SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 9)
Chicago and North Western Transportation Company
(Name of Issuer)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
167155 10 0
(CUSIP Number)
Richard J. Ressler, Esq.
Union Pacific Corporation
Martin Tower, Eighth and Eaton Avenues
Bethlehem, Pennsylvania 18018
(610) 861-3200
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copy to:
Paul T. Schnell
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(212) 735-3000
March 10, 1995
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a
statement on Schedule 13G to report the acquisition which
is the subject of this Schedule 13D, and is filing the
statement because of Rule 13d-1(b)(3) or (4), check the
following box: [ ]
Check the following box if a fee is being paid
with the statement: [ ]
This Amendment No. 9 filed by Union Pacific
Corporation, a Utah corporation ("UP"), Union Pacific
Holdings, Inc., a Utah corporation ("UP Holdings"), and
UP Rail, Inc., a Utah corporation ("UP Rail"), amends the
Statement on Schedule 13D, dated April 9, 1992, as
previously amended (the "Schedule 13D"), with respect to
the common stock, par value $.01 per share (the
"Shares"), of Chicago and North Western Transportation
Company, a Delaware corporation (the "Issuer"). UP, UP
Holdings and UP Rail are hereinafter collectively
referred to as the "Reporting Persons." Capitalized
terms used but not defined herein shall have the meanings
ascribed thereto in the Schedule 13D.
Item 4. Purpose of Transaction.
Reference is made to the disclosure set forth
in Item 6.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the
Issuer.
Item 6 is hereby supplemented as follows:
Three class action complaints, copies of which
are attached hereto as Exhibits 13, 14 and 15 and
incorporated herein by reference, were filed in the Court
of Chancery in Delaware on March 10, 1995 naming as
defendants the Issuer's directors, UP Rail, Inc. and
certain other parties. Such complaints allege, among
other things, that various of the defendants breached
their fiduciary duties to the shareholders of the Issuer
by failing to act to maximize shareholder value prior to
approving the transfer of control of the Issuer. The
complaints seek, among other things, damages and to
enjoin the defendants from proceeding with a change of
control of the Issuer.
Item 7. Material to be filed as Exhibits.
Item 7 is hereby supplemented as follows:
Exhibit 13. Class Action Complaint entitled
Herbert Feiwel, IRA Rollover Account v. James E. Martin,
et al. (C.A. No. 14109), filed in the Court of Chancery
in Delaware on March 10, 1994.
Exhibit 14. Class Action Complaint entitled
Kenneth Steiner v. Richard K. Davidson, et al. (C.A. No.
14111), filed in the Court of Chancery in Delaware on
March 10, 1994.
Exhibit 15. Class Action Complaint entitled
Moise Katz v. James E. Martin, et al. (C.A. No. 14112),
filed in the Court of Chancery in Delaware on March 10,
1994.
SIGNATURE
After reasonable inquiry and to the best of its
knowledge and belief, the undersigned certifies that the
information set forth in this statement is true, complete
and correct.
Dated: March 13, 1995
UP RAIL, INC.
By: /s/ Carl W. von Bernuth
Name: Carl W. von Bernuth
Title: Vice President and
Assistant Secretary
SIGNATURE
After reasonable inquiry and to the best of its
knowledge and belief, the undersigned certifies that the
information set forth in this statement is true, complete
and correct.
Dated: March 13, 1995
UNION PACIFIC HOLDINGS, INC.
By: /s/ Carl W. von Bernuth
Name: Carl W. von Bernuth
Title: Vice President and
Chief Legal Officer
SIGNATURE
After reasonable inquiry and to the best of its
knowledge and belief, the undersigned certifies that the
information set forth in this statement is true, complete
and correct.
Dated: March 13, 1995
UNION PACIFIC CORPORATION
By: /s/ Carl W. von Bernuth
Name: Carl W. von Bernuth
Title: Senior Vice President
and General Counsel
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
---------------------------------------------x
HERBERT FEIWEL, IRA ROLLOVER ACCOUNT, :
:
Plaintiff, :
:
-against- :
:
JAMES E. MARTIN, JAMES J. MOSSMAN, : C.A. No. 14109
JAMES R. THOMPSON, ROBERT SCHMIEGE, :
RICHARD K. DAVIDSON, HAROLD A. POLING, :
SAMUEL K. SKINNER, UNION PACIFIC :
COMPANY, CHICAGO AND NORTH WESTERN :
TRANSPORTATION COMPANY, and UP RAIL INC., :
:
Defendants. :
---------------------------------------------x
CLASS ACTION COMPLAINT
Plaintiff, by his attorneys, alleges upon personal
knowledge with respect to paragraph 1, and upon information
and belief based, inter alia, upon the investigation of his
counsel as to all other allegations herein, as is follows:
1. Plaintiff Herbert Feiwel, through his IRA
rollover account, is a holder of common stock of Chicago
North Western Transportation Company ("CNW" or the
"Company") and has been a shareholder of CNW at all times
relevant hereto.
