As filed with the Securities and Exchange Commission on March 3, 2000
Registration Nos. 333-94399 and 333-94397
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------
AMENDMENT NO. 2
TO
FORMS F-4 and S-4
REGISTRATION STATEMENTS
UNDER
THE SECURITIES ACT OF 1933
-----------------------
CANADIAN NATIONAL RAILWAY COMPANY
NORTH AMERICAN RAILWAYS, INC.
(Exact name of each Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Canada 4011 E.I. 980018609
Delaware 4011 75-2852945
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
935 de La Gauchetiere St. West 2650 Lou Menk Drive, 2nd Floor
Montreal, Quebec H3B 2M9 Fort Worth, Texas 76161-2830
Canada (817) 333-2000
(514) 399-5966
(Addresses, Including Zip Codes, and Telephone Numbers, including Area Codes, of Registrants' Principal Executive Offices)
-----------------------
Jean Pierre Ouellet Jeffrey R. Moreland
Canadian National Railway Company North American Railways, Inc.
935 de La Gauchetiere St. West 2650 Lou Menk Drive, 2nd Floor
Montreal, Quebec H3B 2M9 Fort Worth, Texas 76161-2830
Canada (817) 333-2000
(514) 399-2100
(Names, Addresses, Including Zip Code, and Telephone Numbers, Including Area Codes, of Agents for Service)
-----------------------
Copies to:
Winthrop B. Conrad, Jr. Scott J. Davis
David L. Caplan Mayer, Brown & Platt
Davis Polk & Wardwell 190 South LaSalle Street
450 Lexington Avenue Chicago, IL 60603-3441
New York, New York 10017 (312) 782-0600
(212) 450-4000
</TABLE>
Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the effectiveness of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
===============================================================================
THE INFORMATION IN THIS JOINT PROXY STATEMENT/CIRCULAR/PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS JOINT PROXY STATEMENT/CIRCULAR/PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[PRELIMINARY DRAFT DATED MARCH 3, 2000, SUBJECT TO COMPLETION]
[FOR CANADIAN NATIONAL DOCUMENT ONLY]
[Canadian National LOGO]
COMBINATION PROPOSED - YOUR VOTE IS VERY IMPORTANT
Canadian National Railway Company and Burlington Northern Santa Fe Corporation
have entered into an agreement providing for the combination of our two
companies. This end-to-end combination of our railroads is intended to build on
the strengths of both companies and is expected to offer customers the most
extensive rail network in North America, with new single-line north-south
traffic routes, high-quality, efficient service and low implementation risk. As
a result, we believe the combined companies will be able to create
substantially more shareholder value than could be achieved by the companies
individually.
To comply with Canadian legal requirements that, among other things, prohibit
any person and that person's associates from holding more than 15% of the
voting rights in Canadian National, while ensuring that the combination will be
tax-efficient for each company's shareholders, the combined enterprise will
consist of two public companies: North American Railways, Inc. and Canadian
National. All shareholders will have voting interests in both North American
Railways and Canadian National and economic interests in the combined
companies.
As discussed elsewhere in this document, a number of actions will be taken to
ensure that North American Railways and Canadian National operate as a single
economic enterprise for the benefit of our combined shareholder group. These
arrangements include our agreement that the board of directors of each company
and the senior management of the combined enterprise will be identical after
the combination is completed.
In the combination, Burlington Northern Santa Fe shareholders will receive one
share of North American Railways common stock and one Canadian National voting
share for each Burlington Northern Santa Fe share.
In the combination, Canadian National shareholders will receive, for each
Canadian National share, 1.05 Canadian National voting shares and either 1.05
Canadian National exchangeable shares or 1.05 shares of North American Railways
common stock. The Canadian National exchangeable shares will be exchangeable at
any time on a one-for-one basis for shares of North American Railways common
stock. Canadian National shareholders who elect to receive the Canadian
National exchangeable shares will also receive the right to vote on matters
submitted to North American Railways shareholders in proportion to their
economic interest in the combined companies. Dividends paid on the North
American Railways common stock and the Canadian National exchangeable shares
will be equivalent.
Each share of North American Railways common stock will be "stapled" to a
Canadian National voting share and will trade as a single security. Similarly,
each Canadian National exchangeable share will be "stapled" to a Canadian
National voting share and will trade as a single security. We expect that the
stapled security consisting of North American Railways common stock and
Canadian National voting shares will be listed on the New York Stock Exchange,
The Chicago Stock Exchange, the Pacific Exchange and The Toronto Stock Exchange
and that the stapled security consisting of Canadian National exchangeable
shares and Canadian National voting shares will be listed on The Toronto Stock
Exchange.
We are asking Canadian National common shareholders and optionholders to
approve the plan of arrangement. We are also asking common shareholders of
Canadian National to vote on the election of Canadian National directors and
other Canadian National annual meeting matters described in this document.
Canadian National's board of directors, by a unanimous vote of all directors
voting, has approved the combination agreement and recommends that Canadian
National common shareholders and optionholders vote to approve the plan of
arrangement.
We cannot complete the combination unless shareholders of both companies
approve it. Approval of the Canadian National annual meeting matters is not a
condition to the combination.
The date, time and place of the Canadian National meeting is:
____________, ____________, 2000
________ a.m., Eastern Time
[Address]
The accompanying document provides you with detailed information about the
proposed combination. We encourage you to read the entire document carefully.
Paul M. Tellier David G.A. McLean
President and Chief Executive Officer Chairman of the Board
Canadian National Railway Company Canadian National Railway Company
See "Risk Factors" on page I-23 for a discussion of risks relevant to the
combination.
- --------------------------------------------------------------------------------
None of the U.S. Securities and Exchange Commission, any state securities
regulators or any Canadian securities regulators have approved the securities
to be issued under this joint proxy statement/circular/prospectus or determined
if this joint proxy statement/circular/prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
This joint proxy statement/circular/prospectus is dated _____ __, 2000, and is
being first mailed to shareholders on or about _____ __, 2000.
<PAGE>
THE INFORMATION IN THIS JOINT PROXY STATEMENT/CIRCULAR/PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS JOINT PROXY STATEMENT/CIRCULAR/PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[PRELIMINARY DRAFT DATED MARCH 3, 2000, SUBJECT TO COMPLETION]
[FOR BURLINGTON NORTHERN SANTA FE DOCUMENT ONLY]
[Burlington Northern Santa Fe LOGO]
COMBINATION PROPOSED - YOUR VOTE IS VERY IMPORTANT
Burlington Northern Santa Fe Corporation and Canadian National Railway Company
have entered into an agreement providing for the combination of our two
companies. This end-to-end combination of our railroads is intended to build on
the strengths of both companies and is expected to offer customers the most
extensive rail network in North America, with new single-line north-south
traffic routes, high-quality, efficient service and low implementation risk. As
a result, we believe the combined companies will be able to create
substantially more shareholder value than could be achieved by the companies
individually.
To comply with Canadian legal requirements that, among other things, prohibit
any person and that person's associates from holding more than 15% of the
voting rights in Canadian National, while ensuring that the combination will be
tax-efficient for each company's shareholders, the combined enterprise will
consist of two public companies: North American Railways, Inc. and Canadian
National. All shareholders will have voting interests in both North American
Railways and Canadian National and economic interests in the combined
companies.
As discussed elsewhere in this document, a number of actions will be taken to
ensure that North American Railways and Canadian National operate as a single
economic enterprise for the benefit of our combined shareholder group. These
arrangements include our agreement that the board of directors of each company
and the senior management of the combined enterprise will be identical after
the combination is completed.
In the combination, Burlington Northern Santa Fe shareholders will receive one
share of North American Railways common stock and one Canadian National voting
share for each Burlington Northern Santa Fe share.
In the combination, Canadian National shareholders will receive, for each
Canadian National share, 1.05 Canadian National voting shares and either 1.05
Canadian National exchangeable shares or 1.05 shares of North American Railways
common stock. The Canadian National exchangeable shares will be exchangeable at
any time on a one-for-one basis for shares of North American Railways common
stock. Canadian National shareholders who elect to receive the Canadian
National exchangeable shares will also receive the right to vote on matters
submitted to North American Railways shareholders in proportion to their
economic interest in the combined companies. Dividends paid on the North
American Railways common stock and the Canadian National exchangeable shares
will be equivalent.
Each share of North American Railways common stock will be "stapled" to a
Canadian National voting share and will trade as a single security. Similarly,
each Canadian National exchangeable share will be "stapled" to a Canadian
National voting share and will trade as a single security. We expect that the
stapled security consisting of North American Railways common stock and
Canadian National voting shares will be listed on the New York Stock Exchange,
The Chicago Stock Exchange, the Pacific Exchange and The Toronto Stock Exchange
and that the stapled security consisting of Canadian National exchangeable
shares and Canadian National voting shares will be listed on The Toronto Stock
Exchange.
We are asking Burlington Northern Santa Fe shareholders to approve the
combination agreement and the transactions that it contemplates. Burlington
Northern Santa Fe's board of directors has unanimously approved and declared
advisable the combination agreement and the transactions that it contemplates
and recommends that Burlington Northern Santa Fe shareholders vote FOR the
combination agreement and the transactions that it contemplates.
We cannot complete the combination unless shareholders of both companies
approve it.
The date, time and place of the Burlington Northern Santa Fe meeting is:
____________, ____________, 2000
________ a.m., Central Time
[Address]
The accompanying document provides you with detailed information about the
proposed combination. We encourage you to read the entire document carefully.
Robert D. Krebs
Chairman and Chief Executive Officer
Burlington Northern Santa Fe Corporation
See "Risk Factors" on page I-23 for a discussion of risks relevant to the
combination.
- --------------------------------------------------------------------------------
None of the U.S. Securities and Exchange Commission, any state securities
regulators or any Canadian securities regulators have approved the securities
to be issued under this joint proxy statement/circular/prospectus or determined
if this joint proxy statement/circular/prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
This joint proxy statement/circular/prospectus is dated _____ __, 2000, and is
being first mailed to shareholders on or about _____ __, 2000.
<PAGE>
This document incorporates by reference important business and financial
information about Canadian National, Burlington Northern Santa Fe and the
combination that is not included in or delivered with this document. See
"Chapter Five-- Additional Information For Shareholders--Where You Can Find
More Information".
