SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1) of the
Securities Exchange Act of 1934
Amendment No. 2
and
SCHEDULE 13D
under the Securities Exchange Act of 1934
(Amendment No. 13)
Chicago and North Western Transportation Company
(Name of Subject Company)
Union Pacific Corporation
Union Pacific Holdings, Inc.
UP Rail, Inc.
(Bidders)
Common Stock, Par Value $.01 Per Share
(Title of class of securities)
167155 10 0
(CUSIP number of class of securities)
Richard J. Ressler, Esq.
Assistant General Counsel
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 on behalf of bidders)
with a copy to:
Paul T. Schnell, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
This Amendment No. 2 amends and supplements the Statement on
Schedule 14D-1 relating to the tender offer by UP Rail, Inc. (the
Purchaser ), a Utah corporation and a wholly owned subsidiary of
Union Pacific Holdings, Inc., a Utah corporation ("Holdings"),
and an indirect wholly owned subsidiary of Union Pacific
Corporation, a Utah corporation ( Parent ), to purchase all
outstanding shares of Common Stock, par value $.01 per share (the
Common Stock ), of Chicago and North Western Transportation
Company, a Delaware corporation (the Company ).
Unless otherwise indicated herein, each capitalized term
used and not defined herein shall have the meaning assigned to
such term in Schedule 14D-1 or in the Offer to Purchase referred
to therein.
ITEM 10. ADDITIONAL INFORMATION.
The information set forth in Item 10(e) of Schedule 14D-1 is
hereby amended and supplemented by the following information:
On March 28, 1995, an Amended Class Action Complaint,
amending two previously filed class action complaints entitled
Herbert Feiwel, IRA Rollover Account v. James E. Martin et al.
(C.A. No. 14109) and Kenneth Steiner v. Richard K. Davidson et
al. (C.A. No. 14111), was filed in the Court of Chancery in
Delaware. The Amended Class Action Complaint reiterates the
claims made in the earlier complaints which it amended, and also
alleges, among other things, (i) that Blackstone, the investment
bank retained by the defendants to render a fairness opinion in
connection with the Offer, is not disinterested or independent
and has a conflict of interest with regard to the Offer, (ii)
that the defendants breached or aided and abetted breaches of
their duties of good faith and loyalty by approving for
themselves and members of the Company's senior management
lucrative compensation packages and other financial benefits,
(iii) that the defendants structured the transaction in such a
way as to prevent the Company's public stockholders from voting
on the Merger or exercising dissenter's rights, and (iv) that the
defendants breached their duties of candor and full disclosure by
failing adequately to disclose, among other things, the
information described above, the reasons why the Company's Board
failed to implement a stockholders' rights plan and the reasons
for alleged discrepancies and variations between valuation ranges
for Company shares as prepared by the financial advisors of
Parent and the Company, respectively. A copy of such Amended
Class Action Complaint is attached hereto as Exhibit (g)(7) and
incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(g)(7) Amended Class Action Complaint entitled Herbert
Feiwel, IRA Rollover Account v. James E. Martin et
al. (C.A. No. 14109) and Kenneth Steiner v. Richard
K. Davidson et al. (C.A. No. 14111), filed in the
Court of Chancery in Delaware on March 28, 1995.
SIGNATURE
After due 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.
Dated: March 30, 1995
UNION PACIFIC CORPORATION
By: /s/ Carl W. von Bernuth
SIGNATURE
After due 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.
Dated: March 30, 1995
UNION PACIFIC HOLDINGS, INC.
By: /s/ Carl W. von Bernuth
SIGNATURE
After due 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.
Dated: March 30, 1995
UP RAIL, INC.
By: /s/ Carl W. von Bernuth
EXHIBIT INDEX
Exhibit No. Description
(g)(7) Amended Class Action Complaint entitled Herbert Feiwel,
IRA Rollover Account v. James E. Martin et al. (C.A. No.
14109) and Kenneth Steiner v. Richard K. Davidson et al.
(C.A. No. 14111), filed in the Court of Chancery in
Delaware on March 28, 1995.