2. CNW is a Delaware corporation that maintains
its principal executive offices in Chicago, Illinois. CNW
is the holding company for the nation's eighth largest
railroad based on total operating revenues and miles of
railroad operated. CNW's wholly-owned subsidiary, Western
Railroad Properties, Inc. ("WPRI"), is one of only two
carriers in that Wyoming Powder River Basin. WPRI
transports low-sulfur coal principally under long term
contracts, and is a highly efficient, low-cost operation.
CNW also provides commuter service in the Chicago area under
a service contract with the regional transportation
authority.
3. Defendant Robert Schmiege ("Schmiege") is,
and at all relevant times was, Chairman of the Board of
Directors, President and Chief executive Officer of the
Company. For the fiscal year ended December 31, 1993,
defendant Schmiege received cash and bonus compensation in
excess of $750,000.
4. Defendant Richard K. Davidson ("Davidson")
is, and at all relevant times was, Chairman and Chief
Executive Officer of defendant Union Pacific Company ("Union
Pacific"). Defendant Davidson is also a director of CNW.
5. Defendants James E. Martin, James A. Mossman,
James R. Thompson, Harold A. Poling, and Samuel K. Skinner
are each, and at all relevant times were, members of the
Company's Board of Directors. These defendants, together
with defendants Schmiege and Davidson, are referred to
herein as the "Individual Defendants."
6. Because of their directorial and/or executive
positions in the Company, the Individual Defendants owe
fiduciary duties of good faith, fair dealing, due care and
candor to plaintiff and the other members of the Class.
Through their directorial and management positions, the
Individual Defendants dominate and control the Company.
7. Each Individual Defendant owed and owes the
public stockholders of CNW fiduciary obligations and were
and are required to: use their ability to control and manage
CNW in a fair, just and equitable manner; act in furtherance
of the best interests of CNW and its shareholders; act to
maximize shareholder value; govern CNW in such a manner as
to heed the expressed views of its public shareholders;
refrain from abusing their positions of control; and not
favor their own interests at the expense of CNW and its
shareholders.
8. (a) Union Pacific, a Utah corporation, is
the sole shareholder of UP Holdings, Inc., also a Utah
corporation. UP Holdings, Inc. is, in turn, the sole
shareholder of UP Rail, Inc., a Delaware corporation.
(b) As of the close of business on March 6,
1995, UP Rail, Inc. beneficially owned 12,835,304 shares of
Non-Voting Common Stock of CNW. Upon the conversion of
those shares into common stock (as discussed below), those
shares will represent, in the aggregate, 29.13% of the
44,059,760 shares of CNW common stock outstanding as of
October 15, 1994.
(c) Union Pacific is a party to certain
stockholders agreements, described more fully below, with,
inter alia, the Company's executive officers and CNW.
Through its representation on CNW's Board of Directors, and
collaborative business relationships with the Company, Union
Pacific has access to confidential and proprietary
information concerning CNW, which information has been and
continues to be unavailable to the market or other potential
third party bidders for CNW.
(d) Unless otherwise indicated, Union
Pacific Corporation, Union Pacific Holdings, Inc., and UP
Rail, Inc. are collectively referred to herein as "Union
Pacific."
9. Each defendant herein is sued individually as
a conspirator and aider and abettor, and the liability of
each arises from the fact that he or it has engaged in all
or part of the unlawful acts, plans, schemes, or
transactions complained of herein.
CLASS ACTION ALLEGATIONS
10. Plaintiff brings this action pursuant to Rule
23 of the Rules of Court of Chancery on his own behalf and
as a class action on behalf of all shareholders of the
Company (except the defendants herein and any persons, firm,
trust, corporation, or other entity related to or affiliated
with any of them or their successors in interest), and their
successors in interest who are or will be threatened with
injury arising from defendants' actions as more fully
described herein.
11. This action is properly maintainable as a
class action for the following reasons:
(a) The Class is so numerous that joinder of
all members is impracticable. As of October 15, 1994, the
Company had 44,059,760 shares of common stock outstanding,
held by thousands of record and beneficial shareholders.
(b) The members of the Class are scattered
throughout the United States and are so numerous as to make
it impracticable to bring them all before the Court.
(c) There are questions of law and fact
which are common to the Class including, inter alia, the
following:
(i) whether the Individual Defendants
breached or aided and abetted the breach of the fiduciary
and common law duties which they owe to plaintiff and the
other members of the Class;
(ii) whether defendants are engaging in
a plan or scheme to unlawfully shift control of CNW to Union
Pacific;
(iii) whether defendants have engaged
and are continuing to engage in a plan and a scheme to
benefit themselves at the expense of CNW's public
shareholders; and
(iv) whether plaintiff and other members
of the Class will be irreparably damaged if defendants are
not enjoined from the conduct described herein below.
