or amendment would reasonably
be expected to increase the liability exposure of the Board of Directors of the
Surviving Corporation under applicable law. No power of CN or Merger
Subsidiary provided for in the Voting Trust Agreement may be exercised in a
manner which violates this Agreement. CN, in consultation with IC, shall use
its best efforts to take, or cause to be taken, all actions necessary, proper
or advisable to obtain a favorable informal advisory opinion from the STB
staff. In furtherance and not in limitation of the foregoing, CN and IC agreed
that: (i) CN shall make any filings required by the STB with respect to the
Voting Trust and IC shall make any filings required by CN; (ii) CN shall
consult with IC in connection with any discussions or proceedings initiated by
CN with the STB with respect to the Voting Trust; provided that IC shall not
initiate any such discussions or proceedings without CN's prior written
consent; and (iii) CN with IC's consent, shall change or modify the terms of
the Voting Trust Agreement to the extent required by the STB as a condition to
the issuance of such advisory opinion, so long as the required changes or
modifications do not, in the aggregate, materially affect CN's rights
thereunder. Any trustee of the Voting Trust appointed by CN and Merger
Subsidiary pursuant to the Voting Trust Agreement shall be reasonably
satisfactory to the Board of Directors of IC.
SECTION 1.04. Alternative Transaction Structures. Notwithstanding
anything to the contrary set forth in this Agreement, if the Minimum Condition
has not been satisfied prior to the scheduled expiration of the Offer (as such
Offer may have been extended pursuant to Section 1.01(a) hereof), Merger
Subsidiary shall have the right at its option to extend the Offer for a period
of up to twenty business days. If, at the scheduled expiration of the Offer
(as such date may have been extended by Merger Subsidiary as contemplated by
the preceding sentence), the Minimum Condition has not been satisfied, then
(unless the parties otherwise agree) at CN's election either (i) Merger
Subsidiary shall amend the terms of the Offer by increasing the number of
shares sought in the Offer to all of the outstanding shares of IC Common Stock,
subject to the conditions set forth in Section 1.01, in which event the
Agreement shall be modified as provided in Part I of Exhibit D, or (ii)
Subsidiary shall terminate the Offer and Merger Subsidiary and IC shall proceed
with the Merger, in accordance with this Agreement in which event the terms and
conditions of the Merger Agreement shall be modified as provided in Part II of
Exhibit D.
5
<PAGE> 11
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "MERGER") with and into IC in accordance with the Delaware
Law, whereupon the separate existence of Merger Subsidiary shall cease, and IC
shall be the surviving corporation (the "SURVIVING CORPORATION").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, IC and Merger Subsidiary
will file a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by Delaware Law in
connection with the Merger. The Merger shall become effective at such time as
the certificate of merger is duly filed with the Secretary of State of the
State of Delaware or at such later time as the parties hereto shall agree and
as is specified in the certificate of merger (the "EFFECTIVE TIME").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of IC and Merger Subsidiary, all
as provided under Delaware Law.
SECTION 2.02. Conversion of Shares. Subject to Section 1.04, at the
Effective Time:
(a) each share of IC Common Stock held by IC as treasury stock or owned of
record or beneficially by CN or any Subsidiary of CN immediately prior to the
Effective Time (including the shares of IC Common Stock held in the Voting
Trust) shall be canceled, and no payment shall be made with respect thereto.
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation and shall constitute the
only outstanding shares of capital stock of the Surviving Corporation and each
such share shall be deposited in the Voting Trust;
(c) if Merger Subsidiary shall have purchased, pursuant to the Offer, an
aggregate of 46,051,761 shares of IC Common Stock, each share of IC Common
Stock outstanding immediately prior to the Effective Time shall, except as
provided in Section 2.02(a), be converted into the right to receive that number
of duly authorized, validly issued, fully paid and nonassessable shares,
without par
6
<PAGE> 12
value, of CN ("CN COMMON STOCK") equal to the fraction (the "EXCHANGE RATIO")
obtained by dividing $39.00 by the CN Average Closing Price (the "STOCK
CONSIDERATION"). For purposes of this Agreement, "CN AVERAGE CLOSING PRICE"
means the average closing price of the CN Common Stock on the New York Stock
Exchange, Inc. (the "NYSE") for the twenty trading day period ending on the
second trading day prior to the date of the Effective Time; provided that if
such average closing price is less than $43.00 then the CN Average Closing
Price shall be $43.00 and if such average closing price is greater than $64.50
then the CN Average Closing Price shall be $64.50.
(d) if Merger Subsidiary shall have purchased, pursuant to the Offer, an
aggregate of less than 46,051,761 shares of IC Common Stock, each share of IC
Common Stock outstanding immediately prior to the Effective Time shall, except
as provided in Section 2.02(a), be converted into the right to receive:
(A) a number of shares of CN Common Stock (1) equal to the fraction
obtained by dividing $39.00 by the CN Average Closing Price,
multiplied by (2) the Stock Proration Factor (as defined below); and
(B) cash in an amount equal to the product of (1) 1 minus the Stock
Proration Factor, multiplied by (2) $39.00.
The consideration provided for in this Section 2.02, together with the
consideration provided for in Section 2.06 hereof, and, if applicable, the
consideration provided for in Exhibit D, is referred to herein as the "MERGER
CONSIDERATION".
For purposes of this Agreement, the "STOCK PRORATION FACTOR" shall be a
fraction, of which (A) the numerator shall be the Stock Number and (B) the
denominator shall be the total number of shares of IC Common Stock outstanding
as of the Effective Time, minus the number of shares purchased by Merger
Subsidiary pursuant to the Offer. The "STOCK NUMBER" shall be 15,350,586, plus
any shares of IC Common Stock issued after the date of this Agreement in
accordance with this Agreement.
If prior to the Effective Time, CN or IC (as the case may be) should,
(after obtaining the consent required by Section 7.01(c) or Section 6.01(i)
hereof) split, combine or otherwise reclassify the CN Common Stock or the IC
Common Stock, or pay a stock dividend or other stock distribution in CN Common
Stock or IC Common Stock, or otherwise change the CN Common Stock or IC Common
Stock into any other securities, or make any other such stock dividend or
distribution in capital stock of CN or IC in respect of the CN Common Stock or
7
<PAGE> 13
the IC Common Stock, respectively, then the Stock Consideration will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change.
SECTION 2.03. The Exchange Agent. Prior to the mailing of the IC proxy or
information statement, Merger Subsidiary shall appoint an agent (the "EXCHANGE
AGENT") for the purpose of exchanging certificates formerly representing shares
of IC Common Stock for the Merger Consideration. The Exchange Agent shall also
make all computations as to the allocation and the proration contemplated by
Section 2.02, and any such computation shall be conclusive and binding on the
holders of shares of IC Common Stock.
SECTION 2.04. Surrender and Payment. (a) As soon as reasonably
practicable as of or after the Effective Time, CN shall deposit with the
Exchange Agent, for the benefit of the holders of shares of IC Common Stock,
for exchange in accordance with this Article 2, the Merger Consideration.
Promptly after the Effective Time, CN will send, or will cause the Exchange
Agent to send, to each holder of shares of IC Common Stock at the Effective
Time a letter of transmittal for use in such exchange (which shall specify that
the delivery shall be effected, and risk of loss and title shall pass, only
upon proper delivery of the certificates representing such shares to the
Exchange Agent).
(b) Each holder of shares of IC Common Stock that have been converted into
a right to receive the Merger Consideration, upon surrender to the Exchange
Agent of a certificate or certificates formerly representing such shares,
together with a properly completed letter of transmittal covering such shares,
will be entitled to receive the Merger Consideration payable in respect of such
shares. Until so surrendered, each such certificate shall, after the Effective
Time, represent for all purposes, only the right to receive such Merger
Consideration. No interest will be paid or will accrue on any cash payable as
Merger Consideration, in lieu of any fractional shares of CN Common Stock or
otherwise payable pursuant to this Article 2.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the registered holder of the shares of IC Common Stock formerly
represented by the certificate or certificates surrendered in exchange
therefor, it shall be a condition to such payment that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such payment shall pay
to the Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such shares or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
8
<PAGE> 14
(d) After the Effective Time, there shall be no further registration of
transfers of shares of IC Common Stock. If, after the Effective Time,
certificates formerly representing shares of IC Common Stock are presented to
the Surviving Corporation, they shall be canceled and exchanged for the
consideration provided for, and in accordance with the procedures set forth, in
this Article 2. The Surviving Corporation shall be obligated to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by IC on such shares of IC
Common Stock in accordance with the terms of this Agreement on or prior to the
Effective Time and which remain unpaid at the Effective Time.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 2.04(a) that remains unclaimed by the holders of
shares of IC Common Stock six months after the Effective Time shall be returned
to CN, upon demand, and any such holder who has not exchanged his shares of IC
Common Stock for the Merger Consideration in accordance with this Section prior
to that time shall thereafter look only to CN for payment of the Merger
Consideration in respect of his shares. Notwithstanding the foregoing, CN shall
not be liable to any holder of shares of IC Common Stock for any amount paid to
a public official pursuant to applicable escheat or similar abandoned property
laws. Any amounts remaining unclaimed by holders of shares of IC Common Stock
two years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of CN free and clear of any claims or interest of any Person
previously entitled thereto.
(f) No dividends or other distributions with respect to any CN Common
Stock with a record date after the Effective Time shall be paid to the holder
of any unsurrendered certificate for shares of IC Common Stock with respect to
the shares of CN Common Stock represented thereby (if any) and no cash payment
in lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.06 until the surrender of such certificate in accordance with this
Article 2. Subject to the effect of applicable laws, following surrender of
any such certificate, there shall be paid to the holder of the certificate
representing whole shares of any CN Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender the amount of cash payable
in lieu of a fractional share of CN Common Stock to which such holder is
entitled pursuant to Section 2.06 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of CN Common Stock and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such
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surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of CN Common Stock.
SECTION 2.05. No Appraisal Rights. In accordance with Schwabacher v.
United States, 334 U.S. 182 (1948), stockholders of IC shall not have any
appraisal or like rights; provided, however, that if the STB or a court of
competent jurisdiction determines that appraisal rights are available to
holders of shares of IC's capital stock, then such holders shall be provided
with appraisal rights in accordance with Delaware Law to the extent required
under Delaware Law. IC shall give CN prompt notice of any demands received by
IC for appraisal of shares of IC Common Stock, and CN shall have the right to
participate in all negotiations and proceedings with respect to such demands.
IC shall not, except with the prior written consent of CN, make any payment
with respect to, or settle or offer to settle, any such demands or as otherwise
required by applicable law.
SECTION 2.06. Fractional Shares. (a) No certificates or scrip
representing fractional shares of CN Common Stock shall be issued upon the
surrender for exchange of certificates representing shares of IC Common Stock,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of CN.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of IC Common Stock who pursuant to the Merger would otherwise have been
entitled to receive a fraction of a share of CN Common Stock (after taking into
account all shares of IC Common Stock delivered by such holder) shall receive,
in lieu thereof, an amount in cash determined by multiplying the average
closing price of the CN Common Stock on the NYSE for the five trading day
period prior to the Effective Time (the "CN AVERAGE PRICE") by the fraction of
a share of CN Common Stock to which such holder would otherwise have been
entitled.
SECTION 2.07. Stock Options. (a) To the extent permitted under the rules,
regulations and practices of the STB and consistent with the application of
applicable Canadian securities laws and the rules and regulations of relevant
stock exchanges, the Board of Directors of CN and IC shall adopt such
resolutions or take such other actions as may be required to adjust the terms
of each outstanding employee or director stock option to purchase shares of IC
Common Stock granted under any employee or director stock option or
compensation plan or arrangement ("IC OPTIONS") as necessary to provide that at
the Effective Time each IC Option outstanding immediately prior to the
Effective Time shall be:
(i) if Section 2.02(c) is applicable, amended and converted into
options ("CN OPTIONS") to acquire, on the same terms and conditions as
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were applicable under such IC Options (except that such CN Options shall
(other than as provided in Section 8.07(a)) be fully vested), a number of
shares of CN Common Stock determined by multiplying the number of shares
of IC Common Stock subject to such IC Option by the Exchange Ratio,
rounded, if necessary, up to the nearest whole share of CN Common Stock,
at a price per share equal to (y) the aggregate exercise price for the
shares of IC Common Stock subject to such IC Option, divided by, (z) the
number of shares of CN Common Stock subject to such CN Option;
(ii) if Section 2.02(d) is applicable, amended and converted into:
(A) CN Options to acquire, on the same terms and conditions as were
applicable under such IC Options (except that such CN Options shall (other
than as provided in Section 8.07(a)) be fully vested), a number of shares
of CN Common Stock determined by multiplying the number of shares of IC
Common Stock subject to such IC Option by the Exchange Ratio and the Stock
Proration Factor, rounded, if necessary, up to the nearest whole share of
CN Common Stock, at a price per share equal to (x) the aggregate exercise
price for the shares of IC Common Stock subject to such IC Option,
multiplied by (y) the Stock Proration Factor, and divided by, (z) the
number of shares of CN Common Stock subject to such CN Option, and (B) an
additional CN Option to purchase a number of shares of CN Common Stock
determined as follows: (1) 1 minus the Stock Proration Factor (the
"RECIPROCAL STOCK PRORATION FACTOR"), multiplied by (2) the number of
shares of IC Common Stock subject to such IC Option, multiplied by (3)
$39.00, and divided by (4) the CN Average Price, rounded, if necessary, up
to the nearest whole share of CN Common Stock, at a price per share equal
to (a) the aggregate exercise price for the shares of IC Common Stock
subject to such IC Option, multiplied by (b) Reciprocal Stock Proration
Factor, and divided by (c) the number of shares of CN Common Stock subject
to such CN Option; or
(iii) in the event that CN elects to tender for all of IC's shares
pursuant to Section 1.04, amended and converted into a CN Option to
purchase a number of shares of CN Common Stock determined as follows: (1)
the number of shares of IC Common Stock subject to such IC Option,
multiplied by (2) $39.00, and divided by (3) the CN Average Price,
rounded, if necessary, up to the nearest whole shares of CN Common Stock,
at a price per share equal to (a) the aggregate exercise price for the
shares of IC Common Stock subject to such IC Option, divided by (b) the
number of shares of CN Common Stock subject to such CN Option.
(b) If and to the extent the Board of Directors of CN is not permitted, in
the opinion of CN's counsel, to take the actions described in paragraph (a)
hereof,
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then at or immediately prior to the Effective Time, IC shall take action so
that the holder of each IC Option then outstanding shall receive cash equal to:
(1) the number of shares of IC Common Stock subject to such IC Option,
multiplied by (20 $39.00, minus (3) the aggregate exercise price for the shares
of IC Common Stock subject to such IC Option.
(c) CN shall take all corporate actions necessary to reserve for issuance
such number of shares of CN Common Stock as will be necessary to satisfy
exercises in full of all CN Options after the Effective Time. With respect to
such shares of CN Common Stock issuable upon exercise of the CN Options and the
resale of such shares of CN Common Stock issuable upon exercise of the CN
Options and the resale of such shares of CN Common Stock by Affiliates of CN
(subject to any limitations under applicable law) CN shall (i) as soon as
practicable after the Effective Time file with the SEC a Registration Statement
on Form S-8 and use its reasonable best efforts to have such registration
statement become and remain continuously effective under the Securities Act of
1933, as amended (the "SECURITIES ACT") and (ii) file with the NYSE, the
Toronto Stock Exchange, the Montreal Exchange and other national exchanges on
which the CN Common Stock is traded a listing application and use its
reasonable best efforts to have such shares admitted to trading thereon upon
exercises of CN Options.
SECTION 2.08. Withholding Rights. CN shall be entitled to deduct and
withhold from the consideration otherwise payable to any Person pursuant to
this Article 2 such amounts as it is required to deduct and withhold in respect
of such payment under any provision of federal, state, local or foreign tax
law. To the extent that amounts are so withheld by CN, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of IC Common Stock in respect of which such deduction and
withholding was made by CN, as the case may be.
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Certificate of Incorporation. The certificate of
incorporation of IC shall be amended in the Merger to read in its entirety as
set forth on Exhibit B hereto and as so amended shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
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SECTION 3.02. Bylaws. The bylaws of IC shall be amended in the Merger to
read in their entirety as set forth on Exhibit C hereto and as so amended shall
be the by-laws of the Surviving Corporation until amended in accordance with
applicable law.
SECTION 3.03. Directors and Officers. (a) Except as set forth herein, the
directors of IC as of the Effective Time shall be the directors of the
Surviving Corporation until the earlier of their resignation or removal or
until they otherwise cease to be directors of the Surviving Corporation and the
officers of IC as of the Effective Time shall be the officers of the Surviving
Corporation until the earlier of their resignation or removal or until they
otherwise cease to be officers of the Surviving Corporation. Promptly
following consummation of the Offer, IC anticipates appointing John D.
McPherson as the Chief Executive Officer and a director of IC.
(b) Effective upon consummation of the Offer, and subject to the rules,
regulations and practices of the STB, IC shall have taken all action necessary
to cause an individual, who shall be identified as a suitable candidate by CN
prior to the consummation of the Offer and who shall be independent of CN and
reasonably satisfactory to the Board of Directors of IC, to be appointed to the
Board of Directors of IC immediately following the resignations of Gilbert H.
Lamphere and Alexander P. Lynch from the IC Board of Directors. IC's
obligations to appoint such individual to the Board of Directors shall be
subject to the rules, regulations and practices of the STB.
(c) Effective upon consummation of the Offer, CN shall have taken all
action necessary to appoint Mr. E. Hunter Harrison to the position of Chief
Operating Officer of CN.
(d) Effective upon consummation of the Offer, CN shall have taken all
necessary action to cause Messrs. Gilbert H. Lamphere and Alexander P. Lynch to
be elected to serve on the Board of Directors of CN. In addition, either Mr.
Lamphere or Mr. Lynch will have the right (and CN will take all necessary
action to cause Mr. Lamphere or Mr. Lynch) to be appointed to serve on the
Strategic Planning Committee, the Audit and Finance Committee, the Human
Resources Committee and the Corporate Governance Committee of such Board of
Directors, it being understood that no more than one of such individuals will
have the right to be appointed to any one of such committees, and such
individuals shall be entitled to determine on which of such committees they
elect to be appointed.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF IC
Except as set forth in the IC disclosure schedules delivered by IC to CN
at or prior to the execution of this Agreement and referenced therein by
Section number, IC represents and warrants to CN that:
SECTION 4.01. Corporate Existence and Power. IC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. IC is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. IC has heretofore delivered to CN true and complete copies of
IC's restated certificate of incorporation and bylaws as currently in effect.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by IC of this Agreement and the consummation by IC of the
transactions contemplated hereby are within IC's corporate powers and, except
for any required approval by IC's stockholders in connection with the
consummation of the Merger, have been duly authorized by all necessary
corporate action. The affirmative vote of a majority of the outstanding shares
of IC Common Stock is the only vote of any class or series of IC's capital
stock necessary to adopt the Agreement. This Agreement constitutes a valid and
binding agreement of IC.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by IC of this Agreement and the consummation by IC of the
transactions contemplated by this Agreement require no action by or in respect
of, or filing with, any governmental body, agency, official or authority the
failure to make which would have a Material Adverse Effect other than (a) the
filing of a certificate of merger in accordance with Delaware Law; (b)
compliance with any applicable requirements of the HSR Act; (c) compliance with
any applicable requirements of the STB related to the Voting Trust or approval
or exemption of the Merger; (d) compliance with any applicable requirements of
the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "EXCHANGE ACT"), the Securities Act and any foreign or state
securities or Blue Sky laws; and (e) approvals of relevant stock exchanges and
such filings, authorizations, orders and approvals required under Canadian or
other foreign laws.
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SECTION 4.04. Non-Contravention. The execution, delivery and performance
by IC of this Agreement and the consummation by IC of the transactions
contemplated hereby do not and will not (a) contravene or conflict with the
restated certificate of incorporation or bylaws of IC, (b) assuming compliance
with the matters referred to in Section 4.03, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to IC or any IC
Subsidiary, (c) (x) give rise to a right on the part of any Person to require
repayment by IC or any IC Subsidiary under any agreement, contract or other
instrument binding upon IC or any IC Subsidiary or (y) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of IC or any IC Subsidiary or to a loss of any benefit
to which IC or any IC Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon IC or any IC Subsidiary or
any license, franchise, permit or other similar authorization held by IC or any
IC Subsidiary, or (d) result in the creation or imposition of any Lien on any
asset of IC or any IC Subsidiary except, in the case of clauses (b), (c) and
(d), for such matters as would not, individually or in the aggregate, have a
Material Adverse Effect or materially impair the ability of IC to consummate
the transactions contemplated by this Agreement. For purposes of this
Agreement, "LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
SECTION 4.05. Capitalization. The authorized capital stock of IC consists
of 100,000,000 shares of IC Common Stock and 5,000,000 shares of preferred
stock, $.01 par value per share. As of December 31, 1997, (i) 61,402,347
shares of IC Common Stock were issued and outstanding, (ii) 3,220,609 shares
were held by IC in its treasury and (iii) employee and director stock options
to purchase an aggregate of 2,564,502 shares were outstanding (of which options
to purchase an aggregate of 1,190,641 shares were exercisable). All
outstanding shares of capital stock of IC have been duly authorized and validly
issued and are fully paid and nonassessable. Except as contemplated by this
Agreement or as set forth in this Section and except for changes since December
31, 1997 resulting from the exercise of employee stock options outstanding on
such date, there are outstanding (a) no shares of capital stock or other voting
securities of IC, (b) no securities of IC convertible into or exchangeable for
shares of capital stock or voting securities of IC, and (c) no options or other
rights to acquire from IC, and no obligation of IC to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of IC (the items in clauses 4.05(a), 4.05(b) and
4.05(c) being referred to collectively as the "IC SECURITIES"). There are no
outstanding obligations of IC or any Subsidiary to repurchase, redeem or
otherwise acquire any IC Securities.
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SECTION 4.06. Subsidiaries. (a) Each IC Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. Except as set forth in Schedule 4.06, all IC
Subsidiaries and their respective jurisdictions of incorporation are identified
in IC's annual report on Form 10-K for the fiscal year ended December 31, 1996
(the "IC 10-K").
(b) All of the outstanding capital stock of, or other ownership interests
in, each IC Subsidiary, is owned by IC, directly or indirectly, free and clear
of any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). There are no outstanding (i) securities of
IC or any IC Subsidiary convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any IC Subsidiary,
or (ii) options or other rights to acquire from IC or any IC Subsidiary, and no
other obligation of IC or any IC Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any IC Subsidiary (the items in clauses 4.06(b)(i) and 4.06(b)(ii) being
referred to collectively as the "IC SUBSIDIARY SECURITIES"). There are no
outstanding obligations of IC or any IC Subsidiary to repurchase, redeem or
otherwise acquire any outstanding IC Subsidiary Securities.
SECTION 4.07. SEC Filings. (a) IC has delivered to CN (i) IC's annual
reports on Form 10-K for its fiscal years ended December 31, 1995 and 1996,
(ii) its quarterly reports on Form 10-Q for its fiscal quarters ended after
December 31, 1996, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of IC held
since December 31, 1996, and (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31,
1996 (the documents referred to in this Section 4.07(a) being referred to
collectively as the "IC SEC FILINGS"). IC's quarterly report on Form 10-Q for
the fiscal quarter ended September 30, 1997 is referred to herein as the "IC
10-Q".
(b) As of its filing date, each IC SEC Filing complied as to form in all
material respects with the Securities Act and the Exchange Act.
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(c) As of its filing date, each IC SEC Filing filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act as of the date such statement
or amendment became effective did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
SECTION 4.08. Financial Statements. Except as set forth in Schedule 4.08,
the audited consolidated financial statements and unaudited consolidated
interim financial statements of IC included in the IC SEC Filings fairly
present, in all material respects, in conformity with United States generally
accepted accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of IC and
its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements). For purposes of this Agreement, "IC BALANCE
SHEET" means the consolidated balance sheet of IC as of September 30, 1997 set
forth in the IC 10-Q and "IC BALANCE SHEET DATE" means September 30, 1997.
SECTION 4.09. Disclosure Documents. (a) Each document required to be
filed by IC with the SEC in connection with the transactions contemplated by
this Agreement (the "IC DISCLOSURE DOCUMENTS"), including, without limitation,
the Schedule 14D-9 and any amendments or supplements thereto will, when filed,
comply as to form in all material respects with the applicable requirements of
the Exchange Act. The representations and warranties contained in this Section
4.09 will not apply to statements or omissions included in the IC Disclosure
Documents based upon information furnished to IC in writing by Merger
Subsidiary or CN specifically for use therein.
(b) The information with respect to IC or any IC Subsidiary that IC
furnishes to CN in writing specifically for use in the CN Disclosure Documents
(as defined in Section 5.09) will not, at the time of the filing thereof and,
at the time of any distribution thereof (or with respect to the IC proxy or
information statement, at the time of the taking of action by written consent
by the trustee of the Voting Trust in connection with the Merger), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
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SECTION 4.10. Absence of Certain Changes. Since the IC Balance Sheet
Date and prior to the date of this Agreement, except as set forth in Schedule
4.10, IC and the IC Subsidiaries have conducted their business in the ordinary
course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances
or facts which has had or would reasonably be expected to have a Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of IC Common Stock (other
than quarterly cash dividends on IC Common Stock not in excess of $0.23
per share per quarter and having customary record and payment dates), or
any repurchase, redemption or other acquisition by IC or any IC Subsidiary
of any outstanding shares of capital stock or other securities of, or
other ownership interests in, IC or any IC Subsidiary;
(c) any amendment of any term of any outstanding security of IC or
any IC Subsidiary;
(d) other than borrowings under existing credit facilities,
replacements therefor and refinancings thereof, any incurrence, assumption
or guarantee by IC or any IC Subsidiary of any indebtedness for borrowed
money, other than (i) intercompany indebtedness or (ii) indebtedness in
the ordinary course of business on terms consistent with past practice not
exceeding an aggregate principal amount of $50,000,000;
(e) any creation or assumption by IC or any IC Subsidiary of any Lien
securing indebtedness on any material asset, other than (i) Liens securing
intercompany indebtedness or (ii) Liens in the ordinary course of business
consistent with past practice not exceeding $25,000,000;
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries made in the
ordinary course of business consistent with past practice and not
exceeding $50,000,000;
(g) any transaction or commitment involving the acquisition or
disposition of assets (other than inventory) other than (i) capital
expenditures specified on Schedule 4.10(g), (ii) in the ordinary course of
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business in accordance with past practice or (iii) any such acquisition or
disposition not in excess of $20,000,000;
(h) any material change in any method of accounting or accounting
practice by IC or any IC Subsidiary, except for any such change required
by reason of a concurrent change in United States generally accepted
accounting principles; or
(i) other than in the ordinary course of business consistent with
past practice, any (i) material grant of any severance or termination pay
to (x) any employee of IC or any IC Subsidiary or (y) any director or
officer of IC or any IC Subsidiary, (ii) material increase in benefits
payable under any existing severance or termination pay policies or
employment agreements, (iii) except as set forth on Schedule 4.10,
entering into of any material employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with
any director or officer of IC or any IC Subsidiary, (iv) establishment,
adoption or material amendment (except as required by applicable law) of
any material collective bargaining, bonus, profit sharing, thrift,
pension, retirement, deferred compensation, compensation, stock option,
restricted stock or other benefit plan or arrangement covering any
director, officer or employee of IC or any IC Subsidiary other than in the
ordinary course of business consistent with past practice, or (v) material
increase in compensation, bonus or other benefits payable to directors or
officers.