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
----------------------------------------x
:
HERBERT FEIWEL, IRA ROLLOVER ACCOUNT, :
:
Plaintiff, :
: C.A. No. 14109
-against- :
:
JAMES E. MARTIN, JAMES J. MOSSMAN, :
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
KENNETH STEINER, :
:
Plaintiff, :
:
-against- : C.A. No. 14111
:
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
NOTICE OF FILING AMENDED
CLASS ACTION COMPLAINT
TO: Thomas J. Allingham, II, Esquire
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, DE 19801
Thomas Reed Hunt, Jr., Esquire
Morris, Nichols, Arsht & Tunnell
1201 N. Market Street
Wilmington, DE 19801
PLEASE TAKE NOTICE that plaintiffs herewith
file the within Amended Class Action Complaint as of course
pursuant to Rule 15(a) .
In compliance with Rule 15(aa), plaintiffs
aver that the within Amended Complaint is in full
substitution for the Complaints filed in Civil Action Nos.
14109 and 14111.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By /s/ Joseph A. Rosenthal
First Federal Plaza
P.O. Box 1070
Wilmington, DE 19801
Attorneys for Plaintiffs
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
----------------------------------------x
HERBERT FEIWEL, IRA ROLLOVER ACCOUNT, :
:
Plaintiff, : C.A. No. 14109
:
-against- :
JAMES E. MARTIN, JAMES J. MOSSMAN, :
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
KENNETH STEINER, :
:
Plaintiff, :
:
-against- : C.A. No. 14111
:
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
AMENDED CLASS ACTION COMPLAINT
Plaintiffs, by their attorneys, for their amended
class action complaint against defendants, allege upon
personal knowledge with respect to paragraph 3, and upon
information and belief based, inter alia, upon the
investigation of counsel as to all other allegations herein,
as follows:
NATURE OF THE ACTION
1. This is a stockholders' class action on behalf
of the public stockholders of Chicago and North Western
Transportation Company ("CNW" or the "Company") against the
members of the Board of Directors of CNW (the "Individual
Defendants") and Union Pacific Company, which, through
subsidiaries, currently owns an approximate 29% interest in
the Company. As described below, the individual Defendants
have caused the Company to enter into a merger agreement
with Union Pacific pursuant to which CNW's public
shareholders will be paid $35 cash for their shares of CNW
stock in a two-step transaction, consisting of a tender
offer followed by a merger for untendered shares. In so
doing, the Individual Defendants have breached their
fiduciary duties of loyalty and due care, failed to make
full and adequate disclosure to the Company's public
shareholders, and failed to assure themselves that the
proposed transaction represents the best value reasonably
available to the Company's public shareholders in connection
with the sale of their shares.
2. In particular, as set forth more fully below,
the Individual Defendants:
* considered, "negotiated," and approved
the proposed transaction at a single meeting of the Board of
Directors when no exigent circumstances existed
necessitating such haste and lack of due deliberation;
* failed to auction CNW, determine whether
third-parties would be interested in purchasing the Company
on superior financial terms, or actively explore other
possibly value-maximizing transactions;
* retained to render a fairness opinion --
purportedly for the benefit of the Company's public
shareholders -- an investment banking firm that: (i) is
being paid $6 million for less than two weeks of work, which
monies are contingent on the transaction being consummated;
(ii) through an affiliated entity, took the Company private
in 1989 and then public several years later, is currently a
party to certain shareholder and rights agreements with the
Company and Union Pacific, and, as recently as 1993, owned
half a million shares of CNW stock, which shares it sold to
Union Pacific; (iii) has a General Partner on the CNW Board
who voted on the merger agreement despite his prospective
receipt of substantial personal compensation in connection
with the transaction; and (iv) for all the foregoing
reasons, is not disinterested or independent with regard to
the challenged transaction;
* Arranged for senior management of the
Company to receive millions of dollars in cash compensation
and other financial benefits in connection with the
transaction by approving, among other things, lucrative
change of control agreements, options that will immediately
be payable in cash, monies cryptically referred to in the
proxy materials as "separate payments," and charitable
contributions said to be "in honor" of CNW's Chairman of the
Board;
* failed to constitute a special committee
to evaluate and approve the transaction, despite the fact
that over half of the members of the CNW Board that voted on
the merger agreement were interested in the transaction or
have disabling conflicts; and
* failed to provide CNW's public
shareholders -who likely will not have the opportunity to
vote or exercise dissenters' rights in connection with the
transaction -- with material facts necessary to determine
whether to tender their CNW shares.