(d) The claims of plaintiff are typical of
the claims of the Class in that all members of the Class
will be damaged by defendants' actions.
(e) Plaintiff is committed to vigorously
prosecuting this action and has retained competent legal
counsel experienced in litigation of this nature. Plaintiff
is an adequate representative of the Class.
12. The prosecution of separate actions by
individual members of the Class would create the risk of
inconsistent or varying adjudications with respect to
individual members of the Class which would establish
incompatible standards of conduct for defendants, or
adjudications with respect to individual members of the
Class which would as a practical matter be dispositive of
the interests of the other members not parties to the
adjudications or substantially impair or impede their
ability to protect their interests.
13. Defendants have acted, or refused to act, on
grounds generally applicable to, and causing injury to, the
Class, and therefore, preliminary and final injunctive
relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
A. Background
14. CNW, through its subsidiaries, is the
successor to the business of CNW Corporation, which was
acquired in 1989 in a going-private transaction led by
Blackstone Capital Partners L.P. ("Blackstone"). The
Company thereafter went public in 1992. Blackstone and its
affiliates sold substantially all their shares in connection
with a secondary offering of CNW stock in 1993.
15. CNW has enjoyed increasing financial success
over the last several years. Operating revenues have
improved every year since 1989. Similarly, operating
income, net income and net income per share have all
steadily risen. Moreover, CNW's per share earnings jumped
to $1.20 per share in fiscal 1993, as compared to a loss of
$3.15 per share in fiscal 1992. Earnings per share
continued to increase in fiscal 1994 to $1.86/share.
16. The Company's future financial prospects also
look promising. Among other things, in February 1995 the
Company forecasted that its net income for 1995 would be 30-
35% above what was achieved in 1994.
17. The investment community also forecasts
continued robust financial health for CNW. For example, a
January 3, 1995 report issued by M.H. Lloyd, an analyst with
Natwest Securities Corp., stated "we are initiating coverage
of [CNW] with a BUY rating. CNW is well situated to benefit
from soaring demand for low sulfur coal from Wyoming and
from the bumper U.S. corn crop recently harvested. Coal and
agricultural commodities account for 32% and 18%,
respectively, of the company's revenues. In addition, CNW's
intermodal revenues (12% of total) are growing rapidly,
aided by new intermodal facilities . . . CNW's earnings
could expand 10-15% annually in the late 1990s."
B. Union Pacific's Ties to CNW
18. Union Pacific has substantial business,
equity ownership, and financial ties to CNW. For example, UP
Rail, Inc., the Company's executive officers, the Company,
and Blackstone, among others, are parties to a Second
Amended and Restated Stockholders Agreement (the
"Shareholders Agreement"). Under the Shareholders Agreement,
CNW's executive officers must vote their CNW shares for the
election of a UP Rail designee to the Board of Directors.
19. These same parties entered into another
agreement in 1993 (the "1993 Agreement"), pursuant to which
the Company agreed to use its best efforts to cause two
additional members of UP's senior management (the
"Additional Nominees"), to be nominated to the Board of
Directors as members of the class of directors serving for a
term ending on the date of CNW's 1995 annual meeting. The
Additional Nominees were elected to the CNW Board, such
election to be effective on April 6, 1995. On that date,
Union Pacific will have three directors on the CNW Board.
20. Moreover, as noted previously, Union Pacific
beneficially owns 12,835,304 shares of Non-Voting Common
Stock of CNW. Under a Standstill Agreement with CNW, Union
Pacific agreed not to acquire more than 30% of the aggregate
outstanding common stock and non-voting common stock of the
Company prior to April 6, 1994. The Standstill Agreement
terminated in July 1993.
C. Union Pacific's Efforts to Increase
Its Control Over the Company
21. Over the last several years, Union Pacific
has sought to increase its influence and control over CNW's
business and operations. Among other things, Union Pacific
applied to the Interstate Commerce Commission (the "ICC")
for an order authorizing "common control" of CNW and UP Rail
as well as conversion of Union Pacific's Non-voting
Preferred Stock into CNW common stock. Union Pacific also
requested from the ICC an order, inter alia, permitting
Union Pacific to acquire additional shares of CNW common
stock and allowing the further coordination of services
between the companies' respective railroad subsidiaries.
22. On March 7, 1995, the ICC consented to the
foregoing requests, and on April 6, 1995, the approval will
be final and effective. At such time, Union Pacific will
exercise control over 29% of CNW's common shares, and the
Additional Nominees will be added to CNW's nine-member Board
of Directors.
23. Immediately upon receiving ICC approval,
Union Pacific publicly disclosed in a 13-D filing with the
Securities and Exchange Commission that it is considering
acquiring the remaining shares of CNW. That day, the price
of CNW's common shares increased $1.50 per share, or 6%, to
close at $26.375. As a result of this announcement, Union
Pacific has effectively "capped" the unaffected market price
of CNW shares at $24.875 per share (the closing price of CNW
shares the day prior to the 13-D filing), for purposes of
assessing the adequacy of any price offered in a subsequent
acquisition of CNW common shares.