SECTION 4.11. No Undisclosed Material Liabilities. There are no
liabilities of IC or any IC Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, of a nature
required by United States generally accepted accounting principles to be
reflected, reserved for or disclosed in the consolidated financial statements
of IC and its consolidated Subsidiaries, other than:
(a) liabilities disclosed or provided for in the IC Balance Sheet or
the IC SEC Filings prior to the date hereof;
(b) other liabilities (including liabilities incurred in the ordinary
course of business consistent with past practice since the IC Balance
Sheet Date), which would not, individually or in the aggregate, have a
Material Adverse Effect; and
(c) liabilities under this Agreement.
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SECTION 4.12. Litigation. Except as set forth on Schedule 4.12 and
except as set forth in the IC SEC Filings prior to the date hereof, there is no
action, suit, investigation or proceeding (or any basis therefor) pending
against, or to the knowledge of IC threatened against or affecting, IC or any
IC Subsidiary or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect or which, as of the date of this Agreement, is reasonably expected to
prevent, enjoin, alter or materially delay the Offer or the Merger or any of
the other transactions contemplated hereby.
SECTION 4.13. Taxes. Except as reflected in the IC Balance Sheet and the
notes thereto, as reflected in Schedule 4.13, and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect with respect to IC, (i) all United States federal, state, local
and foreign tax returns required to be filed by IC or any IC Subsidiary have
been timely filed or requests for extensions have been timely filed and any
such extension shall have been granted and not expired, and all such filed
returns are complete and accurate in all material respects; (ii) IC and each IC
Subsidiary have paid, or have made adequate provision or have set up an
adequate accrual or reserve for the payment of all taxes, interest, additions
and penalties owing by IC or any IC Subsidiary; (iii) there is no outstanding
audit examination, deficiency or refund litigation with respect to any taxes
owed by IC or any IC Subsidiary; (iv) all taxes, interest, additions, and
penalties due with respect to completed and settled examinations or concluded
litigation have been paid in full or have been recorded as a liability on IC
Balance Sheet; (v) neither IC nor any IC Subsidiary is a party to any tax
sharing or similar agreement pursuant to which IC or any IC Subsidiary has
indemnified another party with respect to taxes; and (vi) neither IC nor any IC
Subsidiary has waived any applicable statute of limitations with respect to any
taxes.
SECTION 4.14. Employee Benefit Plans. (a) Schedule 4.14 identifies each
material Employee Plan. IC has furnished to CN copies of the material Employee
Plans (and, if applicable, related trust agreements) and all amendments thereto
and written interpretations thereof together with the most recent annual report
(Form 5500 including, if applicable, Schedule B thereto) and the most recent
actuarial valuation report prepared in connection with any Employee Plan and,
if applicable, the Internal Revenue Service determination letters. No Employee
Plan is a Title IV Plan.
(b) As of the IC Balance Sheet Date, the aggregate unfunded liability of
IC and any IC Subsidiary in respect of all Employee Plans or Benefit
Arrangements described under Sections 4(b)(5) or 401(a)(1) of ERISA, computed
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using reasonable actuarial assumptions and determined as if all benefits under
such plans were vested and payable as of such date, did not exceed $17,500,000.
(c) No transaction prohibited by Section 406 of ERISA or Section 4975 of
the Code has occurred with respect to any employee benefit plan or arrangement
which is covered by Part 4, Title I of ERISA, which transaction has or will
cause IC or any IC Subsidiary to incur any liability under ERISA, the Code or
otherwise which would reasonably be expected to result in a Material Adverse
Effect, excluding transactions effected pursuant to and in compliance with a
statutory or administrative exemption. Neither IC nor any ERISA Affiliate of
IC has (i) except where the failure thereof would not reasonably be expected to
result in a Material Adverse Effect, engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to
incur prior to the Effective Time, (A) any liability under Title IV of ERISA
arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA or
(B) any liability under Section 4971 of the Code that in either case could
become a liability of IC or any IC Subsidiary or CN or any of its ERISA
Affiliates after the Effective Time which would reasonably be expected to have
a Material Adverse Effect.
(d) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination, and, to IC's
knowledge, nothing has occurred since that determination that would adversely
affect such determination in a manner which would reasonably be expected to
have a Material Adverse Effect. Each Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations, including but not limited
to ERISA and the Code, except to the extent that failure to so comply would not
reasonably be expected to have a Material Adverse Effect.
(e) Schedule 4.14 identifies each material Benefit Arrangement. IC has
furnished to CN copies or descriptions of each material Benefit Arrangement
(and, if applicable, related trust agreements) and all amendments thereto and
written interpretations thereof. Each Benefit Arrangement has been maintained
in compliance with its terms and with the requirements prescribed by any and
all applicable statutes, orders, rules and regulations and has been maintained
in good standing with applicable regulatory authorities, except to the extent
that failure to so comply would not reasonably be expected to have a Material
Adverse Effect.
(f) Except as set forth on Schedule 4.14 and except as provided in this
Agreement, there is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of IC or any IC Subsidiary that,
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individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code, to
the extent that such payments would reasonable be expected to have a Material
Adverse Effect.
(g) Except as set forth on Schedule 4.14 and except as provided in this
Agreement, no employee or former employee of IC or any IC Subsidiary will become
entitled to any bonus, retirement, severance, job security or similar benefit or
enhanced such benefit (including acceleration of vesting or exercise of an
incentive award) as a result of the transactions contemplated hereby, to the
extent that such benefits would reasonably be expected to have a Material
Adverse Effect.
SECTION 4.15. Labor Matters. IC and the IC Subsidiaries are in
compliance with all currently applicable legislation in the various
jurisdictions where they operate, with respect to terms and conditions of
employment of their workforce, including legislation governing unionized labor,
and wages and laws, and are not engaged in any unfair labor practice, failure to
comply with which or engagement in which, as the case may be, would reasonably
be expected to have a Material Adverse Effect. Except as disclosed in Schedule
4.15, (i) neither IC nor any IC Subsidiary is a party, or is otherwise subject,
to any collective bargaining agreement or other labor union contract applicable
to its employees, (ii) there are no material activities or proceedings by a
labor union or representative thereof to organize any employees of IC or any IC
Subsidiary outside of the ordinary course of business, (iii) there are no
pending negotiations between IC or any IC Subsidiary and any labor union or
representative thereof regarding any proposed material changes to any existing
national collective bargaining agreement, (iv) there are no pending, and IC and
the IC Subsidiaries have not experienced since September 30, 1997, any labor
disputes, lockouts, strikes, slowdowns, work stoppages, or threats thereof which
would reasonably be expected to have a Material Adverse Effect, (v) IC and the
IC Subsidiaries are not in default and have not breached in any material respect
the terms of any applicable collective bargaining or other labor union contract,
and there are no material grievances outstanding against IC, any IC Subsidiary
or their employees under any such agreement or contract which would reasonably
be expected to have a Material Adverse Effect, (vi) there is no unfair labor
practice complaint pending, or to the knowledge of IC threatened, against IC or
any IC Subsidiary before the National Labor Relations Board or any other
investigation, charge, prosecution, suit or other proceeding before any court or
arbitrator or any governmental body, agency or official relating to the
employees of IC or any IC Subsidiary or the representation thereof which would
reasonably be expected to have a Material Adverse Effect, (vii) there are no
claims or actions pending, or to the knowledge of IC threatened, between IC and
any IC Subsidiary and any of their employees or
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labor organizations representing or seeking to represent such employees which
would reasonably be expected to have a Material Adverse Effect and (viii) to
the knowledge of IC, there are no facts or circumstances involving any employee
that would form the basis of, or give rise to, any cause of action, including,
without limitation, unlawful termination based on discrimination of any kind
that would reasonably be expected to result in a Material Adverse Effect.
SECTION 4.16. Takeover Statutes; Rights Plans. No "fair price",
"moratorium", "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States (with
the exception of Section 203 of the Delaware Law) applicable to IC or any IC
Subsidiary is applicable to the Merger or the other transactions contemplated
hereby. As of the date of this Agreement, IC does not have any shareholder
rights plan or similar antitakeover device in effect. The action of the Board
of Directors of IC in approving the Merger, this Agreement and the Voting Trust
is sufficient to render inapplicable to the Merger and this Agreement and the
Voting Trust (and the transactions provided for herein and therein) the
restrictions on "business combinations" (as defined in Section 203 of the
Delaware Law) set forth in Section 203 of the Delaware Law.
SECTION 4.17. Compliance with Laws. Except as set forth in IC SEC
Filings prior to the date hereof, neither IC nor any IC Subsidiary is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances or regulations, except for such matters as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 4.18. Finders' Fees. Except for Lehman Brothers Inc. and The
Beacon Group Capital Services LLC, copies of whose engagement agreements have
been provided to CN, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf, of
IC or any IC Subsidiary who might be entitled to any fee or commission from CN
or any of its Affiliates upon consummation of the transactions contemplated by
this Agreement.
SECTION 4.19. Environmental Matters. (a) Except as set forth in IC SEC
Filings prior to the date hereof, and except as would not, individually or in
the aggregate, have a Material Adverse Effect:
(i) no written notice, notification, demand, complaint, penalty,
request for information, citation, summons or order has been received, no
complaint has been filed, no penalty has been assessed and no action,
claim, suit, legal proceeding or, to the knowledge of IC, investigation or
review is pending, or to the knowledge of IC, threatened by any
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governmental entity or other Person with respect to any matters relating
to IC or any IC Subsidiary and relating to or arising out of any
Environmental Law;
(ii) to the knowledge of IC there are no liabilities of or relating
to IC or any IC Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, arising under
or relating to any Environmental Law, and there are no facts, conditions,
situations or set of circumstances which would reasonably be expected to
result in or be the basis for any such liability;
(iii) except as set forth in Schedule 4.19, no property now or, to
the knowledge of IC, previously, owned, leased or operated by IC or any IC
Subsidiary or, to the knowledge of IC, any property to which IC or any IC
Subsidiary has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances is listed or, to the knowledge
of IC, proposed for listing, on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar
federal, state or foreign list of sites requiring investigation or
clean-up; and
(iv) IC and IC Subsidiaries are in compliance with all Environmental
Laws and have obtained and are in compliance with all IC Environmental
Permits; such IC Environmental Permits are valid and in full force and
effect and will not be terminated or impaired or become terminable, in
whole or in part, as a result of the transactions contemplated hereby.
(b) There has been no material written report regarding any environmental
investigation, study, audit, test, review or other analysis conducted of which
IC has knowledge in relation to the current or prior business of IC or any IC
Subsidiary or any property or facility now or previously owned, leased or
operated by IC or any IC Subsidiary which has not either been made available to
CN prior to the date hereof or (with respect to any such report over which IC
does not have control or custody) disclosed on Schedule 4.19.
(c) Neither IC nor any IC Subsidiary owns, leases or operates or has
owned, leased or operated any property or has conducted any operations in New
Jersey or Connecticut that would result in the New Jersey Industrial Site
Recovery Act or the Connecticut Transfer Act being applicable to the
transactions contemplated by this Agreement.
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(d) For purposes of this Section and, to the extent applicable therein,
Section 5.17 hereof, the following terms shall have the meanings set forth
below:
"ENVIRONMENTAL LAWS" means any applicable federal, state, local,
provincial or foreign law (including, without limitation, common law), treaty,
judicial decision, regulation, rule, judgment, order, decree, injunction,
permit, or legally binding governmental restriction or requirement, or any
legally binding agreement with any governmental authority or other third party,
relating to human health and safety (as relating to the environment), the
environment or, as impacting human health or the environment, to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
"IC ENVIRONMENTAL PERMITS" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities required by Environmental Laws regarding the business of IC or any
IC Subsidiary as currently conducted.
"HAZARDOUS SUBSTANCES" means, in each case as regulated under any
Environmental Law, any pollutant, contaminant, waste or chemical or any toxic,
radioactive, ignitable, corrosive, reactive or otherwise hazardous substance,
waste or material, or any substance, waste or material having any constituent
elements displaying any of the foregoing characteristics, including, without
limitation, petroleum, its derivatives, by-products and other hydrocarbons, and
any substance, waste or material regulated under any Environmental Law.
SECTION 4.20. Opinion of Financial Advisor. IC's Board of Directors has
received the opinions of Lehman Brothers Inc. and The Beacon Group Capital
Services LLC, financial advisors to IC, to the effect that, as of the date of
this Agreement, the consideration to be received in the Offer and the Merger,
taken together, is fair to IC's stockholders from a financial point of view,
and such opinions have not been withdrawn.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CN AND MERGER SUBSIDIARY
Except as set forth in the CN disclosure schedules delivered by CN to IC
at or prior to the execution of this Agreement and referenced therein by
Section number, CN and Merger Subsidiary represent and warrant to IC that:
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SECTION 5.01. Corporate Existence and Power. Each of CN and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of continuance or incorporation, and
has all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted. Each
of CN and Merger Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. CN has heretofore delivered to IC true and complete copies of
the certificate of incorporation and bylaws of CN and Merger Subsidiary as
currently in effect. From the date of its incorporation, Merger Subsidiary will
not engage in any activities other than in connection with, or as contemplated
by, this Agreement.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by CN and Merger Subsidiary of this Agreement and the consummation
by CN and Merger Subsidiary of the transactions contemplated hereby are within
the corporate powers of CN and Merger Subsidiary and have been duly authorized
by all necessary corporate action. This Agreement constitutes a valid and
binding agreement of each of CN and Merger Subsidiary.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by CN and Merger Subsidiary of this Agreement and the consummation
by CN and Merger Subsidiary of the transactions contemplated by this Agreement
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority the failure to make which would have a Material
Adverse Effect other than (a) the filing of a certificate of merger in
accordance with Delaware Law; (b) compliance with any applicable requirements of
the HSR Act; (c) compliance with any applicable requirements of the STB relating
to the Voting Trust or approval or exemption of the Merger; (d) compliance with
any applicable requirements of the Exchange Act, the Securities Act and any
foreign or state securities or Blue Sky laws; (e) approvals of relevant stock
exchanges and (f) such filings, authorizations, orders and approvals required
under Canadian or other foreign laws.
SECTION 5.04. Non-Contravention. The execution, delivery and performance
by CN and Merger Subsidiary of this Agreement and the consummation by CN and
Merger Subsidiary of the transactions contemplated hereby do not and will not
(a) contravene or conflict with the certificate of incorporation or bylaws of
CN and Merger Subsidiary, (b) assuming compliance with the matters referred to
in Section 5.03, contravene or conflict with or
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constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to CN or any CN
Subsidiary, (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of CN or
any CN Subsidiary or to a loss of any benefit to which CN or any CN Subsidiary
is entitled under any provision of any agreement, contract or other instrument
binding upon CN or any CN Subsidiary or any license, franchise, permit or other
similar authorization held by CN or any CN Subsidiary, or (d) result in the
creation or imposition of any Lien on any asset of CN or any CN Subsidiary
except, in the case of clauses (b), (c) and (d), for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect or materially
impair the ability of CN to consummate the transactions contemplated by this
Agreement.
SECTION 5.05. Capitalization. The authorized capital stock of CN consists
of (i) an unlimited number of shares of CN Common Stock, (ii) an unlimited
number of shares of Class A Preferred Stock of CN ("CN CLASS A PREFERRED STOCK")
and (iii) an unlimited number of shares of Class B Preferred Stock of CN ("CN
CLASS B PREFERRED STOCK"). As of the close of business on February 3, 1998,
85,602,013 shares of CN Common Stock were issued and outstanding and employee
stock options to purchase an aggregate of 1,797,074 shares of CN Common Stock
(of which options to purchase an aggregate of 538,266 shares of CN Common Stock
were exercisable) were outstanding. No shares of either CN Class A Preferred
Stock or CN Class B Preferred Stock were outstanding as of such date. All
outstanding shares of capital stock of CN have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in this Section
and except for changes since February 3, 1998 resulting from the exercise of
employee stock options outstanding on such date, there are outstanding (a) no
shares of capital stock or other voting securities of, (b) no securities of
convertible into or exchangeable for shares of capital stock or voting
securities of, and (c) no options or other rights to acquire from, and no
obligation of to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of (the
items in clauses 5.05(a), 5.05(b) and 5.05(c) being referred to collectively as
the "CN SECURITIES"). There are no outstanding obligations of CN or any CN
Subsidiary to repurchase, redeem or otherwise acquire any CN Securities.
SECTION 5.06. Subsidiaries. (a) All principal CN Subsidiaries (the
"PRINCIPAL CN SUBSIDIARIES") and their respective jurisdictions of incorporation
are identified in CN's annual information form, dated May 12, 1997 (filed with
the SEC under Form 40-F dated May 16, 1997) (the "CN 40-F"). Each Principal CN
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has all corporate
powers and all material governmental licenses, authorizations, consents and
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approvals required to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where failure to be so qualified would not, individually or
in the aggregate, have a Material Adverse Effect.
(b) All of the outstanding capital stock of, or other ownership interests
in, each Principal CN Subsidiary, is owned by CN, directly or indirectly, free
and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests). There are no outstanding (i)
securities of CN or any Principal CN Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or
ownership interests in any Principal CN Subsidiary, and (ii) options or other
rights to acquire from CN or any Principal CN Subsidiary, and no other
obligation of CN or any Principal CN Subsidiary to issue, any capital stock,
voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any Subsidiary (the items in clauses 5.06(b)(i) and
5.06(b)(ii) being referred to collectively as the "PRINCIPAL CN SUBSIDIARY
SECURITIES"). There are no outstanding obligations of CN or any Principal CN
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Principal
CN Subsidiary Securities.
SECTION 5.07. SEC Filings. (a) CN has delivered to IC (i) the CN 40-F,
(ii) its quarterly reviews (filed with the SEC under Form 6-K) for its fiscal
quarters ended after May 12, 1997, (iii) its proxy or information statements
relating to meetings of, or actions taken without a meeting by, the stockholders
of CN held since May 12, 1997, (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since May 12, 1997 and
(v) all of its filings made with the Ontario Securities Commission since May 12,
1997 (the documents referred to in this Section 5.07 being referred to
collectively as the "CN SEC FILINGS"). CN's quarterly review on Form 6-K for
its fiscal quarter ended September 30, 1997, is referred to herein as the "CN
6-K".
(b) As of its filing date, each CN SEC Filing complied as to form in all
material respects with the applicable requirements of the Securities Act, the
Securities Act (Ontario) and the Exchange Act.
(c) As of its filing date, each CN SEC Filing filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
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(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act, the Exchange Act and the
Securities Act (Ontario) as of the date such statement or amendment became
effective did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 5.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of CN
included in the CN SEC Filings fairly present, in all material respects, in
conformity with Canadian generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of CN and its consolidated Subsidiaries as of
the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements). For
purposes of this Agreement, "CN BALANCE SHEET" means the consolidated balance
sheet of CN as of September 30, 1997, set forth in the CN 6-K and "CN BALANCE
SHEET DATE" means September 30, 1997.
SECTION 5.09. Disclosure Documents. (a) Each document required to be
filed by CN with the SEC in connection with the transactions contemplated by
this Agreement (the "CN DISCLOSURE DOCUMENTS"), including, without limitation,
the Offer Documents and the registration statement on Form F-4 (the "FORM F-4")
to be filed with the SEC pursuant to the Securities Act in connection with the
issuance of CN Common Stock in the Merger, in each case together with any
amendments or supplements thereto will, when filed, comply as to form in all
material respects with the applicable requirements of applicable Canadian
securities laws, the Securities Act or the Exchange Act, as the case may be. The
representations and warranties contained in this Section 5.09(a) will not apply
to statements or omissions included in the CN Disclosure Documents based upon
information furnished to CN in writing by IC specifically for use therein.
(b) At the time the Form F-4 becomes effective under the Securities Act,
the Form F-4 will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. At the time of the filing of any CN Disclosure Document other than
the Form F-4 and at the time of any distribution thereof, such CN Disclosure
Document will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The representations
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and warranties contained in this Section 5.09(b) will not apply to statements
or omissions included in the CN Disclosure Documents based upon information
furnished to CN in writing by IC specifically for use therein.
(c) The information with respect to CN or any CN Subsidiary that CN
furnishes to IC in writing specifically for use in the IC Disclosure Documents
(as defined in Section 4.09) will not, at the time of the filing thereof, at
the time of any distribution thereof (or with respect to the IC proxy or
information statement, at the time of the IC stockholder action by written
consent in connection with the Merger), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 5.10. Absence of Certain Changes. Other than the establishment of
a wholly-owned real estate Subsidiary, the transfer of CN's beneficial interest
in certain real estate assets of CN to such Subsidiary and other arrangements
between CN and such Subsidiary relating thereto (the "REAL ESTATE
REORGANIZATION") since the CN Balance Sheet Date, CN and the CN Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances
or facts which has had or would reasonably be expected to have a Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of CN
(other than dividends in accordance with past practice, as adjusted to
reflect the dividend policy of the current Board of Directors of CN), or
any repurchase, redemption or other acquisition by the CN or any CN
Subsidiary of any outstanding shares of capital stock or other securities
of, or other ownership interests in, CN or any CN Subsidiary;
(c) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of CN or any CN
Subsidiary which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect;
(d) as of the date of this Agreement, other than borrowings under
existing credit facilities, replacements therefor and refinancings thereof
and borrowings required to finance the transactions contemplated hereby,
any incurrence, assumption or guarantee by CN or any CN Subsidiary of
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any indebtedness for borrowed money, other than intercompany indebtedness
and indebtedness in the ordinary course of business on terms consistent
with past practice and not exceeding an aggregate principal amount of
$200,000,000; or
(e) except as set forth on Schedule 5.10(e), any transaction or
commitment involving the acquisition or disposition of assets (other than
inventory) in the ordinary course of business in accordance with past
practice and any such acquisition or disposition not in excess of
$100,000,000.
SECTION 5.11. No Undisclosed Material Liabilities. There are no
liabilities of CN or any CN Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise of a nature
required by Canadian generally accepted accounting principles to be reflected,
reserved for or disclosed in the consolidated financial statements of CN and
its consolidated Subsidiaries, other than:
(a) liabilities disclosed or provided for in the CN Balance Sheet or
the CN SEC Filings prior to the date hereof;
(b) other liabilities (including liabilities incurred in the ordinary
course of business consistent with past practice since the CN Balance
Sheet Date or liabilities arising pursuant to the Real Estate
Reorganization), which would not, individually or in the aggregate, have a
Material Adverse Effect; and
(c) liabilities under this Agreement.
SECTION 5.12. Litigation. Except as set forth in the CN SEC Filings
prior to the date hereof, there is no action, suit, investigation or proceeding
(or any basis therefor) pending against, or to the knowledge of CN threatened
against or affecting, CN or any CN Subsidiary or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect or which, as of the date of this Agreement,
is reasonably expected to prevent, enjoin, alter or materially delay the Offer
or the Merger or any of the other transactions contemplated hereby.
SECTION 5.13. Taxes. Except as reflected in the CN Balance Sheet and the
notes thereto, as reflected in Schedule 5.13, and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect with respect to CN; (i) all federal, Canadian provincial, state,
local
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and foreign tax returns required to be filed by CN or any CN Subsidiary have
been timely filed or requests for extensions have been timely filed and any
such extensions shall have been granted and not expired, and all such filed
returns are complete and accurate in all material respects; (ii) CN and each CN
Subsidiary have paid, or have made adequate provision or set up an adequate
accrual or reserve for the payment of all taxes, interest, additions and
penalties owing by CN or any CN Subsidiary; (iii) there is no outstanding audit
examination, deficiency or refund litigation with respect to any taxes owed by
CN or any CN Subsidiary; (iv) all taxes, interest, additions, and penalties due
with respect to completed and settled examinations or concluded litigation have
been paid in full or have been recorded as a liability on the CN Balance Sheet;
(v) neither CN nor any CN Subsidiary is a party to any tax sharing or similar
agreement pursuant to which CN or any CN Subsidiary has indemnified another
party with respect to taxes (other than any liability of CN to its wholly-owned
real estate Subsidiary or of such Subsidiary to CN as a consequence of the Real
Estate Reorganization); and (vi) neither CN nor any CN Subsidiary has waived
any applicable statute of limitations with respect to any taxes.
SECTION 5.14. Employee Benefit Plans. (a) CN undertakes to make
available to IC copies of the material Employee Plans (other than Multiemployer
Plans) (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof together with the most recent
annual report (Form 5500 including, if applicable, Schedule B thereto).
(b) Each Employee Plan has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, except to the extent that failure to so comply would not reasonably
be expected to have a Material Adverse Effect.
(c) CN undertakes to make available to IC copies or descriptions of each
material Benefit Arrangement (and, if applicable, related trust agreements) and
all amendments thereto and written interpretations thereof. Each Benefit
Arrangement has been maintained in compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations and has been maintained in good standing with applicable regulatory
authorities, except to the extent that failure to do so would not reasonably be
expected to have a Material Adverse Effect.
SECTION 5.15. Compliance with Laws. Except as set forth in the CN SEC
Filings prior to the date hereof, neither CN nor any CN Subsidiary is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances or
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regulations except for such matters as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5.16. Finders' Fees. Except for Goldman, Sachs & Co. and
Schroder & Co. Inc., copies of whose engagement agreements have been provided
to IC, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf, of CN or any CN
Subsidiary who might be entitled to any fee or commission from IC or any of its
Affiliates upon consummation of the transactions contemplated by this
Agreement.
SECTION 5.17. Environmental Matters. Except as set forth in the CN SEC
Filings prior to the date hereof there are no liabilities of, or relating to,
CN or any CN Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, arising under or relating to
any Environmental Law that, individually or in the aggregate, have had or
could reasonably be expected to have a Material Adverse Effect on CN.
SECTION 5.18. Ownership of IC Common Stock. As of the date of this
Agreement, CN and its Affiliates do not own (directly or indirectly,
beneficially or of record) any shares of IC Common Stock and neither CN nor any
of its Affiliates own any rights to acquire any shares of IC Common Stock,
except pursuant to this Agreement.