3. The harm and injury that will be suffered by
plaintiffs and the other members of the Class is immediate
and irreparable. Under the circumstances, preliminary
and/or permanent injunctive relief is necessary and
appropriate.
PARTIES
4. Plaintiffs are holders of common stock of CNW
and have held their shares at all times material hereto.
5. Defendant 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 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. As of October 15, 1994, the Company had
44,059,760 shares of common stock outstanding.
6. 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.
7. Defendant Richard K. Davidson ("Davidson") is,
and at all relevant times was, Chairman and Chief Executive
Officer of defendant Union Pacific Company. Defendant
Davidson is also a director of CNW.
8. 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.
9. As of March 16, 1995, the Individual
Defendants, together with the other executive officers of
the Company, owned shares and options representing 2.49% of
CNW's outstanding shares on a fully diluted basis.
10. 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 plaintiffs and the other members of the Class.
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
interest at the expense of CNW and its shareholders.
11. (a) Defendant 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 and rights agreements, described more fully
below, with, inter alia, the Company's executive officers
and CNW, the cumulative effect of which is to enhance Union
Pacific's influence over the Company. Through its
representation on CNW's Board of Directors, stock ownership
in the Company, and collaborative business relationships
with CNW, 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.
(d) Union Pacific recently aborted its
efforts to acquire control of Santa Fe Pacific Corporation
("Santa Fe"), which agreed to be acquired by Burlington
Northern Inc. As described below, having failed in its
efforts to acquire Santa Fe, Union Pacific has now turned to
CNW as a means of expanding its railroad operations and
increasing its presence and influence in the railroad
markets in which it operates.
(e) Unless otherwise indicated, Union
Pacific Company, Union Pacific Holdings, Inc., and UP Rail,
Inc. are collectively referred to herein as "Union Pacific."
12. Each defendant herein is sued individually as
a conspirator and aider and abettor, and the liability of
each arises from the fact that they have engaged in all or
part of the unlawful acts, plans, schemes, or transactions
complained of herein.
CLASS ACTION ALLEGATIONS
13. Plaintiffs bring this action pursuant to Rule
23 of the Rules of Court of Chancery on their 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), who are
or will be threatened with injury arising from defendants'
actions as more fully described herein.
14. 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 is, 1994, the
Company had 44,059,760 shares of common stock outstanding,
and there are thousands of shareholders of record or
beneficial owners.
(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 and which predominate over
questions affecting any individual Class member. The common
questions include, inter alia, the following:
(1) whether defendants breached or
aided and abetted the breach of the fiduciary and common law
duties which they owe to plaintiffs and the other members of
the Class;
(2) whether defendants are engaging in
a plan or scheme to unlawfully shift control and ownership
of CNW to Union Pacific;
(3) 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
(4) whether plaintiffs 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 plaintiffs are typical of
the claims of the Class in that all members of the Class
will be damaged by defendants' actions,
(e) Plaintiffs are committed to vigorously
prosecuting this action and have retained competent legal
counsel experienced in litigation of this nature.
Plaintiffs are adequate representatives of the class.
15. 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.
16. 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
BACKGROUND
17. 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 Capital").
The Company thereafter went public in 1992. Blackstone
Capital sold substantially all of its shares in connection
with a secondary offering of CNW stock in 1993.
18. CNW has enjoyed steadily improving financial
results over the last several years. Operating revenues
have increased every year since 1989. For example,
operating revenues in 1992 were $985 million, rising to
$1,034.2 million in 1993, and further rising to $1,129.8
million in 1994. 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 per share.
19. By all accounts, these growth trends are
expected to continue over the next four to five years.
Financial projections for CNW contained in the March 23,
1995 Tender Offer Statement on Schedule 14D-1 (the "Tender
Offer Statement"), indicate that from 1995 to 1999,
consolidated revenue will increase from $1.269 million to
$1,833 million, not income will increase from $115.4 million
to $257.7 million, and earnings per share will increase from
$2.50 per share to $5.60 per share.
20. The investment community also recognizes the
strength of the Company and has forecasted continued robust
growth and improving financial results 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 internodal revenues (12% of total) are
growing rapidly, aided by new internodal facilities . . .