24. In addition, Union Pacific's prospective
acquisition of CNW comes on the heels of and is motivated by
its aborted efforts to acquire control of Santa Fe Pacific
Corporation ("Santa Fe"), which has agreed to be acquired by
Burlington Northern Inc. Having failed in its efforts to
acquire Santa Fe, Union Pacific is now turning to CNW as a
means of expanding its railroad operations and increasing
its presence and influence in the railroad markets in which
it operates.
25. CNW and the individual Defendants are
obligated in connection with any contemplated transfer of
control of CNW to seek to maximize shareholder value by such
means as an auction, active market check or other
exploration of strategic alternatives under the
circumstances. CNW and the Individual Defendants have
failed to implement such procedures for the maximization of
shareholder value and are permitting the transfer of control
of CNW and its assets at a value which fails to reflect the
enhanced long-term value of its stock given the positive
trends CNW has consistently shown in revenues and net
income. Nor have the individual Defendants sought to create
any "Special Committee" of fully independent and
disinterested directors who will act objectively and in the
ultimate best interests of all shareholders of CNW.
26. Plaintiff and other members of the Class will
be damaged in that they will not receive their fair
proportion of the value of CNW's assets and business, and
will be prevented from obtaining a fair price for their
shares of CNW's common stock.
27. Plaintiff and the Class are immediately
threatened by the acts and transactions complained of herein
which have caused and will cause irreparable injury to them.
REQUEST FOR RELIEF
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this to be a proper Class Action;
B. Declaring that CNW and the Individual
Defendants have breached and are breaching their fiduciary
duties to plaintiff and the members of the Class;
C. Preliminarily and permanently enjoining the
defendants and their counsel, agents, employees and all
persons acting under, in concert with or for them, from
proceeding with, consummating, or closing a change in
control of CNW;
D. Awarding compensatory damages against
defendants individually and severally in an amount to be
determined at trial, together with prejudgment interest at
the maximum rate allowable by law, arising from defendants'
wrongful conduct;
E. Awarding plaintiff his costs and
disbursements and reasonable allowances of fees for
plaintiff's counsel and experts and reimbursement of
expenses; and
F. Granting plaintiff and the Class such other
and further relief as the Court may deem just and proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By:
First Federal Plaza
Suite 214
Wilmington, DE 19899
(302) 656-4433
Of Counsel:
MILBERG WEISS BERSHAD HYNES & LERACH
One Pennsylvania Plaza
New York, New York 10119
(212) 594-5300
LAW OFFICES OF LAWRENCE G. SOICHER
300 Park Avenue - 20th Floor
New York, New York 10022
(212) 980-7000
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - - - - - - - - - - - - - - - - x
KENNETH STEINER, individually and :
on behalf of all others similarly :
situated, :
: Civil Action No 14111
Plaintiff, :
: CLASS ACTION COMPLAINT
- v. - :
:
RICHARD K. DAVIDSON, JAMES E. :
MARTIN, JAMES J. MOSSMAN, HAROLD :
A. POLING, ROBERT SCHMIEGE, :
SAMUEL K. SKINNER, JAMES R. :
THOMPSON, CHICAGO & NORTH WESTERN :
TRANSPORTATION COMPANY, UNION :
PACIFIC COMPANY, and UP RAIL, :
INC., :
:
Defendants. :
x
- - - - - - - - - - - - - - - - -
Plaintiff, by and though his attorneys alleges
upon information and belief, except as to paragraph 1 which
is alleged upon knowledge, as follows:
PARTIES
1. Plaintiff Kenneth Steiner is and has been at
all relevant times the owner of securities of Chicago &
North Western Transportation Company ("CNW" or the
"Company").
2. Defendant CNW, a corporation organized and
existing under the laws of the State of Delaware with
offices in Chicago, Illinois, is engaged in railroad
operations through its subsidiary, Chicago & North Western
Railway Company ("Railway"). As of December, 1994, CNW had
approximately 45 million shares of common stock outstanding.
3. (a) Defendant Robert Schmiege ("Schmiege") is
and has been at all relevant times CNW's Chairman, President
and Chief Executive Officer.
(b) Defendant James E. Martin ("Martin") is
and has been at all relevant times Executive Vice President
and a director of CNW.
(c) Defendants Richard K. Davidson
("Davidson"), James J. Mossman ("Mossman"), Harold A. Poling
("Poling"), Samuel K. Skinner ("Skinner") and James R.
Thompson ("Thompson") are and have been at all relevant
times directors of CNW. Defendant Davidson is also Chairman
and Chief Executive Officer of defendant Union Pacific
Company ("Union Pacific").