You can obtain any of the documents incorporated by reference in this document
through Canadian National or Burlington Northern Santa Fe, as the case may be,
or from the U.S. Securities and Exchange Commission's web site at
http://www.sec.gov. In addition, documents filed with securities commissions or
similar authorities in Canada are also available on the web site maintained by
the Canadian Securities Administrators at http://www.sedar.com. Documents
incorporated by reference are available from Canadian National and Burlington
Northern Santa Fe without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference. You can obtain
documents incorporated by reference by requesting them in writing or by
telephone from the appropriate company at the following addresses:
Canadian National Burlington Northern Santa Fe
- --------------------------------- ----------------------------------------
Corporate Secretary Corporate Secretary
Canadian National Railway Company Burlington Northern Santa Fe Corporation
935 de La Gauchetiere Street West 2650 Lou Menk Drive
16th Floor Fort Worth, Texas 76131
Montreal, Quebec H3B 2M9 USA
CANADA (817) 352-6856
(514) 399-6569
If you would like to request documents, please do so by __________ to receive
them before your meeting. Please be sure to include your complete name and
address in your request. If you request any documents incorporated by
reference, we will mail them to you by first class mail, or another equally
prompt means, within one business day after we receive your request.
-----------------------
All references to "$" or "dollars" in this document are references to
United States dollars unless stated as "Cdn$", "Canadian $" or Canadian
dollars.
Unless noted to the contrary, all references to the combination agreement
in this document are to the combination agreement, as amended and restated,
which is attached as Annex A.
-----------------------
For ease of reference, this document is divided into five chapters:
Chapter One - The Combination. This Chapter focuses on information
related principally to the combination and includes a summary of this
entire document.
Chapter Two - Information About the Meetings and Voting. This Chapter
focuses on information related to the Canadian National and Burlington
Northern Santa Fe shareholder meetings and voting mechanics.
Chapter Three - Comparison of Shareholder Rights and Description of
Capital Stock. This Chapter focuses on material differences in the
rights of shareholders of Canadian National, Burlington Northern Santa
Fe and North American Railways and on the material terms of the capital
stock of each of the companies.
Chapter Four - Other Canadian National Annual Meeting Matters. This
Chapter includes information not related to the combination required in
connection with Canadian National's annual and special meeting of
shareholders.
Chapter Five - Additional Information for Shareholders. This Chapter
principally provides information as to future shareholder proposals and
describes how shareholders may find more information about Canadian
National, Burlington Northern Santa Fe and the combination.
-----------------------
All information in this document concerning Canadian National has been
furnished by Canadian National and all information in this document concerning
Burlington Northern Santa Fe has been furnished by Burlington Northern Santa
Fe. Canadian National has represented to Burlington Northern Santa Fe, and
Burlington Northern Santa Fe has represented to Canadian National, that the
information furnished by and concerning it is true and complete.
3
<PAGE>
[FOR CANADIAN NATIONAL DOCUMENT ONLY]
[Canadian National LOGO]
NOTICE OF ANNUAL AND SPECIAL MEETING
OF CANADIAN NATIONAL RAILWAY COMPANY
NOTICE IS HEREBY GIVEN that an annual and special meeting (the "Meeting") of
holders of common shares ("Canadian National common shares") and stock options
other than the stock option granted to Burlington Northern Santa Fe (together
with the Canadian National common shares, the "Canadian National Securities")
of Canadian National Railway Company ("Canadian National") will be held in the
_____ room at ___________________, Montreal, Quebec, on ___________________,
2000 at _____ a.m. (Montreal time) for the following purposes:
1. for the holders of Canadian National Securities to consider and, if
determined advisable, approve, with or without variation, a special
resolution (the "arrangement resolution") relating to a plan of
arrangement (the "arrangement"), all as more particularly described in the
accompanying management proxy circular (the "Circular");
2. for the holders of Canadian National common shares to receive the
consolidated financial statements of Canadian National for the year ended
December 31, 1999, and the report of the auditors;
3. for the holders of Canadian National common shares to elect directors;
4. for the holders of Canadian National common shares to appoint auditors; and
5. to transact such other business as may properly come before the Meeting or
any adjournment thereof.
The full text of the arrangement resolution is attached as Annex C.
The directors have fixed March __, 2000 as the record date for the
determination of the holders of Canadian National Securities entitled to
receive notice of and to vote at the Meeting. If you are not able to attend the
Meeting, please exercise your right to vote by signing and returning the
enclosed form of proxy to The Trust Company of Bank of Montreal in the enclosed
envelope so as to be received not later than 5:00 p.m. (Montreal time) on
_______, 2000 or, if the Meeting is adjourned or postponed, 48 hours (excluding
Saturdays, Sundays and holidays) before the time the adjourned Meeting is to be
reconvened. Proxies may also be deposited with the scrutineers of the Meeting,
to the attention of the Chairman of the Meeting, immediately prior to the
commencement of the Meeting, or any adjournment or postponement thereof.
Pursuant to the interim order (the "Interim Order") of the Quebec Superior
Court dated March __, 2000 and section 190 of the Canada Business Corporations
Act, each registered holder of Canadian National common shares is entitled to
dissent from the arrangement resolution and to be paid by Canadian National, if
the arrangement becomes effective, the fair value of the Canadian National
common shares held by such holder in respect of which such holder dissents,
determined as of the close of business on the day before the effective date of
the arrangement provided that such holder deposits a notice of dissent (a
"notice of dissent") with Canadian National, or mails it to Canadian National
by registered mail, at its principal executive office at 935 de La Gauchetiere
Street West, Montreal, Quebec, H3B 2M9, to the attention of the Senior Vice
President, Chief Legal Officer and Corporate Secretary of Canadian National so
as to be received prior to 5:00 p.m. (Montreal time) on the business day
preceding the Meeting, and otherwise complies with section 190 of the Canada
Business Corporations Act and the Interim Order as more fully described in the
Circular. Failure to comply strictly with such dissent procedures may result in
the loss or unavailability of any right of dissent.
The Circular provides additional information relating to the matters to be
dealt with at the Meeting and forms part of this Notice.
BY ORDER OF THE BOARD OF DIRECTORS
Jean Pierre Ouellet
Senior Vice President,
Chief Legal Officer and Corporate Secretary
, 2000
Montreal, Quebec
<PAGE>
[FOR BURLINGTON NORTHERN SANTA FE DOCUMENT ONLY]
[Burlington Northern Santa Fe LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
BURLINGTON NORTHERN SANTA FE CORPORATION
Time:
_______ a.m., Central time
Date:
___________ ____, 2000
Place:
[Address]
Purpose:
o Approval and adoption of the Combination Agreement, dated as of
December 18, 1999, by and among Burlington Northern Santa Fe
Corporation, Canadian National Railway Company, North American
Railways, Inc. and Western Merger Sub, Inc., as amended and
restated on February 17, 2000 and as it may be further amended
from time to time, and the transactions contemplated by that
agreement, including the merger of Western Merger Sub, Inc., a
wholly owned subsidiary of North American Railways, Inc., with
and into Burlington Northern Santa Fe Corporation, with
Burlington Northern Santa Fe Corporation being the surviving
corporation of that merger and becoming a wholly owned subsidiary
of North American Railways, Inc.
o Consider other related business that may properly come before the
special meeting or at any adjournment or postponement of the
special meeting.
Only shareholders of record on _____________, 2000 may vote at the
meeting. Only shareholders or their proxy holders and Burlington
Northern Santa Fe guests may attend the meeting. An admission card is
included if you are a shareholder of record; simply detach it from the
proxy card and bring it with you. If you are a beneficial owner of
stock held by a bank, broker or investment plan (with your stock held
in "street name"), an admission card in the form of a legal proxy will
be sent to you by your broker or other registered holder. If you do
not receive the legal proxy in time, you may be admitted to the
meeting by showing your most recent brokerage statement or other proof
of ownership verifying your ownership of our stock.
Your vote is important. Whether or not you expect to attend the
meeting, please complete, sign, date and return your proxy card in the
enclosed envelope promptly. If you attend the meeting, you may vote in
person even if you have previously submitted your proxy.
BY ORDER OF THE BOARD OF DIRECTORS
[Signature]
Marsha K. Morgan
Vice President - Investor Relations and Corporate Secretary
_____________, 2000
<PAGE>
TABLE OF CONTENTS
CHAPTER ONE - THE COMBINATION
QUESTIONS AND ANSWERS ABOUT THE
COMBINATION.............................................................I-1
SUMMARY......................................................................I-3
The Companies...........................................................I-3
Reasons for the Combination.............................................I-3
What the Combination Will Mean for Our
Customers..........................................................I-4
Recommendations to Shareholders.........................................I-4
The Combination.........................................................I-5
Other Canadian National Annual Meeting
Matters...........................................................I-12
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA.........................................................I-13
SELECTED UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA................................................I-19
UNAUDITED COMPARATIVE PER SHARE
DATA ..................................................................I-20
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS.............................................I-21
RISK FACTORS................................................................I-23
THE COMBINATION.............................................................I-24
General................................................................I-24
Background of the Combination..........................................I-25
Our Reasons for the Combination........................................I-28
Opinions of Financial Advisors.........................................I-35
Accounting Treatment...................................................I-57
Material Tax Consequences of the
Combination.......................................................I-57
Regulatory Review and Approval.........................................I-68
Dissent and Appraisal Rights...........................................I-72
Securities Law Matters.................................................I-75
COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION...............................................I-77
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS..........................................I-79
INTERESTS OF CERTAIN PERSONS IN THE
COMBINATION............................................................I-86
Boards of Directors and Management.....................................I-86
Retention and Severance Matters........................................I-87
THE COMPANIES...............................................................I-89
Canadian National Railway Company......................................I-89
Burlington Northern Santa Fe Corporation...............................I-89
North American Railways, Inc...........................................I-89
THE COMBINATION AGREEMENT...................................................I-90
Structure of the Combination...........................................I-90
Timing of Completion...................................................I-91
Combination Consideration..............................................I-91
Treatment of Stock Options; Other Stock-
Based Awards......................................................I-91
Exchange of Shares.....................................................I-92
Canadian National and North American
Railways Boards of Directors after the
Combination is Completed..........................................I-93
Significant Covenants..................................................I-93
Representations and Warranties.........................................I-97
Conditions to the Completion of the
Combination.......................................................I-98
Termination of the Combination Agreement
and Termination Fees..............................................I-99
Other Expenses........................................................I-101
Amendments; Waivers...................................................I-101
BURLINGTON NORTHERN SANTA FE
TRANSACTION MECHANICS.................................................I-102
NORTH AMERICAN RAILWAYS TRANSACTION
MECHANICS.............................................................I-102
CANADIAN NATIONAL TRANSACTION
MECHANICS.............................................................I-102
The Arrangement.......................................................I-103
Fractional Shares.....................................................I-104
Approval of the Quebec Superior Court and
Completion of the Arrangement....................................I-104
Procedures for Election and Exchange of
Canadian National Common Share
Certificates.....................................................I-105
THE CO-OPERATION AGREEMENT.................................................I-107
General...............................................................I-107
Governance............................................................I-107
Capital Structure.....................................................I-108
Amendments............................................................I-110
THE STOCK OPTION AGREEMENTS................................................I-111
General...............................................................I-111
Stock Option Granted to Canadian National
by Burlington Northern Santa Fe..................................I-111
Stock Option Granted to Burlington Northern
Santa Fe by Canadian National....................................I-112
ii
<PAGE>
CHAPTER TWO- INFORMATION ABOUT THE
MEETINGS AND VOTING
Matters Relating to the Meetings.......................................II-1
Vote Necessary to Approve the Proposal
Related to the Combination at the
Canadian National and Burlington
Northern Santa Fe Special Meetings................................II-3
Vote Necessary to Approve Canadian
National Annual Meeting Proposals.................................II-3
Proxies................................................................II-4
Other Business; Adjournments...........................................II-6
CHAPTER THREE - COMPARISON OF
SHAREHOLDER RIGHTS AND
DESCRIPTION OF CAPITAL STOCK
COMPARISON OF SHAREHOLDER RIGHTS...........................................III-1
Summary of Material Differences Between
Current Rights of Canadian National
and Burlington Northern Santa Fe
Shareholders and Rights Those
Shareholders Will Have as Shareholders
of the Combined Companies After the
Combination......................................................III-2
DESCRIPTION OF CANADIAN NATIONAL,
BURLINGTON NORTHERN SANTA FE AND
NORTH AMERICAN RAILWAYS CAPITAL
STOCK................................................................III-23
Canadian National....................................................III-23
Burlington Northern Santa Fe.........................................III-33
North American Railways..............................................III-36
Transfer Agent and Registrar.........................................III-38
Stock Exchange Listing; Delisting and
Deregistration of Burlington Northern
Santa Fe Common Stock and Canadian
National Common Shares..........................................III-38
LEGAL MATTERS.............................................................III-38
EXPERTS...................................................................III-39
CHAPTER FOUR - OTHER CANADIAN
NATIONAL ANNUAL MEETING MATTERS
APPROVAL OF CIRCULAR BY DIRECTORS OF
CANADIAN NATIONAL.....................................................IV-22
CHAPTER FIVE- ADDITIONAL INFORMATION
FOR SHAREHOLDERS
WHERE YOU CAN FIND MORE
INFORMATION.............................................................V-1
ANNEXES
Annex A........Combination Agreement
Annex B........Form of Plan of Arrangement
Annex C........Arrangement Resolution
Annex D........Burlington Northern Santa Fe Stock
Option Agreement
Annex E........Canadian National Stock Option
Agreement
Annex F........Opinion of Salomon Smith Barney Inc.