CNW's earnings could expand 10-15% annually in the late
1990s."
UNION PACIFIC'S TIES TO CNW
21. 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 Capital, among others, are parties
to a Second Amended and Restated Stockholders Agreement (the
"Stockholders Agreement"). Under the Stockholders
Agreement, CNW's executive officers must vote their CNW
shares for the election of one UP Rail designee to the Board
of Directors (that person is director Richard K. Davidson).
The Stockholders Agreement also provides for certain rights
of first refusal on behalf of Union Pacific in the event
that, among other things, the Company determines to sell all
or substantially all of its assets to a third party.
22. These same parties entered into a
supplemental agreement in 1993 (the "1993 Agreement"),
pursuant to which the Company agreed to use its best efforts
to cause two additional members of Union Pacific'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. In furtherance of these commitments, the
Additional Nominees were recently 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, which will have nine members.
23. As noted previously, moreover, 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.
24. Further cementing Union Pacific's close ties
to CNW, director James R. Thompson is the law partner of
Thomas Reynolds, who is a director of Union Pacific.
UNION PACIFIC'S APPLICATION TO THE ICC FOR "COMMON CONTROL"
25. On January 29, 1993, 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 (the "Control Application"). 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. On December 13, 1994, the commissioners of
the ICC voted to approve the control Application effective
on the publication by the ICC of a written opinion.
EVENTS LEADING TO THE MERGER TRANSACTION
26. On February 28, 1995, the Individual
Defendants reviewed with management CNW's Five-Year Business
Plan and gave consideration to the adoption of a stockholder
rights plan. Such a plan would have given CNW's Board of
Directors enhanced leverage in negotiating a transaction
that would provide the best value reasonably available to
the Company's public shareholders. The plan, however, was
never adopted.
27. On March 7, 1995, the ICC issued a written
opinion approving the Control Application -- the approval
will be final and effective on April 6, 1995. Having
received approval to acquire "common control" of CNW, the
remaining shares of CNW held by the investing public
represent a valuable asset to Union Pacific as to which the
Individual Defendants were and are obligated to obtain the
maximum price in connection with a transfer of control.
28. Immediately upon receiving ICC approval,
Union Pacific publicly disclosed in a Schedule 13-D filing
with the Securities and Exchange Commission that it was
considering acquiring the remaining publicly-held shares of
CNW. As a result of the announcement, Union Pacific
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 the price offered in an acquisition of CNW
common shares.
29. Also on March 7, 1995, Drew Lewis, Chairman
and Chief Executive Officer of Union Pacific, discussed with
defendant Schmiege a possible acquisition of CNW, at a
price, according to the Tender Offer Statement, in the
"lower $30 per share range." A Special Meeting of the CNW
Board of Directors was then called for March 9, 1995, to
consider a possible acquisition of the Company by Union
Pacific.
30. At the March 9, 1995 Special Meeting of the
Board, the Individual Defendants considered, ostensibly
negotiated and ultimately approved the proposed sale of CNW
to Union Pacific for $35 per share. As an initial matter,
the Board "confirmed" that Blackstone Group L.P.
("Blackstone Group") (an affiliate of Blackstone Capital),
had been retained to act as exclusive financial adviser to
CNW and render a fairness opinion with regard to the
proposed transaction. For these services -- which consisted
of less than two weeks worth of work in a context where the
firm, was already intimately familiar with CNW's business
and operations -- the Individual Defendants agreed to pay
Blackstone Group $6 million, which sum is contingent on a
transaction being consummated.
31. During a recess in the meeting, Mr. Lewis
proposed to defendant Schmiege that Union Pacific would
acquire CNW for $34 per share. Defendant Schmiege reported
this conversation with Mr. Lewis to the Board, which,
according to the Tender Offer Statement, told him to
"attempt to increase" the consideration being offered for
the Company. During another recess, Mr. Lewis agreed to
increase the consideration offered to $35 per share, and the
price was swiftly rubber-stamped by Blackstone Group and
agreed to by the CNW Board.
32. The merger agreement was executed several
days later, on March 16, 1995. The Tender Offer Statement
describing the transaction was disseminated on March 23, 1995.