4. Defendant UP Rail, Inc., a Delaware
corporation, owns approximately 29% of CNW's 45 million
outstanding shares. UP Rail, Inc. is wholly owned by UP
Holdings, Inc., a Utah corporation which in turn is wholly
owned by defendant Union Pacific Company. Union Pacific
Company, Union Pacific Holdings, Inc. and UP Rail, Inc. are
collectively referred to as "Union Pacific." By virtue of
its control of CNW, and the agreements between Union Pacific
and CNW described herein, Union Pacific is a controlling
shareholder of CNW.
5. By virtue of the Individual Defendants'
positions as directors and/or officers of CNW, and Union
Pacific's position as controlling shareholder of CNW, said
defendants were and are in a fiduciary relationship with
plaintiff and the other public stockholders of the Company,
and owe to plaintiff and the other members of the Class the
highest obligations of good faith, full disclosure and fair
dealing.
CLASS ACTION ALLEGATIONS
6. Plaintiff brings this action for declaratory,
injunctive and other relief on his own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of
Chancery and on behalf of all stockholders of CNW (except
defendants herein and any person, firm, trust, corporation
or other entity related to or affiliated with any of the
defendants) or their successors in interest who have been or
will be harmed as a result of defendants' action.
7. This action is properly maintainable as a
class action for the following reasons:
(a) The Class of stockholders for whose
benefit this action is brought is so numerous that joinder
of all Class members is impracticable. There are
approximately 45 million common shares of CNW outstanding
owned by approximately 963 stockholders of record. Members
of the Class are scattered throughout the United States.
(b) There are questions of law and fact
which are common to members of the Class and which
predominate over all questions affecting only individual
members, including whether the defendants have breached or
will breach the fiduciary duties owed by them to plaintiff
and members of the Class by reason of the acts described
herein.
(c) The claims of plaintiff are typical of
the claims of the other members of the Class and plaintiff
has no interests that are adverse or antagonistic to the
interests of the Class.
(d) Plaintiff is committed to the vigorous
prosecution of this action and has retained competent
counsel experienced in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the
Class and will fairly and adequately protect the interests
of the Class.
(e) The prosecution of separate actions by
individual members of the Class would create a risk of
inconsistent or varying adjudications with respect to
individual members of the Class and establish incompatible
standards of conduct for the party opposing the Class.
(f) Defendants have acted and are about to
act on grounds generally applicable to the Class, thereby
making appropriate final injunctive or corresponding
declaratory relief with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
8. On or about March 10, 1995, CNW and Union
Pacific announced that they had reached an agreement whereby
Union Pacific would purchase all of CNW's common stock for
$35 cash per share, for a total of 1.2 billion.
9. Union Pacific owns approximately 29% of CNW.
By virtue of Union Pacific's representation on CNW's board
through defendant Davidson, Union Pacific has access to
information not publicly available to the Company's
stockholders.
10. The timing of Union Pacific's offer to
acquire CNW was designed to take advantage of the fact that
CNW has been experiencing several difficult quarters.
However, the Company advised analysts that it expects 1995
revenues to exceed 1994 revenues by 30-35%, which would
enable CNW to retire $40-50 million of long-term debt.
11. As members of the Board of Directors of CNW,
the Individual Defendants owe to its stockholders the
highest fiduciary obligations of due care, good faith,
loyalty and candor.
12. Defendants' fiduciary obligations require
them to:
(a) undertake an appropriate evaluation of
all bona fide offers and take appropriate steps to solicit
all potential bids for the Company or its assets;
(b) take steps, if appropriate, to negotiate
with any other interested third party so as to maximize
shareholder value;
(c) act independently, including appointing
a disinterested committee so that the interests of CNW's
public stockholders will be protected.
13. However, the Individual Defendants are
incapable of making an objective determination in the best
interests of the Company and its stockholders. CNW and
Union Pacific have entered into various agreements which
inextricably intertwine the fortunes of the two companies.
In fact, pursuant to a June 21, 1993 Stockholders' Agreement
("Stockholder Agreement") CNW granted Union Pacific a right
of first refusal on the sale of all or substantially all of
CNW's assets. Additionally, the Stockholder Agreement
provides that CNW will use "best efforts" to cause two
members of UP's management to be appointed to the CNW board.
Accordingly, the Individual Defendants are not in a position
to independently consider the offer.
14. Moreover, in violation of Union Pacific's
obligation as controlling shareholder to offer class members
a fair price for their shares, the amount offered by Union
Pacific is grossly inadequate in view of the inherent value
of CNW, its assets and securities.
15. By reason of the foregoing acts, practices
and courses of conduct, defendants have breached their
fiduciary obligations toward plaintiff and other CNW
stockholders.
16. Unless enjoined by this Court, defendants
will continue to breach their fiduciary duties owned to
plaintiff and the other members of the Class and may bene-
fit themselves in their corporate offices, all to the
irreparable harm of the Class, as aforesaid.