SECTION 5.19. Sufficiency of Funds. CN has received commitments from
third party lenders pursuant to commitment letters (none of which has been
withdrawn) the proceeds of which, together with funds of CN, will enable CN to
provide Merger Subsidiary with sufficient funds to consummate the Offer, the
Merger and the transactions contemplated hereby in accordance with the terms of
this Agreement.
SECTION 5.20. Labor Matters. CN and the CN Subsidiaries are in
compliance with all currently applicable legislation in the various
jurisdictions where they operate, with respect to terms and conditions of
employment of their workforce, including legislation governing unionized labor,
and wages and laws, and are not engaged in any unfair labor practice, failure
to comply with which or engagement in which, as the case may be, would
reasonably be expected to have a Material Adverse Effect. Except as disclosed
in Schedule 5.20, (i) neither CN nor any CN Subsidiary is a party, or is
otherwise subject, to any collective bargaining agreement or other labor union
contract applicable to its employees, (ii) there are no material activities or
proceedings by a labor union or representative thereof to organize any
employees of CN or any CN Subsidiary outside of the ordinary course of
business, (iii) there are no pending negotiations between CN or any CN
Subsidiary and any labor union or representative thereof regarding any proposed
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material changes to any existing national collective bargaining agreement, (iv)
there are no pending, and CN and the CN Subsidiaries have not experienced since
May 12, 1997, any labor disputes, lockouts, strikes, slowdowns, work stoppages,
or threats thereof which would reasonably be expected to have a Material
Adverse Effect, (v) CN and the CN Subsidiaries are not in default and have not
breached in any material respect the terms of any applicable collective
bargaining or other labor union contract, and there are no material grievances
outstanding against CN, any CN Subsidiary or their employees under any such
agreement or contract which would reasonably be expected to have a Material
Adverse Effect, (vi) there is no unfair labor practice complaint pending, or to
the knowledge of CN threatened, against CN or any CN Subsidiary before the
National Labor Relations Board or the Canada Labor Relations Board or any other
investigation, charge, prosecution, suit or other proceeding before any court
or arbitrator or any governmental body, agency or official relating to the
employees of CN or any CN Subsidiary or the representation thereof which would
reasonably be expected to have a Material Adverse Effect, (vii) there are no
claims or actions pending, or to the knowledge of CN threatened, between CN and
any CN Subsidiary and any of their employees or labor organizations
representing or seeking to represent such employees which would reasonably be
expected to have a Material Adverse Effect and (viii) to the knowledge of CN,
there are no facts or circumstances involving any employee that would form the
basis of, or give rise to, any cause of action, including, without limitation,
unlawful termination based on discrimination of any kind that could reasonably
be expected to result in a Material Adverse Effect.
ARTICLE 6
COVENANTS OF IC
IC agrees that:
SECTION 6.01. Conduct of IC. Except as otherwise expressly set forth in
this Agreement, during the period from the date of this Agreement through the
Control Date, IC shall, and shall cause each of its Subsidiaries to, carry on
their respective businesses in the ordinary course consistent with past practice
and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, shall use their reasonable
best efforts to preserve intact their current business organizations, use their
reasonable best efforts to keep available the services of their current officers
and of their key employees as a group and use their reasonable best efforts to
preserve their relationships with those Persons having business dealings with
them. IC, in conducting its business and operations, shall have due regard for
the interests of the holders of the Trust Certificates (as defined in the Voting
Trust Agreement), as investors in IC,
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determined without reference to such holders' interests in railroads other than
the IC or its Subsidiaries. Except as otherwise expressly set forth in this
Agreement, as set forth in Schedule 6.01 or as required to implement the Rights
Plan (as hereinafter defined) in accordance with and subject to clause (ii)
hereof, without limiting the generality of the foregoing during the period from
the date of this Agreement through the Control Date, IC shall not, and shall
not permit any of its Subsidiaries to (without the prior written consent of
CN):
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly-owned Subsidiary of IC
(including the Railroad Subsidiaries) to its parent and other than regular
quarterly cash dividends of $0.23 per share with respect to IC's Common
Stock, (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except as
contemplated by clause (ii) below), (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (z) purchase, redeem, retire or otherwise acquire any
shares of its capital stock or the capital stock of any Subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities; provided that, following the
Effective Time, subject to applicable legal restrictions and financial
covenants contained in instruments relating to outstanding indebtedness,
IC shall not decrease the aggregate amount of dividends and other
distributions in respect of its outstanding capital stock from the level
paid immediately prior to the Merger;
(ii) issue, deliver, sell, pledge or otherwise encumber any IC
Securities or any IC Subsidiary Securities or any securities convertible
into, or any rights, warrants or options to acquire, any such IC
Securities or any IC Subsidiary Securities, in each case other than (x)
pursuant to the exercise of existing stock options, (y) grants of stock
options and other stock-based employee benefits prior to the Effective
Time in the ordinary course of business consistent with past practice and
issuances pursuant thereto or (z) securities issued by a direct or
indirect wholly-owned Subsidiary of IC to IC or a direct or indirect
wholly-owned Subsidiary of IC; provided, that if any Person shall have
announced an Acquisition Proposal, IC shall have the right, prior to the
consummation of the Offer, to implement, modify, amend or redeem a
shareholder rights plan (the "RIGHTS PLAN"), but only so long as such
rights plan contains provisions reasonably satisfactory in form and
substance to CN to exempt this Agreement and the transactions to be
effected pursuant to this Agreement
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from the plan and to assure that this Agreement and the transactions to be
effected pursuant to this Agreement will not trigger such rights plan;
(iii) adopt, propose or agree to any amendment to its (or any
Subsidiary's) certificate of incorporation, by-laws or other comparable
organizational documents;
(iv) (A) without the prior written consent of CN, sell, lease,
license, mortgage or otherwise encumber, voluntarily subject to any Lien
or otherwise dispose of any rail lines or rights of way, it being
understood that nothing contained in this clause (A) shall prevent either
the sale or disposition of rail stock in the ordinary course of business
or the movement of such rail stock within the IC system; provided, that if
IC requests in writing that it be permitted to engage in a transaction
that requires CN's consent under this clause (A) and CN does not respond
within 20 days of receipt of such request, IC shall be permitted to engage
in such transaction; and provided, further, that this clause (A) shall not
apply with respect to any transaction entered into prior to the date of
this Agreement;
(B) sell, lease, license, mortgage or otherwise encumber, voluntarily
subject to any Lien or otherwise dispose of any of its properties or assets
(excluding rail lines or rights of way), other than (x) leases or licenses
of railroad equipment and property in the ordinary course of business
consistent with past practice or (y) transactions in the ordinary course of
business consistent with past practice and not exceeding in the aggregate
$30,000,000 on an annual basis;
(v) make or agree to make any acquisition (including through a leasing
arrangement) (other than of inventory and rolling stock in the ordinary
course of business) or capital expenditure in excess of $50,000,000 in the
aggregate on an annual basis, except for acquisitions or capital
expenditures specified on Schedule 6.01(v) or pursuant to agreements and
commitments entered into prior to the date of this Agreement and previously
made available to CN;
(vi) incur any indebtedness for borrowed money or guarantee any such
indebtedness other than intercompany indebtedness except for (i)
borrowings under existing credit facilities, replacements therefor and
refinancings thereof or (ii) other borrowings in the ordinary course of
business consistent with past practice, provided that aggregate borrowings
under clauses (i) and (ii) do not exceed $200,000,000;
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(vii) except for loans, advances, capital contributions or
investments (x) specified on Schedule 6.01(vii) or (y) made in the
ordinary course of business consistent with past practice and not
exceeding $15,000,000 on an annual basis, make any loans, advances or
capital contributions to, or investments in, any other Person (other than,
in the case of IC, to IC or any Subsidiary or, in the case of the Railroad
Subsidiaries, to a Railroad Subsidiary or any Subsidiary of a Railroad
Subsidiary, as the case may be);
(viii) except for elections that are required by law or are
consistent with past practice, make any tax election;
(ix) other than payments with respect to any judgments, pay,
discharge, settle or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge, settlement or
satisfaction of claims, liabilities or obligations (A) in the ordinary
course of business consistent with past practice or in accordance with
their terms, (B) reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of IC
filed with the SEC prior to the Effective Time or (C) incurred since the
date of such financial statements in the ordinary course of business
consistent with past practice and with this Agreement; provided that, with
respect to clause (C), none of such payments, discharges, settlements or
satisfaction shall in any event exceed $15,000,000;
(x) except (i) as otherwise provided in this Section 6.01 or (ii) in
the ordinary course of business consistent with past practice (it being
understood that the taking by IC or any of its Subsidiaries of any of the
actions described in this paragraph (x) with respect to a contract
involving annual payments of more than $10,000,000 shall not be in the
ordinary course of business), enter into any contract or agreement
involving annual payments of more than $5,000,000, modify or amend in any
material respect or terminate any such contract or agreement to which IC
or any of its Subsidiaries is a party, or waive, release or assign any
rights or claims under any such contract or agreement that are significant
to such contract or agreement; provided that in entering into contracts in
the ordinary course of business, each of IC and its Subsidiaries shall act
entirely in its own interest as an independent enterprise;
(xi) make any material change to its accounting methods, principles
or practices, except as may be required by United States generally
accepted accounting principles;
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(xii) except (i) for arrangements entered into in the ordinary course
of business consistent with past practice, (ii) as contemplated by Section
8.07 of this Agreement or (iii) as required by applicable law, enter
into, adopt or materially amend or change the funding or accrual practices
of any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreements, trusts, plans, funds or other arrangements of
or for the benefit or welfare of any employee of IC or any of its
Subsidiaries (or any other Person for whom either IC or any of its
Subsidiaries will have liability), or (except for normal increases in the
ordinary course of business that are consistent with past practices)
materially increase in any manner the compensation or fringe benefits of
any employee of IC or any IC Subsidiary (or any other Person for whom IC
or any IC Subsidiary will have liability) or pay any material benefit not
required by any existing plan and arrangement (including the granting of
stock options, stock appreciation rights, shares of restricted stock or
performance units) or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing;
(xiii) enter into any agreement containing any provision or covenant
(x) limiting in any material respect the ability to compete with any
Person which would bind IC or any IC Subsidiary or any successor or (y)
granting any concessions or rights to any railroad or other Person with
respect to the use of any rail lines, yards of other fixed railroad
property of IC or its Subsidiaries (whether through divestiture of lines,
the grant of trackage or haulage rights or otherwise) in each case other
than in the ordinary course of business consistent with past practice; or
(xiv) authorize or commit or agree to take any of the foregoing
actions.
SECTION 6.02. Access to Information. From the date hereof through the
Control Date, IC and its Subsidiaries will give CN, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of IC and its Subsidiaries, will furnish
to CN, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct the employees, counsel and
financial advisors of IC and its Subsidiaries to cooperate with CN in its
investigation of the business of IC and its Subsidiaries, as the case may be;
provided that no investigation pursuant to this Section shall affect any
representation or warranty given by IC to CN hereunder;
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and provided further, that access to certain information of IC and its
Subsidiaries may require the entry of a protective order by the STB, after
which date full access shall be granted to such information consistent with
this paragraph and subject to the terms of such order. IC shall hold and shall
cause its officers, employees, accountants, counsel, financial advisers and
other representatives and Affiliates to hold, any nonpublic information in
accordance with the terms of that certain confidentiality and standstill
agreement (the "CONFIDENTIALITY AGREEMENT") dated March 13, 1997, between CN
and IC.
SECTION 6.03. Other Offers. (a) IC agrees (i) that neither IC nor any IC
Subsidiary shall, and it shall direct and use its reasonable best efforts to
cause its officers, directors, employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any IC Subsidiary) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
or any indication of interest, with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or equity securities of, IC or any IC
Subsidiary (any such proposal or offer being hereinafter referred to as an
"ACQUISITION PROPOSAL"), or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
Person, relating to an Acquisition Proposal, or afford access to the properties,
books or records of IC or any IC Subsidiary to any Person that may be
considering making or has made or has stated an intention to make, an
Acquisition Proposal, or release any third party from any obligations under any
existing standstill agreement or arrangement, or enter into any agreement with
respect to an Acquisition Proposal; (ii) that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing; and (iii)
that it will notify CN (including in such notification the identity of the third
party making inquiries or proposals, requesting information or access or seeking
to initiate or continue negotiations or discussions, as the case may be) with
reasonable promptness (but in no event later than 24 hours thereafter) if any
such inquiries or proposals are received by, any such information or access is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it. Notwithstanding the foregoing, IC or its Board
of Directors may (x) take any action required to comply with Rule 14e-2(a)
promulgated under the Exchange Act with regard to an Acquisition Proposal or,
prior to the earlier of (A) consummation of the Offer or (B) the adoption of
this Agreement by the stockholders of IC, (y) take any action as contemplated by
Section 11.01(e) or (z) directly or indirectly, furnish non-public information
and access to, and may participate in discussions and negotiations with, any
Person in response to an unsolicited bona fide Acquisition Proposal, if the
Board of Directors of IC has
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concluded in good faith, based on the advice of outside counsel, that such
action is reasonably necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law; except that (with
respect to clauses (y) and (z) hereof) prior to furnishing non-public
information and access to, or participating in discussions or negotiations
with, such Person, IC receives from such Person an executed confidentiality and
standstill agreement with terms not in the aggregate less favorable to IC than
those contained in the Confidentiality Agreement (it being understood that IC
may enter into a confidentiality agreement without a standstill provision or
with a standstill provision less favorable to IC provided that it waives or
similarly modifies the standstill provision in the Confidentiality Agreement);
provided further, that at least 48 hours prior to the entry into or
announcement of an intention to enter into a definitive agreement with respect
to an Acquisition Proposal, IC shall have provided written notice to CN
advising CN of its intention to enter into a definitive agreement with respect
to an Acquisition Proposal and specifying the material terms and conditions of
such Acquisition Proposal. Within such 48 hour period, CN may propose an
improved transaction.
SECTION 6.04. Notices of Certain Events. IC shall promptly notify CN of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting IC or any IC Subsidiary which, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 4.12 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 6.05. Registration Rights. IC shall, if requested by CN at any
time and from time to time within three years after the termination of this
Agreement, as expeditiously as possible prepare and file up to three
registration statements under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all
securities that have been deposited in the Voting Trust by CN, in accordance
with the intended method of sale or other disposition stated by CN, including a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision; and IC shall
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use its reasonable best efforts to qualify such securities under any applicable
state securities laws. CN agrees to use reasonable efforts to cause, and to
cause any underwriters of any sale or other disposition to cause, any sale or
other disposition pursuant to such registration statement to be effected on a
widely distributed basis. IC shall use reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers
of other parties which are required therefore, and to keep such registration
statement effective for such period not in excess of 180 calendar days from the
day such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. The obligations of IC
hereunder to file a registration statement and to maintain its effectiveness
may be suspended for one or more periods of time not exceeding 60 calendar days
in the aggregate with respect to any registration statement if the Board of
Directors of IC shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require disclosure of
nonpublic information that would materially and adversely affect IC. Any
registration statement prepared and filed under this Section, and any sale
covered thereby, shall be shared equally by IC and CN except for underwriting
discounts or commission, brokers' fees and the fees and disbursements of CN's
counsel related thereto. CN shall provide all information reasonably requested
by IC for inclusion in any registration statement to be filed hereunder. If,
during the time periods referred to in the first sentence of this Section, IC
effects a registration under the Securities Act of IC's securities for its own
account or for any other of its stockholders (other than on form S-4 or form
S-8, or any successor form), it shall allow CN the right to participate in such
registration, and such participation shall not affect the obligation of IC to
effect demand registration statements for CN under this Section; provided that,
if the managing underwriters of such offering advise IC in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, IC shall
include the securities requested to be included therein by CN pro rata with the
securities intended to be included therein by IC. In connection with any
registration pursuant to this Section, IC and CN shall provide each other and
any underwriter of the offering with customary representations, warranties,
covenants, indemnification, and contribution in connection with such
registration. For purposes of this Section 6.05, the term "IC" shall include
any Railroad Subsidiary.
SECTION 6.06. Antitakeover Statutes. Subject to the fiduciary duties of
the Board of Directors of IC under applicable law, if any takeover statute is or
may become applicable to the transactions contemplated hereby, IC and the
members of its Board of Directors shall use all reasonable efforts to grant such
approvals and to take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated hereby and otherwise act to eliminate or minimize the
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effects of any takeover statute on any of the transactions contemplated by this
Agreement.
ARTICLE 7
COVENANTS OF CN
CN agrees that:
SECTION 7.01. Conduct of CN. From the date hereof until the Effective
Time, CN and the CN Subsidiaries shall conduct their business in the ordinary
course consistent with past practice and shall use their commercially reasonable
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time:
(a) CN will not adopt or propose any change in its articles of
incorporation or bylaws;
(b) CN will not take, and will not permit any CN Subsidiary to take,
any action that would make any representation and warranty of CN hereunder
inaccurate in any material respect at, or as of any time prior to, the
Effective Time;
(c) prior to the Effective Time, other than regular quarterly cash
dividends not to exceed Cdn $0.265 per share with respect to CN Common
Stock, CN will not (x) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock or (y)
split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares in its capital stock;
(d) CN will not, and will not permit any CN Subsidiary to, sell,
lease, license, mortgage or subject to Lien or otherwise dispose of any of
its properties or assets, other than transactions in the ordinary course
of business, including dispositions that are part of CN's rationalization
plan or transactions not exceeding in the aggregate $200,000,000.
(e) except as set forth on Schedule 7.01, CN will not, and will not
permit any CN Subsidiary to, enter into an contract or arrangement or
otherwise take any action that could reasonably be expected to materially
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delay or otherwise interfere with the consummation of the Offer or Merger;
and
(f) CN will not, and will not permit any CN Subsidiary to, agree or
commit to do any of the foregoing.
SECTION 7.02. Access to Information. Subject to the Confidentiality
Agreement, from the date hereof until the Effective Time, CN will give IC, its
counsel, financial advisors, auditors and other authorized representatives full
access to the offices, properties, books and records of CN and the CN
Subsidiaries, will furnish to IC, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct CN's
employees, counsel and financial advisors to cooperate with IC in its
investigation of the business of CN and the CN Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by CN to IC hereunder; and provided further, that access to
certain CN information may require the entry of a protective order by the STB,
after which date full access shall be granted to such information consistent
with this paragraph and subject to the terms of such order. CN shall hold and
shall cause its officers, employees, accountants, counsel, financial advisers
and other representatives and Affiliates to hold, any nonpublic information in
accordance with the terms of the Confidentiality Agreement.
SECTION 7.03. Notices of Certain Events. CN shall promptly notify IC of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting CN or any CN Subsidiary which, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 5.12 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 7.04. Obligations of Merger Subsidiary. CN will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
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Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 7.05. Voting of Shares. If the Offer is consummated, then,
subject to the terms of the Voting Trust Agreement, CN shall cause the trustee
of the Voting Trust to effect the approval of the stockholders of IC of the
Agreement by taking action by written consent of such stockholders in lieu of
calling a meeting of stockholders pursuant to, and in accordance with, the
requirements set forth in Section 228 of Delaware Law or, if a meeting of IC
stockholders is required, to vote the shares of IC Common Stock held in the
Voting Trust in favor of the adoption of this Agreement at such meeting.
SECTION 7.06. Director and Officer Liability. (a) CN shall cause the
Surviving Corporation, for a period of six years after the Control Date, (i) to
maintain in effect in its certificate of incorporation and by-laws the current
provisions regarding the elimination of liability of directors and
indemnification of and advancement of expenses to officers, directors, employees
and agents currently contained in the certificate of incorporation and by-laws
of IC and (ii) to maintain the existing indemnification agreements covering such
directors and officers of IC, copies of which have been provided to CN prior to
the date of this Agreement; provided that such indemnification agreements shall
be subject to any limitation imposed from time to time under applicable law.
For six years after the Control Date, CN will cause the Surviving Corporation to
maintain the officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Control Date covering each such Person
currently covered by IC's officers' and directors' liability insurance or a
substitute policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof, provided that, in
satisfying its obligation under this Section, CN shall not be obligated to cause
the Surviving Corporation to pay premiums in excess of 200% of the amount per
annum IC paid in its last full fiscal year, which amount has been disclosed to
CN; provided, further, that if the annual premiums of such insurance coverage
exceed such amount, the Surviving Corporation shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount. If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation assume the obligations set forth in this Section 7.06.
SECTION 7.07. Stock Exchange Listing. CN shall use all reasonable best
efforts to cause the shares of CN Common Stock to be issued in the Merger to be
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approved for listing on the NYSE, the Toronto Stock Exchange and the other
national securities exchanges on which the CN Common Stock is traded, subject,
in each case, to official notice of issuance, prior to the Effective Time.
ARTICLE 8
COVENANTS OF CN AND IC
CN and IC agree that:
SECTION 8.01. Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
SECTION 8.02. STB Approval. CN, on the one hand and IC on the other
shall, and each shall cause its Subsidiaries to, subject to the following
sentences, (i) cooperate with one another to prepare and present to the STB, as
soon as practicable, all filings and other presentations in connection with
seeking any STB approval, exemption or other authorization necessary to
consummate the transactions contemplated by this Agreement (including, without
limitation, the matters contemplated by Sections 6.02 and 7.02 hereof), (ii)
prosecute such filings and other presentations with diligence, (iii) diligently
oppose any objections to, appeals from or petitions to reconsider or reopen any
such STB approval by Persons not party to this Agreement, and (iv) take all such
further action as in the reasonable judgment of CN and IC may facilitate
obtaining a final order or orders of the STB approving such transactions
consistent with this Agreement and the transactions contemplated herein. Without
in any way limiting CN's obligations under Section 1.03 and 8.01 and subject to
consultations with IC and, after giving good faith consideration to the views of
IC, CN shall have final authority over the development, presentation and conduct
of the STB case, including over decisions as to whether to agree to or acquiesce
in conditions. IC shall take no regulatory or legal action in connection with
the STB without CN's consent.
SECTION 8.03. Certain Filings. CN and IC shall cooperate with one another
(except with respect to the STB, which is covered by Section 8.02), in
determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (except with respect to the STB, which is
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covered by Section 8.02), in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.
SECTION 8.04. Public Announcements. CN and IC will consult with each
other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
SECTION 8.05. Dividends. After the date of this Agreement, each of CN and
IC shall coordinate with the other the payment of dividends with respect to the
shares of CN Common Stock and IC Common Stock and the record dates and payment
dates relating thereto, it being the intention of the parties hereto that
holders of shares of CN Common Stock and IC Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their CN Common Stock and/or IC Common Stock or any shares of CN
Common Stock that any such holder receives in exchange for such shares of IC
Common Stock in connection with the Merger.
SECTION 8.06. Auditors' Letters. IC and CN each shall use all reasonable
best efforts to cause to be delivered to the other party and such other party's
directors a letter of its independent auditors, dated the date on which the Form
F-4 shall become effective, and addressed to the other party and such other
party's directors, in form and substance customary for "comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Form F-4.
SECTION 8.07. Treatment of IC Employees and Directors.
(a) Outstanding Options/Restricted Stock Awards. Prior to the purchase by
CN, Merger Subsidiary or their Affiliates, of shares of IC pursuant to the
Offer or otherwise (the "TAKEDOWN"), IC shall take all action necessary to
cause each outstanding IC Option (excluding the Unvested 2000 Options (as
defined below)) and outstanding restricted stock award granted prior to the
date of this Agreement or pursuant to Section 8.07(b), to be immediately vested
and, in the case of options, fully exercisable, prior to the Takedown (it being
understood that IC and CN shall develop a mechanism to permit any such
accelerated option or stock award to be exercisable (or transferrable, as the
case may be) prior to the Takedown so as to enable the holder to tender the
underlying option shares and restricted stock in order to receive the Offer
Price pursuant to the Offer, subject to
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applicable proration. For purposes of this Agreement, the "UNVESTED 2000
OPTIONS" shall mean, for each IC director, the number of IC Options granted
pursuant to the IC Directors Incentive 2000 Option Plan multiplied by (i) the
number of complete months between the Takedown and April 30, 2001, and divided
by (ii) 62. In addition, prior to the Effective Time, IC shall amend the IC
Options held by IC's directors (excluding the Unvested 2000 Options) to provide
that in the event of a termination of service of the director on or about the
Control Date (or, in the case of the Transferring Directors, the Takedown),
such options shall not expire prior to the expiration of their 10 year term.
(b) Pending Option Grants. The Compensation Committee of the IC Board of
Directors in the ordinary course has authorized, pursuant to the 1990 Long-Term
Incentive Plan (the "LTIP") (and the Executive and Management Incentive
Compensation Programs), the grant of options (the "1998 OPTIONS") to purchase
IC Common Stock pursuant to targets achieved for the year ended December 31,
1997. Such grants shall be made in March 1998 in accordance with IC's usual
procedures except that the market price of IC Common Stock utilized in
calculating the IC 1997 Total Shareholder Return, which is used in determining
the number of options to be granted, shall be the Offer Price. The exercise
price of each 1998 Option shall be equal to fair market value on the date of
grant and the other terms and conditions of each 1998 Option (including,
without limitation, vesting and duration) shall be consistent with the terms
applicable to ordinary employee options granted under the LTIP in March 1997.
(c) 1998 Annual Bonuses. The aggregate target bonus amount of all bonuses
granted to all employees under the IC Performance Compensation Program and
Executive Performance Compensation Program (the "PERFORMANCE PROGRAMS") (and
any and all additional cash incentive programs covering such employees) in
respect of 1998 (the "1998 BONUSES") shall not exceed $8,000,000. The 1998
Bonuses shall be awarded in accordance with past practice, and the target
amount, payment terms and other terms applicable to each such 1998 Bonus shall
be consistent with the practice relating to the 1997 annual bonuses awarded by
IC under the Performance Programs. IC shall determine, and to the extent
necessary, modify and implement, the performance objectives relating to the
measurement of the actual bonus payments to each individual under the 1998
Bonuses. Any such modifications shall be subject to prior approval by CN,
which approval shall not be unreasonably withheld.
(d) Retention Bonus. IC shall adopt a retention bonus program for its
executives (other than E. Hunter Harrison) under which cash amounts ("RETENTION
BONUSES") established by IC, after consultation with CN, would be payable in
two equal installments, the first of which would be paid on the earlier of (i)
the Control Date or (ii) April 1, 1999, and the second of which would be
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<PAGE> 53
payable on January 3, 2000. A retention bonus pool shall be created for such
awards, the size of which pool shall be agreed to in good faith by CN and IC
within 30 days following the Takedown, it being intended that the pool be not
less than $5 million. The recipient, amount and other terms of each Retention
Bonus shall be determined by cooperation and agreement between IC and CN and
shall be subject to prior approval of each of IC and CN.
(e) Amendments to IC Employment Security Agreements. IC has entered into
Employment Security Agreements with certain of its executive employees
("COVERED EMPLOYEES") prior to the date hereof (the "SECURITY AGREEMENTS").