THE INDIVIDUAL DEFENDANTS' BREACHES OF FIDUCIARY
DUTY IN CONNECTION WITH THE PROPOSED TRANSACTION
33. The Individual Defendants fundamentally
breached their fiduciary duties of due care, loyalty and
complete candor in considering, approving and disclosing the
proposed merger transaction between CNW and Union Pacific.
THE COMPANY'S FINANCIAL ADVISERS
LACK INDEPENDENCE TO RENDER FAIR
AND ADEQUATE VALUATIONS AND OPINION
34. As noted above, the Individual Defendants
retained Blackstone Group to serve as exclusive financial
adviser with respect to the sale of CNW. Blackstone Group,
however, is not independent or disinterested with regard to
the proposed transaction.
35. First, Blackstone Capital is an affiliate of
Blackstone Group, which led the going private transaction of
CNW in 1989 and facilitated the public offerings of CNW in
1992: Union Pacific was actively involved in and a party to
both transactions. Moreover, Blackstone Capital previously
owned thousands of shares of CNW stock, which it sold to
Union Pacific in 1993. In addition, James J. Mossman, a
general partner of Blackstone Group, is a member of the
Board of Directors of the Company and receives cash
compensation in connection with his directorship on the CNW
Board. Blackstone Capital is also a party to the
Stockholders Agreement and the 1993 Agreement, which provide
for certain rights and entitlements as between Blackstone
Capital, CNW and Union Pacific. Given these dual loyalties
and pre-existing affiliations with both the buyer and the
seller in the proposed transaction, Blackstone Group was and
is in a conflicted position and is unable to render an
objective opinion with respect to the fairness of any
transaction involving Union Pacific and the Company.
36. Further blurring any independence which
Blackstone purports to possess, Blackstone Group's $6
million fee is entirely contingent on the consummation of a
transaction. Rather than being paid to render a purportedly
objective opinion for the benefit of the Company's public
shareholders, Blackstone Group is in reality being paid
merely to facilitate and rubber-stamp the proposed sale of
CNW to Union Pacific. Thus, Blackstone Group had every
incentive to conclude that the proposed transaction is fair
to the Company's public shareholders and a huge disincentive
to any contrary inclination.
37. In rendering its opinion to the CNW Board,
moreover, Blackstone Group vastly understated the value
ranges for CNW's common shares by utilizing financial
forecasts that did not accurately assess the Company's
optimistic future prospects. Indeed, the Tender Offering
Statement indicates that Union Pacific provided to its
financial adviser, CS First Boston, financial forecasts that
represented a more "realistic estimate" of the Company, a
future performance then the forecasts used by Blackstone
Group. As a result, CS First Boston derived per share
values for CNW that exceeded -- in some instances by
significant amounts -- the per share value ranges for CNW
derived by Blackstone Group upon which the Individual
Defendants predicated their decision to proceed with the
Union Pacific transaction.
THE INDIVIDUAL DEFENDANTS FAILED TO
EXERCISE DUE CARE IN CONSIDERING
AND APPROVING THE PROPOSED TRANSACTION
38. The Individual Defendants fundamentally
failed to exercise due care in considering and approving the
proposed transaction. First, there were no exigent
circumstances existing during the discussions with Union
Pacific that required the Individual Defendants to hastily
consider and approve the sale of CNW to Union Pacific at a
single meeting of the Board. Nor did the Board actively
attempt to negotiate a meaningfully higher acquisition price
for the Company's publicly-held shares, instead agreeing to
Union Pacific's first and only offer to increase the
purchase price $1 per share.
39. The Individual Defendants also inexplicably
failed to create a special committee to evaluate the
proposed transaction despite disabling conflicts held by a
majority of the CNW Board. Of the six CNW Board members who
voted on the transaction, two are members of CNW management
who will receive substantial financial and other
compensation in connection with the transaction (Schmiege
and Martin); one is a general partner of Blackstone Group,
which will receive $6 million for rendering the fairness
opinion (Mossman); and one is a co-partner in a law firm
with a director on the Board of Directors of Union Pacific
(Thompson).
40. The Individual Defendants further failed to
adequately assess whether a price greater than $35 per share
could be obtained for the Company's publicly-held shares.