17. Plaintiff and the other members of the Class
will suffer injury unless the unlawful actions complained of
herein are enjoined.
18. Plaintiff and the Class have no adequate
remedy at law.
WHEREFORE, plaintiff demands judgment and
preliminary and permanent relief, including injunctive
relief, in his favor and in favor of the Class and against
defendants as follows:
A. Declaring that this action is properly
maintainable as a class action, and certifying plaintiff as
class representative.
B. Declaring that the defendants and each of them
have breached their fiduciary duties to plaintiff and the
other members of the Class;
C. Ordering the Individual Defendants to carry out
their fiduciary duties to plaintiff and the other members of
the Class by announcing their intention to maximize the
value of the Company's securities and to:
(a) undertake and appropriate evaluation of
alternatives designed to maximize value for CNW's public
stockholders;
(b) adequately ensure that no conflicts of
interest exist between defendants' own interests and their
fiduciary obligation to the public security holders or, if
such conflicts exist, to ensure that all the conflicts would
be resolved in the best interests of CNW's public
stockholders; and
D. Awarding plaintiff and the Class compensatory
damages;
E. Awarding plaintiff and the Class the costs and
disbursements of this action, including reasonable
attorneys' and experts' fees; and
F. Granting such other and further relief as this
Court may deem just and proper.
Dated: March 10, 1995
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By:
_________________________________
First Federal Plaza
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
---------------------------------------------x
MOISE KATZ, :
:
Plaintiff, :
:
-against- :
:
JAMES E. MARTIN, JAMES J. MOSSMAN, : C.A. No. 14112
JAMES R. THOMPSON, ROBERT SCHMIEGE, :
RICHARD K. DAVIDSON, HAROLD A. POLING, :
SAMUEL K. SKINNER,, UNION PACIFIC :
COMPANY, CHICAGO AND NORTH WESTERN :
TRANSPORTATION COMPANY, and UP RAIL INC., :
:
Defendants. :
---------------------------------------------x
CLASS ACTION COMPLAINT
Plaintiff, by his attorneys, alleges upon personal
knowledge with respect to paragraph 1, and upon information
and belief based, inter alia, upon the investigation of his
counsel as to all other allegations herein, as follows:
1. Plaintiff is a holder of common stock of
Chicago North Western Transportation Company ("CNW" or the
"Company") and has been a shareholder,of CNW at all times
relevant hereto.
2. CNW is a Delaware corporation that maintains
its principal executive offices in Chicago, Illinois. CNW
is the holding company for the nation's eighth largest
railroad based on total operating revenues and miles of
railroad operated. CNW's wholly-owned subsidiary, Western
Railroad Properties, Inc. ("WPRI"), is one of only two
carriers in the Wyoming Powder River Basin. WPRI transports
low-sulfur coal principally under long term contracts, and
in a highly of efficient, low-cost operation. CNW also
provides commuter service in the Chicago area under a
service contract with the regional transportation authority.
3. Defendant Robert Schmiege ("Schmiege") is,
and at all relevant times was, Chairman of the Board of
Directors, President and Chief Executive Officer of the
Company. For the fiscal year ended December 31, 1993,
defendant Schmiege received cash and bonus compensation in
excess of $750,000.
4. Defendant Richard K. Davidson ("Davidson")
is, and at all relevant times was, Chairman and Chief
Executive Officer of defendant Union Pacific Company ("Union
Pacific"). Defendant Davidson is also a director of CNW.
5. Defendants James E. Martin, James J. Mossman,
James R. Thompson, Harold A. Poling, and Samuel K. Skinner
are each, and at all relevant times were, members of the
Company's Board of Directors. These defendants, together
with defendants Schmiege and Davidson, are referred to
herein as the "Individual Defendants."
6. Because of their directorial and/or executive
positions in the Company, the individual Defendants owe
fiduciary duties of good faith, fair dealing, due care and
candor to plaintiff and the other members of the Class.
Through their directorial and management positions, the
Individual Defendants dominate and control the Company.
7. Each Individual Defendant owed and owes the
public stockholders of CNW fiduciary obligations and were
and are required to: use their ability to control and manage
CNW in a fair, just and equitable manner; act in furtherance
of the best interests of CNW and its shareholders; act to
maximize shareholder value; govern CNW in such a manner as
to heed the expressed views of its public shareholders;
refrain from abusing their positions of control; and not
favor their own interests at the expense of CNW and its
shareholders.
8. (a) Union Pacific, a Utah corporation, is
the sole shareholder of UP Holdings, Inc., also a Utah
corporation. UP Holdings, Inc. is, in turn, the sole
shareholder of UP Rail, Inc., a Delaware corporation.