Before the Effective Time, IC shall use its reasonable best efforts to amend
the Security Agreements so that: (i) if it is determined, following a Covered
Employee's termination of employment as described in Section 1 of the Security
Agreements, that the aggregate amount of all "parachute payments" (within the
meaning of Section 280G(b)(2) of the Code) paid or payable to such Covered
Employee is greater than one hundred and five percent (105%) of the amount
equal to 2.99 times the Covered Employee's applicable "base amount" (within the
meaning of Section 280G(b)(3) of the Code) then IC shall pay to the Covered
Employee an additional payment (the "GROSS-UP PAYMENT") such that, after
payment by the Covered Employee of all excise taxes imposed under Section 4999
of the Code ("EXCISE TAXES") (and all interest and penalties imposed and all
taxes and excise taxes imposed on the Gross-Up Payment) the Covered Employee
would retain an amount of the Gross-Up Payment equal to the Excise Taxes
imposed upon the payments and (ii) the definition of Good Reason in Section
2(b) of each Security Agreement would exclude a change in the Covered
Employee's status, responsibilities, authorities or duties due solely to a
change in the status of IC from a publicly traded company to a privately held
Subsidiary of CN.
(f) Director Retirement Plan. Effective as of the Control Date, IC shall
terminate the Director Retirement Plan and make the payments set forth in
Schedule 8.07.
(g) Director Deferred Compensation Plan. CN shall, prior to the Takedown,
assume all of IC's liabilities pursuant to its Director Deferred Compensation
Plan with respect to the Transferring Directors. In addition, CN shall honor
any elections the Transferring Directors have made with respect to their
account balances under the plan, except that any payments due upon "retirement
from the board" shall be due and payable at retirement from CN's Board of
Directors, not IC's Board of Directors.
(h) Employee Benefit Levels. During the period from the Effective Time
until the end of the twenty-fourth month following the Effective Time, CN shall
maintain or cause the Surviving Corporation to maintain salary and target
annual
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<PAGE> 54
bonus levels at no less than such levels in effect immediately prior to the
Takedown, and maintain employee long term incentive, pension and welfare plans
for the benefit of employees and former employees of IC or its Subsidiaries,
which are comparable, in the aggregate, to those in effect immediately prior to
the Takedown.
(i) Pre-Existing Conditions; Credit for Deductibles; and Past Service
Credit. CN shall, or shall cause the Surviving Corporation to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the employees
of the Surviving Corporation under any welfare plan in which such employees may
be eligible to participate after the Control Date (except to the extent that
such conditions, exclusions or waiting periods would apply under IC's then
existing plans absent any change in such welfare plan coverage), (ii) provide
each employee of the Surviving Corporation with credit for any co-payments and
deductibles paid prior to the Control Date in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Control Date, and (iii)
provide each employee of the Surviving Corporation with credit for all service
with IC and its affiliates under each employee benefit plan, program, or
arrangement of CN or its affiliates in which such employees are eligible to
participate; provided, however, that in no event shall the employees be
entitled to any credit to the extent that it would result in a duplication of
benefits with respect to the same period of services.
ARTICLE 9
ADDITIONAL AGREEMENTS
SECTION 9.01. Preparation of the Form F-4; Proxy or Information Statement;
Action by Written Consent. (a) As soon as practicable following the date of
this Agreement, IC and CN shall prepare and file with the SEC the Form F-4
pursuant to the Securities Act, which will include the IC proxy or information
statement. CN will make all necessary filings with Canadian securities
authorities and relevant Canadian stock exchanges with respect to the CN Common
Stock to be issued in connection with the Merger. Each of IC and CN shall use
its reasonable best efforts to have the Form F-4 declared effective under the
Securities Act as promptly as practicable after such filing. IC will use its
reasonable best efforts to cause the IC proxy statement or information statement
to be mailed to its stockholders as promptly as practicable after consummation
of the Offer and effectiveness of the Form F-4 under the Securities Act. CN
shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or filing a general consent to
service of process)
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<PAGE> 55
required to be taken under any applicable state securities laws in connection
with the issuance of CN Common Stock pursuant to this Agreement and IC shall
furnish all information concerning IC and the holders of IC Common Stock as may
be reasonably requested in connection with any such action. No filing of, or
amendment or supplement to, the Form F-4 or the proxy or information statement
will be made by a party without providing the other party the opportunity to
review and comment thereon. CN will advise IC, promptly after it receives
notice thereof, of the time when the Form F-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the CN Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction, or any request by the
SEC for additional information. If at any time prior to the Effective Time any
information relating to IC or CN, or any of their respective Affiliates,
officers or directors, should be discovered by IC or CN which should be set
forth in an amendment or supplement to the Form F-4 or the IC proxy or
information statement so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the stockholders of IC and
if applicable, the CN.
(b) Upon consummation of the Offer and the effectiveness of the Form F-4
and subject to compliance with applicable rules of the NYSE, the parties
understand that, pursuant to the Voting Trust Agreement, the trustee of the
Voting Trust will effect the approval of the stockholders of IC of the
Agreement by taking action by written consent of the stockholders of IC in lieu
of calling a meeting of stockholders pursuant to, and in accordance with, the
requirements set forth in Section 228 of Delaware Law.
SECTION 9.02. Fees and Expenses. (a) Except as set forth in this Section
9.02, all fees and expenses incurred in connection with the Offer, the Merger,
this Agreement, and the transactions contemplated by this Agreement shall be
paid by the party incurring such fees or expenses, whether or not the Merger is
consummated.
(b) IC agrees to pay CN a fee in immediately available funds equal to
$72,000,000 in the following circumstances and at the following times only:
(i) concurrently with the termination of this Agreement if this
Agreement shall be terminated pursuant to Sections 11.01(d), 11.01(e),
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<PAGE> 56
11.01(f) or 11.01(h) (with respect to a breach of the covenants and
agreements set forth in Section 6.03); or
(ii) within two business days of the execution of a definitive
agreement with respect to any Acquisition Proposal if IC enters into such
a definitive agreement within 15 months after the termination of this
Agreement pursuant to Section 11.01(c), and an Acquisition Proposal was
publicly announced prior to the termination of this Agreement pursuant to
Section 11.01(c).
SECTION 9.03. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of IC or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of IC or Merger Subsidiary, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of IC or Merger Subsidiary acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
ARTICLE 10
CONDITIONS TO THE MERGER
SECTION 10.01. Conditions to the Obligations of Each Party to the Merger.
The obligations of IC, CN and Merger Subsidiary to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) if required by Delaware Law, this Agreement shall have been adopted
by the stockholders of IC at a meeting of the IC stockholders (or by taking
action by written consent in lieu of such a meeting) in accordance with such
Law; provided that the right to terminate this Agreement pursuant to this
Section shall only be available to CN if it has complied with its obligations
in Section 7.05;
(b) the waiting period under the HSR Act (if any) relating to the Merger
shall have expired; and
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger.
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SECTION 10.02. Additional Condition to the Obligations of IC. The
obligations of IC to consummate the Merger are subject to the satisfaction of
the additional condition that the shares of CN Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
ARTICLE 11
TERMINATION
SECTION 11.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any adoption of this Agreement by the stockholders of IC):
(a) by mutual written consent of IC and CN;
(b) by either IC or CN, if there shall be any law or regulation that
makes consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining CN or IC from consummating
the Merger is entered and such judgment, injunction, order or decree shall
become final and nonappealable;
(c) by IC or CN, if (i) the Offer shall have expired or been
terminated and Merger Subsidiary shall not have purchased shares of IC
Common Stock pursuant to the Offer or (ii) Merger Subsidiary shall not
have purchased shares of IC Common Stock pursuant to the Offer prior to
May 29, 1998; provided, however, that the right to terminate this
Agreement pursuant to this Section 11.01(c) shall not be available to any
party whose failure to perform any of its obligations under this Agreement
(including Merger Subsidiary's failure to purchase shares of IC Common
Stock pursuant to the terms and conditions of the Offer) results in the
failure of the Offer to be consummated; and provided further that this
clause (c) shall not apply if Merger Subsidiary shall have elected to
terminate the Offer and proceed with the Merger in accordance with Section
1.04;
(d) by CN, prior to the earlier of (x) the consummation of the Offer
(if the Offer is consummated) or (y) the adoption of this Agreement by the
stockholders of IC, if (i) the Board of Directors of IC shall withdraw,
modify or change its recommendation of this Agreement, the Merger or the
Offer in a manner adverse to CN, it being understood and agreed that a
communication by the Board of Directors of IC to the
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<PAGE> 58
stockholders of IC pursuant to Rule 14d-9(e)(3) of the Exchange Act (or
any similar communication to stockholders of IC in connection with the
amendment of a tender or exchange offer) shall not be deemed to constitute
a withdrawal, modification or change of its recommendation of this
Agreement, the Merger or the Offer; (ii) the Board of Directors of IC
shall approve or recommend an Acquisition Proposal; or (iii) IC shall have
entered into, or shall have publicly announced its intention to enter
into, a definitive agreement with respect to an Acquisition Proposal (it
being understood and agreed that the delivery of written notice of IC's
intention to enter into a definitive agreement with respect to an
Acquisition Proposal pursuant to Section 6.03 and any subsequent public
announcement of such intention shall not entitle CN to terminate this
Agreement pursuant to this paragraph (d) unless IC enters into a
definitive agreement with respect to such Acquisition Proposal);
(e) by IC, prior to the earlier of (x) the consummation of the Offer
or (y) the adoption of this Agreement by the stockholders of IC, if the
Board of Directors of IC shall have entered into or shall have publicly
announced its intention to enter into, a definitive agreement with respect
to an Acquisition Proposal, if the Board of Directors concludes in good
faith, based on the advice of outside counsel, that such action is
reasonably necessary in order for the Board of Directors to act in a
manner consistent with the Board's fiduciary duties under applicable law;
provided, that the right to terminate this Agreement pursuant to this
Section 11.01(e) shall not be available to IC unless (x) IC has complied
in all material respects with its obligations in Section 6.03 of this
Agreement and (y) concurrently with such termination, IC enters into a
definitive agreement to effect the Acquisition Proposal referred to herein
and complies with its obligations under Section 9.02(b);
(f) by CN, prior to the earlier of (x) consummation of the Offer (if
the Offer is consummated) or (y) the adoption of this Agreement by the
stockholders of IC, if any person or group (as defined in Section 13(d)(3)
of the Exchange Act) (other than CN, any CN Subsidiary, or an Affiliate
thereof) shall have become the beneficial owner (as defined under Rule
13d-3 promulgated under the Exchange Act) of at least 40% of the
outstanding shares of IC Common Stock;
(g) by IC, prior to the earlier of (x) consummation of the Offer or
(y) the adoption of this Agreement by the stockholders of IC, if CN or
Merger Subsidiary shall have breached or failed to perform in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to
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perform (i) would give rise to the failure of the conditions set forth in
Article 10 and (ii) either is not reasonably capable of being cured or, if
it is reasonably capable of being cured, has not been cured within the
earlier of (x) 10 days after giving of written notice to CN of such breach
or (y) the expiration of the Offer (if applicable) (provided that IC shall
not have the right to terminate the Agreement if IC is then in breach of
its representations, warranties, covenants or other agreements contained
in this Agreement);
(h) by CN, prior to the earlier of (x) consummation of the Offer (if
the Offer is consummated) or (y) the adoption of this Agreement by the
stockholders of IC, if IC shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure to
perform (i) would give rise to the failure of the conditions set forth in
Article 10 and (ii) either is not reasonably capable of being cured or, if
it is reasonably capable of being cured, has not been cured within the
earlier of (x) 10 days after giving of written notice to IC of such breach
or (y) the expiration of the Offer (if applicable) (provided that CN shall
not have the right to terminate the Agreement if CN (or Merger Subsidiary)
is then in breach of its representations, warranties, covenants or other
agreements contained in this Agreement); and
(i) by CN or IC if, during any five consecutive trading day period
during the period from the commencement of the Offer until the business
day prior to the expiration of the Offer the average closing price of the
CN Common Stock on the NYSE is less than $38.00; provided that any
exercise of the right to terminate pursuant to this Section 11.01(i) with
respect to any five consecutive trading day period shall only be effective
if notice of such termination is given to the other party prior to the
earlier of (i) 72 hours after the close of trading on the fifth such
consecutive day and (ii) the expiration date of the Offer.
The party desiring to terminate this Agreement shall give written notice
of such termination to the other party in accordance with Section 12.01.
SECTION 11.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 11.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto, except that (i) the
agreements contained in Sections 4.18, 5.16, 9.02, 11.02 and 12.03 and (ii) the
prohibition regarding a waiver or change of the condition in paragraph (e) of
Annex 1 that is set forth in Section 1.01(a)(iv) shall survive the termination
hereof.
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ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given,
if to CN or Merger Subsidiary, to:
Jean Pierre Ouellet, Esq.
Canadian National Railway Company
935, rue de la Gauchetiere Ouest
Montreal, (Quebec) Canada
Telecopy: (514) 399-3779
with a copies to:
Winthrop B. Conrad, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
if to IC, to:
Ronald A. Lane, Esq.
Illinois Central Corporation
455 North Cityfront Plaza Drive
Chicago, Illinois 60611-5504
Telecopy: (312) 755-7669
with a copy to:
John G. Finley, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy: (212) 455-2502
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section and the
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appropriate telecopy confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 12.02. Definitions. (a) For purposes of this Agreement:
"AFFILIATE" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person.
"BENEFIT ARRANGEMENT" means any employment, severance or similar contract
or arrangement (whether or not written) or any plan, policy, fund, program or
contract or arrangement (whether or not written) providing for compensation,
bonus, profit-sharing, stock option, or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
that (i) is not an Employee Plan, (ii) is entered into, maintained,
administered or contributed to, by IC or any of its ERISA Affiliates or by CN
or any of its ERISA Affiliates, as applicable and (iii) covers any employee or
former employee of IC or any IC Subsidiary or of CN or any CN Subsidiary, as
applicable.
"CONTINUING DIRECTORS" means the directors of IC then in office who are
neither designated or employed by or otherwise affiliated with CN nor are
employees of IC.
"CONTROL DATE" means the date on which CN is lawfully permitted to assume
control over IC's railroad operations pursuant to STB approval or exemption.
"EMPLOYEE PLAN" means any "employee benefit plan", as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by IC or any of its ERISA
Affiliates, or by CN or any of its ERISA Affiliates, as applicable and (iii)
covers any employee or former employee of IC or any IC Subsidiary or of CN or
any CN Subsidiary, as applicable.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of
the Code.
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"MATERIAL ADVERSE EFFECT" means, with respect to either CN or IC, a
material adverse effect on the condition (financial or otherwise), business,
assets or results of operations of such Person and its Subsidiaries, taken as a
whole, other than, with respect to any representation or warranty made (or
deemed to be made) by such Person, as a result of changes in conditions,
including economic, regulatory or political developments, applicable to the
United States or Canadian railway industry generally.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section
3(37) of ERISA, which is subject to Section 4022A of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a corporation, a limited liability company,
a partnership, an association, a trust or any other entity or organization,
including, without limitation, a government or political subdivision or any
agency or instrumentality thereof.
"SUBSIDIARY", when used with respect to any Person means any other Person,
whether incorporated or unincorporated, of which securities or other ownership
interests having ordinary power to elect a majority of the board of directors
or other persons performing similar functions are directly or indirectly owned
or controlled by such Person or by any one or more of its Subsidiaries.
"TITLE IV PLAN" means an Employee Plan subject to Title IV of ERISA other
than any Multiemployer Plan.
(b) Each of the following definitions appears on the page set forth
opposite the definition:
<TABLE>
<CAPTION>
<S> <C>
Agreement................................................................. 1
Acquisition Proposal...................................................... 39
Affiliate................................................................. 57
Benefit Arrangement....................................................... 57
IC........................................................................ 1
IC 10-K................................................................... 16
IC 10-Q................................................................... 16
IC Balance Sheet.......................................................... 17
IC Balance Sheet Date..................................................... 17
IC Common Stock........................................................... 1
IC Disclosure Documents................................................... 17
IC Environmental Permits.................................................. 25
IC Options................................................................ 10
</TABLE>
57
<PAGE> 63
<TABLE>
<CAPTION>
<S> <C>
IC SEC Filings............................................................ 16
IC Securities............................................................. 15
IC Subsidiary Securities.................................................. 16
CN........................................................................ 1
CN 6-K.................................................................... 28
CN 40-F................................................................... 27
CN Average Closing Price.................................................. 7
CN Average Price.......................................................... 10
CN Balance Sheet.......................................................... 29
CN Balance Sheet Date..................................................... 29
CN Class A Preferred Stock................................................ 27
CN Class B Preferred Stock................................................ 27
CN Common Stock........................................................... 7
CN Disclosure Documents................................................... 29
CN Options................................................................ 10
CN SEC Filings............................................................ 28
CN Securities............................................................. 27
CN Subsidiary Securities.................................................. 28
Code...................................................................... 10
Confidentiality Agreement................................................. 39
Control Date.............................................................. 57
Covered Employees......................................................... 48
Delaware Law.............................................................. 3
Effective Time............................................................ 6
Employee Plan............................................................. 57
Environmental Laws........................................................ 25
ERISA..................................................................... 57
ERISA Affiliate........................................................... 57
Excess Shares............................................................. 10
Exchange Act.............................................................. 14
Exchange Agent............................................................ 8
Exchange Ratio............................................................ 7
Excise Taxes.............................................................. 48
Form F-4.................................................................. 29
Gross-Up Payment.......................................................... 48
Hazardous Substances...................................................... 25
HSR Act................................................................... 3
Investment Commitment Agreements.......................................... 1
LTIP...................................................................... 47
Lien...................................................................... 15
Material Adverse Effect................................................... 58
Merger.................................................................... 6
Merger Consideration...................................................... 7
Merger Subsidiary......................................................... 1
</TABLE>
58
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C>
Minimum Condition......................................................... 2
Multiemployer Plan........................................................ 58
1998 Bonuses.............................................................. 47
1998 Options.............................................................. 47
NYSE...................................................................... 7
Offer..................................................................... 2
Offer Documents........................................................... 3
Options................................................................... 10
PBGC...................................................................... 58
Performance Programs...................................................... 47
Person.................................................................... 58
Principal CN Subsidiary................................................... 27
Railroad Subsidiaries................................................ Recitals
Real Estate Reorganization................................................ 30
Reciprocal Stock Proration Factor......................................... 11
Retention Bonuses......................................................... 47
Rights Plan............................................................... 35
Schedule 14D-9............................................................ 4
SEC....................................................................... 3
Securities Act............................................................ 12
Security Agreements....................................................... 48
Service Agent............................................................. 63
STB....................................................................... 4
Stock Number.............................................................. 7
Stock Proration Factor.................................................... 7
Subsidiary................................................................ 58
Surviving Corporation..................................................... 6
Takedown.................................................................. 46
Title IV Plan............................................................. 58
Unvested 2000 Options..................................................... 47
Voting Trust.............................................................. 4
Voting Trust Agreement.................................................... 4
</TABLE>
SECTION 12.03. Survival. Subject to Section 11.02, the representations
and warranties and agreements contained herein and in any certificate or other
writing delivered pursuant hereto shall terminate at the Effective Time or upon
the termination of this Agreement, except that the covenants and agreements of
IC contained in Sections 6.01 and 6.02 and the covenants and agreements of CN
contained in Sections 7.06, 8.01, 8.02, 8.03, 8.07 and 9.03 shall survive the
Effective Time and shall remain in full force and effect in accordance with
their terms.
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SECTION 12.04. Amendments; No Waivers; Continuing Directors. (a) Before
or after adoption of this Agreement by the stockholders of IC, any provision of
this Agreement may be amended or waived prior to the Control Date if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by the parties hereto or in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the adoption of
this Agreement by the stockholders of IC, there shall not be made any amendment
that by law requires further approval by the stockholders of IC without the
further approval of such stockholders and, provided, further, that no such
amendment of this Agreement, the Voting Trust Agreement or any other agreement
entered into in connection with this Agreement shall be effected after the
closing of the Offer and prior to the Control Date unless there are then in
office two or more Continuing Directors and such amendment is approved by a
majority of such Continuing Directors, it being understood and agreed that IC
and the Board of Directors of IC shall use reasonable best efforts to ensure
that, at all times prior to the Control Date, at least two Continuing Directors
remain in office.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(c) Following consummation of the Offer and prior to the Control Date, any
amendment to the certificate of incorporation or by-laws of IC or to this
Agreement or to the Voting Trust Agreement, any termination by IC or by IC and
CN pursuant to Section 11.01(a) of this Agreement, any waiver of any of IC's
rights hereunder (including any waiver or consent required under Section 1.03
hereof), and any other consent or action by the Board of Directors of IC
hereunder, shall not be effected unless there are then in office two or more
Continuing Directors and such approval is approved by a majority of such
Continuing Directors, it being understood and agreed that IC and the Board of
Directors of IC shall use commercially reasonable best efforts to ensure that,
at all times prior to the Control Date, at least two Continuing Directors
remain in office.
SECTION 12.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more of
its Affiliates, the right to purchase shares of IC Common Stock pursuant to the
Offer but any such transfer or assignment will not relieve Merger Subsidiary of
its
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obligations under the Offer or prejudice the rights of tendering stockholders
to receive payment for shares validly tendered and accepted for payment
pursuant to the Offer.
SECTION 12.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 12.07. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
SECTION 12.08. Entire Agreement; No Third Party Beneficiaries. (a) This
Agreement and the agreements referred to herein constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, which shall survive the execution and delivery of
this Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 7.06 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons), it being understood and agreed
that (i) if any such Person shall institute and prevail in any proceedings
against CN in respect of a breach by CN of its covenants and agreements
contained in Section 7.06 hereof, CN shall pay the reasonable expenses of such
Person (including attorney's fees) incurred in connection with such proceeding
to the fullest extent authorized by applicable law and (ii) if any such Person
shall institute any proceedings against CN in respect of a breach by CN of its
covenants and agreements contained in Section 7.06 hereof where the
circumstances underlying the claim for indemnification arose during the period
from the date hereof through the Control Date, CN shall be obligated to advance
to such Person the reasonable expenses of such Person (including attorney's
fees) incurred in connection with such proceeding as such expenses are incurred
subject to the obligation of such Person to reimburse such expenses to the CN
if such Person does not prevail in such proceedings.
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SECTION 12.09. Submission to Jurisdiction; Waivers. Each of the parties
hereto irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its successors or assigns shall be
brought and determined in any federal court located in the State of Delaware or
the Chancery or other Courts of the State of Delaware, and each of the parties
hereto hereby irrevocably submits with regard to any such action or proceeding
for itself and in respect to its property, generally and unconditionally, to the
exclusive jurisdiction of the aforesaid courts. Each of the parties hereto
hereby irrevocably waives, and agrees not to assert, by way of motion, as a
defense, counterclaim or otherwise, in any action or proceeding with respect to
this Agreement, (a) the defense of sovereign immunity, (b) any claim that it is
not personally subject to the jurisdiction of the above-named courts for any
reason other than the failure to serve process in accordance with this Section
12.09, (c) that it or its property is exempt or immune from jurisdiction of any
such court or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
of judgment, execution of judgment or otherwise), and (d) to the fullest extent
permitted by applicable law, that (i) the suit, action or proceeding in any such
court is brought in an inconvenient forum, (ii) the venue of such suit, action
or proceeding is improper or (iii) this Agreement, or the subject matter hereof,
may not be enforced in or by such courts. Each of the parties hereto further
covenants and agrees that each such party shall maintain a duly appointed agent
for the service of summonses and other legal processes in the State of Delaware
(a "SERVICE AGENT"), unless such party is organized under the laws of the State
of Delaware or qualified to do business in the State of Delaware, and will
notify the other parties hereto of the name and address of such Service Agent.
SECTION 12.10. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed
that the parties shall be entitled to specific performance of the terms hereof,
this being in addition to any other remedy to which they are entitled at law or
in equity.
SECTION 12.11. Guarantee of Merger Subsidiary. CN unconditionally and
irrevocably guarantees the performance by Merger Subsidiary of its obligations
set forth in this Agreement.
SECTION 12.12. Disclosure Schedules. IC and CN agree that, for purposes
of the representations and warranties of such parties in this Agreement, any
item disclosed in a Schedule shall be deemed to be disclosed in all other
Schedules in which the disclosure of such item would be considered responsive.
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<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
Canadian National Railway Company
By: /s/ PAUL TELLIER
--------------------------------
Name: Paul Tellier
Title: President and
Chief Executive Officer
Blackhawk Merger Sub, Inc.
By: JEAN PIERRE OUELLET
--------------------------------
Name: Jean Pierre Ouellet
Title: President and Director
Illinois Central Corporation
By: GILBERT H. LAMPHERE
--------------------------------
Name: Gilbert H. Lamphere
Title: Chairman
<PAGE> 69
ANNEX I
Notwithstanding any other provision of the Offer, CN and Merger Subsidiary
shall not be required to accept for payment or pay for any shares of IC Common
Stock, and may terminate the Offer, if (i) by the expiration of the Offer less
than 50.1% of the outstanding shares of IC Common Stock (on a fully diluted
basis) have been tendered pursuant to the Offer and not withdrawn, (ii) the
applicable waiting period (if any) under the HSR Act shall not have expired or
been terminated, (iii) the staff of the STB shall not have given CN a favorable
informal advisory opinion to the effect that the proposed use of the Voting
Trust will preclude unlawful control of IC by CN or (iv) at any time on or
after February 10, 1998, and prior to the acceptance for payment of shares, any
of the following conditions exist:
(a) there shall be instituted or pending any action or proceeding by any
government or governmental authority or agency, domestic or foreign, before any
court or governmental authority or agency, domestic or foreign, (i) challenging
or seeking to make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the making of the Offer, challenging or
seeking to make illegal the Voting Trust, the acceptance for payment of or
payment for some of or all the shares of IC Common Stock by CN or the
consummation of the Merger, seeking to obtain material damages or otherwise
directly or indirectly relating to the transactions contemplated by the Offer
or the Merger (including the Voting Trust), (ii) except for the Voting Trust,
seeking to restrain or prohibit CN's ownership or operation (or that of its
respective Subsidiaries or Affiliates) of all or any material portion of the
business or assets of IC and its Subsidiaries, taken as a whole, or of CN and
its Subsidiaries, taken as a whole, or to compel CN or any of its Subsidiaries
or Affiliates to dispose of or hold separate all or any material portion of the
business or assets of IC and its Subsidiaries, taken as a whole, or of CN and
its Subsidiaries, taken as a whole, (iii) except for the Voting Trust, seeking
to impose or confirm material limitations on the ability of CN or any of its
Subsidiaries or Affiliates effectively to exercise full rights of ownership of
the IC Common Stock , including, without limitation, the right to vote any
shares of such stock acquired or owned by CN or any of its Subsidiaries or
Affiliates on all matters properly presented to the stockholders of IC, or (iv)
seeking to require divestiture by CN or any of its Subsidiaries or Affiliates
of any such shares; or
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree proposed, enacted, enforced, promulgated, issued or
deemed applicable to the Offer or the Merger (including the Voting Trust), by
any court, government or governmental authority or agency, domestic or foreign
(other than (i) the application of the waiting period provisions of the HSR Act
to
<PAGE> 70
the Offer or the Merger and (ii) the waiting period prior to receipt of STB
approval or exemption with respect to the exercise of control by CN over the
Railroad Subsidiaries), would reasonably be likely, directly or indirectly, to
result in any of the consequences referred to in clauses (i) through (iv) of
paragraph (a) above; or
(c) any change shall have occurred or been threatened (or any development
shall have occurred or been threatened involving a prospective change) in the
business, assets, liabilities, financial condition, capitalization, operations
or results of operations of IC or any of its Subsidiaries that would reasonably
be expected to have a Material Adverse Effect with respect to IC, or
(d) IC shall have breached or failed to perform in any material respect
any of its covenants or agreements under the Merger Agreement, or any of the
representations and warranties of IC set forth in the Merger Agreement shall
not be true in any material respect when made or at any time prior to
consummation of the Offer as if made at and as of such time (unless such
representation or warranty is made only as of a specific date), except where
the failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality or "material
adverse effect") does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; or
(e) the Merger Agreement shall have been terminated in accordance with its
terms;
which, in the sole judgment of CN in any such case, and regardless of the
circumstances (including any action or omission by CN) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for payment or
payment.