No auction of CNW was ever conducted, nor was Blackstone
Group instructed to approach third parties to solicit or
explore interest in acquiring the Company. The individual
Defendants also failed to seriously explore a transaction
other than a sale of the Company, despite the fact that
several model transactions formulated by Blackstone Group
projected per share values substantially higher then the $35
per share being offered to CNW's shareholders in connection
with the transaction agreed to by the CNW Board.
THE INDIVIDUAL DEFENDANTS BREACHED
THEIR DUTIES OF GOOD FAITH AND LOYALTY
41. The Individual Defendants also fundamentally
breached their fiduciary duties of loyalty and good faith by
approving for themselves and members of CNW management
lucrative compensation packages and other financial
benefits. Among other things, the Individual Defendants
approved and adopted extremely lucrative "Change of Control
Employment Agreements" (i.e., Golden Parachutes), which
provide for exorbitant payments to defendant Martin and
other members of senior management upon a change of control
of the Company. The circumstances under which the Change of
Control Employment Agreements were reached are highly
suspicious, being entered into, at, or around the time that
preliminary approval was given by the ICC in December 1994
to permit an increase in the ownership interest of CNW held
by Union Pacific.
42. The Merger Agreement also provides for the
receipt by officers with Golden Parachutes of "Separate
Payments" totalling in the aggregate $15 million. All that
CNW's officers are required to do to receive their "Separate
Payments" is relinquish whatever rights they may have under
the Stockholders Agreement and the 1993 Agreement and waive
any claim they may have against the Company.
43. The Merger Agreement also provides for the
cancellation of options held by CNW officers who will
receive cash representing the difference between the $35
purchase price under the Merger Agreement and the exercise
price of the options. Under this arrangement, defendant
Schmiege will receive a cash payment of over $13.5 million,
and all executive officers of CNW as a group in excess of
$26 million.
44. Defendant Schmiege also arranged to have
Union Pacific contribute $1.5 million to charities of his
choice. The donations to Schmiege's charities are payable
over a period of five years.
THE INDIVIDUAL DEFENDANTS HAVE ARRANGED TO
PREVENT CNW'S PUBLIC SHAREHOLDERS FROM VOTING
ON THE TRANSACTION OR EXERCISING DISSENTER'S RIGHTS.
45. Defendants have further endeavored to
preclude CNW's public shareholders from voting on the
proposed merger transaction and exercising dissenter's
rights. Specifically, the merger Agreement provides that
should Union Pacific acquire between 85% and 90% of CNW's
common shares, Union Pacific shall have an option to acquire
from CNW such number of shares as will increase its
ownership interest to 90% or greater. Under Delaware law,
Union Pacific will then be able to approve and adopt the
Merger Agreement without a vote of the Company's
shareholders.
46. In approving and adopting this mechanism,
defendants have unilaterally facilitated a lowering of the
threshold for implementing a short-form merger transaction
from 90% to 85%. This was agreed to by the Individual
Defendants without obtaining for the Company or its public
shareholders any separate consideration or financial
benefits. In this regard, the structure of the option
agreement between CNW and Union Pacific appears to involve a
payment from Union Pacific to CNW of $35 for each share of
CNW stock to be issued under the option agreement. However,
since Union Pacific expects to control CNW after the
transaction is consummated, Union Pacific will effectively
be paying such monies to itself. Thus, the option
agreement, which is designed to deprive minority
shareholders the opportunity to vote on the proposed
transaction, will have been obtained by Union Pacific
without meaningful, if any, consideration.
47. Defendants also intend to preclude the
Company's public shareholders from exercising dissenters,
rights. Stockholders of the Company will not have
dissenters' rights under state law, unless (a) Union Pacific
and the Company elect to seek, and obtain, a declaratory
order that the class exemption for mergers within a
corporate family is available for the Merger, or (b) the ICC
(or any successor agency) or a court of competent
jurisdiction determines that state-law dissenters' rights
are available to holders of Shares. According to the Tender
Offer Statement, Union Pacific will not seek the declaratory
order described in the preceding sentence. As such,
dissenters, rights will likely not be available to
plaintiffs and the other members of the Class.