(b) As of the close of business on March 6,
1995, UP Rail, Inc. beneficially owned 12,835,304 shares of
Non-Voting Common Stock of CNW. Upon the conversion of
those shares into common stock (as discussed below), those
shares will represent, in the aggregate, 29.13% Of the
44,059,760 shares of CNW common stock outstanding as of
October 15, 1994.
(c) Union Pacific is a party to certain
stockholders agreements, described more fully below, with,
inter alia, the Company's executive officers and CNW.
Through its representation on CNW's Board of Directors, and
collaborative business relationships with the Company, Union
Pacific has access to confidential and proprietary
information concerning CNW, which information has been and
continues to be unavailable to the market or other potential
third party bidders for CNW.
(d) Unless otherwise indicated, Union
Pacific Corporation, Union Pacific Holdings, Inc., and UP
Rail, Inc. are collectively referred to herein as "Union
Pacific".
9. Each defendant herein is sued individually as
a conspirator and aider and abettor, and the liability of
each arises from the fact that he or it has engaged in all
or part of the unlawful acts, plans, schemes, or
transactions complained of herein.
CLUB ACTION ALLEGATIONS
10. Plaintiff brings this action pursuant to Rule
23 of the Rules of Court of Chancery on his own behalf and
as a class action on behalf of all shareholders of the
Company (except the defendants herein and any persons, firm,
trust, corporation, or other entity related to or affiliated
with any of them or their successors in interest), and their
successors in interest who are or will be threatened with
injury arising from defendants' actions as more fully
described herein.
11. This action is properly maintainable as a
class action for the following reasons:
(a) The Class is so numerous that joinder of
all members is impracticable. As of October 15, 1994, the
Company had 44,059,760 shares of common stock outstanding,
held by thousands of record and beneficial shareholders.
(b) The members of the Class are scattered
throughout the United States and are so numerous as to make
it impracticable to bring them all before the Court.
(c) There are questions of law and fact
which are common to the Class including, inter alia, the
following:
(i) whether the Individual Defendants
breached or aided and abetted the breach of the
fiduciary and common law duties which they owe to
plaintiff and the other members of the Class;
(ii) whether defendants are engaging in
a plan or scheme to unlawfully shift control of CNW to
Union Pacific;
(iii) whether defendants have engaged
and are continuing to engage in a plan and a scheme to
benefit themselves at the expense of CNW's public
shareholders; and
(iv) whether plaintiff and other
members of the Class will be irreparably damaged if
defendants are not enjoined from the conduct described
herein below.
(d) The claims of plaintiff are typical of
the claims of the Class in that all members of the Class
will be damaged by defendants' actions.
(e) Plaintiff is committed to vigorously
prosecuting this action and has retained competent legal
counsel experienced in litigation of this nature. Plaintiff
is an adequate representative of the Class.
12. The prosecution of separate actions by
individual members of the Class would create the risk of
inconsistent or varying adjudications with respect to
individual members of the Class which would establish
incompatible standards of conduct for defendants, or
adjudications with respect to individual members of the
Class which would as a practical matter be dispositive of
the interests of the other members not parties to the
adjudications or substantially impair or impede their
ability to protect their interests.
13. Defendants have acted, or refused to act, on
grounds generally applicable to, and causing injury to, the
Class, and therefore, preliminary and final injunctive
relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
A. Background
14. CNW, through its subsidiaries, is the
successor to the business of CNW Corporation, which was
acquired in 1989 in a going-private transaction led by
Blackstone Capital Partners L.P. ("Blackstone"). The
Company thereafter went public in 1992. Blackstone and its
affiliates sold substantially all their shares in connection
with a secondary offering of CNW stock in 1993.
15. CNW has enjoyed increasing financial success
over the last several years. Operating revenues have
improved every year since 1989. Similarly, operating
income, net income and net income per share have all
steadily risen. Moreover, CNW's per share earnings jumped
to $1.20 per share in fiscal 1993, as compared to a loss of
$3.15 per share in fiscal 1992. Earnings per share
continued to increase in fiscal 1994 to $1.86/share.
16. The Company's future financial prospects also
look promising. Among other things, in February 1995 the
Company forecasted that its net income for 1995 would be 30-
35% above what was achieved in 1994.
17. The investment community also forecasts
continued robust financial health for CNW. For example, a
January 3, 1995 report issued by M.H. Lloyd, an analyst with
Natwest Securities Corp., stated "we are initiating coverage
of (CNW) with a BUY rating. CNW is well situated to benefit
from soaring demand for low sulfur coal from Wyoming and
from the bumper U.S. corn crop recently harvested. Coal and
agricultural commodities account for 32% and 18%,
respectively, of the company's revenues. In addition, CNW's
intermodal revenues (12% of total) are growing rapidly,
aided by new intermodal facilities . . . CNW's earnings
could expand 10-15% annually in the late 1990s."