Annex G........Opinion of Nesbitt Burns Inc.
Annex H........Opinion of Goldman, Sachs & Co.
Annex I........Interim Order and Notice of Application
for Final Order*
Annex J........Section 190 of the Canada Business
Corporations Act
Annex K........Form of Voting and Exchange Trust
Agreement
Annex L........Form of Co-Operation Agreement
Annex M........Form of Restated Certificate of
Incorporation of North American
Railways
Annex N........Canadian/U.S. GAAP Reconciliation
and Reclassification
Annex O........North American Railways Consolidated
Balance Sheet
- ------------------------------------
* The Notice of Application for Final Order is filed with this document; the
Interim Order will be filed by amendment.
iii
<PAGE>
CHAPTER ONE
THE COMBINATION
QUESTIONS AND ANSWERS ABOUT THE COMBINATION
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed postage-paid return
envelope as soon as possible so that your shares may be represented at your
meeting. To assure that your vote is counted, please sign and return your proxy
card even if you currently plan to attend your meeting in person. The board of
directors of each of Canadian National and Burlington Northern Santa Fe
recommends that its shareholders vote in favor of the combination.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card before your meeting as
follows: in the case of Canadian National, to The Trust Company of Bank of
Montreal at its Shareholder Services Department, 129 Saint-Jacques Street,
Level A North, Montreal, Quebec H2Y 1L6, and, in the case of Burlington
Northern Santa Fe, to First Chicago Trust Company, a division of EquiServe, at
P.O. Box 8942, Edison, New Jersey 08818-9283. You may also change your vote by
attending your meeting in person and voting. You may revoke your proxy by
sending a notice of revocation to the appropriate Corporate Secretary at the
address under "Summary--The Companies".
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them on the
combination. You should, therefore, be sure to provide your broker with
instructions on how to vote your shares. Please check the voting form used by
your broker to see if your broker offers telephone or internet voting.
Q: What will happen if I don't vote?
A: Because the combination requires approval by a majority of the outstanding
shares of Burlington Northern Santa Fe common stock, a Burlington Northern
Santa Fe shareholder who does not give voting instructions to his or her broker
will, in effect, be voting against the combination unless he or she appears in
person at the Burlington Northern Santa Fe meeting and votes in favor of the
combination. If you are a Canadian National shareholder and do not give voting
instructions to your broker, this will have no effect on the outcome of the
vote.
Q: Should I send in my share certificates now?
A: No. If the combination is completed, we will send Canadian National and
Burlington Northern Santa Fe shareholders written instructions for exchanging
their share certificates.
Q: What happens to my future dividends?
A: We expect no changes in Burlington Northern Santa Fe's dividend policies
before the combination. Canadian National's board of directors has approved an
increase of its annual dividend to Canadian $0.70 per share in 2000. As a
result, Burlington Northern Santa Fe and Canadian National dividends are
substantially identical. Canadian National and Burlington Northern Santa Fe
have agreed to coordinate dividend payments prior to the completion of the
combination to ensure fair treatment of both companies' shareholders. We expect
that North American Railways and, with respect to its exchangeable shares,
Canadian National, will pay quarterly dividends after the combination. Upon
completion of the combination, North American Railways and Canadian National
will enter into an agreement providing that holders of North American Railways
common stock and Canadian National exchangeable shares will receive identical
dividends on the same date. Dividends on Canadian National exchangeable shares
may be paid in Canadian dollars, however.
The ability of Burlington Northern Santa Fe, Canadian National and North
American Railways to pay dividends in the future will depend on business
conditions, the combined companies' financial condition and earnings and other
factors. After the combination, however, the shareholders of the combined
companies will in all cases receive equivalent dividends regardless of which
company's securities they hold. To compare past dividends paid by each of
Canadian National and Burlington Northern Santa Fe, see "Comparative Per Share
and Market Price and Dividend Information".
I-1
<PAGE>
Chapter One - The Combination
Q: Why will the securities I receive in the combination be "stapled" together?
A: Issuing "stapled" securities in the combination helps ensure that North
American Railways and Canadian National will operate as a single economic
enterprise for the benefit of our combined shareholder group after the
combination is completed. The structure of the combination is also designed to
comply with Canadian legal requirements that, among other things, prohibit any
person and that person's associates from holding more than 15% of the voting
rights in Canadian National, while ensuring that the combination will be
tax-efficient for each company's shareholders.
Q: When do you expect the combination to be completed?
A: We are working to complete the combination as quickly as possible. In
addition to shareholder approvals, we must obtain regulatory approvals,
including the approval of the U.S. Surface Transportation Board and the
approval of the Quebec Superior Court. We hope to complete the combination by
mid-2001.
Q: Whom do I call if I have questions about voting the meetings or the
combination?
A: Canadian National shareholders may call Georgeson Shareholder Communications
Canada at 1-800-890-1037 in Canada and Innisfree M&A Inc. at 1-877-750-5836 in
the United States from 8:30 a.m. to 8:00 p.m., Eastern Time, Monday through
Friday.
Burlington Northern Santa Fe shareholders may call Georgeson Shareholder
Communications Inc. at 1-800-223-2064 from 8:30 a.m. to 8:00 p.m., Eastern
Time, Monday through Friday.
I-2
<PAGE>
Chapter One - The Combination
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
combination fully and for a more complete description of the legal terms of the
combination, you should carefully read this document and the other documents to
which we have referred you. See "Chapter Five--Additional Information for
Shareholders--Where You Can Find More Information".
The Companies
Canadian National Railway Company
935 de La Gauchetiere Street West
Montreal, Quebec H3B 2M9
(514) 399-5430
Canadian National, directly and through its subsidiaries, is engaged primarily
in the rail transportation business. Canadian National spans Canada and
mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico,
serving the Canadian ports of Vancouver, Prince Rupert, Montreal and Halifax
and Gulf of Mexico ports in New Orleans, Louisiana and Mobile, Alabama, and the
key cities of Vancouver, Edmonton, Calgary, Winnipeg, Montreal, Toronto,
Buffalo, Chicago, Detroit, Memphis, St. Louis and Jackson, Mississippi, with
connections to all points in North America. Canadian National's revenues are
derived from the movement of a diversified and balanced portfolio of goods,
including petroleum and chemicals, grain and fertilizers, coal, metals and
minerals, forest products, automotive and intermodal -- the hauling of freight,
usually in containers or truck trailers, through a combination of different
modes of transportation such as rail, truck or water carriers.
Burlington Northern Santa Fe Corporation
2650 Lou Menk Drive
Fort Worth, Texas 76131
(817) 333-2000
Burlington Northern Santa Fe is engaged primarily in rail transportation
through its principal operating subsidiary, The Burlington Northern and Santa
Fe Railway Company, which operates one of the largest railway networks in the
United States. Burlington Northern Santa Fe's system covers 28 states in the
western two-thirds of the United States and two Canadian provinces. Burlington
Northern Santa Fe serves all major ports in the western United States and
certain Gulf of Mexico ports and has Mexican and Canadian gateways and
important gateways to the eastern United States. Burlington Northern Santa Fe
derives a substantial portion of its revenues from intermodal transportation -
the hauling of freight, usually in containers or truck trailers, through a
combination of different modes of transportation such as rail, truck or water
carriers - and the transportation of coal and agricultural commodities. Other
significant aspects of Burlington Northern Santa Fe's business include the
transportation of chemicals, forest products, consumer goods, metals, minerals
and automobiles and automobile parts.
Reasons for the Combination
This end-to-end combination of the rail networks of Canadian National and
Burlington Northern Santa Fe is intended to build on the strengths of both
companies. As a result of our combination, we believe we will offer to
customers the most extensive rail network in North America, with new
single-line north-south traffic routes, high-quality, efficient service and low
implementation risk. As an end-to-end combination, the two railroads generally
connect with each other at their end points in western Canada, the upper
Midwest, Chicago and the Mississippi valley with few parallel or overlapping
routes. This makes the combination easier to implement operationally because
there are few redundant facilities and operations. We also believe that we can
coordinate our operations without significant risk of service disruptions
because we use similar transportation information systems to manage the
operations of our two railroads, and we have both successfully completed
mergers in recent years. We expect our enhanced services to increase revenues
by attracting additional traffic from existing and new customers and to permit
cost reductions through new economies of scale and scope. As a result, we
believe the combined companies will be able to create substantially more
shareholder value than could be achieved by the companies individually. Of
course, these benefits depend on our ability to obtain the necessary approvals
for the combination, to coordinate successfully the businesses of Canadian
National and Burlington Northern Santa Fe after the combination, to achieve
anticipated synergies and on other uncertainties described under "--Cautionary
I-3
<PAGE>
Chapter One - The Combination
Statement Concerning Forward-Looking Statements" and "--Risk Factors".