DEFENDANTS' MATERIALLY MISLEADING AND DEFICIENT
DISCLOSURES IN THE TENDER OFFER STATEMENT
48. The Individual Defendants -- aided and
abetted by Union Pacific -- further breached their fiduciary
duties of candor and full disclosure in connection with the
proposed merger transaction. In particular, the Tender
Offer Statement provides wholly inadequate information
regarding the terms of the Merger Agreement, the retention
of Blackstone Group, the negotiations between Union Pacific
and CNW, and the Board's discussions in considering and
approving the transaction. Specifically, the Tender Offer
Statement does not adequately disclose:
* the proposed purchase prices for CNW
discussed between Messrs. Lewis and Schmiege during the
recesses of the March 9, 1995 special meeting;
* the nature of the discussions concerning
the Board's consent to the option agreement and the putative
benefits to CNW arising from that agreement;
* the fact that Blackstone's fees are
contingent on the outcome of the proposed transaction
(indeed, a shareholder could only discern this fact by
reading the retainer agreement, which is an exhibit to the
Tender Offer Statement);
* the purpose of the Special Payments to
be received by officers with Golden Parachutes and the
background and genesis of the contributions to be made by
Union Pacific to charities designated by defendant Schmiege;
* why the Individual Defendants failed to
seriously explore and consider alternative transactions to
the sale of CNW to Union Pacific (particularly when the
Blackstone Group had opined that several such transactions
could provide greater values to the $35 per share offered by
Union Pacific), and why the financing of several such
alternatives was, in Blackstone Group's view, "uncertain";
* why the individual Defendants
considered, negotiated and approved the proposed transaction
during a single Board meeting when the circumstances
warranted and allowed for a more deliberate and informed
evaluation of the transaction;
* the specific assumptions underlying the
forecasts of CNW's projected financial results;
* the reasons why the Individual
Defendants failed to implement a stockholder rights plan,
which would have given CNW substantially greater leverage in
negotiating a more favorable acquisition on behalf of the
Company's public shareholders; and
* the reason or reasons for the
substantial discrepancies and variations as between the
valuation ranges for CNW's shares that were prepared by the
Blackstone Group on the one hand and Union Pacific's
financial adviser, CS First Boston -- also based on CNW
Management's projections and yielding far higher values for
CNW -- on the other hand.
49. By reason of its substantial stock ownership
in and significant business relationships with CNW, Union
Pacific is in possession of nonpublic information concerning
CNW, which neither Union Pacific nor the other defendants
have disclosed to CNW's public stockholders. The proposed
Merger Agreement allows defendant Union Pacific to bid for
and purchase the assets of CNW using nonpublic information
and usurping assets for its own gain and to the detriment of
plaintiffs and the other members of the Class. In addition,
by virtue of its due diligence investigation of CNW, Union
Pacific has been privy to material nonpublic information
concerning CNW's business. Union Pacific has positioned
itself to purchase the outstanding shares of CNW at an
unreasonably low and unfair price to the detriment of the
public stockholders of the Company. Such a merger between
Union Pacific and CNW will allow Union Pacific to strengthen
its position in its business without paying adequate
consideration for CNW shares. Union Pacific is knowingly
and substantially assisting in, and benefitting from, the
Individual Defendants' breaches of fiduciary duties, and is
thereby aiding and abetting such breaches.
50. By virtue of its substantial stock ownership
of the Company, coupled with the Individual Defendants,
approval of the proposed transaction, Union Pacific has
effectively precluded any other bidder from offering to
acquire 100% of the Company's common stock or offering any
other strategic alternative to maximize shareholder value.
The minority stockholders will have no effective recourse
other than to surrender their stock to Union Pacific
pursuant to the proposed transaction.
51. The proposed purchase price of $35 per share
to be paid to CNW's stockholders does not represent the true
value of the Company and is unfair and grossly inadequate.
The terms of the proposed merger constitute unfair dealing
with respect to the minority shareholders because, among
other things:
(a) The $35 per share price is inadequate
and grossly unfair as it does not reflect the dramatically
improving prospects of the Company and its substantial
improvements in operating performance in recent quarters and
the anticipated continued growth and improvement in
operating performance in the Company's future; and
(b) The $35 per share price is not the
result of arm's length negotiations and was not based upon
any independent evaluation of CNW's securities, assets or
business.