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<PAGE> 71
EXHIBIT A
[Form of Voting Trust Agreement]
<PAGE> 72
EXHIBIT A
THIS VOTING TRUST AGREEMENT, dated as of [_________ ___], 1998, by and
among Canadian National Railway Company, a Canadian corporation ("PARENT"),
Blackhawk Merger Sub, Inc. a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("MERGER SUBSIDIARY") and [______________], a
[____________] [corporation] (the "TRUSTEE"),
W I T N E S S E T H:
WHEREAS, it is intended that Merger Subsidiary will commence and complete a
cash tender offer (the "OFFER") for up to an aggregate of [ ] outstanding
shares of common stock ("SHARES") of Illinois Central Corporation, a Delaware
corporation (the "COMPANY") to be followed by a merger of Merger Subsidiary with
and into the Company (the "MERGER") pursuant to, and upon the terms and
conditions set forth in, the Agreement and Plan of Merger dated as of February
10, 1998 among the Company, Parent and Merger Subsidiary, as it may be amended
from time to time (the "MERGER AGREEMENT") (a copy of which is attached hereto
as Exhibit A);
WHEREAS, it is intended that the consummation of the Merger will occur
prior to any issuance by the Surface Transportation Board (the "STB") of any
required approval for, or exemption of, Parent's control of the Company;
WHEREAS, Parent and Merger Subsidiary intend, simultaneously with the
acquisition of the Shares of the Company pursuant to the Offer and pursuant to
the Merger (the corporation surviving the Merger also referred to herein as the
"COMPANY"), to cause the deposit of such shares in an independent, irrevocable
voting trust, pursuant to the rules of the STB, in order to avoid any allegation
or assertion that Parent or any of its affiliates is controlling or has the
power to control the Company prior to the receipt of any required STB approval
or exemption;
WHEREAS, neither the Trustee nor any of its affiliates has any officers or
board members in common or any direct or indirect business arrangements or
dealings (as described in Paragraph 9 hereof) with Parent or any of its
affiliates; and
<PAGE> 73
WHEREAS, the Trustee is willing to act as voting trustee pursuant to the
terms of this Trust Agreement and the rules of the STB,
NOW, THEREFORE, the parties hereto agree as follows:
1. Parent and Merger Subsidiary hereby appoint [________________] as
Trustee hereunder, and [_____________] hereby accepts said appointment and
agrees to act as Trustee under this Trust Agreement as provided herein.
2. Parent and Merger Subsidiary agree that, prior to acceptance of any
tendered Shares pursuant to the Offer, Merger Subsidiary will direct the
depositary for the offer to transfer to the Trustee any Shares accepted for
payment pursuant to the Offer. Parent and Merger Subsidiary also agree that
immediately upon receipt, acquisition or purchase by either of them or by any of
their affiliates of any additional Shares, or any other voting securities of the
Company, it will transfer or cause to be transferred to the Trustee the
certificate or certificates representing such additional Shares or other
securities. Parent also agrees that, simultaneously with the effectiveness of
the Merger, Parent will cause the transfer to the Trustee of the certificate or
certificates representing 100 percent of the issued and outstanding shares of
the Company, as the corporation surviving the Merger. All such certificates
shall be duly endorsed or accompanied by proper instruments duly executed for
transfer thereof to the Trustee, and shall be exchanged for one or more Voting
Trust Certificates substantially in the form attached hereto as Attachment A
(the "TRUST CERTIFICATES"), with the blanks therein appropriately filled. All
Shares at any time delivered to the Trustee hereunder are hereinafter called the
"COMPANY TRUST STOCK." The Trustee shall present to the Company all
certificates representing Company Trust Stock for surrender and cancellation and
for the issuance and delivery to the Trustee of new certificates (the "TRUST
STOCK") registered in the name of the Trustee or its nominee.
3. The Trustee shall be present, in person or represented by proxy, at
all annual and special meetings of shareholders of the Company so that all Trust
Stock may be counted for the purposes of determining the presence of a quorum at
such meetings. The Trustee shall be entitled and it shall be its duty to
exercise any and all voting rights in respect of the Trust Stock either in
person or by proxy or consent, as hereinafter provided, unless otherwise
directed by an order of the STB or a court of competent jurisdiction. Parent
and Merger Subsidiary agree, and the Trustee acknowledges, that the Trustee
shall not participate in or interfere with the management of the Company and
shall take no other actions with respect to the Company except in accordance
with the terms hereof. The Trustee shall exercise all voting rights in respect
of the Trust Stock in favor of any proposal or action necessary or desirable to
effect, or consistent with the effectuation of, the
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<PAGE> 74
acquisition of the Company by Parent and Merger Subsidiary pursuant to the
Merger Agreement and, without limiting the generality of the foregoing, if there
shall be with respect to the Board of Directors of the Company an "ELECTION
CONTEST" as defined in the Proxy Rules of the Securities and Exchange Commission
(the "SEC"), in which one slate of nominees shall support the effectuation of
the Merger and another oppose it, in favor of the slate supporting the
effectuation of the Merger. In addition, for so long as the Merger Agreement is
in effect, the Trustee shall vote all shares of Trust Stock to cause any other
proposed merger, business combination or similar transaction (including, without
limitation, any consolidation, sale of all or substantially all the assets,
reorganization, recapitalization, liquidation or winding up of or by the
Company) involving the Company, but not involving Parent or one of its
affiliates (other than in connection with a disposition pursuant to paragraph
8), not to be effected. The Trustee shall vote all shares of Trust Stock in
favor of any proposal or action necessary or desirable to dispose of Trust Stock
in accordance with Paragraph 8 hereof. Except as otherwise expressly provided
in the three immediately preceding sentences, the Trustee shall vote all shares
of Trust Stock with respect to all matters, including, without limitation, the
election or removal of directors, voted on by the shareholders of the Company
(whether at a regular or special meeting or pursuant to a unanimous written
consent) in the Trustee's sole discretion, having due regard for the interests
of the holders of the Trust Certificates as investors in the Company, determined
without reference to such holders' interests in railroads other than the Company
or its subsidiaries; provided that the Trustee shall not vote the Trust Stock in
favor of taking or doing any act which would violate any provision of the Merger
Agreement or impede the Company's performance thereunder or which if taken or
done prior to the consummation of the Merger would have been a violation of the
Merger Agreement. Notwithstanding the foregoing provisions of this Paragraph 3
or any other provision of this Agreement, the registered holder of a Trust
Certificate may at any time -- but only with the prior written approval of the
STB -- instruct the Trustee in writing to vote the Trust Stock represented by
such Trust Certificate in any manner, in which case the Trustee shall vote such
shares in accordance with such instructions. In exercising its voting rights in
accordance with this Paragraph 3, the Trustee shall take such actions at all
annual, special or other meetings of stockholders of the Company or in
connection with any action by consent in lieu of a meeting.
4. This Trust Agreement and the nomination of the Trustee during the
term of the trust shall be irrevocable by Parent and its affiliates and shall
terminate only in accordance with the provisions of Paragraphs 8 and 14 hereof.
5. Subject to Paragraph 3, the Trustee shall not exercise the voting
powers of the Trust Stock in any way so as to create any dependence or
<PAGE> 75
intercorporate relationship between (i) Parent and its affiliates, on the one
hand, and (ii) the Company or its affiliates, on the other hand. The term
"AFFILIATE" or "AFFILIATES" wherever used in this Trust Agreement shall have the
meaning specified in Section 11323(c) of Title 49 of the United States Code, as
amended. The Trustee shall not, without the prior approval of the STB, vote the
Trust Stock to elect any officer, director, nominee or representative of Parent
or any of its affiliates as an officer or director of the Company or of any
affiliate of the Company. The Trustee shall be kept informed respecting the
business operations of the Company by means of the financial statements and
other public disclosure documents periodically filed by the Company and
affiliates of the Company with the SEC and with the STB, and by means of
information respecting the Company contained in such statements and other
documents filed by Parent with the SEC and the STB, copies of which shall be
promptly furnished to the Trustee by the Company or Parent, as the case may be,
and the Trustee shall be fully protected in relying upon such information. The
Trustee shall not be liable for any mistakes of fact or law or any error of
judgment, or for any act or omission, except as a result of the Trustee's
willful misconduct or gross negligence.
6. All Trust Certificates shall be transferable on the books of the Trustee
by the registered holder upon the surrender thereof properly assigned, in
accordance with rules from time to time established for the purpose by the
Trustee. Until so transferred, the Trustee may treat the registered holder as
owner for all purposes. Each transferee of a Trust Certificate issued hereunder
shall, by his acceptance thereof, assent to and become a party to this Trust
Agreement, and shall assume all attendant rights and obligations.
7. Pending the termination of this Trust as hereinafter provided, the
Trustee shall, immediately following the receipt of each cash dividend or cash
distribution as may be declared and paid upon the Trust Stock, pay the same over
to or as directed by the registered holder(s) of Trust Certificates hereunder as
then known to the Trustee. The Trustee shall receive and hold dividends and
distributions other than cash upon the same terms and conditions as the Trust
Stock and shall issue Trust Certificates representing any new or additional
securities that may be paid as dividends upon the Trust Stock or otherwise
distributed upon the Trust Stock to the registered holder(s) of Trust
Certificates in proportion to their respective interests.
8. (a) This Trust is accepted by the Trustee subject to the right
hereby reserved in Parent at any time to sell or make any other disposition of
the whole or any part of the Trust Stock, whether or not an event described in
subparagraph (b) below has occurred. The Trustee shall take all actions
reasonably requested by Parent with respect to (including, without limitation,
exercising all voting rights in respect of Trust Stock in favor of any proposal
or action necessary or desirable to
<PAGE> 76
effect, or consistent with the effectuation of) any proposed sale or other
disposition of the whole or any part of the Trust Stock by Parent. The Trustee
shall at any time upon the receipt of a direction from Parent signed by its
President or one of its Vice Presidents and under its corporate seal designating
the person or entity to whom Parent has directly or indirectly sold or otherwise
disposed of the whole or any part of the Trust Stock and certifying that such
person or entity is not an affiliate of Parent and has all necessary regulatory
authority, if any be required, to purchase the Trust Stock (upon which
certification the Trustee shall be entitled to rely), immediately transfer to
the person or entity therein named all the Trustee's right, title and interest
in such amount of the Trust Stock as may be set forth in said direction. If the
foregoing direction shall specify all of the Trust Stock, then following
transfer of the Trustee's right, title and interest therein, and in the event of
a sale thereof, upon delivery to or upon the order of the registered holder(s)
of the Trust Certificates of the proceeds of such sale, this Trust shall cease
and come to an end. If the foregoing direction is as to only a part of the
Trust Stock, then this Trust shall cease as to said part upon such transfer,
and distribution of the net proceeds therefrom in the event of sale, but shall
remain in full force and effect as to the remaining part of the Trust Stock.
In the event of a direct or indirect sale of Trust Stock by Parent, the Trustee
shall, to the extent the consideration therefor is payable to or controllable by
the Trustee, promptly pay, or cause to be paid upon the order of Parent the net
proceeds of such sale on a pro rata basis to the registered holder(s) of the
Trust Certificates. It is the intention of this paragraph that no violations of
49 U.S.C. section 11323 will result from a termination of this Trust.
(b) In the event the STB Approval (as defined below) shall have been
granted, then immediately upon the direction of Parent and the delivery of a
certified copy of such order of the STB or other governmental authority with
respect thereof, or, in the event that Subtitle IV of Title 49 of the United
States Code, or other controlling law, is amended to allow Parent or its
affiliates to acquire control of the Company without obtaining STB or other
governmental approval, upon delivery of an opinion of independent counsel
selected by the Trustee that no order of the STB or other governmental authority
is required, the Trustee shall either (i) transfer to or upon the order of the
registered holder(s) of Trust Certificates hereunder as then known to the
Trustee, its right, title and interest in and to all of the Trust Stock then
held by it in accordance with the terms, conditions and agreements of this Trust
Agreement and not theretofore transferred by it as provided in subparagraph (a)
hereof, or (ii) if shareholder approval of the Merger has not previously been
obtained, vote the Trust Stock with respect to the Merger or any other merger
between the Company and Merger Subsidiary or any other affiliate of Parent as
directed by the registered holder(s) of the Trust Certificates; and
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<PAGE> 77
upon any such transfer or merger this Trust shall cease and come to an end.
(c) In the event that there shall have been an STB Denial (as defined
below), Parent shall use its best efforts to sell the Trust Stock to one or more
eligible purchasers, or otherwise to dispose of the Trust Stock, during a period
of two years after such STB Denial or such extension of that period as the STB
shall approve. Any such disposition shall be subject to any jurisdiction of the
STB to oversee Parent's divestiture of Trust Stock. At all times, the Trustee
shall continue to perform its duties under this Trust Agreement and, should
Parent be unsuccessful in its efforts to sell or distribute the Trust Stock
during the period referred to, the Trustee shall as soon as practicable sell the
Trust Stock for cash to one or more eligible purchasers in such manner and for
such price as the Trustee in its discretion shall deem reasonable after
consultation with the Parent. (An "ELIGIBLE PURCHASER" hereunder shall be a
person or entity that is not affiliated with the Parent and which has all
necessary regulatory authority, if any be required, to purchase the Trust
Stock.) Parent agrees to cooperate with the Trustee in effecting such
disposition, and the Trustee agrees to act in accordance with any direction made
by Parent as to any specific terms or method of disposition, to the extent not
inconsistent with the requirements of the terms of any STB or court order. The
proceeds of the sale shall be distributed on a pro rata basis to or upon the
order of the registered holder(s) of the Trust Certificates hereunder as then
known to the Trustee. The Trustee may, in its reasonable discretion, require
the surrender to it of the Trust Certificates hereunder before paying to the
holder his share of the proceeds. Upon disposition of the Trust Stock pursuant
to this Paragraph 8(c), this Trust shall cease and come to an end.
(d) Unless sooner terminated pursuant to any other provision herein
contained, this Trust Agreement shall terminate on ______________ ___, [2003],
and may be extended by the parties hereto, so long as no violation of 49 U.S.C.
section 11323 will result from such termination or extension. All Trust Stock
and any other property held by the Trustee hereunder upon such termination shall
be distributed on a pro rata basis to or upon the order of the registered
holder(s) of Trust Certificates hereunder as then known to the Trustee. The
Trustee may, in its reasonable discretion, require the surrender to it of the
Trust Certificates hereunder before the release or transfer of the stock
interests evidenced thereby.
(e) The Trustee shall promptly inform the STB of any transfer or
disposition of Trust Stock pursuant to this Paragraph 8.
(f) Except as provided in this Paragraph 8, the Trustee shall not dispose
of, or in any way encumber, the Trust Stock.
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<PAGE> 78
(g) Notwithstanding the foregoing, if the STB issues a declaratory order
that the termination of the Trust will not cause Parent or its affiliates to
have control of the Company, the Trustee shall transfer on a pro rata basis to
or upon the order of the registered holder(s) of Trust Certificates hereunder as
then known to the Trustee, its right, title and interest in and to all of the
Trust Stock then held by it in accordance with the terms and conditions of this
Trust Agreement and not theretofore transferred by it as provided in
subparagraph (a) hereof, and this Trust shall cease and come to an end. The
Trustee may, in its reasonable discretion, require the surrender to it of the
Trust Certificates hereunder before the release or transfer of the stock
interests evidenced thereby.
(h) As used in this Paragraph 8, the terms "STB APPROVAL" and "STB DENIAL"
shall have the following meanings:
"STB APPROVAL" means the issuance by the STB of a decision, which decision
shall become effective and which decision shall not have been stayed or
enjoined, that (A) constitutes a final agency action approving, exempting or
otherwise authorizing the acquisition of control over the Company's railroad
operations by Parent and its affiliates, without the imposition of conditions
that Parent, by written notice to the Trustee, has deemed to be unacceptable,
and (B) does not require any change in the consideration paid or to be paid
pursuant to the Merger Agreement or other material provisions thereof, unless
Parent, by written notice to the Trustee, has determined any such change to be
acceptable to Parent.
"STB DENIAL" means (i) STB Approval shall not have been obtained by
December 31, [2000] or (ii) the STB shall have, by an order which shall have
become final and no longer subject to review by the courts, refused to approve
the control referred to in clause (A) of the definition of STB Approval.
9. Neither the Trustee nor any affiliate of the Trustee may have (i) any
officers, or members of their respective boards or directors, in common with
Parent or any of its affiliates, or (ii) any direct or indirect business
arrangements or dealings, financial or otherwise, with Parent or any of its
affiliates, other than dealings pertaining to establishment and carrying out of
this Trust. Mere investment in the stock or securities of Parent or any of its
affiliates by the Trustee, short of obtaining a controlling interest, will not
be considered a proscribed business arrangement or dealing, but in no event
shall any such investment by the Trustee in voting securities of Parent or its
affiliates exceed 5 percent of their outstanding voting securities; and in no
event shall the Trustee hold a proportion of such voting securities so
substantial as to permit the Trustee in any way to control or direct the affairs
of Parent or its affiliates. Neither Parent nor its affiliates shall purchase
the stock or securities of the Trustee or any affiliate of the Trustee.
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<PAGE> 79
10. The Trustee shall be entitled to receive reasonable and customary
compensation for all services rendered by it as Trustee under the terms hereof,
and said compensation to the Trustee, together with all counsel fees, taxes, or
other expenses reasonably incurred hereunder, shall be promptly paid by Parent.
11. The Trustee may at any time or from time to time appoint an agent or
agents and may delegate to such agent or agents the performance of any
administrative duty of the Trustee and be entitled to reimbursement for the fees
and expenses of such agents.
12. The Trustee shall not be answerable for the default or misconduct of
any agent or attorney appointed by it in pursuance hereof if such agent or
attorney shall have been selected with reasonable care. The duties and
responsibilities of the Trustee shall be limited to those expressly set forth
in this Trust Agreement. The Trustee shall be fully protected by acting in
reliance upon any notice, advice, direction or other document or signature
believed by the Trustee to be genuine. The Trustee shall not be responsible for
the sufficiency or accuracy of the form, execution, validity or genuineness of
the Trust Stock, or of any other documents, or of any endorsement thereon, or
for any lack of endorsement thereon, or for any description therein, nor shall
the Trustee be responsible or liable in any respect on account of the identity,
authority or rights of the persons executing or delivering or purporting to
execute or deliver any such Trust Stock or other document or endorsement or this
Trust Agreement, except for the execution and delivery of this Trust Agreement
by this Trustee. The Parent agrees that it will at all times protect, indemnify
and save harmless the Trustee from any loss, damages, liability, cost or expense
of any kind or character whatsoever in connection with this Trust, except those,
if any, resulting from the gross negligence or willful misconduct of the
Trustee, and will at all times undertake, assume full responsibility for, and
pay on a current basis, but at least quarterly, all cost and expense of any suit
or litigation of any character, whether or not involving a third party,
including any proceedings before the STB, with respect to the Trust Stock or
this Trust Agreement, and if the Trustee shall be made a party thereto, or be
the subject of any investigation or proceeding (whether formal or informal), the
Parent will pay all costs, damages and expenses, including reasonable counsel
fees, to which the Trustee may be subject by reason thereof; provided, however,
that Parent shall not be responsible for the cost and expense of any suit that
the Trustee shall settle without first obtaining Parent's written consent. The
indemnification obligations of Parent shall survive any termination of this
Trust Agreement or the removal, resignation or other replacement of the Trustee.
The Trustee may consult with counsel selected by it and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action
8
<PAGE> 80
taken or omitted or suffered by the Trustee hereunder in good faith and in
accordance with such opinion.
13. To the extent requested to do so by Parent, Merger Subsidiary or
any registered holder of a Trust Certificate, the Trustee shall furnish to the
party making such request full information with respect to (i) all property
theretofore delivered to it as Trustee, (ii) all property then held by it as
Trustee, and (iii) all action theretofore taken by it as Trustee.
14. The Trustee, or any trustee hereafter appointed, may at any time
resign by giving sixty days' written notice of resignation to Parent, Merger
Subsidiary and the STB. Parent shall at least fifteen days prior to the
effective date of such notice appoint a successor trustee which shall (i)
satisfy the requirements of Paragraph 9 hereof and (ii) be a corporation
organized and doing business under the laws of the United States or of any State
thereof and authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by federal or state authority. If no successor
trustee shall have been appointed and shall have accepted appointment at least
fifteen days prior to the effective date of such notice of resignation, the
resigning Trustee may petition any authority or court of competent jurisdiction
for the appointment of a successor trustee. Upon written assumption by the
successor trustee of the Trustee=s powers and duties hereunder a copy of the
assumption shall be delivered by the Trustee to Parent and to Merger Subsidiary,
and the STB and all registered holders of Trust Certificates shall be notified
of such assumption, whereupon the Trustee shall be discharged of its powers and
duties hereunder and the successor trustee shall become vested therewith. In
the event of any material violation by the Trustee of the terms and conditions
of this Trust Agreement, the Trustee shall become disqualified from acting as
trustee hereunder as soon as a successor trustee shall have been selected in the
manner provided by this paragraph.
15. This Trust Agreement may from time to time be modified or amended
by agreement executed by the Trustee, Parent, (prior to the Merger) Merger
Subsidiary and the registered holder(s) of the Trust Certificates (i) pursuant
to an order of the STB, (ii) with the prior approval of the STB, (iii) in order
to comply with any order of the STB, or (iv) upon receipt of an opinion of
counsel satisfactory to the Trustee and the registered holder(s) of Trust
Certificates that an order of the STB approving such modification or amendment
is not required and that the amendment is authorized under the Merger Agreement
and is consistent with the regulations of the STB regarding voting trusts.
16. The provisions of this Trust Agreement and the rights and
obligations of the parties hereunder shall be governed by the laws of the State
of
<PAGE> 81
Delaware, except that, to the extent any provision hereof may be found
inconsistent with the ICC Termination Act of 1995 or regulation promulgated
thereunder by the STB, such Act and regulations shall control and such provision
hereof shall be given effect only to the extent permitted by such Act and
regulations. In the event that the STB shall, at any time hereafter by final
order, find that compliance with law requires any other or different action by
the Trustee than is provided herein, the Trustee shall act in accordance with
such final order instead of the provisions of this Trust Agreement.
17. This Trust Agreement is executed in three counterparts, each of
which shall constitute an original, and one of which shall be retained by
Parent, one by Merger Subsidiary, and the other by the Trustee.
18. A copy of this Agreement and any amendments or modifications
thereto shall be filed with the STB by Parent.
19. This Trust Agreement shall be binding upon the successors and
assigns to the parties hereto, including without limitation successors to Parent
by merger, consolidation or otherwise.
20. For purposes of this Trust Agreement, the term "SURFACE
TRANSPORTATION BOARD" or "STB", includes any successor agency or governmental
department that is authorized to carry out the responsibilities now carried out
by the STB with respect to voting trusts and control of common carriers.
21. (a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by U.S. mail, certified
mail, return receipt requested or by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy)
against receipt to the party to whom it is to be given at the address of such
party set forth below (or to such other address as the party shall have given
notice of):
To the Trustee: [______________________]
[Address]
Attention: [Title]
To Parent and (prior to the Merger)
Merger Subsidiary: Canadian National Railway
Company
[Address]
Attention: [Title]
<PAGE> 82
(b) Unless otherwise specifically provided herein, any notice to or
communication with the registered holder(s) of the Trust Certificates hereunder
shall be deemed to be sufficiently given or made if enclosed in postpaid
envelopes (regular not registered mail) addressed to such holders at their
respective addresses appearing on the Trustee's transfer books, and deposited in
any post office or post office box. The addresses of the holders of Trust
Certificates, as shown on the Trustee's transfer books, shall in all cases be
deemed to be the addresses of Trust Certificate holders for all purposes under
this Trust Agreement, without regard to what other or different addresses the
Trustee may have for any Trust Certificate holder on any other books or records
of the Trustee. Every notice so given of mailing shall be the date such notice
is deemed given for all purposes.
22. Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, the non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in
any action for specific performance, the defense of adequacy of a remedy at law
and (b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement
in any action instituted in any state or federal court sitting in Wilmington,
Delaware. Each party hereto consents to personal jurisdiction in any such
action brought in any state or federal court sitting in Wilmington, Delaware.
11
<PAGE> 83
IN WITNESS WHEREOF, Canadian National Railway Company and Blackhawk Merger
Sub, Inc. have caused this Trust Agreement to be executed by their [ ]
and [ ], respectively, and their corporate seals to be affixed, attested
by their [ ] and [ ], respectively, and [ ] has caused this
Trust Agreement to be executed by one of its duly authorized corporate officers
and its corporate seal to be affixed, attested to by its Corporate Secretary or
one of its Assistant Corporate Secretaries, the day and year first above
written.
<TABLE>
<S> <C>
Attest: Canadian National Railway Company
By
- --------------------------- -------------------------------
(Title)
Attest: Blackhawk Merger Sub, Inc.