We currently estimate that the annual impact on operating income of the
anticipated synergies from the combination will be between $500 million and
$600 million. These synergies are expected to be realized about evenly over the
first three years after the combination is completed. We currently expect the
combination to be accretive to earnings per share of both companies from the
first year following the combination, and to reach 12% to 17% accretion by the
third year of combined operations. Shareholders should read the information on
pages I-31 and I-32 for information on the assumptions underlying these
estimates and the uncertainties that are relevant to whether we can achieve the
estimated synergies. For the reasons set forth on pages I-31 and I-32,
shareholders should not place undue weight on these estimates.
To review each company's reasons for the combination in greater detail, see
"The Combination--Our Reasons for the Combination".
What the Combination Will Mean for Out Customers
We believe the combination will help us meet the ever-increasing transportation
requirements of our customers by allowing us to increase the level of service
and efficiency of our operations. We also believe that the combination will
enhance the competitiveness of our two companies in the markets that we can
jointly serve. We expect that this increased competitiveness will benefit
customers, attract new traffic and permit increases in the efficiency of joint
operations that would not be possible without the combination. Because we will
retain the essential integrity of each company's operations and because our
companies' service territories generally do not overlap, we expect to be able
to implement the combination without any significant risk of service
disruptions similar to those that followed certain recent railroad
transactions.
Recommendations to Shareholders
To Canadian National Shareholders:
Canadian National's board of directors believes that the combination is fair to
you and in your best interest and unanimously recommends that you vote FOR the
plan of arrangement that is part of the combination.
To Burlington Northern Santa Fe Shareholders:
Burlington Northern Santa Fe's board of directors believes that the combination
is advisable for you and unanimously recommends that you vote FOR the approval
of the combination agreement and the transactions that it contemplates,
including the merger of a wholly owned subsidiary of North American Railways
with and into Burlington Northern Santa Fe, with the result that Burlington
Northern Santa Fe will become a wholly owned subsidiary of North American
Railways.
Interests of Officers and Directors in the
Combination (see pages I-86 to I-88)
When you consider the recommendation of each of the Canadian National and
Burlington Northern Santa Fe boards of directors that their shareholders vote
in favor of the combination, you should be aware that a number of Canadian
National and Burlington Northern Santa Fe officers and directors may have
interests in the combination different from, or in addition to, your interests.
Shareholder approval of the combination agreement will constitute a change of
control under Burlington Northern Santa Fe's executive severance agreements
and, upon a qualifying termination of employment, trigger severance payments
under those agreements. If qualifying terminations were made after shareholder
approval, the estimated amounts of the payments that would be payable to
Burlington Northern Santa Fe's five most highly compensated executive officers
under their respective severance agreements would be as follows:
Robert D. Krebs $ 108,333
Matthew K. Rose $4,656,598
Charles L. Schultz $3,793,546
Jeffrey R. Moreland $3,307,397
Thomas N. Hund $3,500,105
These estimates are based on current compensation levels and do not include the
value of stock options and restricted stock awards that would automatically
vest if severance payments were triggered.
I-4
<PAGE>
Chapter One - The Combination
Completion of the combination will, among other things, accelerate the vesting
of, and lapse of restrictions and restricted periods applicable to, specific
grants of Burlington Northern Santa Fe stock options outstanding and Burlington
Northern Santa Fe restricted stock awards (other than performance-based awards)
issued to Burlington Northern Santa Fe's executive officers. If the combination
were completed on July 1, 2001, the number of outstanding stock options and
shares of restricted stock for which acceleration would occur for Burlington
Northern Santa Fe's five most highly compensated executive officers would be as
follows:
Stock Options
Mr. Krebs 33,000 shares
Mr. Rose 33,334 shares
Mr. Schultz 25,000 shares
Mr. Moreland 0 shares
Mr. Hund 25,000 shares
Restricted Stock
Mr. Krebs 58,401 shares
Mr. Rose 27,136 shares
Mr. Schultz 5,090 shares
Mr. Moreland 10,679 shares
Mr. Hund 24,984 shares
Shareholder approval of the combination will accelerate the vesting of all
outstanding stock options and deferred stock rights granted prior to the
announcement of the combination (other than performance-based options), to the
extent not previously vested. If Canadian National securityholders approve the
combination at their annual and special meeting, the number of outstanding
stock options and deferred stock rights for which acceleration of vesting would
occur for Canadian National's five most highly compensated executive officers
would be as follows:
Stock Options
Paul M. Tellier 55,167 shares
E. Hunter Harrison 30,000 shares
Jack T. McBain 15,167 shares
Keith L. Heller 13,917 shares
Torrance Wylie 0 shares
Deferred Stock Rights
Paul M. Tellier 30,000 rights
E. Hunter Harrison 0 rights
Jack T. McBain 10,560 rights
Keith L. Heller 10,560 rights
Torrance Wylie 0 rights
The Combination
The combination agreement, as amended and restated, is attached as Annex A. We
encourage you to read the combination agreement because it is the legal
document that governs the combination.
The Structure (see page I-90)
To comply with Canadian legal requirements while ensuring that the transaction
will be tax-efficient for shareholders, the combined enterprise will consist of
two public companies as follows:
[GRAPHIC OMITTED]
The CN Commercialization Act, a statute of Canada that governs Canadian
National, requires, among other things, that the articles of continuance of
Canadian National provide that no person together with that person's associates
may hold or control more than 15% of the voting rights in Canadian National.
The structure for the combination of Burlington Northern Santa Fe and Canadian
National shown in the above chart and the ongoing corporate governance
arrangements for the two companies described in this document ensure that
Canadian
I-5
<PAGE>
Chapter One - The Combination
National will remain in compliance with the CN Commercialization Act after the
combination is completed by, among other things, prohibiting any person from
acquiring more than 15% of the voting rights in either Canadian National or
North American Railways. One aspect of the structure is that North American
Railways' certificate of incorporation will include a provision limiting
ownership of its voting shares in the same manner that ownership of Canadian
National's voting shares is limited by the CN Commercialization Act.
After the combination is completed, North American Railways and Canadian
National will operate under various arrangements intended to ensure that the
two companies function as a single economic enterprise for the benefit of all
shareholders. See "The Combination Agreement--Structure of the Combination" for
a more complete diagram of the structure.
What Burlington Northern Santa Fe Shareholders
Will Receive (see page I-91)
As a result of the combination, Burlington Northern Santa Fe shareholders will
receive, for each share of Burlington Northern Santa Fe common stock, one share
of North American Railways common stock and one Canadian National voting share.
The Canadian National voting shares issued in the combination will represent
only the right to vote on matters submitted to Canadian National shareholders
and will not have dividend rights. Each share of North American Railways common
stock and Canadian National voting share will be "stapled" together, will not
be independently transferable and will trade as a single security.
What Canadian National Shareholders Will Receive
(see page I-91)
As a result of the combination, Canadian National shareholders may elect to
receive, for each Canadian National common share, either of the following:
o 1.05 shares of North American Railways common stock and 1.05 Canadian
National voting shares; or
o 1.05 Canadian National exchangeable shares and 1.05 Canadian National
voting shares. The Canadian National exchangeable shares will be
exchangeable at any time on a one-for-one basis for shares of North
American Railways common stock. Canadian National shareholders electing
this option will also receive an interest in a trust entitling the holder
to voting rights in North American Railways equivalent to the voting
rights of holders of North American Railways common stock. We sometimes
refer to the voting rights of holders of exchangeable shares and the right
of holders of exchangeable shares to exchange their shares for North
American Railways common stock as "ancillary rights" in this document.
The securities to be issued to Canadian National shareholders under either of
the options outlined above will be "stapled" together, will not be
independently transferable and will trade as a single security.
In connection with any exchange of a Canadian National exchangeable share, the
exchanging shareholder will retain the related Canadian National voting shares,
which will be "stapled" to the North American Railways common stock issued upon
the exchange, and will relinquish his or her voting rights in North American
Railways represented by the trust interests.
If you are a Canadian National shareholder but are not a Canadian resident for
Canadian tax purposes, we will assume you have elected the first option
outlined above unless you expressly elect the second option. If you are a
Canadian resident, we will assume you have elected the second option outlined
above unless you expressly elect the first option.
Neither North American Railways nor Canadian National will issue any fractional
shares to Canadian National shareholders. Canadian National shareholders will
receive a check in the amount of the proceeds from the sale of their fractional
shares in the market.
In this document, we sometimes refer to the 1.05 exchange ratio mentioned above
as the "exchange ratio".
I-6
<PAGE>
Chapter One - The Combination
Combination Mechanics (see pages I-102 to I-106)
Canadian National Arrangement
To implement the combination, Canadian National will effect a plan of
arrangement under Canadian law. A plan of arrangement is a procedure under the
Canada Business Corporations Act for achieving complex fundamental changes
involving capital reorganizations, amalgamations, securities exchanges and
other similar changes that a company cannot practically achieve under other
provisions of the Canada Business Corporations Act. The plan of arrangement
will provide for the authorization and issuance of securities of Canadian
National to be issued to Canadian National and Burlington Northern Santa Fe
shareholders pursuant to the combination agreement and the plan of arrangement.
The Quebec Superior Court must approve the plan of arrangement before it can
become effective.
Burlington Northern Santa Fe Merger
To implement the combination, a wholly owned subsidiary of North American
Railways will merge with and into Burlington Northern Santa Fe under Delaware
law. Burlington Northern Santa Fe will continue as the surviving corporation of
the merger. As a result of the merger, Burlington Northern Santa Fe will be a
wholly owned subsidiary of North American Railways.
Amendments to North American Railways' Certificate
of Incorporation
Immediately prior to the completion of the combination, we will amend North
American Railways' certificate of incorporation in several ways, including the
following:
o a limitation that no person and that person's associates may hold
more than 15% of the voting rights in North American Railways;
o a requirement that members of North American Railways' board of
directors also be members of Canadian National's board of directors;
o a requirement that the head office of North American Railways be
located in the Montreal Urban Community, Quebec, Canada; and
o a restriction on the transferability of North American Railways
common stock that will ensure that shares of North American Railways
common stock and Canadian National voting shares are traded as a
single stapled security.