52. The proposed transaction will deny class
members their right to share proportionately in the true
value of CNW's valuable and profitable business, and future
growth in profits and earnings, at a time when the company
is poised to increase its profitability. Because the
defendants are privy to the business and corporate affairs
of CNW and are in possession of material corporate
information concerning CNW's assets, business, and future
financial prospects, a gross disparity of information and
economic power exists between defendants and the minority
stockholders of CNW, making it grossly and inherently unfair
for Union Pacific to seize ownership of CNW's assets for the
unfair and inadequate value which the defendants and those
acting in concert with them have fixed.
53. The Individual Defendants are obligated in
connection with a sale of the Company and/or 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. The individual Defendants have failed to
implement such procedures for the maximization of
shareholder value and are permitting the sale of CM 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. Defendants
have not engaged in any effort to solicit competing bids for
the Company or to explore other strategic alternative
involving other potential parties. 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.
54. The defendants, contrary to their fiduciary
duties, have not taken steps to:
(a) adequately ensure that no conflicts of
interest exist or if such conflicts exist to ensure that all
conflicts are resolved in the best interests of CNW's public
stockholders;
(b) enhance CNW's value and attractiveness
as a merger/acquisition candidate;
(c) appropriately evaluate CNW's worth as a
merger/acquisition candidate;
(d) effectively expose CNW to the
marketplace in an effort to create an active auction or
market check for CNW;
(e) provide CNW's stockholders with adequate
information to enable them to make an informed decision
regarding their investment in the Company; and
(f) prevent defendant Union Pacific from
obtaining benefits from the proposed merger transaction not
shared by the public shareholders.
55. By reason of the foregoing, the individual
Defendants have violated their fiduciary duties to CNW and
the public stockholders of CNW in that they have acted
against the best interests of the Class, have failed to
maximize shareholder value (including failing to actively
pursue the acquisition of CNW by other companies or
conducting a fair and open auction or market check), and
have otherwise failed to take other steps to protect the
interests of the class.
56. In addition, the individual Defendants have
breached their duty of due care by failing to adequately
assess the proposed transaction in a deliberate and careful
manner; but rather they quickly entered into an agreement to
effect a change in control of the Company in a single day's
negotiations, without the benefit of a thoughtful and
prudent analysis of the proposed transaction in light of all
of the possible alternatives.
57. Each of the defendants has rendered
substantial assistance in the accomplishment of the
wrongdoing complained of herein. in taking the actions, as
particularized herein, to aid and abet and substantially
assist the wrongs complained of, all defendants acted with
an awareness of the primary wrongdoing and realized that
their conduct would substantially assist the accomplishment
of that wrongdoing and were aware of their overall
contribution to the conspiracy, common scheme and course of
wrongful conduct.
58. By reason of its substantial stock ownership
and several close business relationships with the Company,
Union Pacific owes a fiduciary duty to the minority public
shareholders of CNW, and has violated that duty by the
proposed transaction for inadequate consideration.
59. By reason of the foregoing, plaintiffs 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
fair consideration for their shares of CNW's common stock.
60. Plaintiffs and the Class are immediately
threatened by the acts and transactions complained of herein
which have caused and will cause irreparable injury to them.
61. Plaintiffs and the class have no adequate
remedy at law.
REQUEST FOR RELIEF
WHEREFORE, plaintiffs demand 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 plaintiffs and the other 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 or consummating the proposed acquisition of
CNW by Union Pacific or, if it is consummated, granting
rescission or rescissory damages to the Class;
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 plaintiffs their costs and
disbursements and reasonable allowances of fees for
plaintiffs, counsel and experts and reimbursement of
expenses; and
F. Granting plaintiffs and the Class such
other and further relief as the Court may deem just and
proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /s/ Joseph A. Rosenthal
___________________________
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
GOODKIND LABATON RUDOFF & SUCHAROW
100 Park Avenue
New York, New York 10017
(212) 907-0700
CERTIFICATE OF SERVICE
I, Joseph A. Rosenthal, do hereby certify that on
March 28, 1995, 1 caused copies of the foregoing Notice of
Filing Amended Class Action Complaint be served on
defendants' counsel as follows:
Thomas J. Allingham, II, Esquire
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, DE 19801
Thomas Read Hunt, Jr., Esquire
Morris, Nichols, Arsht & Tunnel[
1201 N. Market Street
Wilmington, DE 19801
/s/ Joseph A. Rosenthal
Joseph A. Rosenthal