By
- --------------------------- -------------------------------
(Title)
Attest: [Trustee]
By
- ---------------------------- -------------------------------
(Title)
</TABLE>
12
<PAGE> 84
ATTACHMENT A
TO VOTING TRUST AGREEMENT
No. Shares
VOTING TRUST CERTIFICATE
for
COMMON STOCK
$0.001 PER SHARE PAR VALUE
of
BLACKHAWK MERGER SUB, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS IS TO CERTIFY that will be entitled, on the surrender
of this Certificate, to receive on the termination of the Voting Trust Agreement
hereinafter referred to, or otherwise as provided in Paragraph 7 of said Voting
Trust Agreement, (i) a certificate or certificates, as the case may be, for
[______] shares of the Common Stock, $0.001 per share par value, of Blackhawk
Merger Sub, Inc., a Delaware corporation (the "COMPANY"). This Certificate is
issued pursuant to, and the rights of the holder hereof are subject to and
limited by, the terms of a Voting Trust Agreement, dated as of __________ ___,
1997, executed by Canadian National Railway Company, a Canadian corporation,
Merger Subsidiary, a Delaware corporation and [__________________], as Voting
Trustee, a copy of which Voting Trust Agreement is on file in the registered
office of Merger Subsidiary at [The Corporation Trust Co., 100 West Tenth
Street, Wilmington, Delaware 19801], and open to inspection of any stockholder
of the Company and the holder hereof. The Voting Trust Agreement, unless
earlier terminated (or extended) pursuant to the terms thereof, will terminate
on _________ ___, [2002], so long as no violation of 49 U.S.C. section 11323
will result from such termination.
The holder of this Certificate shall be entitled to the benefits of said
Voting Trust Agreement, including the right to receive payment equal to the cash
dividends, if any, paid by the Company with respect to the number of shares
represented by this Certificate.
<PAGE> 85
This Certificate shall be transferable only on the books of the undersigned
Voting Trustee or any successor, to be kept by it, on surrender hereof by the
registered holder in person or by attorney duly authorized in accordance with
the provisions of said Voting Trust Agreement, and until so transferred, the
Voting Trustee may treat the registered holder as the owner of this Voting Trust
Certificate for all purposes whatsoever, unaffected by any notice to the
contrary.
By accepting this Certificate, the holder hereof assents to all the
provisions of, and becomes a party to, said Voting Trust Agreement.
IN WITNESS WHEREOF, the Voting Trustee has caused this Certificate to be
signed by its officer duly authorized.
Dated:
By_________________________________
Authorized Officer
<PAGE> 86
[FORM OF BACK OF VOTING TRUST CERTIFICATE]
FOR VALUE RECEIVED ___________________________________________ hereby sells,
assigns, and transfers unto _________________________________ the within Voting
Trust Certificate and all rights and interests represented thereby, and does
hereby irrevocably constitute and appoint ________________________ Attorney to
transfer said Voting Trust Certificate on the books of the within mentioned
Voting Trust Certificate on the books of the within mentioned Voting Trustee,
with full power of substitution in the premises.
_______________________________
Dated:
In the Presence of:
_________________________________
15
<PAGE> 87
EXHIBIT B
[Certificate of Incorporation of Surviving Corporation]
<PAGE> 88
EXHIBIT B
RESTATED
CERTIFICATE OF INCORPORATION
OF
ILLINOIS CENTRAL CORPORATION
(AS AMENDED THROUGH ______ __, 1998)
ARTICLE ONE
NAME. The name of the Corporation is Illinois Central Corporation.
ARTICLE TWO
REGISTERED AGENT. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THREE
PURPOSE. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware.
ARTICLE FOUR
A. SHARES. The total number of shares of stock which the Corporation
shall have authority to issue is 100 shares of common stock and the par value
of each share is $1.00, amounting in the aggregate to $100.
B. POWERS, PREFERENCES AND RIGHTS OF COMMON STOCK. The powers,
preferences and rights of the shares of common stock and the qualifications,
limitations or restrictions thereof, are set forth below.
1. Dividends. The holders of outstanding shares of common stock
shall be entitled to share equally and ratably with all other holders of
shares of common stock then outstanding in any dividends or
distributions declared on outstanding shares of common stock, when, as
and if any such dividends or distributions are declared by the
Corporation's Board of Directors from funds legally available therefor.
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<PAGE> 89
2. Liquidation, etc. The holders of outstanding shares of common
stock shall be entitled to share equally and ratably with all other
holders of shares of common stock then outstanding in the assets of the
Corporation to be distributed among the holders of shares of the common
stock upon any liquidation or winding up of the Corporation, whether
voluntary or involuntary; and
3. Voting Rights. Each holder of common stock shall be entitled to
vote for the election and removal of the directors of the Corporation
and on all other matters on which stockholders are entitled to vote
under the General Law of the State of Delaware and shall have one vote
for each share of common stock held of record.
ARTICLE FIVE
The Board of directors shall have the power to adopt, amend or repeal the
by-laws of the Corporation.
ARTICLE SIX
ELECTION OF DIRECTORS. A. The number of directors of the corporation
shall be fixed by, or in the manner provided in, the by-laws but shall not be
less than three nor more than ten. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Paragraph B herein,
and each director so elected shall serve until his successor has been duly
elected and qualified, unless he shall cease to serve by reason of death,
resignation or other cause.
B. Newly created directorships resulting from any increase in the number
of directors or any vacancies in the Board of Directors resulting from death,
resignation or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, or a sole remaining
director. Any director so chosen shall hold office until his successor is
elected and qualified, or until his earlier death, resignation or removal.
ARTICLE SEVEN
LIABILITY AND INDEMNIFICATION OF DIRECTORS.
A. 1. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith
2
<PAGE> 90
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction under which a director derived an improper personal
benefit.
2. If the General Corporation Law of the State of Delaware is hereafter
amended to further eliminate or limit the liability of a director of a
corporation, then a director of the Corporation, in addition to the
circumstances set forth herein, shall not be liable to the fullest extent
permitted by the General Corporation Law of the State of Delaware as so amended.
B. 1. Each person who was or is a party or is threatened to be made a
party to, or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by applicable law. The right to indemnification conferred in this Article Seven
shall also include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final disposition to
the fullest extent authorized by applicable law. The right to indemnification
conferred in this Article Seven shall be a contract right.
2. The Corporation shall determine the right of any person to receive
indemnification as provided hereunder in accordance with the provisions of
applicable law.
3. The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corporation or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any expense,
liability or loss incurred by such person in any such capacity, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under applicable law.
C. The rights and authority conferred in this Article Seven shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of this Restated Certificate of Incorporation or
the by-laws of the Corporation, agreement, vote of stockholders or disinterested
directors or otherwise.
D. Neither the amendment nor repeal of this Article Seven, nor the adoption
of any provision of this Restated Certificate of Incorporation or the
3
<PAGE> 91
by-laws of the Corporation or of any statute inconsistent with this Article
Seven, shall eliminate or reduce the effect of this Article Seven in respect of
any acts or omissions occurring prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE EIGHT
RESERVED RIGHTS. The corporation reserves the right to further amend this
Restated Certificate of Incorporation in any manner permitted by the General
Corporation Law of the State of Delaware, as amended from time to time, and all
rights and powers conferred herein on stockholders, directors and officers, if
any, are subject to this reserved power.
4
<PAGE> 92
EXHIBIT C
[Bylaws of Surviving Corporation]
<PAGE> 93
EXHIBIT C
Amended and Restated By-Laws
of
ILLINOIS CENTRAL CORPORATION
As Amended and Restated ________ __, 1998
ARTICLE 1
OFFICES
SECTION 1.01. Registered Office in Delaware. The registered office of
Illinois Central Corporation (hereinafter called the "Corporation") in the
State of Delaware shall be in the City of Wilmington, County of New Castle,
and the registered agent in charge thereof shall be The Corporation Trust
Company.
SECTION 1.02. Other Offices. The Corporation may have such other offices
in such places, either within or without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS; STOCKHOLDERS' CONSENT IN LIEU OF MEETING
SECTION 2.01. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of suchother business as may
properly come before the meeting shall be held at such place within or without
the State of Delaware, and at such date and hour, as shall be designated by
the Board of Directors.
SECTION 2.02. Special Meetings. A special meeting of stockholders, for
any purpose or purposes, may be called at any time by any member of the Board
of Directors or by the President of the Corporation. Any such meeting shall
be held at such place within or without the State of Delaware, and at such
date and hour, as shall be designated in the notice of such meeting.
SECTION 2.03. Notice of Meetings. Unless waived in writing by the
stockholder of record or unless such stockholder is represented thereat in
person or by proxy, each stockholder of record shall be given written notice of
each
5
<PAGE> 94
meeting of stockholders, which notice shall state the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Such notice shall be given at least ten days
before the date fixed for such meeting.
SECTION 2.04. Quorum. At each meeting of stockholders, the holders of
record of a majority of the issued and outstanding stock of the Corporation
entitled to vote at such meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business, except where otherwise
provided by law, the Certificate of Incorporation or these By-Laws. In the
absence of a quorum, any officer entitled to preside at, or act as secretary
of, such meeting shall have the power to adjourn the meeting from time to time
until a quorum shall be constituted. At any such adjourned meeting at which a
quorum shall be present any business may be transacted which might have been
transacted at the meeting as originally called, but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof.
SECTION 2.05. Voting. Except as otherwise provided in the Certificate of
Incorporation, at every meeting of stockholders each holder of record of the
issued and outstanding stock of the Corporation entitled to vote thereat shall
be entitled to one vote, in person or by proxy, for each share of stock held by
such stockholder. Shares of capital stock of the Corporation belonging to the
Corporation directly or indirectly shall not be voted directly or indirectly.
At all meetings of stockholders, a quorum being present, all matters shall be
decided by majority vote of the shares of stock entitled to vote thereat,
except as otherwise required by the laws of the State of Delaware. Unless
demanded by a stockholder of the Corporation present in person or by proxy at
any meeting of stockholders and entitled to vote thereat or so directed by the
chairman of the meeting or required by the laws of the State of Delaware, the
vote thereat on any question need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or in his name by his proxy,
if there be such proxy, and shall state the number of shares voted by him and
the number of votes to which each share is entitled.
SECTION 2.06. Stockholders' Consent in Lieu of Meeting SECTION 2.06.
Stockholders' Consent in Lieu of Meeting. Any corporate action requiring a vote
of stockholders may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Such writing or writings shall be filed with the minutes of stockholders'
meetings and prompt notice of the taking of any such action without a meeting by
6
<PAGE> 95
less than unanimous written consent shall be given to those stockholders who
have not so consented in writing.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The property, business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.02. Number and Term of Holding Office. The number of directors
which shall constitute the whole Board of Directors shall be such number not
fewer than one nor more than ten as shall from time to time be fixed by the
Board of Directors or the stockholders. Each of the directors of the Corporation
shall hold office until the annual meeting next after his election and until his
successor shall be elected and shall qualify or until his earlier death or
resignation or removal in the manner hereinafter provided.
SECTION 3.03. Organization and Order of Business. At each meeting of the
Board of Directors, any director chosen by a majority of the directors present
thereat shall act as chairman of the meeting and preside thereat. The Secretary
of the Corporation or, in the case of his absence, any person whom the chairman
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
SECTION 3.04. Resignations. Any director may resign at any time by giving
written notice of his resignation to the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, then it shall take effect when accepted by action of the Board of
Directors. Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.05. Removal of Directors. Any director may be removed, either
with or without cause, at any time by vote of a majority in interest of the
stockholders of the Corporation.
SECTION 3.06. Vacancies. Any vacancy in the Board of Directors, arising
from death, resignation, removal, an increase in the number of directors or any
other cause, may be filled either by a majority vote of the remaining directors,
although less than a quorum, or by the stockholders of the Corporation at the
next annual meeting or any special meeting called for the purpose.
SECTION 3.07. Place of Meeting. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
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<PAGE> 96
Board may from time to time by resolution determine or as shall be designated
in the respective notices or waivers of notice thereof.
SECTION 3.08. Meetings.
(a) Annual Meetings. As soon as practicable after each annual election of
directors, the Board of Directors shall meet for the purpose of organization
and the transaction of other business.
(b) Other Meetings. Other meetings of the Board of Directors shall be
held at such times and places as the Board shall from time to time determine or
upon call by the President of the Corporation.
SECTION 3.09. Notice of Meetings. The Secretary of the Corporation shall
give notice to each director of each meeting, including the time and place of
such meeting. Notice of each such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least three
days before the day on which such meeting is to be held, or shall be sent to him
by telegraph, cable, wireless or other form of recorded communication or be
delivered personally or by telephone not later than the day before the day on
which such meeting is to be held. Notice of any meeting shall not be required to
be given to any director who shall attend such meeting. A written waiver of
notice, signed by the person entitled thereto, whether before or after the time
stated therein, shall be deemed equivalent to adequate notice.
SECTION 3.10. Quorum and Manner of Acting. Except as provided by law,
the Certificate of Incorporation or these By-Laws, a majority of the directors
then in office shall be necessary at any meeting of the Board of Directors in
order to constitute a quorum for the transaction of business at such meeting,
and the vote of a majority of those directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any resolution
or act of the Board. In the absence of a quorum for any such meeting, a
majority of the directors present thereat may adjourn such meeting from time to
time until a quorum shall be present thereat. Notice of any adjourned meeting
need not be given.
SECTION 3.11. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or such
committee.
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<PAGE> 97
SECTION 3.12. Meetings by Telephone, Etc. Members of the Board of
Directors, or of any committee thereof, may participate in a meeting of the
Board, or of such committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
SECTION 3.13. Compensation. Each director, in consideration of his
serving as such, shall be entitled to receive from the Corporation such amount
per annum or such fees for attendance at meetings of the Board of Directors or
of any committee thereof, or both, as the Board shall from time to time
determine. The Board may likewise provide that the Corporation shall reimburse
each director or member of a committee for any expenses incurred by him on
account of his attendance at any such meeting. Nothing contained in this Section
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
SECTION 3.14. Committees. The Board of Directors, by resolution passed by
a majority of the whole Board, may designate members of the Board to constitute
one or more committees, which shall in each case consist of such number of
directors, not fewer than two, and shall have and may exercise such powers as
the Board may by resolution determine and specify in the respective resolutions
appointing them. A majority of all the members of any such committee may fix its
rules of procedure, determine its action and fix the time and place, whether
within or without the State of Delaware, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board shall otherwise by resolution
provide. The Board shall have power to change the members of any such committee
at any time, to fill vacancies therein and to discharge any such committee,
either with or without cause, at any time.
ARTICLE 4
OFFICERS
SECTION 4.01. Number. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Treasurer and a Secretary. Each such
officer shall be elected by the Board of Directors at its initial organization
meeting and thereafter at its annual meeting and shall hold office until the
next succeeding annual meeting of the Board and until his successor is elected
or until his earlier death or resignation or removal in the manner hereinafter
provided.
The Board may elect or appoint such other officers of the Corporation
(including one or more Assistant Treasurers and one or more Assistant
Secretaries) as it deems necessary who shall have such authority and shall
perform
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<PAGE> 98
such duties as the Board may prescribe. If additional officers are elected or
appointed during the year, each of them shall hold office until the next annual
meeting of the Board at which officers are regularly elected or appointed and
until his successor is elected or appointed or until his earlier death or
resignation or removal in the manner hereinafter provided.
A vacancy in any office may be filled for the unexpired portion of the
term in the same manner as provided for election or appointment to such office.
All officers and agents elected or appointed by the Board shall be subject
to removal at any time by the Board with or without cause.
Any officer may resign at any time by giving written notice to the
President or the Secretary of the Corporation, and such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, it shall take effect when accepted by
action of the Board. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 4.02. The President. The President of the Corporation, subject to
the direction of the Board of Directors, shall be the chief executive officer of
the Corporation, shall have general charge of the business and affairs of the
Corporation, shall have the direction of all other officers, agents and
employees and may assign such duties to the other officers of the Corporation as
he deems appropriate.
SECTION 4.03. Vice Presidents. Each Vice President shall have such powers
and perform such duties as the President or the Board may from time to time
prescribe and shall perform such other duties as may be prescribed by these
By-Laws. At the request of the President, or in case of his absence or inability
to act, any of the Vice Presidents shall perform the duties of the President
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President.
SECTION 4.04. Treasurer. The Treasurer of the Corporation shall have
charge and custody of and be responsible for all funds and securities of the
Corporation and its books of account.
SECTION 4.05. Secretary. The Secretary of the Corporation shall keep the
records of all meetings of the stockholders and the Board of Directors. He shall
affix the seal of the Corporation to all deeds, contracts, bonds or other
instruments requiring the corporate seal when the same shall have been signed on
behalf of the Corporation by a duly authorized officer and shall be the
custodian of all
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<PAGE> 99
contracts, deeds, documents and all other indicia of title to properties owned
by the Corporation and of its other corporate records.
ARTICLE 5
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01. Execution of Documents. Any member of the Board of
Directors and any officer, employee or agent of the Corporation designated by
the Board of Directors shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, checks, drafts and other orders for the payment of
money and other documents for and in the name of the Corporation, and the Board
of Directors may authorize any such officer, employee or agent to delegate such
power (including authority to redelegate) by written instrument to other
officers, employees or agents of the Corporation.
SECTION 5.02. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board of Directors or the President or any other officer of
the Corporation to whom power in that respect shall have been delegated by the
Board shall select.
ARTICLE 6
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such places within
or without the State of Delaware as the Board of Directors may from time to
time determine.
ARTICLE 7
SEAL
The Board shall provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation and the word "Delaware"
and figures representing the year of its incorporation.
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<PAGE> 100
ARTICLE 8
INDEMNIFICATION
To the extent permitted by Section 145 of the General Corporation Law of
the State of Delaware, as now in effect and as from time to time amended, or
any successor provisions thereto, the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether or not such action is an action by
or in the right of the Corporation to procure a judgment in its favor, by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
ARTICLE 9
SHARES AND THEIR TRANSFER
SECTION 9.01. Certificates of Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him or it in the Corporation, which shall otherwise be in such
form as the Board of Directors shall prescribe. Each such certificate shall be
signed by the President or a Vice President and the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation. In case
any officer or officers who shall have signed any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation, removal or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate had not ceased to be such officer or officers of the Corporation.
SECTION 9.02. Record. A record shall be kept of the name of the person,
firm or corporation owning the stock represented by each certificate for stock
of the Corporation issued, the number of shares represented by each such
certificate, and the date thereof, and, in the case of cancellation, the date of
cancellation. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
corporation.
SECTION 9.03. Transfer of Stock. Transfers of shares of the'stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation, and on the
surrender of the certificate or certificates for such shares properly endorsed.
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<PAGE> 101
SECTION 9.04. Lost, Destroyed or Mutilated Certificate. In case of the
alleged loss or destruction or the mutilation of a certificate representing
stock of the Corporation, a new certificate may be issued in place thereof, in
the manner and upon such terms as the Board of Directors may prescribe.
ARTICLE 10
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be made, by the stockholders entitled to vote thereon at any
annual or special meeting thereof or by the board of directors.
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<PAGE> 102
EXHIBIT D
Terms and Conditions of the Merger
PART I--CHANGES TO CONVERT TO ALL CASH TRANSACTION
In addition to the provisions included in this Agreement that contemplate
the conversion to an Offer for all of the issued and outstanding shares of IC
Common Stock pursuant to Section 1.04, the parties to this Agreement agree that
the Agreement shall be modified in the following manner.
(a) References to 46,051,761 in the recitals and in Section 1.01 shall be
changed to the number representing all of the issued and outstanding shares of
IC Common Stock at the date this Agreement is so modified.
(b) References to "75% of the currently outstanding shares of IC Common
Stock" in the recitals shall be changed to "all of the currently issued and
outstanding shares of IC Common Stock".
(c) Sections 2.02(c) and 2.02(d) shall be deleted and shall be replaced by
a new Section 2.02(c), which shall read in full as set forth below:
"(c) Each share of IC Common Stock outstanding immediately prior to
the Effective Time shall, except as provided in Section 2.02(a), be
converted into the right to receive an amount of cash equal to $39.00 (the
"Merger Consideration")."
(d) Section 2.06 shall be deleted.
(e) References to the "Form F-4" in Section 5.09 shall be deleted.
(f) Sections 8.05 and 8.06 shall be deleted.
(g) References to the "Form F-4" in Section 9.01 shall be deleted and the
following sentence shall be added as the first sentence of Section 9.01:
"If the conditions set forth in Section 253 of the Delaware Law are
satisfied and subject to the terms of the Voting Trust Agreement, CN shall
cause the trustee of the Voting Trust to effect the Merger pursuant to
Section 253 of Delaware Law and the parties to this Agreement agree to use
all reasonable best efforts to satisfy the requirements of Section 253 of
Delaware Law."
(h) Section 7.07 shall be deleted.
<PAGE> 103
(i) Section 10.02 shall be deleted.
(j) The May 29, 1998 date set forth in Section 11.02(c) shall be extended
by the same number of business days as the number of business days by which
Merger Subsidiary has extended the Offer in connection with the amendment of
the Offer contemplated by Section 1.04(i).
(k) References to the Investment Commitment Agreements shall be deleted.
PART II--CHANGES TO CONVERT TO ONE-STEP MERGER TRANSACTION
In addition to the provisions included in this Agreement that contemplate
the conversion to a one-step Merger pursuant to Section 1.04, the parties to
this Agreement agree that the Agreement shall be modified in the following
manner:
(a) Section 1.01 shall be deleted (except for defined terms used in the
deleted provisions that are used in other sections of the Agreement).
(b) References to the Offer in Section 1.02(a) shall be deleted, and
Section 1.02(b) shall be deleted.
(c) Section 2.02(c) shall be deleted.
(d) Section 2.02(d) shall be modified to delete the words "if Merger
Subsidiary shall have purchased, pursuant to the Offer an aggregate of less
than 46,051,761 shares of IC Common Stock," in the first sentence of such
section.
(e) Sections 3.03(b), (c) and (d) shall be modified to provide that the
appointments set forth therein will not be made until the Effective Time.
(f) Section 7.05 shall be deleted.
(g) Article 10 shall be deleted in its entirety and replaced with the
following:
"ARTICLE 10
"CONDITIONS TO THE MERGER
"SECTION 10.01 Conditions to the Obligations of Each Party. The obligations of
the parties to consummate the Merger are subject to the satisfaction of the
following conditions:
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<PAGE> 104
"(a) this Agreement shall have been adopted by the stockholders of IC
in accordance with Delaware Law;
"(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
"(c) the Form F-4 shall have been declared effective under the 1933
Act and no stop order suspending the effectiveness of the Form F-4 shall
be in effect and no proceeding for such purpose shall be pending or
threatened by the SEC;
"(d) there shall not have been instituted or be pending any action or
proceeding by any government or governmental authority or agency, domestic
or foreign, before any court or governmental authority or agency, domestic
or foreign, (i) challenging or seeking to make illegal the Voting Trust or
the consummation of the Merger, seeking to obtain material damages or
otherwise directly or indirectly relating to the transactions contemplated
by the Merger (including the Voting Trust), (ii) except for the Voting
Trust, seeking to restrain or prohibit CN's ownership or operation (or
that of its respective Subsidiaries or Affiliates) of all or any material
portion of the business or assets of IC and its Subsidiaries, taken as a
whole, or of CN and its Subsidiaries, taken as a whole, or to compel CN or
any of its Subsidiaries or Affiliates to dispose of or hold separate all
or any material portion of the business or assets of IC and its
Subsidiaries, taken as a whole, or of CN and its Subsidiaries, taken as a
whole, (iii) except for the Voting Trust, seeking to impose or confirm
material limitations on the ability of CN or any of its Subsidiaries or
Affiliates effectively to exercise full rights of ownership of the IC
Common Stock, including, without limitation, the right to vote any shares
of such stock acquired or owned by CN or any of its Subsidiaries or
Affiliates on all matters properly presented to the stockholders of IC, or
(iv) seeking to require divestiture by CN or any of its Subsidiaries or
Affiliates of any such shares;
"(e) there shall not have been any action taken, or any statute,
rule, regulation, injunction, order or decree proposed, enacted, enforced,
promulgated, issued or deemed applicable to the Merger (including the
Voting Trust), by any court, government or governmental authority or
agency, domestic or foreign (other than (i) the application of the waiting
period provisions of the HSR Act to the Merger and (ii) the waiting period
prior to receipt of STB approval or exemption with respect to the exercise
of control by CN over the Railroad Subsidiaries), that would reasonably be
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<PAGE> 105
likely, directly or indirectly, to result in any of the consequences
referred to in clauses (i) through (iv) of paragraph (d) above; and
"(f) the staff of the STB shall have given a favorable informal
advisory option to the effect that the proposed use of the voting trust
will preclude control of the Railroad Subsidiaries.
"SECTION 10.02. Conditions to the Obligations of Merger Subsidiary. The
obligations of Merger Subsidiary to consummate the Merger are subject to the
satisfaction of the following further conditions:
"(a) no change shall have occurred or been threatened (and no
development shall have occurred or been threatened involving a prospective
change) in the business, assets, liabilities, financial condition,
capitalization, operations or results of operations of IC or any of its
Subsidiaries that would reasonably be expected to have a Material Adverse
Effect with respect to IC;
"(b) IC shall not have breached or failed to perform in any material
respect any of its covenants or agreements under this Agreement, and each
of the representations and warranties of IC set forth in this Agreement
shall be true in all material respects when made and as of the Effective
Time as if made at and as of such time (unless such representation or
warranty is made only as of a specific date), except where the failure of
such representations and warranties to be so true and correct (without
giving effect to any limitation as to "materiality" or "material adverse
effect") does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; and
"(c) the staff of the STB shall have given CN a favorable informal
advisory opinion to the effect that the proposed use of the Voting Trust
will preclude unlawful control of IC by CN.
"SECTION 10.03. Conditions to the Obligations of IC. The obligations of IC to
consummate the Merger are subject to the satisfaction of the following further
conditions:
"(a) CN shall have performed in all material respects all of the
respective obligations hereunder required to be performed at or prior to
the Effective Time, the representations and warranties of CN and contained
in this Agreement and in any certificate or other writing delivered by CN
or pursuant hereto shall be true in all material respects at and as of the
Effective Time as if made at and as of such time; and
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<PAGE> 106
"(b) The shares of CN Common Stock to be issued in the Merger (if any)
shall have been approved for listing on the NYSE, subject to official
notice of issuance."
(h) A new paragraph (j) shall be added to Section 11.01, which shall read
as follows:
"(j) by either CN or IC if either (i) at the meeting of the
stockholders of IC held to consider adoption of the Agreement, such
stockholders shall fail to adopt the Agreement or (ii) this Agreement
shall not have been adopted by the stockholders of IC in accordance
with the Delaware Law by October 30, 1998."
(i) A new clause (iii) shall be added to Section 9.02(b), which shall read
as follows:
"(iii) within two days of the execution of a definitive agreement with
respect to any Acquisition Proposal if IC enters into such a
definitive agreement within 15 months after the termination of this
Agreement pursuant to Section 11.01(j) and an Acquisition Proposal was
publicly announced prior to the date of such termination."