Each of these provisions of North American Railways' certificate of
incorporation will be subject to amendment restrictions that will provide,
among other things, that the provision cannot be amended without the unanimous
approval of North American Railways' board of directors and the affirmative
vote of at least 85% of the votes cast by North American Railways shareholders.
Comparative Per Share Market Price Information
(see page I-77)
The following table provides the closing per share prices of Burlington
Northern Santa Fe common stock and Canadian National common shares, as reported
by The Wall Street Journal, on:
o December 17, 1999 - the last full trading day prior to the public
announcement of the proposed combination; and
o ______________ - the last full trading day before the date of this
document.
Burlington
Northern Canadian
Santa Fe National
common common
stock stock
- ---- ----------- --------
December 17, 1999 .......... $ 28.375 $ 29.75
_______________............. $ ___ $ ____
Listing of Stapled Securities
The New York Stock Exchange has conditionally approved the listing of the
stapled securities consisting of North American Railways common stock and
Canadian National voting shares, subject to official notice of issuance and
approval of the combination by the shareholders of Canadian National and
Burlington Northern Santa Fe. We expect that the stapled security consisting of
North American Railways common stock and Canadian
I-7
<PAGE>
Chapter One - The Combination
National voting shares will be listed on the New York Stock Exchange, The
Chicago Stock Exchange and the Pacific Exchange under the ticker symbol "____".
The Toronto Stock Exchange has conditionally approved the listing of the
stapled security consisting of North American Railways common stock and
Canadian National voting shares under the ticker symbol "NAR", subject to the
requirements of that exchange and reconsideration by The Toronto Stock Exchange
if there is any material change to the terms of the combination. The Toronto
Stock Exchange has also conditionally approved the listing of the stapled
security consisting of Canadian National exchangeable shares and Canadian
National voting shares under the ticker symbol "CNR", subject to the
requirements of that exchange and reconsideration by The Toronto Stock Exchange
if there is any material change to the terms of the combination.
Ownership after the Combination
After the combination, the economic and voting rights of North American
Railways public shareholders and Canadian National public shareholders will
effectively be identical. Based on the number of Canadian National and
Burlington Northern Santa Fe shares outstanding on February 29, 2000, and
without taking into account stock options, other equity-based awards or
subsequent issuances or repurchases of stock, Canadian National shareholders
will own approximately one-third and Burlington Northern Santa Fe shareholders
will own approximately two-thirds of the combined companies' publicly traded
shares immediately after the combination is completed.
Shareholder Vote Required to Approve the
Combination
For Canadian National shareholders and optionholders: Approval of the
combination requires the affirmative vote of two-thirds of the votes cast at a
meeting of holders of Canadian National common shares and holders of Canadian
National stock options (other than the stock option granted to Burlington
Northern Santa Fe described below), voting together as a single class.
For Burlington Northern Santa Fe shareholders: Approval of the combination
agreement and the transactions that it contemplates, including the merger of a
wholly owned subsidiary of North American Railways with and into Burlington
Northern Santa Fe, requires the affirmative vote of a majority of the shares of
Burlington Northern Santa Fe common stock outstanding and entitled to vote.
Dissent and Appraisal Rights (see pages
I-72 to I-75)
Holders of Canadian National common shares are entitled to exercise dissent
rights in connection with the combination in accordance with Canadian law.
Holders of Burlington Northern Santa Fe common stock are not entitled to
appraisal rights in connection with the combination.
Board of Directors and Officers after the
Combination (see page I-86)
We have designed the governance arrangements for the combined companies to
implement a key principle of the transaction: that Canadian National and North
American Railways operate as a single economic enterprise for the benefit of
all shareholders after we have completed the combination. In furtherance of
this objective, the board of directors of each company and senior management of
the combined enterprise will be identical.
Under Canadian law, a majority of Canadian National's directors must be
Canadian residents. Following the combination, this requirement will
effectively apply to North American Railways as well. It is possible that this
Canadian legal requirement could become more or less restrictive in the future.
Initially, the board of directors of each company will consist of 15
individuals, including six members drawn from each of the current Canadian
National and Burlington Northern Santa Fe boards of directors and three new
appointees, who are identified in "The Combination Agreement--Canadian National
and North American Railways Boards of Directors after the Combination is
Completed". Robert D. Krebs, Chairman and Chief Executive Officer of Burlington
Northern Santa Fe, will be the initial Chairman of North American Railways and
Canadian National after the combination is completed, and Paul M. Tellier,
President and Chief Executive Officer of
I-8
<PAGE>
Chapter One - The Combination
Canadian National, will be the President and Chief Executive Officer of those
companies.
Accounting Treatment
North American Railways will account for the combination using the purchase
method of accounting. Under this method, North American Railways will prepare
its financial statements reflecting the assets and liabilities of Burlington
Northern Santa Fe at their historical cost basis and the fair value of the
North American Railways common stock issued or issuable to the Canadian
National shareholders will be allocated to the assets and liabilities of
Canadian National based on their relative fair value. Following the
combination, Canadian National will continue to prepare its financial
statements on Canadian National's historical cost basis.
Material Income Tax Consequences of the
Combination (see pages I-58 to I-69)
We expect that, for U.S. federal income tax purposes, the combination will be a
tax-free transaction to Burlington Northern Santa Fe shareholders, except that
income or gain may be recognized to the extent of the fair market value of the
Canadian National voting shares received in the combination. Similarly, we
expect that the transaction will be tax-free to Canadian National shareholders,
except to the extent that shareholders receive cash instead of a fractional
stapled security.
For Canadian federal income tax purposes, a holder of Canadian National common
shares who is a Canadian resident will not realize a capital gain or loss on
the exchange of Canadian National common shares for Canadian National voting
shares and exchangeable shares if:
o the holder holds Canadian National shares as capital property; and
o the adjusted cost base to the holder of the Canadian National common
shares exchanged exceeds the sum of (1) the fair market value of the
ancillary rights and (2) any cash received by the holder instead of a
fractional stapled security.
A holder of Canadian National common shares who is a Canadian resident, holds
his or her Canadian National common shares as capital property and exchanges
his or her shares for North American Railways common shares will generally
realize a capital gain or loss equal to the difference between:
o the fair market value of the North American Railways common shares
acquired, reduced by any reasonable costs of disposition; and
o the adjusted cost base to the holder of the Canadian National common
shares exchanged.
You should carefully read the discussion set forth under "The
Combination--Material Tax Consequences of the Combination" for a more complete
description of the material U.S. federal and Canadian federal income tax
consequences of the combination and the ownership of stapled securities, which
qualifies the information set forth above.
The foregoing summary of income tax considerations is intended as a general
summary and does not discuss all of the facts and circumstances that may affect
the tax liability of particular shareholders. Therefore, all shareholders are
urged to consult their tax advisors. No advance income tax rulings from any
governmental agencies have been or will be sought or obtained with respect to
the combination or any aspect of the combination.
Conditions to the Completion of the Combination
(see pages I-98 to I-99)
We will not be able to complete the combination unless a number of conditions
are met, including the following:
o the shareholders of Canadian National and Burlington Northern Santa Fe
must vote to approve the combination;
o the U.S. Surface Transportation Board must approve the combination;
o we must receive assurances under the Competition Act (Canada);
o the Quebec Superior Court must approve the plan of arrangement;
o The Toronto Stock Exchange and the New
I-9
<PAGE>
Chapter One - The Combination
York Stock Exchange, as appropriate, must approve the listings of the
stapled securities to be issued to Canadian National and Burlington
Northern Santa Fe shareholders;
o there must be no legal constraints that prevent us from completing the
combination;
o we must receive opinions from Canadian National's and Burlington Northern
Santa Fe's U.S. tax counsel confirming that the combination will not
result in the recognition of income, gain or loss by our shareholders
for U.S. federal income tax purposes, except for the receipt of cash
instead of fractional stapled securities by Canadian National
shareholders and the receipt of Canadian National voting shares by
Burlington Northern Santa Fe shareholders;
o there must be no material adverse change with respect to the other party
from December 31, 1998 other than changes applicable to the railroad
industry in general or changes in the economy or securities markets in
general, including economic or political developments;
o the representations and warranties made by the other party must be
accurate to the degree required by the combination agreement; and
o the other party must perform the obligations it is required to perform.
Amendments and Waivers
Before the combination is completed, we may amend the combination agreement, to
the fullest extent allowed by law, if both parties sign a written amendment.
Either party may also waive any provision of the combination agreement in
writing.
Regulatory Approvals (see pages I-69 to I-72)
The combination is subject to approval by the U.S. Surface Transportation
Board. We and our railroad subsidiaries plan to file an application seeking
U.S. Surface Transportation Board approval for the transaction. Setting aside a
long-standing rule limiting the scope of its review to the competitive and
other effects of a pending transaction on previously approved rail
consolidation transactions, the U.S. Surface Transportation Board has decided
in our case that it will also consider evidentiary submissions regarding the
effects of future rail merger transactions that are likely to follow in the
wake of our transaction in judging whether our transaction is consistent with
the public interest. The U.S. Surface Transportation Board has the authority to
impose conditions on its approval of the transaction to alleviate competitive
or other concerns.
The combination is also subject to compliance with the Competition Act
(Canada). We intend to apply to the Commissioner of Competition under the
Competition Act (Canada) for an advance ruling certificate.
The combination also requires approval by the Quebec Superior Court. Canadian
National will submit a plan of arrangement to the Quebec Superior Court to
confirm that, among other things, the combination is fair and reasonable to
Canadian National securityholders.
Termination of the Combination Agreement (see
pages I-99 to I-100)
Either Canadian National or Burlington Northern Santa Fe may terminate the
combination agreement if any of the following occurs:
o we do not complete the combination by December 31, 2002;
o a law or final court order prohibits the combination;
o the Quebec Superior Court fails to issue an interim order and a final
order relating to the plan of arrangement;
o Canadian National or Burlington Northern Santa Fe shareholders do not
give the required approvals; or
o the U.S. Surface Transportation Board issues a decision that disapproves
the combination or one that imposes conditions that would significantly
and adversely affect the economic benefits of the combination to
Burlington Northern Santa Fe, Canadian National and their shareholders,
taken as a whole.
I-10
<PAGE>
Chapter One - The Combination
Canadian National may terminate the combination agreement if either of the
following occurs:
o the Burlington Northern Santa Fe board of directors withdraws or changes
its recommendation to Burlington Northern Santa Fe shareholders in favor
of the combination in a manner adverse to Canadian National; or
o Burlington Northern Santa Fe breaches any representation, warranty,
covenant or agreement, and the breach cannot be fixed or has not been
fixed by December 31, 2002.