B. Union Pacific's Ties to CNW
18. Union Pacific has substantial business,
equity ownership, and financial ties to CNW. For example,
UP Rail, Inc., the Company's executive officers, the
Company, and Blackstone, among others, are parties to a
Second Amended and Restated Stockholders Agreement (the
"Shareholders Agreement"). Under the Shareholders
Agreement, CNW's executive officers must vote their CNW
shares for the election of a UP Rail designee to the Board
of Directors.
19. These same parties entered into another
agreement in 1993 (the "1993 Agreement"), pursuant to which
the Company agreed to use its best efforts to cause two
additional members of UP's senior management (the
"Additional Nominee"), to be nominated to the Board of
Directors as members of the class of directors serving for a
term ending on the date of CNW's 1995 annual meeting. The
Additional Nominees were elected to the CNN Board, such
election to be effective on April 6, 1995. On that date,
Union Pacific will have three directors on the CNW Board.
20. Moreover, as noted previously, Union Pacific
beneficially owns 12,835,304 shares of Non-Voting Common
Stock of CNW. Under a Standstill Agreement with CNW, Union
Pacific agreed not to acquire more than 30% of the aggregate
outstanding common stock and non-voting common stock of the
Company prior to April 6, 1994. The Standstill Agreement
terminated in July 1993.
C. Union Pacific's Efforts to
Increase its Control Over the Company
21. Over the last several years, Union Pacific
has sought to increase its influence and control over CNW's
business and operations. Among other things, Union Pacific
applied to the Interstate Commerce Commission (the "ICC")
for an order authorizing "common control" of CNW and UP Rail
as well as conversion of Union Pacific's Non-voting
Preferred Stock into CNW common stock. Union Pacific also
requested from the ICC an order, inter alia, permitting
Union Pacific to acquire additional shares of CNW common
stock and allowing the further coordination of services
between the companies' respective railroad subsidiaries.
22. On March 7, 1995, the ICC consented to the
foregoing requests, and on April 6, 1995, the approval will
be final and effective. At such time, Union Pacific will
exercise control over 29% of CNW's common shares, and the
Additional Nominees will be added to CNW's nine-member Board
of Directors.
23. Immediately upon receiving ICC approval,
Union Pacific publicly disclosed in a 13-D filing with the
Securities and Exchange Commission that it was considering
acquiring the remaining shares of CNW. On or about March
10, 1995, CNW and Union Pacific announced that they had
reached an agreement whereby union Pacific would purchase
all of CNW's common stock for $35 cash per share, for a
total of $1.2 billion.
24. Union Pacific's prospective acquisition of
CNW comes on the heels of and is activated by its aborted
efforts to acquire control of Santa Fe Pacific Corporation
("Santa Fe"), which has agreed to be acquired by Burlington
Northern Inc. Having failed in its efforts to acquire Santa
Fe, Union Pacific is now turning to CNW as a means of
expanding its railroad operations and increasing its
presence and influence in the railroad markets in which it
operates.
25. CNW and the Individual Defendants are
obligated in connection with any contemplated transfer of
control of CNW to seek to maximize shareholder value by such
means as an auction, active market check or other
exploration of strategic alternatives under the
circumstances. CNW and the Individual Defendants have
failed to implement such procedures for the maximization of
shareholder value and are permitting the transfer of control
of CNW and its assets at a value which fails to reflect the
enhanced long-term value of its stock given the positive
trends CNW has consistently shown in revenues and net
income. Nor have the Individual Defendants sought to create
any "Special Committee" of fully independent and
disinterested directors who will act objectively and in the
ultimate beat interests of all shareholders of CNW.
26. Plaintiff and other members of the Class will
be damaged in that they will not receive their fair
proportion of the value of CNW's assets and business, and
will be prevented from obtaining a fair price for their
shares of CNW's common stock.
27. Plaintiff and the Class are immediately
threatened by the acts and transactions complained of herein
which have caused and will cause irreparable injury to them.
REQUEST FOR RELIEF
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this to be a proper Class Action;
B. Declaring that defendants have breached and
are breaching their fiduciary duties to plaintiff and the
members of the Class;
C. Preliminarily and permanently enjoining the
defendants and their counsel, agents, employees and all
persons acting under, in concert with or for them, from
proceeding with, consummating, or closing a change in
control of CNW;
D. Awarding compensatory damages against
defendants individually and severally in an amount to be
determined at trial, together with prejudgment interest at
the maximum rate allowable by law, arising from defendants'
wrongful conduct;
E. Awarding plaintiff his costs and
disbursements and reasonable allowances of fees for
plaintiff's counsel and experts and reimbursement of
expenses; and
F. Granting plaintiff and the Class such other
and further relief as the Court may deem just and proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By:
First Federal Plaza
Suite 214
Wilmington, DE 19899
(302) 656-4433
Of Counsel:
WECHSLER SKIRNICK HARWOOD HALEBIAN
& FEFFER LLP
805 Third Avenue, 7th Floor
New York, NY 10022