(j) Annex I shall be deleted.
The parties agree that any cross-references, section references or
designations or schedule designations shall be deemed to be modified to reflect
the modifications set forth in this Exhibit D. The parties shall use their
reasonable best efforts in good faith to make any further modifications to this
Agreement that are necessary or appropriate to reflect a Section 1.04 election.
5
<PAGE> 1
Exhibit (c)(5)
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation Committee Report
Executive Compensation Philosophy
The Compensation Committee of the Board of Directors (the "Committee")
has adopted a philosophy that compensation for the management of the Corporation
and its subsidiaries ("the Company") should be tied directly to the Company's
stated business objectives and to the sustained creation of stockholder value.
The Committee believes that stockholder interests and the Company's compensation
programs should be closely aligned and integrated. Therefore, the Company's
compensation program reflects both a performance and long-term orientation.
Further, the performance measures used to determine compensation levels are the
primary, sustainable drivers of stockholder value among transportation companies
specifically and other publicly-held companies generally. As a result, the
Company's total compensation program is designed to be highly sensitive to the
Company's performance, defined in terms of stockholder value creation.
Performance Compensation Program
The Company's Performance Compensation Program consists of four
components: (1) Base Salary, (2) Performance Awards, (3) Stock Options and (4)
Incentive 2000 Plan Awards. The program is designed to emphasize risk-based
compensation which rewards Company and individual performance. Each of these
components and its respective role in total direct compensation, as well as the
basis for determining the compensation of the President and Chief Executive
Officer ("CEO"), Mr. Harrison, are described below:
(1) Base Salary
Salary levels are determined by several factors, including: the
Company's performance, the individual's contribution to that performance, the
individual's position within his/her salary grade and competitive pay levels. To
emphasize risk-based compensation, the overall target for base salary has been
set at 90% of the size-adjusted median for the railroad industry. The Committee
reviews the salary of the CEO and all other officers annually.
(2) Performance Awards and Bonuses
Approximately 425 management employees participate in the Company's
annual incentive program. Each participant is assigned a target Performance
Award according to the individual's level of responsibility (salary grade).
Target award levels range from 10% to 75% of annual base salary.
Actual award levels vary depending upon the Corporation's performance relative
to predetermined objectives for annual revenue growth and return on total
capital ("ROTC"), and range from 0% to 150% of target awards. Award levels are
weighted two-thirds on ROTC and one-third on revenue growth. Performance awards
under the program for management employees other than the CEO and four other
most highly compensated officers contain a second component for
individual performance for the year as well as Company performance.
The individual component of performance awards vary from 0% to 50% of the
target award.
The Company performance objectives are the same for all management
employees and relate directly to those measures which drive stockholder value --
annual return on average total capital, calculated on an after-award after-tax
basis, and annual revenue growth. Specific performance objectives are set by the
Committee annually in relation to the Company's fiscal budget after it has been
reviewed and approved by the Board. Except as to the CEO and the four other most
highly compensated individuals, the Committee has the ability to adjust the
Company payout through a discretionary factor of plus or minus 20% of target
award by evaluating other business measures (e.g., safety, operating ratio,
earnings per share, or other measures). For the CEO and the four other most
highly compensated officers, only Company performance, subject to potential
reduction by the Committee, determines the Performance Award.
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<PAGE> 2
The CEO's target award is 75% of base salary and the targets for the
other four most highly compensated officers range from 60% to 65%. To comply
with IRS regulations limiting the deductibility of executive compensation, the
CEO and the four other most highly compensated officers are not eligible to
receive any performance award based on individual performance. The Committee
also cannot adjust upward the Company performance award for these individuals.
However, the Committee has retained the discretion to award cash bonuses (which
are subject to the deductibility cap) to those individuals.
(3) Stock Options
The Company maintains a long-term stock option program for
approximately 85 senior managers to provide an equity-like interest in the
Company. This program is intended to motivate senior management to improve the
long-term performance of the Company's stock price and total return to
stockholders.
The number of stock options available for grant in any given year to
all eligible employees will vary between .3% and .9% of common shares
outstanding, depending on Company performance. Company performance is determined
based upon three measures: the Company's 3- year total stockholder return
relative to the S&P Midcap 400 index, its 3-year ROTC relative to Class I
railroads and its annual compound revenue growth over a 3-year period relative
to Class I railroads. The measures are weighted 50% on comparative stockholder
return, 25% on ROTC and 25% on revenue growth. Stock options are granted at fair
market value on the date of grant and vest 25% each year over four years. Actual
awards to individual participants are based upon Company performance, individual
performance and individual responsibility (salary grade) within the Company. The
maximum award which can be made in one year to a participant under this program
is options on 150,000 shares.
(4) Incentive 2000 Plan Awards
In May 1996, the stockholders approved the Illinois Central Railroad
Incentive 2000 Plan ("Incentive 2000 Plan") for key management employees. The
Incentive 2000 Plan is intended to focus senior managers on the goals of the
Company's Plan 2000, the five-year growth plan adopted by the Board for the
years through 1999. Plan 2000 calls for increasing operating revenue to $800
million in the year 1999 while achieving an operating ratio (operating expense
divided by operating revenue) under 60%. The Committee determined that providing
significant cash incentives to management conditioned on achieving financial
measures linked to Plan 2000 will promote the long-term interests of the Company
and its stockholders. In addition to the goals of Plan 2000, the Incentive 2000
Plan calls for a return on total capital of 14% and earnings per share of $4.00
for the year 2000. The Board believes these goals are challenging but
achievable, and if attained will result in substantial appreciation of
stockholder value. Management will not benefit from Incentive 2000 Plan unless
the Company's Common Stock reaches a price of at least $43 for twenty
consecutive business days within the sixteen month period ending April 30, 2001.
Employees in the Railroad's top ten salary grades are eligible to
receive awards under the Incentive 2000 Plan. As of March 12, 1997,
approximately 85 employees were eligible to participate in the Incentive 2000
Plan.
The Incentive 2000 Plan will be administered by the Committee, which
will certify the extent to which the performance objectives are attained. The
Corporation believes that the Incentive 2000 Plan meets the requirements of The
Omnibus Budget Reconciliation Act of 1993 to qualify as fully-deductible
performance-based compensation.
Directors Incentive 2000 Option Plan
In May 1996 the Stockholders also approved the Illinois Central
Corporation Directors Incentive 2000 Option Plan (the "Directors Option Plan").
The Directors Option Plan is intended to complement the senior management's
Incentive 2000 Plan and to link compensation of directors who are not employees
of the Corporation or its subsidiaries ("Outside Directors") to the same goals
of Plan 2000 and the stockholders' interests in the creation of stock value.
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<PAGE> 3
The total number of shares of the Corporation's Common Stock authorized
for issuance pursuant to the Directors Option Plan is 300,000, which number of
shares of Common Stock is subject to adjustment upon the occurrence of a stock
dividend, stock split, recapitalization or certain other capital adjustments.
The Directors Option Plan will be administered by the Board of Directors of the
Corporation, subject to certain restrictions set forth in the Directors Option
Plan. Each of the eight eligible Outside Directors, as of May 1996, received a
one-time grant of options to purchase 37,500 shares of Common Stock. The
exercise price for each option is $37.875, which is equal to 150% of the closing
sales price of the Common Stock on the New York Stock Exchange on March 8, 1996,
the date of grant (adjusted to reflect the 3-for-2 stock split of the Common
Stock effective March 14, 1996). Options expire in 2006. If an Outside
Director's service as a director terminates before April 30, 2001, the director
will be entitled to exercise the number of options under the Directors Option
Plan that would have vested but for his termination of employment,
prorated for the number of completed months in the Plan at the time such
director's service terminates.
Results for 1996
Actual results for 1996 were below threshold for the ROTC and revenue
growth objectives of 12.1% and 3.0%, respectively. Actual 1996 ROTC was 12.0%
and revenue declined 4.2%. However, there were significant capital expenditures
during 1996 for which associated returns were not yet realized. Considering the
impact of these investments, the committee determined that 1996 ROTC would have
been approximately 12.1% and accordingly approved incentive payouts for ROTC at
the threshold level (i.e., 50% of target) and nothing for revenue growth. In
aggregate, approximately $4.0 million in bonuses were paid to all management
employees for 1996.
The Company's stockholder return for the three years ending December
31, 1996 was 13.0% compared to 12.0% for the S&P Midcap 400 index. ROTC for the
three years ending 1996 was 11.5% compared to 6.7% for all Class I railroads.
The annual compound revenue growth for those years was 5.2% compared to 4.1% for
Class I railroads. Accordingly, the Committee determined that options for a
maximum of 500,500 shares, or .82% of shares outstanding on grant date, should
be awarded pursuant to the senior management stock option plan with respect to
1996 performance. These options will be awarded in 1997.
Based on the 1997 Budget and the Company's strategic plans, including
Plan 2000, the Committee established the Company's 1997 ROTC target at 11.2% and
the annual revenue growth target at 7.5%.
CEO Compensation
Mr. Harrison was the highest compensated officer of the Company in
1996. Mr. Harrison's salary for 1996 was $500,000. Pursuant to the Performance
Compensation Plan, based on Company performance in 1996 and considerations cited
above, Mr. Harrison received a Performance Award of $187,500.
The Committee awarded Mr. Harrison a cash bonus of $200,000 with
respect to his individual performance in 1996 in achieving a reduction to the
Operating Ratio in the face of an extremely soft grain supply. In determining
the amount of this bonus, the Committee considered Mr. Harrison's individual
contribution toward the achievement of significant corporate objectives
including, among others, the acquisition of the Chicago Central and Pacific,
negotiation of labor contracts, settlement of matters related to the Union
Pacific/Southern Pacific merger and development of important growth
opportunities. Additionally, consideration was given to the magnitude of Mr.
Harrison's personal award in relation to other employees. Finally, the Committee
noted that Mr. Harrison did not receive a salary increase for 1995 or 1996 and
that his total direct compensation (salary plus cash bonus) was comparable to
compensation for CEOs of Class I railroads on a size-adjusted basis.
Employment Security Agreements
In January 1997, the Board of Directors approved extending Employment
Security Agreements to senior management employees in recognition of the
extensive restructuring underway in the railroad industry. To retain the
Company's management and promote alignment of management's interests with the
stockholders' interests,
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<PAGE> 4
the Company entered into Employment Security Agreements with approximately 26
senior officers which provide stated benefits in the event they are terminated
without cause or terminate their employment for good reason within two years
after a change of control. Following a covered termination, the officer will be
entitled to two or three years base salary (depending on salary grade) and
incentive payment target for one year plus a proration of the current year.
Two or three years credit, respectively, will be granted toward the
Supplemental Executive Retirement Plan and fringe benefits will be
extended. However, payments under these agreements will be limited to 2.99
times average last five year W-2 wages to preclude triggering "Excess
Parachute Payment" excise taxes.
Nondeductible Compensation
The Committee does not currently anticipate that any executive
officer's nonperformance-based compensation will exceed $1 million. For 1996, no
executive officer received nonperformance-based compensation which exceeded $1
million. It is anticipated that all executive compensation to be paid in 1997
will be fully deductible as well. However, the Committee and the Board of
Directors retain the discretion to grant nondeductible compensation if that
would be in the best interests of the Company and stockholders under the
circumstances.
Respectfully submitted,
Mr. George D. Gould, Chairman
Mr. Samuel F. Pryor, IV
Mr. John V. Tunney
Mr. Alan H. Washkowitz
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<PAGE> 5
Executive Compensation
All of the cash compensation received by IC's executive officers during
fiscal years 1996, 1995 and 1994 was paid or accrued by the Railroad; none was
paid by IC. The following table sets forth information concerning the Chief
Executive Officer and the four other most highly compensated executive officers
for the year ended December 31, 1996. The table has been restated to give affect
to a 3-for-2 stock split declared in January 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Salary Bonus Compensation2 Award(s)3 Options Compensation
Positions(s) Year ($)1 ($)1 ($) ($) # ($)
<S> <C> <C> <C> <C> <C> <C> <C>
E. Hunter Harrison 1996 500,000 387,500 18,615 -- 85,500 175,734 4
President and 1995 500,000 650,000 14,857 -- 90,000 156,739 4
Chief Executive 1994 496,154 630,000 15,424 -- -- 108,522 4
Officer
John D. McPherson . 1996 217,420 130,920 71,522 6 -- 30,000 48,520 5
Senior Vice ...... 1995 201,925 195,000 9,568 -- 30,112 42,705 5
President- .. 1994 174,660 190,000 7,909 -- -- 31,936 5
Operations
Donald H. Skelton . 1996 188,674 113,620 11,657 -- 30,000 35,874 8
Senior Vice 1995 166,984 158,000 108,835 7 -- 19,800 16,285 8
Marketing and 1994 19,039 10,000 958 642,500 -- 1,552 8
Sales
Ronald A. Lane .... 1996 173,982 96,710 12,676 -- 19,500 42,172 9
Vice President 1995 164,562 158,000 11,320 -- 19,800 38,055 9
and General 1994 154,328 157,000 11,504 -- -- 30,648 9
Counsel and
Secretary
Dale W. Phillips .. 1996 188,674 104,880 10,808 -- 19,500 44,503 10
Vice President 1995 164,562 158,000 8,863 -- 19,800 37,957 10
and Chief 1994 154,328 157,000 8,399 -- -- 30,856 10
Financial Officer
</TABLE>
Notes to Summary Compensation Table
1 Bonus amounts include, but are not limited to, Performance Awards (see
"Compensation Committee Report"). Amounts shown in a given year
reflect amounts awarded with respect to that year but may have been
paid the following year. Salary and Bonus amounts, where applicable,
have not been reduced by the officers election to defer compensation
pursuant to the Executive Deferred Compensation Plan.
2 Generally includes federal and state tax "gross ups" for various
perquisites such as company cars and club dues and initiation fees,
and, when they exceeded the lesser of $50,000 or 10% of the total of
annual salary and bonus, the value of perquisites. Excludes the value
of the Company paid portion of the price for shares purchased under
the Management Employee Discounted Stock Purchase Plan as same
discount is available to all management employees.
3 Restricted stock awards were granted in 1994 to Mr. Skelton. Shares
awarded are restricted for a period of four years from the date of
purchase or award. On each of the first four year anniversary dates of
purchase or award, if employment has not previously been terminated,
25% of the shares originally awarded become unrestricted. Dividends
paid on unvested restricted shares are not included in this table
because they do not exceed regular dividends. As of December 31, 1996,
Mr. McPherson owned 7,500 unvested shares of the shares granted in
1993 which had a current value of $240,000 and Mr. Skelton's unvested
11,250 shares had a current value of $360,000. Current value is
computed by multiplying the closing NYSE market price of unrestricted
stock on December 31, 1996, by the number of shares still subject to
restrictions and netting out any consideration paid by award
recipient. See "Employment Contracts and Termination of Employment and
Change in Control Arrangements."
9
<PAGE> 6
4 Includes: (i) Railroad contributions to defined contribution plan of
$3,000, for each fiscal year 1996, 1995 and 1994; (ii) Railroad
contributions to 401(k) plan of $4,125, $4,620, and $4,620 for each
fiscal year 1996, 1995 and 1994, respectively; (iii) amounts accrued
under an executive account balance plan of $136,680, $124,559 and
$84,652 for fiscal years 1996, 1995 and 1994, respectively; and (iv)
amounts accrued under an excess benefit plan of $31,929, $24,560, and
$16,250 for fiscal years 1996, 1995 and 1994, respectively.
5 Includes: (i) Railroad contributions to defined contribution plan of
$3,000 for each fiscal year 1996, 1995 and 1994; (ii) Railroad
contributions to 401(k) plan of $4,488, $4,620 and $4,001 for fiscal
years 1996, 1995 and 1994, respectively; (iii) amounts accrued under
an executive account balance plan of $36,408, $31,942 and $23,778 for
fiscal years 1996, 1995 and 1994, respectively; and (iv) amount
accrued under an excess benefit plan of $4,624 and $3,143 and $1,157
in 1996, 1995 and 1994, respectively.
6 Includes perquisites, including club dues and initiation fees of
$28,774.
7 Includes perquisites, including club dues and initiation fees of
$50,905.
8 Includes (i) Railroad contributions to defined contribution plan of
$3,000, $3,000 and $275 for fiscal 1996, 1995 and 1994, respectively;
(ii) Railroad contributions to 401(k) plan of $4,541, $4,620 and $207
for fiscal 1996, 1995 and 1994, respectively; (iii) amounts accrued
under an executive account balance plan of $26,117, $7,925 and $1,070
for fiscal years 1996, 1995 and 1994, respectively; and (iv) amounts
accrued under the excess benefit plan of $2,216, $740 in 1996 and
1995, respectively.
9 Includes: (i) Railroad contributions to defined contribution plan of
$3,000 for each fiscal year 1996, 1995, 1994 and 1993; (ii) Railroad
contributions to 401(k) plan of $4,551, $4,620 and $4,620 for fiscal
years 1996, 1995 and 1994, respectively; (iii) amounts accrued under
an executive account balance plan of $32,837, $29,656 and $22,924 for
fiscal years 1996, 1995 and 1994, respectively; and (iv) amounts
accrued under the excess benefit plan of $1,784, $779 and $104 in
1996, 1995 and 1994, respectively.
10 Includes: (i) Railroad contributions to defined contribution plan of
$3,000 for each fiscal year 1996, 1995 and 1994; (ii) Railroad
contributions to 401(k) plan of $4,462, $4,222 and $4,620 for fiscal
years 1996, 1995 and 1994, respectively; (iii) amounts accrued under
an executive account balance plan of $34,763, $29,953 and $23,132 for
fiscal years 1996, 1995 and 1994, respectively; and (iv) amounts
accrued under the excess benefit plan of $2,278, $782 and $104 in
1996, 1995 and 1994, respectively.
10
<PAGE> 7
Options/Grants
During 1996 following stock options awards under the Executive
Performance Compensation Program were awarded.
OPTIONS/ GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Terms(2)
Percent
Number of of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/SH) Date(1) 5% ($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
E. Hunter Harrison 85,500 16.12% 25.25 3/08/2006 1,357,705 3,440,691
John D. McPherson 30,000 5.66 25.25 3/08/2006 476,388 1,207,260
Donald H. Skelton 30,000 5.66 25.25 3/08/2006 476,388 1,207,260
Ronald A. Lane ... 19,500 3.68 25.25 3/08/2006 309,652 784,719
Dale W. Phillips . 19,500 3.68 25.25 3/08/2006 309,652 784,719
</TABLE>
(1) Options vest at 25% per year on March 8, 1997, March 8, 1998, March 8,
1999 and March 8, 2000. (2) Potential realizable value is reported net
of the option exercise price but before taxes associated with
exercise. These amounts assume annual compounding results in total
appreciation of 63% (5% per year) and 159% (10% per year). Actual
gains, if any, on stock option exercises and common stock are
dependent on the future performance of the common stock and overall
market conditions. There can be no assurance that the amounts
reflected in this table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
On Value Options at Options at
Exercise Realized FY-End (#) FY-End($)2
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
E. Hunter Harrison 0 0 311,875 256,125 4,878,750 2,723,375
John D. McPherson 0 0 21,028 57,084 217,247 452,242
Donald H. Skelton 0 0 4,950 44,850 43,725 333,675
Ronald A. Lane 0 0 17,325 34,475 181,913 308,863
Dale W. Phillips 0 0 17,325 34,875 181,913 308,863
</TABLE>
1 Includes shares exercisable on February 17, 1997, (93,750) and March 16,
1997 (44,878) and March 8, 1997 (48,262).
2 Based on the year-end price of $32.00.
Pension and Retirement Plans
Executive Account Balance Plan. The Railroad's Executive Account
Balance Plan provides for a sum equivalent to 10% of an executive's combined
salary and performance awards in excess of a wage offset factor to be accrued
annually (but not funded), and is payable upon the retirement from the Railroad
or termination of employment. The wage offset factor is adjusted annually by the
percentage increase in the social security wage base. For 1996, the wage offset
factor was $104,500. Amounts accrued earn interest in accordance with the plan.
11
<PAGE> 8
Defined Contribution Plan. All management employees of the Railroad are
eligible to participate in a defined contribution plan to which the Railroad
contributes 2% of each participant's earnings (as defined in the plan). All
contributions are fully vested upon contribution and are invested in various
investment funds as selected by the employees. Contributions are designated as
Employer Contributions in the Savings Plan.
Supplemental Retirement and Savings Plans. All management employees of
the Railroad are eligible to participate in the Supplemental Retirement and
Savings Plan (the "Savings Plan"), which is a qualified salary reduction 401(k)
plan. Eligible employees may make "pre-tax" contributions to the Savings Plan of
up to 15% of their salary subject to limitations imposed by the Internal Revenue
Code. Those contributions are partially matched by the Railroad. The matching
contribution is limited to 50% of the first 6% of an employee's pre-tax salary
(i.e., the matching contribution is limited to 3% of his or her salary). All
contributions are fully vested upon contribution and are invested in various
investment funds as selected by the employees.
Excess Benefit Plan. Under the Railroad's Excess Benefit Plan, amounts
are accrued for each executive officer on an unfunded basis to offset the
limitations imposed by the Internal Revenue Code with respect to certain benefit
plans as a result of the level of the recipient's compensation. Currently, the
Excess Benefit Plan provides for the accrual of a sum equivalent to the employer
matching contribution under the Supplemental Retirement and Savings Plan which
is restricted by the limits of Section 402(g) of the Internal Revenue Code. The
amounts accrued will be distributed at the same time and on the same terms as
the amounts paid under the Savings Plan.
Executive Deferred Compensation Plan. The Corporation established the
Illinois Central Corporation Executive Deferred Compensation Plan effective as
of January 1, 1994. The plan is available to all officers of the Railroad and
such management employees as specified from time to time by the Railroad.
Eligible employees may elect to defer up to 50% of base salary and 100% of
annual bonus. Participants' account balances are fully vested and earn interest
at a specified, variable rate. Distributions under the plan will be made in a
lump sum or installments after the participant's retirement or other
termination of employment. Subject to a penalty, a participant may elect
to withdraw all or a portion of his or her account under the plan in the event
of an unforeseen financial emergency.
Supplemental Executive Retirement Plan. The Corporation has no
tax-qualified defined benefit retirement plan for employees. However, the
Corporation established the Illinois Central Corporation Supplemental Executive
Retirement Plan effective as of January 1, 1994 (the "SERP"). The SERP covers
all officers of the Railroad and such other management employees as specified
from time to time by the Corporation. The monthly benefit payable pursuant to
the SERP is equal to a maximum of 35% of the participant's final average
compensation (defined as the average annual compensation paid for the highest 36
consecutive months out of the last 60 months prior to retirement) offset by the
amount of annual annuity that could be purchased with the sum of: (I) the
portion of the participant's account in the Savings Plan which is attributable
solely to Employer contributions and the earnings thereon; (ii) the
participant's account in the Excess Benefit Plan; and (iii) the participant's
account balance in the Executive Account Balance Plan. Participants vest after
five years of participation in the SERP. The following table shows benefits
payable to those executives who are eligible for early retirement at age 55 or
above with 10 years of credited service, or upon normal retirement at age 65.
Average Pension Plan Table
Final Estimated Annual Benefit for Years of Credited Service
Earnings 5 10 15 20 25
$100,000 $ 17,500 $ 35,000 $ 35,000 $ 35,000 $ 35,000
200,000 35,000 70,000 70,000 70,000 70,000
300,000 52,500 105,000 105,000 105,000 105,000
400,000 70,000 140,000 140,000 140,000 140,000
500,000 87,500 175,000 175,000 175,000 175,000
600,000 105,000 210,000 210,000 210,000 210,000
700,000 122,500 245,000 245,000 245,000 245,000
800,000 140,000 280,000 280,000 280,000 280,000
900,000 157,500 315,000 315,000 315,000 315,000
12
<PAGE> 9
The above table sets forth the estimated annual benefits payable on a
single-life annuity basis if participant does not have a spouse at the time
payment is to commence and a joint and 50% survivor annuity basis in the event
the participant has a spouse at the time of commencement. For 1996, covered
compensation for the executive officers named in the Summary Compensation Table
consists of salary, bonus and any deferred compensation has been added back in
the table.
The number of years of credited service as of December 31, 1996, is three
(3) years for each of Messrs. Harrison, McPherson, Lane, and Phillips. Mr.
Skelton has two (2) years of credited service at December 31, 1996.
Directors' Compensation
Under the compensation program for Outside Directors the annual
retainer for the Chairman is $170,000 and the annual retainer for other Board
members is $20,000. A supplemental annual retainer of $3,000 is paid each
committee chairman. Each director receives $2,000 for each board or committee
meeting attended and is reimbursed for expenses incurred in attending those
meetings. No director fees are paid to Mr. Harrison since he is an employee. A
Directors Deferral Plan permits directors to defer up to 100% of their cash
compensation until they terminate their services as directors.
The Outside Directors also receive an annual grant of stock options to
purchase 2,250 shares at the fair market value on the date of grant. Stock
options are granted to each continuing director (whether as a result of such
director's re-election or by reason of the continuation of such director's term)
on the date of each Annual Meeting. Such options are exercisable in full six
months following their grant date and expire 10 years following grant date or if
earlier, one year after termination of service as a director for any reason
other than death or disability.
In March 1996, each Outside Director received an option to purchase
37,500 shares which may vest on April 1, 2001 if specified Company performance
objectives are achieved in the year 2000.
The Outside Directors participate in a non-qualified retirement plan
which provides for annual payment of an amount equal to the annual retainer at
the time of a director's retirement (see above) to be paid for as many years as
the director served in that capacity up to a maximum of 10 years.
IC has an Indemnification Agreement with each of the directors.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
The Corporation has entered into Employment Security Agreements with
approximately 26 senior officers which provide stated benefits in the event they
are terminated without cause or terminate their employment for good reason
within two years after a change in control. Following a covered termination, the
officer will be entitled to two or three years' base salary (depending on salary
grade) and target incentive payment for one year plus a proration of the current
year. Two or three years' credit will be granted toward the Supplementary
Executive Retirement Plan and fringe benefits will be extended. However, payment
under these agreements will be limited to 2.99 times average last five years W-2
earnings. In addition any unvested stock options and restricted stock granted to
participants will vest upon a Change in Control.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The following independent directors are members of IC's Compensation
Committee: George D. Gould (Chairman), Samuel F. Pryor, IV, John V. Tunney and
Alan H. Washkowitz. No executive officer serves as a director of any entity
whose executive officers serve on IC's Compensation Committee.
13
Performance Graph
The following performance graph compares the Corporation's change in
total stockholder return on its Common Stock since December 31, 1991 with the
S&P Midcap Index in which the Corporation is included and the S&P Railroad Index
which includes other Class I railroads but not the Railroad. Dividend
reinvestment has been assumed.