Burlington Northern Santa Fe may terminate the combination agreement if either
of the following occurs:
o the Canadian National board of directors withdraws or changes its
recommendation to Canadian National shareholders in favor of the
combination in a manner adverse to Burlington Northern Santa Fe; or
o Canadian National breaches any representation, warranty, covenant or
agreement and the breach cannot be fixed or has not been fixed by
December 31, 2002.
Burlington Northern Santa Fe and Canadian National may mutually agree to
terminate the combination agreement.
Termination Fees (see page I-100 to I-101)
Burlington Northern Santa Fe must pay Canadian National a termination fee of
$450 million in cash if:
o the combination agreement is terminated because a third party has made a
proposal for an alternative transaction with Burlington Northern Santa
Fe and Burlington Northern Santa Fe shareholders do not vote in favor of
the combination; or
o the combination agreement is terminated by Canadian National because
Burlington Northern Santa Fe's board of directors changed its
recommendation to Burlington Northern Santa Fe shareholders in favor of
the combination in a manner adverse to Canadian National or because
Burlington Northern Santa Fe breached its obligations not to solicit and
respond to proposals for alternative transactions.
Canadian National must pay Burlington Northern Santa Fe a termination fee of
$200 million in cash if:
o the combination agreement is terminated because a third party has made a
proposal for an alternative transaction with Canadian National and
Canadian National shareholders do not vote in favor of the combination;
or
o the combination agreement is terminated by Burlington Northern Santa Fe
because Canadian National's board of directors changed its
recommendation to Canadian National shareholders in favor of the
combination in a manner adverse to Burlington Northern Santa Fe or
because Canadian National breached its obligations not to solicit and
respond to proposals for alternative transactions.
Burlington Northern Santa Fe must pay Canadian National a termination fee of
$300 million in cash if Burlington Northern Santa Fe terminates the combination
agreement because it believes the conditions imposed by the U.S. Surface
Transportation Board would significantly and adversely affect the benefits of
the combination to Burlington Northern Santa Fe, Canadian National and their
shareholders, but Canadian National is willing to complete the combination
anyway.
Canadian National must pay Burlington Northern Santa Fe a termination fee of
$150 million in cash if Canadian National terminates the combination agreement
because it believes the conditions imposed by the U.S. Surface Transportation
Board would significantly and adversely affect the benefits of the combination
to Burlington Northern Santa Fe, Canadian National and their shareholders, but
Burlington Northern Santa Fe is willing to complete the combination anyway.
Stock Option Agreements
In connection with the combination agreement,
I-11
<PAGE>
Chapter One - The Combination
Canadian National and Burlington Northern Santa Fe entered into reciprocal
stock option agreements under which each party granted to the other an option
to purchase at the market price at the time of exercise up to 12.5% of the
granting party's outstanding common stock. Each option is exercisable under the
same circumstances in which the exercising party is entitled to receive the
termination fee ($450 million or $200 million, as applicable) referred to
above. The stock option agreements are attached as Annex D and Annex E. We
encourage you to read these agreements.
Opinions of Financial Advisors (see pages I-36
through I-57)
In deciding to approve the combination, the boards of directors of each of
Canadian National and Burlington Northern Santa Fe considered the opinions of
their financial advisors. Canadian National received opinions from Salomon
Smith Barney Inc. and BMO Nesbitt Burns Inc. (formerly Nesbitt Burns Inc.) on
the fairness from a financial point of view of the exchange ratio as of
December 18, 1999 to the holders of Canadian National common shares. Burlington
Northern Santa Fe received an opinion from Goldman, Sachs & Co. on the fairness
from a financial point of view of the exchange ratio as of December 18, 1999 to
the holders of the outstanding shares of Burlington Northern Santa Fe common
stock. These opinions are attached as Annex F, Annex G and Annex H. We
encourage you to read these opinions in their entirety.
Since January 1, 1998, Salomon Smith Barney and Nesbitt Burns have earned
compensation from Canadian National for various investment banking services
provided to Canadian National, excluding compensation relating to the
combination, of approximately $1,300,000 and $5,000,000, respectively.
Since January 1, 1998, Goldman Sachs has earned compensation from Burlington
Northern Santa Fe for various investment banking services provided to
Burlington Northern Santa Fe, excluding compensation relating to the
combination, of approximately $2,032,000.
Other Canadian National Annual Meeting
Matters
At the Canadian National meeting, Canadian National is also asking its common
shareholders to:
o receive Canadian National's 1999 consolidated financial statements and
the report of the auditors;
o elect directors to the Canadian National board of directors; and
o appoint Canadian National's auditors.
Approval of the election of directors and approval of the appointment of the
auditors is by simple majority vote.
Approval by Canadian National shareholders of these other annual meeting
matters is not a condition to completion of the combination. Approval of the
combination is not a condition to approval of these other annual meeting
proposals.
I-12
<PAGE>
Chapter One - The Combination
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present selected historical consolidated financial
data of Canadian National and Burlington Northern Santa Fe for each of the
previous five years. This information has been derived from, and should be read
in conjunction with, each company's annual audited consolidated financial
statements and related notes, which are incorporated by reference in this
document.
The results for certain periods for which selected historical consolidated
financial data are provided include the impact of various special items. The
affected periods, together with a description of the nature and financial
impact of each special item, are set forth after each table. Per share amounts
are net of tax. The data presented is not necessarily indicative of results to
be expected in the future.
I-13
<PAGE>
Chapter One - The Combination
<TABLE>
Selected Historical Consolidated Financial Data
for Canadian National Railway Company
U.S. GAAP (a)
(Dollars in millions, except per share data)
At or for Year Ended December 31,
-----------------------------------------------------------
1999 1999(b) 1998 1997 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cdn$ US$ Cdn$ Cdn$ Cdn$ Cdn$
Income Statement Data
Revenues................................... $ 5,236 $ 3,524 $ 4,078 $ 4,283 $ 3,911 $ 3,862
Income (loss) from continuing operations... 746 502 224 469 848 (1,017)
Discontinued operations, extraordinary
items and cumulative effect of changes
in accounting policies.................. 5 3 42 571 (2) (31)
Net income (loss).......................... 751 505 266 1,040 846 (1,048)
Per Share Data (c)
Income (loss) from continuing operations
Basic................................. $ 3.78 $ 2.54 $ 1.22 $ 2.75 $ 4.99 $ (6.32)
Diluted............................... 3.71 2.50 1.21 2.72 4.94 (6.32)
Discontinued operations, extraordinary
items and cumulative effect of changes
in accounting policies..................
Basic................................. 0.03 0.02 0.23 3.36 (0.01) (0.19)
Diluted............................... 0.03 0.02 0.23 3.31 (0.01) (0.19)
Net income (loss)
Basic................................... 3.81 2.56 1.45 6.11 4.98 (6.51)
Diluted................................. 3.74 2.52 1.44 6.03 4.93 (6.51)
Book value................................. 30.25 20.96 26.31 23.43 17.85 13.20
Cash dividends declared (d)................ 0.6000 0.4038 0.5300 0.4600 0.4000 -
Balance Sheet Data
Total assets............................... $16,430 $11,384 $11,952 $ 7,999 $ 6,761 $ 5,903
Total debt, including current portion,
convertible preferred securities and
commercial paper........................ 4,553 3,155 4,128 1,671 1,496 1,572
Shareholders' equity....................... 6,122 4,242 5,045 4,010 3,032 2,243
</TABLE>
- -------------------
(a) Canadian National's consolidated financial statements, from which the
above data is derived, are prepared on the basis of U.S. GAAP, which are
different in some respects from its Canadian GAAP financial statements,
principally in the treatment of track replacement costs, expenditures for
bridges and other structures and freight cars, foreign exchange, pension
and post-retirement costs, loss on extinguishment of long-term debt,
stock-based compensation, joint ventures, convertible preferred securities
and reorganization of shareholders' equity. See Annex N for a
reconciliation of Canadian/U.S. GAAP for the years ended December 31,
1999, 1998, 1997, 1996 and 1995.
During 1999, Canadian National reclassified certain revenue and expense
items. See Annex N for the effect in years 1998, 1997, 1996 and 1995.
(b) Canadian National's reporting currency is the Canadian dollar. For the
Income Statement and Per Share Data, with the exception of book value per
share data, Canadian dollar amounts have been translated into U.S. dollars
at the rate of $0.6730 per Canadian dollar, which was the average of the
Bank of Canada rates for the year ended December 31, 1999. For the Balance
Sheet Data and book value per share data, Canadian dollar amounts have
been translated into U.S. dollars at the rate of $0.6929 per Canadian
dollar, which was the closing rate of the Bank of Canada at December 31,
1999.
(c) Per Share Data has been restated to reflect the two-for-one stock split on
September 27, 1999.
(d) Canadian National's board of directors has approved an increase of its
annual dividend to Cdn$0.70 per share ($0.49 per share based on the
closing rate of the Bank of Canada at December 31, 1999) for the year
2000.
I-14
<PAGE>
Chapter One - The Combination
Year Ended December 31,
1999 Results include the cumulative effect of changes in capitalization
policies for certain expenditures relating to improvements of bridges
and other structures and freight cars. The cumulative effect of the
change in accounting policy increased net income by $42 million
(Cdn$62 million), or $0.21 (Cdn$0.31) per diluted share.
Results also include the cumulative effect of the change in
accounting policy relating to the method of accounting for employee
injury costs (including compensation, healthcare and administration
costs) to reflect all elements of such costs based on actuarially
developed estimates of the ultimate cost associated with employee
injuries. The cumulative effect of the change in accounting policy
decreased net income by $39 million (Cdn$57 million), or $0.19
(Cdn$0.28) per diluted share.
1998 Results include the cumulative effect of the change in accounting
policy relating to pension and post-retirement benefit costs which
increased net income by Cdn$42 million, or Cdn$0.23 per diluted
share.
Results also include a pre-tax special charge of Cdn$590 million
(Cdn$345 million after tax, or Cdn$1.87 per diluted share) relating
to workforce reductions.
1997 Results include the cumulative effect of the change in accounting
policy to capitalize the labor, material and related overheads of
track replacement costs. The cumulative effect of the change in
accounting policy increased net income by Cdn$589 million, or
Cdn$3.42 per diluted share.
Results also include discontinued operations which decreased net
income by Cdn$18 million, or Cdn$0.11 per diluted share.
1996 Results include a pre-tax special charge of Cdn$365 million (Cdn$207
million after tax, or Cdn$1.21 per diluted share) relating to
workforce reductions.
Net income also includes an increase of Cdn$708 million, or Cdn$4.12
per diluted share, relating to the reversal of the valuation
allowance for deferred income taxes.
Net income also includes an extraordinary charge of Cdn$16 million,
or Cdn$0.09 per diluted share, related to the early retirement of
long-term debt.