Stock Performance Table
S & P
Period IC Stock Midcap 400 Railroads
12-91 100 100 100
12-92 111 112 112
12-93 166 128 139
12-94 146 123 120
12-95 188 161 176
12-96 242 192 219
14
<PAGE> 10
OWNERSHIP OF COMMON STOCK AND CERTAIN TRANSACTIONS
OWNERSHIP
The following table sets forth certain information with respect
to persons known by the Corporation to beneficially own (as defined by the
Securities Exchange Act of 1934) as of March 14, 1997, five percent or more of
Common Stock, and with respect to each director and named executive officer of
the Corporation and all directors and executive officers of the Corporation as a
group.
Name and Address Amount and Percentage of
(if applicable) of Nature of Common Stock
Beneficial Owner Beneficial Ownership1 Outstanding1
INVESCO PLC, et al.
11 Devonshire Square
London, EC2M 4YR England......... 4,509,450 2 7.34%
MacKay Shields Financial
Corporation
9 West 57th Street
New York, New York 10019............ 4,060,875 3 6.61%
George D. Gould...................... 58,500 *
William B. Johnson................... 44,918 4 *
Gilbert H. Lamphere ................. 858,097 5 1.40%
Alexander P. Lynch .................. 388,545 6 *
Samuel F. Pryor, IV ................. 398,940 7 *
F. Jay Taylor ....................... 35,248 8 *
John V. Tunney ...................... 15,993 9 *
Alan H. Washkowitz .................. 56,250 10 *
E. Hunter Harrison .................. 665,316 1.08%
Ronald A. Lane ...................... 175,096 *
John D. McPherson ................... 77,728 *
Dale W. Phillips .................... 194,054 *
Donald H. Skelton.................... 33,274 *
All directors and executive officers
of IC as a group (16 persons)......... 3,283,020 11 5.26%
* under 1%
1 Based on 61,406,831 shares of Common Stock outstanding on March 14, 1997.
Shares issuable currently or within sixty days upon exercise of options are
treated as outstanding for the purposes of stating the amount of beneficial
ownership and computing the percentage of beneficial ownership of shares by
such person (or of the group).
2 According to a Schedule 13G dated February 12, 1997, INVESCO PLC and or its
United Kingdom or U.S. subsidiaries have shared voting and dispositive
power for 4,509,450 shares in its capacity as an investment advisor to
several investment funds.
3 According to a Schedule 13G dated February 17, 1997, MacKay Shields
Financial Corporation, in its capacity as an investment manager for various
clients, has shared voting and shared disposition power for 4,060,875
shares.
4 Includes 225 shares held by Mr. Johnson's spouse. Mr. Johnson disclaims
beneficial ownership of these shares.
5 Excludes 209,112 shares held by a trust for the benefit of Mr. Lamphere's
descendants, of which Messrs. Alexander P. Lynch and Richard G. Woolworth,
Jr. are co-trustees. Mr. Lamphere disclaims beneficial ownership of these
shares. Includes 69,831 shares held by a trust for benefit of Mr. Pryor's
children, of which Mr. Lamphere is a co-trustee.
6 Includes 209,112 shares held by a trust for the benefit of Mr. Lamphere's
descendants, of which Messrs. Alexander P. Lynch and Richard G. Woolworth,
Jr. are co-trustees.
15
<PAGE> 11
7 Excludes 69,831 shares held by a trust for the benefit of Mr. Pryor's
children, of which Mr. Lamphere and Mr. Samuel F. Pryor, III, Mr. Pryor's
father, are trustees. Mr. Pryor disclaims beneficial ownership of these
shares.
8 Includes 1,500 shares held by Dr. Taylor's spouse. Dr. Taylor disclaims
beneficial ownership of these shares.
9 Includes 4,500 shares held in trust for Mr. Tunney's mother, for which Mr.
Tunney is Trustee.
10 Under an arrangement with Lehman Brothers, Mr. Washkowitz must remit to
Lehman Brothers any gain upon exercise of the options for 24,750 shares of
the total.
11 See Notes (4) - (10) above.
16
<PAGE> 1
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this __________ day of
February, 1997, between ILLINOIS CENTRAL CORPORATION, a Delaware corporation
(the "Company"), and ____________________________ (the "Executive").
WITNESSETH THAT:
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company;
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) SALARY PAYMENT. The Company shall make a lump sum cash payment to
Executive equal to two times the Executive's Annual Salary (as defined
below).
(b) BONUSES. The Company shall make a lump sum cash payment to Executive
equal to the sum of the following amounts: (i) Executive's full target
bonus for the year of Executive's Employment Termination (or, if
greater, the full target bonus for the year of the Change in Control)
under the Illinois Central Railroad Company Performance Compensation
Program or any successor plan (the "PCP"); plus (ii) a pro rata
portion of the target bonus for the fiscal year in which Executive's
Employment Termination occurs (or, if greater, the target bonus for
the year of the Change in Control) under the PCP (determined by
multiplying the target bonus amount by a fraction, the numerator of
which is the number of full months up to the date on which Executive's
Employment Termination occurs and the denominator of which is twelve).
(c) WELFARE BENEFIT PLANS. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) twenty-four (24) months
following Executive's Employment Termination, or (ii) the date
Executive becomes covered by a welfare benefit plan or program
maintained by an entity other than the Company which provides coverage
or benefits substantially equivalent to such Welfare Benefit Plan,
Executive shall continue to participate in such Welfare Benefit Plan
on the same basis and at the same cost to
-1-
<PAGE> 2
Executive as was the case immediately prior to the Change in
Control (or, if more favorable to Executive, as was the case at
any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with
substantially similar benefits and coverage for such period.
Immediately following the expiration of the continuation period
required by the preceding sentence, Executive shall be entitled to
continued group health benefit plan coverage (so-called "COBRA
coverage") in accordance with Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), it being intended
that COBRA coverage shall be consecutive to the benefits and
coverage provided for in the preceding sentence. Executive's
eligibility for, and premium contribution level under any plans or
programs maintained or contributed to by the Company which provide
health benefits to retirees shall be determined by adding two
years to Executive's age and years of service at Executive's
Employment Termination.
(d) SUPPLEMENTAL RETIREMENT PLANS. Executive's accrued benefit under
the Illinois Central Railroad Company Supplemental Executive
Retirement Plan (the "SERP"), shall be calculated by adding an
additional two years of Credited Service (as that term is defined
in the SERP) to Executive's number of Years of Credited Service
under the SERP as of the Employment Termination. All amounts
accrued or accumulated on behalf of Executive under the SERP and
the Illinois Central Railroad Company Executive Deferred
Compensation Plan (the "Deferred Compensation Plan") shall
immediately be fully vested upon the Change in Control, and the
Company shall promptly pay or distribute all such amounts to
Executive in accordance with the terms of such plans as in effect
on the date of this Agreement (or as of Executive's Employment
Termination, if more favorable to Executive).
2. DEFINITIONS. For purposes of this Agreement:
(a) "Good Cause" shall mean: (i) Executive's conviction of a felony,
(ii) Executive's commission of any act or acts of personal
dishonesty intended to result in substantial personal enrichment to
Executive to the material detriment of the Company; or (iii)
repeated violations of Executive's responsibilities which are
demonstrably willful and deliberate, provided that such violations
have continued more than ten days after the Board of Directors of
the Company has given written notice of such violations and of its
intention to terminate Executive's employment because of such
violations.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope or
level of Executive's responsibilities from the nature,
scope or level of such responsibilities prior to the Change
in Control (or prior to the Period Pending a Change in
Control), or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
-2-
<PAGE> 3
(ii) The Company shall require Executive to move Executive's
principal business office more than 50 miles from
Executive's principal business office at the time of this
Agreement, or assign to Executive duties that would
reasonably require such move;
(iii) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to
increase, by more than fifty, the number of normal
working days (determined at the time of this Agreement)
that Executive spends away from Executive's principal
business office during any consecutive twelve-month
period;
(iv) The Company shall reduce Executive's Annual Salary below
that in effect as of the date of this Agreement (or as of
the Change in Control, if greater), or
(v) The Company shall fail to continue in effect any cash or
stock-based incentive or bonus plan, retirement plan,
welfare benefit plan, or other benefit plan, program or
arrangement, unless the aggregate value (as computed by
an independent employee benefits consultant selected by
the Company) of all such incentive, bonus, retirement and
benefit plans, programs and arrangements provided to
Executive is not materially less than their aggregate
value as of the date of this Agreement (or as of the
Change in Control, if greater).
(c) "Change in Control" shall be deemed to have occurred if:
(i) any "person" or "group" as such terms are used in
section 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, 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 such Rule),
directly or indirectly, of securities representing 25
percent or more of the combined voting power of the
Company's then outstanding securities; provided,
however, that for this purpose, beneficial ownership
shall not include shares acquired: (i) directly from the
Company; (ii) in any merger or other business
combination of the Company with one or more other
corporations as a result of which the holders of the
outstanding voting stock of the Company immediately
prior to such merger or other business combination own
60 percent or more of the voting stock of the surviving
or resulting corporation; or (iii) by any employee
benefit plan (or related trust) sponsored or maintained
by the Company;
(ii) at any time during any period of two consecutive years
(not including any period prior to January 1, 1997)
individuals who at the beginning of such period
constituted the Board (the "Incumbent Board") cease for
any reason to
-3-
<PAGE> 4
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; or
(iii) there is a merger or other business combination of the Company
with one or more other corporations as a result of which the
holders of the outstanding voting stock of the Company
immediately prior to such merger or other business combination
own less than 60 percent of the voting stock of the surviving
or resulting corporation.
(d) "Annual Salary" shall mean Executive's salary at the greater of (i)
Executive's annualized monthly base salary in effect on the date of
the Change in Control, or (ii) Executive's annualized monthly base
salary in effect on Executive's Employment Termination.
(e) "Employment Termination" shall mean the effective date of (i)
Executive's voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by the
Company without Good Cause.
(f) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed so by the Company, including but not limited to a plan
that provides health (including medical and dental), life, accident or
disability benefits or insurance, or similar coverage in which
Executive was participating at the time of the Change in Control.
(g) "Period Pending a Change in Control" shall mean the period between the
time an agreement is entered into by the Company with respect to a
merger or other business combination of the Company which would
constitute a Change in Control, and the effective time of such merger
or other business combination of the Company.
3. SALARY TO DATE OF EMPLOYMENT TERMINATION. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned with
respect to any period prior to Executive's Employment Termination,
including but not limited to a lump sum cash payment for accumulated but
unused vacation earned through such Employment Termination.
4. OTHER INCENTIVE PLANS. Nothing in this Agreement shall impair or impact the
vesting of any restricted stock, stock options, cash incentives or other
form of compensation or benefits provided under any other plan, program or
arrangement.
<PAGE> 5
5. LIMITATION ON PAYMENTS BY THE COMPANY
(a) Anything in this Agreement to the contrary notwithstanding, it is
the intention of the Company and Executive that no portion of
any payment under this Agreement, or payments to or for the
benefits of Executive under any other agreement or plan, be
deemed to be an "Excess Parachute Payment" as defined in
Section 280G of the Code, or its successors. It is agreed that
the present value of and payments to or for the benefit of
Executive in the nature of compensation under this Agreement or
any other agreement or plan, the receipt of which is contingent
on occurrences of a Change in Control, and to which Section 280G
of the Code applies (in the aggregate "Total Payments") shall
not exceed an amount equal to one dollar less than the maximum
amount that the Company may pay without loss of deduction under
Section 280G(a) of the Code. Present value for purposes of this
Agreement shall be calculated in accordance with Section
280G(d)(4) of the Code. Within sixty (60) days following the
earlier of (i) Executive's Employment Termination or (ii) the
giving of notice by the Company to Executive of its belief that
there is a payment or benefit due Executive that will result in
an Excess Parachute Payment, the Company, at the Company's
expense, shall obtain the opinion of the public accounting firm
that serves as the Company's auditors (the "Accounting Firm"),
which opinion need not be unqualified, which sets forth: (A) the
amount of the Base Period Income of the Executive (as defined in
Code Section 280G), (B) the present value of Total Payments and
(C) the amount and present value of any Excess Parachute
Payments. In the event that such opinion determines that there
would be an Excess Parachute Payment, Executive shall specify in
writing delivered to the Company within thirty (30) days of his
receipt of such opinion, the form of payment from among the
Total Payments (which may, but need not be a payment under this
Agreement) that is to be modified, reduced or eliminated. If
Executive fails to specify the form of payment from among the
Total Payments that is to be modified, reduced or eliminated,
then the Company shall make such decision, so that under the
bases of calculation set forth in the Accounting Firm's opinion
there will be no Excess Parachute Payment. In the event that the
provisions of Sections 280G and 4999 of the Code are repealed
without succession, this Section shall be of no further force or
effect. All fees and expenses of the Accounting Firm shall be
borne solely by the Company.
(b) In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting or
participating in the Changes in Control, Executive shall
designate another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder).
6. MITIGATION AND SET-OFF. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any
way by reason of any compensation or benefits received (or foregone) by
Executive from sources other than the Company after Executive's
Employment Termination, or any amounts that might have been received by
Executive in other employment
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<PAGE> 6
had Executive sought such other employment. Except as expressly provided in
section 1(c) of this Agreement, Executive's entitlement to benefits and
coverage under this Agreement shall continue after, and shall not be
affected by, Executive's obtaining other employment after his Employment
Termination, provided that any such benefit or coverage shall not be
furnished if Executive expressly waives the specific benefit or coverage by
giving written notice of waiver to the Company.
7. LITIGATION EXPENSES. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
8. ASSIGNMENT SUCCESSORS. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger or other business combination, and in
the event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company, the
Company will cause the transferee to assume the obligations of the Company
under this Agreement. This Agreement may not be assigned by Executive
during Executive's life, and upon Executive's death will inure to the
benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
9. INTERPRETATION. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
10. WITHHOLDING. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
11. AMENDMENT OR TERMINATION. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date of such termination,
the termination of this Agreement shall not be effective and Executive
shall be entitled to the full benefits of this Agreement. Any such
amendment or termination shall be made pursuant to a resolution of the
Company's Board of Directors.
12. FINANCING. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
<PAGE> 7
13. SEVERABILITY. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
14. ARBITRATION. The parties initially shall attempt to resolve by direct
negotiation any dispute, controversy or claim arising out of or relating to
this Agreement or its branch or interpretation (each a "Dispute"). If the
parties are unable to resolve the Dispute by direct negotiation within 30
days after written notice by one party to the other of the Dispute, either
party may initiate a confidential, binding arbitration to resolve the
Dispute. All such Disputes shall be arbitrated in Chicago, Illinois
pursuant to the arbitration rules of J.A.M.S. Endispute before a single
arbitrator. (If, at the time of any Dispute, J.A.M.S. Endispute has caused
to exist, all such Disputes shall be arbitrated in Chicago, Illinois
pursuant to the arbitration rules of the American Arbitration Association
before a single arbitrator.) Judgment upon any award rendered by the
arbitrator may be entered in any court having jurisdiction, and both
parties consent and submit to the jurisdiction of such court for purposes
of such action. Nothing in this Agreement shall preclude either party from
seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches and similar doctrines,
which would otherwise be applicable to any action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
those purposes. The Federal Arbitration Act shall apply to the
construction, interpretation and enforcement of this arbitration provision.
15. OTHER AGREEMENTS. This Agreement supersedes and cancels all prior written
or oral agreements and understanding relating to the terms of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
ILLINOIS CENTRAL CORPORATION
By: ____________________________ ______________________________
Its: _________________________ ______________________________
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<PAGE> 8
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this __________ day of
February, 1997, between ILLINOIS CENTRAL CORPORATION, a Delaware corporation
(the "Company"), and ____________________________ (the "Executive").
WITNESSETH THAT:
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company;
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) SALARY PAYMENT. The Company shall make a lump sum cash payment to
Executive equal to three times the Executive's Annual Salary (as
defined below).
(b) BONUSES. The Company shall make a lump sum cash payment to Executive
equal to the sum of the following amounts: (i) Executive's full target
bonus for the year of Executive's Employment Termination (or, if
greater, the full target bonus for the year of the Change in Control)
under the Illinois Central Railroad Company Performance Compensation
Program or any successor plan (the "PCP"); plus (ii) a pro rata
portion of the target bonus for the fiscal year in which Executive's
Employment Termination occurs (or, if greater, the target bonus for
the year of the Change in Control) under the PCP (determined by
multiplying the target bonus amount by a fraction, the numerator of
which is the number of full months up to the date on which Executive's
Employment Termination occurs and the denominator of which is twelve).
(c) WELFARE BENEFIT PLANS. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) twenty-four (24) months
following Executive's Employment Termination, or (ii) the date
Executive becomes covered by a welfare benefit plan or program
maintained by an entity other than the Company which provides coverage
or benefits substantially equivalent to such Welfare Benefit Plan,
Executive shall continue to participate in such Welfare Benefit Plan
on the same basis and at the same cost to
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<PAGE> 9
Executive as was the case immediately prior to the Change in
Control (or, if more favorable to Executive, as was the case at
any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with
substantially similar benefits and coverage for such period.
Immediately following the expiration of the continuation period
required by the preceding sentence, Executive shall be entitled to
continued group health benefit plan coverage (so-called "COBRA
coverage") in accordance with Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), it being intended
that COBRA coverage shall be consecutive to the benefits and
coverage provided for in the preceding sentence. Executive's
eligibility for, and premium contribution level under any plans or
programs maintained or contributed to by the Company which provide
health benefits to retirees shall be determined by adding three
years to Executive's age and years of service at Executive's
Employment Termination.
(d) SUPPLEMENTAL RETIREMENT PLANS. Executive's accrued benefit under
the Illinois Central Railroad Company Supplemental Executive
Retirement Plan (the "SERP"), shall be calculated by adding an
additional three years of Credited Service (as that term is defined
in the SERP) to Executive's number of Years of Credited Service
under the SERP as of the Employment Termination. All amounts
accrued or accumulated on behalf of Executive under the SERP and
the Illinois Central Railroad Company Executive Deferred
Compensation Plan (the "Deferred Compensation Plan") shall
immediately be fully vested upon the Change in Control, and the
Company shall promptly pay or distribute all such amounts to
Executive in accordance with the terms of such plans as in effect
on the date of this Agreement (or as of Executive's Employment
Termination, if more favorable to Executive).
2. DEFINITIONS. For purposes of this Agreement:
(a) "Good Cause" shall mean: (i) Executive's conviction of a felony,
(ii) Executive's commission of any act or acts of personal
dishonesty intended to result in substantial personal enrichment to
Executive to the material detriment of the Company; or (iii)
repented violations of Executive's resposibilities which are
demonstrably willful and deliberate, provided that such violations
have continued more than ten days after the Board of Directors of
the Company has given written notice of such violations and of its
intention to terminate Executive's employment because of such
violations.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope or
level of Executive's responsibilities from the nature,
scope or level of such responsibilities prior to the Change
in Control (or prior to the Period Pending a Change in
Control), or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
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<PAGE> 10
(ii) The Company shall require Executive to move Executive's
principal business office more than 50 miles from
Executive's principal business office at the time of this
Agreement, or assign to Executive duties that would
reasonably require such move;
(iii) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to
increase, by more than fifty, the number of normal working
days (determined at the time of this Agreement) that
Executive spends away from Executive's principal business
office during any consecutive twelve-month period;
(iv) The Company shall reduce Executive's Annual Salary below
that in effect as of the date of this Agreement (or as of
the Change in Control, if greater); or
(v) The Company shall fail to continue in effect any cash or
stock-based incentive or bonus plan, retirement plan,
welfare benefit plan, or other benefit plan, program or
arrangement, unless the aggregate value (as computed by an
independent employee benefits consultant selected by the
Company) of all such incentive, bonus, retirement and
benefit plans, programs and arrangements provided to
Executive is not materially less than their aggregate value
as of the date of this Agreement (or as of the Change in
Control, if greater).
(c) "Change in Control" shall be deemed to have occurred if:
(i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act,
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 such Rule), directly or indirectly, of securities
representing 25 percent or more of the combined voting power
of the Company's then outstanding securities; provided,
however, that for this purpose, beneficial ownership shall
not include shares acquired: (i) directly from the Company;
(ii) in any merger or other business combination of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or other business
combination own 60 percent or more of the voting stock of
the surviving or resulting corporation; or (iii) by any
employee benefit plan (or related trust) sponsored or
maintained by the Company;
(ii) at any time during any period of two consecutive years
(not including any period prior to January 1, 1997)
individuals who at the beginning of such period constituted
the Board (the "Incumbent Board") cease for any reason to
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<PAGE> 11
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 shareholders, 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; or
(iii) there is a merger or other business combination of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or other business
combination own less than 60 percent of the voting stock of
the surviving or resulting corporation.
(d) "Annual Salary" shall mean Executive's salary at the greater of (i)
Executive's annualized monthly base salary in effect on the date of
the Change in Control, or (ii) Executive's annualized monthly base
salary in effect on Executive's Employment Termination.
(e) "Employment Termination" shall mean the effective date of (i)
Executive voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by
the Company without Good Cause.
(f) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company, including but not
limited to a plan that provides health (including medical and
dental), life, accident or disability benefits or insurance, or
similar coverage, in which Executive was participating at the time
of the Change in Control.
(g) "Period Pending a Change in Control" shall mean the period between
the time an agreement is entered into by the Company with respect
to a merger or other business combination of the Company which
would constitute a Change in Control, and the effective time of
such merger or other business combination of the Company.
3. SALARY TO DATE OF EMPLOYMENT TERMINATION. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned with
respect to any period prior to Executive's Employment Termination,
including but not limited to a lump sum cash payment for accumulated but
unused vacation earned through such Employment Termination.
4. OTHER INCENTIVE PLANS. Nothing in this Agreement shall impair or impact the
vesting of any restricted stock, stock options, cash incentives or other
form of compensation or benefits provided under any other plan, program or
arrangement.
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<PAGE> 12
5. LIMITATION ON PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, it is
the intention of the Company and Executive that no portion of any
payment under this Agreement, or payments to or for the benefit of
Executive under any other agreement or plan, be deemed to be an
"Excess Parachute Payment" as defined in Section 280G of the Code,
or its successors. It is agreed that the present value of and
payments to or for the benefit of Executive in the nature of
compensation under this Agreement or any other agreement or plan,
the receipt of which is contingent on occurrence of a Change in
Control, and to which Section 280G of the Code applies (in the
aggregate "Total Payments") shall not exceed an amount equal to one
dollar less than the maximum amount that the Company may pay without
loss of deduction under Section 280G(a) of the Code. Present value
for purposes of this Agreement shall be calculated in accordance
with Section 280G(d)(4) of the Code. Within sixty (60) days
following the earlier of (i) Executive's Employment Termination or
(ii) the giving of notice by the Company to Executive of its belief
that there is a payment or benefit due Executive that will result in
an Excess Parachute Payment, the Company, at the Company's expense,
shall obtain the opinion of the public accounting firm that serves
as the Company's auditors (the "Accounting Firm"), which opinion
need not be unqualified, which sets forth: (A) the amount of the
Base Period Income of the Executive (as defined in Code Section
280G), (B) the present value of Total Payments and (C) the amount
and present value of any Excess Parachute Payments. In the event
that such opinion determines that there would be an Excess Parachute
Payment, Executive shall specify in writing delivered to the Company
within thirty (30) days of his receipt of such opinion, the form of
payment from among the Total Payments (which may, but need not be a
payment under this Agreement) that is to be modified, reduced or
eliminated. If Executive fails to specify the form of payment from
among the Total Payments that is to be modified, reduced or
eliminated, then the Company shall make such decision, so that
under the bases of calculation set forth in the Accounting Firm's
opinion there will be no Excess Parachute Payment. In the event that
the provisions of Sections 280G and 4999 of the Code are repealed
without succession, this Section shall be of no further force or
effect. All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
(b) In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting or
participating in the Change in Control, Executive shall designate
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder).
6. MITIGATION AND SET-OFF. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The Company's
obligations under this Agreement shall not be reduced in any way by reason
of any compensation or benefits received (or foregone) by Executive from
sources other than the Company after Executive's Employment Termination, or
any amounts that might have been received by Executive in other employment
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<PAGE> 13
had Executive sought such other employment. Except as expressly provided in
section 1(c) of this Agreement, Executive's entitlement to benefits and
coverage under this Agreement shall continue after, and shall not be
affected by, Executive's obtaining other employment after his Employment
Termination, provided that any such benefit or coverage shall not be
furnished if Executive expressly waives the specific benefit or coverage by
giving written notice of waiver to the Company.
7. LITIGATION EXPENSES. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
8. ASSIGNMENT SUCCESSORS. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the
Company under this Agreement shall be the binding legal obligations of any
successor to the Company by merger or other business combination, and in
the event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company,
the Company will cause the transferee to assume the obligations of the
Company under this Agreement. This Agreement may not be assigned by
Executive during Executive's life, and upon Executive's death will inure
to the benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
9. INTERPRETATION. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity
or unenforceability of any provision of this Agreement shall not affect
the validity or enforceability of any other provision of this Agreement.
10. WITHHOLDING. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
11. AMENDMENT OR TERMINATION. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date of such termination,
the termination of this Agreement shall not be effective and Executive
shall be entitled to the full benefits of this Agreement. Any such
amendment or termination shall be made pursuant to a resolution of the
Company's Board of Directors.
12. FINANCING. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
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<PAGE> 14
13. SEVERABILITY. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
14. ARBITRATION. The parties initially shall attempt to resolve by direct
negotiation any dispute, controversy or claim arising out of or relating
to this Agreement or its branch or interpretation (each, a "Dispute"). If
the parties are unable to resolve the Dispute by direct negotiation
within 30 days after written notice by one party to the other of the
Dispute, either party may initiate a confidential, binding arbitration to
resolve the Dispute. All such Disputes shall be arbitrated in Chicago,
Illinois pursuant to the arbitration rules of J.A.M.S. Endispute before a
single arbitrator. (If, at the time of any Dispute, J.A.M.S. Endispute
has caused to exist, all such Disputes shall be arbitrated in Chicago,
Illinois pursuant to the arbitration rules of the American Arbitration
Association before a single arbitrator.) Judgment upon any award rendered
by the arbitrator may be entered in any court having jurisdiction, and
both parties consent and submit to the jurisdiction of such court for
purposes of such action. Nothing in this Agreement shall preclude either
party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines, which would otherwise be applicable in any action
brought by a party shall be applicable in any arbitration proceeding, and
the commencement of an arbitration proceeding shall be deemed the
commencement of an action for those purposes. The Federal Arbitration Act
shall apply to the construction, interpretation and enforcement of this
arbitration provision.
15. OTHER AGREEMENTS. This Agreement provides and cancels all prior written or
oral agreements and understandings relating to the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
ILLINOIS CENTRAL CORPORATION
By: ____________________________ ______________________________
Its: ____________________________ ______________________________
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