Results also include discontinued operations which increased net
income by Cdn$14 million, or Cdn$0.08 per diluted share.
1995 Results include a special charge of Cdn$1,415 million, or Cdn$8.79
per diluted share, of which Cdn$1,300 million related to an asset
impairment write-down, Cdn$88 million to an environmental accrual,
Cdn$14 million to a write-down of material and supplies and Cdn$13
million for a provision for legal actions.
Net loss includes an extraordinary charge of Cdn$38 million, or
Cdn$0.23 per diluted share on the early retirement of long-term debt.
Results also include discontinued operations which decreased net loss
by Cdn$7 million, or Cdn$0.04 per diluted share.
I-15
<PAGE>
Chapter One - The Combination
<TABLE>
Selected Historical Consolidated Financial Data
for Canadian National Railway Company
Canadian GAAP (a)
(Dollars in millions, except per share data)
At or for Year Ended December 31,
-----------------------------------------------------------
1999 1999(b) 1998 1997 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cdn$ US$ Cdn$ Cdn$ Cdn$ Cdn$
Income Statement Data
Revenues.................................. $ 5,261 $ 3,541 $ 4,101 $ 4,313 $ 3,950 $ 3,904
Income (loss) from continuing operations.. 602 405 109 421 836 (1,092)
Discontinued operations................... - - - (18) 14 7
Net income (loss)......................... 602 405 109 403 850 (1,085)
Per Share Data (c)
Income (loss) from continuing operations
Basic................................ $ 3.02 $ 2.03 $ 0.60 $ 2.48 $ 4.92 $ (6.79)
Diluted.............................. 2.93 1.97 0.60 2.42 4.82 (6.79)
Discounted operations
Basic................................ - - - (0.11) 0.08 0.05
Diluted.............................. - - - (0.10) 0.08 0.05
Net income (loss)
Basic................................ 3.02 2.03 0.60 2.37 5.00 (6.74)
Diluted.............................. 2.93 1.97 0.60 2.32 4.90 (6.74)
Book value................................ 27.20 18.85 22.38 19.96 18.18 13.57
Cash dividends declared (d)............... 0.6000 0.4038 0.5300 0.4600 0.4000 -
Balance Sheet Data
Total assets............................. $14,757 $10,225 $10,864 $ 7,075 $ 6,840 $ 6,048
Total debt, including current portion and
commercial paper....................... 4,233 2,933 4,143 1,683 1,526 1,601
Shareholders' equity..................... 5,506 3,815 4,291 3,417 3,088 2,306
- -------------------
</TABLE>
(a) Canadian National's consolidated financial statements, from which the
above data is derived, are prepared on the basis of Canadian GAAP, and are
different in some respects from its U.S. GAAP financial statements,
principally in the treatment of track replacement costs, expenditures for
bridges and other structures and freight cars, foreign exchange, pension
and post-retirement costs, loss on extinguishment of long-term debt,
stock-based compensation, joint ventures, convertible preferred securities
and reorganization of shareholders' equity. See Annex N for a
reconciliation of Canadian/U.S. GAAP for the years ended December 31,
1999, 1998, 1997, 1996 and 1995.
During 1999, Canadian National reclassified certain revenue and expense
items. See Annex N for the effect in years 1998, 1997, 1996 and 1995.
(b) Canadian National's reporting currency is the Canadian dollar. For the
Income Statement and Per Share Data, with the exception of book value per
share data, Canadian dollar amounts have been translated into U.S. dollars
at the rate of $0.6730 per Canadian dollar, which was the average of the
Bank of Canada rates for the year ended December 31, 1999. For the Balance
Sheet Data and book value per share data, Canadian dollar amounts have
been translated into U.S. dollars at the rate of $0.6929 per Canadian
dollar, which was the closing rate of the Bank of Canada at December 31,
1999.
(c) Per Share Data has been restated to reflect the two-for-one stock split on
September 27, 1999.
(d) Canadian National's board of directors has approved an increase of its
annual dividend to Cdn$0.70 per share ($0.49 per share based on the
closing rate of the Bank of Canada at December 31, 1999) for the year
2000.
Year Ended December 31,
1999 During 1999, Canadian National adopted the Canadian Institute of
Chartered Accountants (CICA) recommendations related to the
accounting for employee future benefits. Specifically, the standard
outlines guidance for the accounting for pension, post-retirement and
workers compensation costs and effectively harmonizes Canadian and
U.S. GAAP. In accordance with the transitional provisions of the new
standard, Canadian National has applied the recommendations
retroactively but has not restated
I-16
<PAGE>
Chapter One - The Combination
comparative periods. The cumulative effect of the adoption of the new
standard of $6 million (Cdn$9 million) has been reflected as a debit
adjustment to opening retained earnings.
1998 Results include a pre-tax special charge of Cdn$590 million (Cdn$345
million after tax, or Cdn$1.82 per diluted share) relating to
workforce reductions.
1997 Results include discontinued operations which decreased net income by
Cdn$18 million, or Cdn$0.10 per diluted share.
1996 Results include pre-tax special charges of Cdn$381 million (Cdn$216
million after tax, or Cdn$1.24 per diluted share) of which Cdn$365
million related to workforce reductions and Cdn$16 million to the
early retirement of long-term debt.
Results include an income tax recovery of Cdn$708 million, or
Cdn$4.08 per diluted share, for income tax benefits related to years
prior to 1997. In 1997, Canadian National adopted the CICA
recommendations for the accounting for income taxes that requires the
use of the asset and liability method. These recommendations are
consistent, in all material respects, with U.S. GAAP.
Results also include discontinued operations which increased net
income by Cdn$14 million, or Cdn$0.08 per diluted share.
1995 Results include special charges of Cdn$1,453 million, or Cdn$9.03 per
diluted share, of which Cdn$1,300 million related to an asset
impairment write-down, Cdn$88 million to an environmental accrual,
Cdn$38 million to the early retirement of long-term debt, Cdn$14
million to a write-down of material and supplies and Cdn$13 million
for a provision for legal actions.
Results also include discontinued operations which decreased net loss
by Cdn$7 million, or Cdn$0.05 per diluted share.
I-17
<PAGE>
Chapter One - The Combination
<TABLE>
Selected Historical Consolidated Financial Data
for Burlington Northern Santa Fe Corporation
(Dollars in millions, except per share data)
At or for Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues................................ $ 9,100 $ 8,941 $ 8,370 $ 8,109 $ 6,099
Income from continuing operations....... 1,137 1,155 885 889 198
Extraordinary item and cumulative
effect of changes accounting
policies............................. -- -- -- -- (106)
Net Income.............................. 1,137 1,155 885 889 92
Per Share Data
Income from continuing operations
Basic.............................. $ 2.46 $ 2.45 $ 1.91 $ 1.95 $ 0.57
Diluted............................ 2.44 2.43 1.88 1.91 0.55
Extraordinary item and cumulative
effect of changes in accounting
policies
Basic.............................. -- -- -- -- (0.34)
Diluted............................ -- -- -- -- (0.33)
Net Income
Basic.............................. 2.46 2.45 1.91 1.95 0.23
Diluted............................ 2.44 2.43 1.88 1.91 0.22
Book value.............................. 17.98 16.54 14.55 12.97 11.22
Cash dividends declared ................ 0.48 0.44 0.40 0.40 0.40
Balance Sheet Data
Total assets(a)......................... $23,700 $22,646 $21,266 $19,693 $18,199
Total debt, including current portion
and commercial paper................. 5,813 5,456 5,289 4,711 4,233
Shareholders' equity(a)................. 8,172 7,784 6,822 5,994 5,037
- -------------------
(a) Comparative prior period amounts have been reclassified to conform with the
current period presentation.
Year Ended December 31,
1997 Results include a pre-tax special charge of $90 million ($57 million after tax, or $0.12 per diluted share)
for employee merger and separation costs.
1995 Results include pre-tax special charges of $735 million ($453 million after tax, or $1.43 per diluted share)
principally for employee merger and separation costs.
Net income includes an after-tax charge of $100 million, or $0.31 per diluted share, for the cumulative effect
of the change in accounting policy for locomotive overhauls, and a $6 million after tax charge,
or $0.02 per diluted share, for an extraordinary loss on the retirement of debt.
I-18
</TABLE>
<PAGE>
Chapter One - The Combination
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data has
been prepared in accordance with U.S. GAAP to reflect the formation of North
American Railways, the one-for-one exchange of Burlington Northern Santa Fe
common stock for North American Railways common stock and Canadian National
voting shares and the exchange of 1.05 shares of North American Railways common
stock and 1.05 Canadian National voting shares for each Canadian National
common share (including the shares of North American Railways common stock
issuable to holders of the Canadian National exchangeable shares upon the
exchange of those shares for North American Railways common stock). The
unaudited pro forma combined income statement data for the year ended December
31, 1999 reflects the combination of Canadian National and Burlington Northern
Santa Fe as if it occurred on January 1, 1999. The unaudited pro forma combined
balance sheet data as at December 31, 1999 reflects the combination of Canadian
National and Burlington Northern Santa Fe as if it occurred on December 31,
1999.
The selected unaudited pro forma combined financial data was prepared for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that might have occurred had the applicable
transactions actually taken place on the dates indicated, or of future results
of operations or financial position of the combined companies. The selected
unaudited pro forma combined financial data does not reflect any potential
revenue or cost synergies or one-time costs to achieve such synergies which may
arise from the combination.
The selected unaudited pro forma financial data is based on the historical
consolidated financial statements of Canadian National and Burlington Northern
Santa Fe and should be read in conjunction with (1) those historical financial
statements and the related notes, which are incorporated by reference in this
document, (2) the selected historical consolidated financial data appearing
elsewhere in this document and (3) the unaudited pro forma condensed combined
financial statements, including the related notes appearing elsewhere in this
document.
At or for
Year Ended
December 31, 1999
-----------------
(unaudited)
(in millions)
Pro Forma Combined Basis
Income Statement Data
Revenues............................................. $ 12,624
Income from continuing operations.................... 1,630
Balance Sheet Data
Total assets......................................... 37,337
Total debt, including current portion, convertible
preferred securities and commercial paper.......... 8,843
Shareholders' equity................................. 13,670
- -------------------
I-19
<PAGE>
Chapter One - The Combination
UNAUDITED COMPARATIVE PER SHARE DATA
The following table presents for Burlington Northern Santa Fe common stock
and Canadian National common shares selected historical, pro forma and pro
forma equivalent per share data at or for the year ended December 31, 1999. The
information presented below should be read in conjunction with (1) the selected
historical consolidated financial data, (2) the selected unaudited pro forma
combined financial data and (3) the unaudited pro forma condensed combined
financial statements, and the related notes appearing elsewhere in this
document.
At or for
Year Ended
December 31, 1999
-----------------
Burlington Northern Santa Fe Common Stock
Income from continuing operations
Historical
Basic................................................... $ 2.46
Diluted................................................. 2.44
Pro forma combined (a)
Basic................................................... 2.43
Diluted................................................. 2.40
Book value per share
Historical................................................ 17.98
Pro forma combined (a) ................................... 20.49
Cash dividends per share
Historical................................................ 0.48
Pro forma combined (a) (b)................................ 0.48
Canadian National Common Shares (U.S. GAAP)
Income from continuing operations
Historical
Basic................................................... $ 2.54
Diluted................................................. 2.50
Pro forma equivalent (c)
Basic................................................... 2.55
Diluted................................................. 2.52
Book value per share
Historical................................................ 20.96
Pro forma equivalent (c).................................. 21.51
Cash dividends per share
Historical................................................ 0.40
Pro forma equivalent (b) (c).............................. 0.50
- -------------------
(a) Represents North American Railways pro forma combined amounts (see
"Unaudited Pro Forma Condensed Combined Financial Statements").
(b) Cash dividends declared are assumed to be the same as those paid by
Burlington Northern Santa Fe on a historical basis.
(c) Calculated by multiplying the pro forma combined amounts by the 1.05
exchange ratio to equate North American Railway's combined pro forma per
share amounts to one Canadian National common share.
I-20
<PAGE>
Chapter One - The Combination
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include, among other
information, the information in this document regarding:
<TABLE>
<S> <C>
synergies asset utilization
efficiencies railroad market share potential of the combined
cost savings company
revenue and service enhancements the impact of the combination on earnings
service scheduling the timetable for completion of the combination
</TABLE>
The sections of this document that contain forward-looking statements
include, among others, o "Questions and Answers About the Combination", o
"Summary", o "Selected Historical Consolidated Financial Data", o "Selected
Unaudited Pro Forma Combined Financial Data", o "The Combination--Background of
the Combination", o "The Combination--Our Reasons for the Combination", o "The
Combination--Opinions of Financial Advisors", o "The Combination--Regulatory
Review and Approval", o "Unaudited Pro Forma Condensed Combined Financial
Statements", o "The Companies", o "Burlington Northern Santa Fe Transaction
Mechanics", and o "Canadian National Transaction Mechanics". Our
forward-looking statements are also identified by words such as "believes",
"expects", "anticipates", "intends", "estimates" or similar expressions.
You should understand that the following important factors, in addition to
those discussed elsewhere in this document and in the documents that are
incorporated by reference, could affect the future results of Canadian
National, Burlington Northern Santa Fe, North American Railways and the
combined companies after the completion of the combination, and could cause
those results or other outcomes to differ materially from those expressed in
our forward-looking statements:
<TABLE>
<S> <C>
Economic and Industry Conditions Legal and Regulatory Factors
o material adverse changes in economic or industry o changes in laws and regulations applicable to our
conditions generally or in the markets served by business
our companies o the ultimate outcome of shipper claims,
o customer demand environmental investigations or proceedings and
o effects of adverse economic conditions affecting other types of claims and litigation
our shippers
o adverse economic conditions in the industries and Operating Factors
geographic areas that produce and consume our
freight o technical difficulties
o changes in fuel prices o changes in operating conditions and costs
o labor difficulties, including strikes o natural events such as severe weather, floods
and earthquakes
I-21
<PAGE>
Chapter One - The Combination
Transaction or Commercial Factors Competitive Factors
o the outcome of negotiations with partners, o competition, regulatory and political developments,
governments, suppliers, customers or others including trade-related matters
o the process of, or conditions imposed in connection o agreements, arrangements or consolidations among
with, obtaining regulatory approvals for the competitors of our companies
combination o economic or regulatory factors affecting our
o the challenges inherent in diverting management's companies' competitors, including trucks, barges and
focus and resources from other strategic other modes of transportation
opportunities and from operational matters
during the implementation process
o our ability to coordinate the businesses of Canadian
National and Burlington Northern Santa Fe
successfully after the combination
o the ability to retain key employees and customers
pending approval and implementation of the
combination
</TABLE>
We refer you to the documents that Canadian National and Burlington
Northern Santa Fe file from time to time with the U.S. Securities and Exchange
Commission, such as Canadian National's Form 40-F and Form 6-K reports and
Burlington Northern Santa Fe's Form 10-K, Form 10-Q and Form 8-K reports, which
contain additional important factors that could cause our results to differ
from our current expectations and the forward-looking statements contained in
this document.
I-22
<PAGE>
Chapter One - The Combination
RISK FACTORS
Before deciding whether to vote to approve the combination, you should
consider carefully the risk factors described below. Risks associated with
Canadian National's and Burlington Northern Santa Fe's businesses are described
in our U.S. Securities and Exchange Commission filings and, in the case of
Canadian National, filings with the Canadian Securities Administrators, that
may be obtained in the manner outlined under "Chapter Five--Additional
Information for Shareholders--Where You Can Find More Information" and which we
have incorporated by reference into this document. Additional uncertainties are
also outlined on Pages I-21 and I-22. In addition, before voting on the
combination, you should consider carefully all other information included or
incorporated by reference in this document.
The combination requires U.S. Surface Transportation Board approval. That
approval may not be obtained or, if obtained, may impose conditions adversely
affecting the expected benefits of the combination.
Canadian National and Burlington Northern Santa Fe are required to obtain
U.S. Surface Transportation Board approval before the combination may be
completed. In addition to its customary considerations, and in a departure from
its handling of prior railroad consolidation proceedings, the U.S. Surface
Transportation Board has decided that, in reviewing our transaction, it will
consider evidence to be submitted by us and other interested parties concerning
the potential effects of future merger transactions that are likely to occur as
a competitive response to our combination. We cannot assure you that the U.S.
Surface Transportation Board will approve the combination or that such
approval, if obtained, will not be subject to burdensome requirements and other
conditions that will diminish the expected benefits of the combination. Pending
U.S. Surface Transportation Board approval, Canadian National and Burlington
Northern Santa Fe will operate as independent companies. Any delay in obtaining
U.S. Surface Transportation Board approval would delay our receipt of the
benefits of the combination.
Difficulties in effectively coordinating our businesses or other factors could
also adversely affect the expected benefits of the combination.
The combination involves the coordination of two previously independent
businesses to provide shippers enhanced rail services over a coordinated
network. We cannot assure you that we will be able to coordinate the businesses
of Canadian National and Burlington Northern Santa Fe without encountering
operational difficulties or experiencing the loss of key Canadian National or
Burlington Northern Santa Fe employees or customers, or that we will realize
the rail service and other efficiencies we expect to derive from this
coordination. For these and other reasons, there can be no assurance that the
estimated annual synergies expected to result from the combination will be
realized.
Provisions of our governing documents could prevent a takeover that might be
beneficial to you.
Canadian National's articles provide and will continue to provide, and
immediately prior to the completion of the combination North American Railways'
charter will be amended to provide, that no person together with that person's
associates may hold or control, directly or indirectly, more than 15% of the
voting rights in Canadian National or North American Railways. If this 15%
threshold is exceeded, the board of directors of the relevant company may take
a range of actions, including requiring the holder to sell shares in excess of
the 15% threshold or denying the holder voting rights and dividends. This
restriction effectively prohibits one or more persons acting together from
acquiring voting control of Canadian National or North American Railways and
could prevent a transaction in which the combined companies' shareholders would
receive a premium for their shares.
I-23
<PAGE>
Chapter One - The Combination
THE COMBINATION
General
Canadian National's board of directors is using this document to solicit
proxies from the holders of Canadian National common shares and stock options
for use at the Canadian National annual and special meeting. Burlington
Northern Santa Fe's board of directors is using this document to solicit
proxies from the holders of Burlington Northern Santa Fe common stock for use
at the Burlington Northern Santa Fe special meeting. This document is also a
prospectus for North American Railways common stock and Canadian National
voting shares to be issued in the combination.
Canadian National Proposals
Canadian National will hold an annual and special meeting of holders of
Canadian National common shares and stock options, with the exception of the
stock option granted to Burlington Northern Santa Fe, for the following
purposes:
o for the holders of Canadian National common shares and stock options
to consider and, if determined advisable, approve, with or without
variation, a special resolution (the "arrangement resolution") in
respect of a plan of arrangement (the "arrangement"), all as more
particularly described in this document;
o for the holders of Canadian National common shares to receive the
consolidated financial statements of Canadian National for the year
ended December 31, 1999, and the related report of Canadian
National's auditors;
o for the holders of Canadian National common shares to elect
directors;
o for the holders of Canadian National common shares to appoint
auditors; and
o to transact such other business as may properly come before the
meeting or any adjournment thereof.
We will not be able to complete the combination unless Canadian National
common shareholders and optionholders, except for Burlington Northern Santa Fe,
voting together as a single class, approve the arrangement resolution. Approval
of the matters referred to in the third and fourth clauses above is not a
condition to completion of the combination and approval of the combination is
not a condition to approval of these matters. Approval of the arrangement
resolution requires the affirmative vote of two-thirds of the votes cast on the
matter by Canadian National common shareholders and optionholders, except for
Burlington Northern Santa Fe, voting together as a single class. Election of
directors and appointment of auditors requires a vote of a majority of the
shares present and voting at the meeting, assuming a quorum exists.
Burlington Northern Santa Fe Proposals
Burlington Northern Santa Fe will hold a special meeting of holders of
Burlington Northern Santa Fe common stock to:
o approve and adopt the combination agreement and the transactions that
it contemplates, including the merger of a wholly owned subsidiary of
Northern American Railways with and into Burlington Northern Santa
Fe; and
o consider other related business that may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
We will not be able to complete the combination unless Burlington Northern
Santa Fe shareholders approve the combination agreement and the transactions
that it contemplates. Approval of the combination agreement and the
I-24
<PAGE>
Chapter One - The Combination
transactions that it contemplates requires the affirmative vote of a majority
of the shares of Burlington Northern Santa Fe common stock outstanding and
entitled to vote on the record date.
Background of the Combination
Mr. Robert D. Krebs, Chairman and Chief Executive Officer of Burlington
Northern Santa Fe, and Mr. Paul M. Tellier, President and Chief Executive
Officer of Canadian National, have had regular meetings since 1992, the year
during which Mr. Tellier was appointed Chief Executive Officer of Canadian
National. Most of those meetings were held in the context of meetings of the
Association of American Railroads, of which both Mr. Krebs and Mr. Tellier are
directors. From time to time, Messrs. Krebs and Tellier also held ad hoc
conversations and discussed topics of critical importance, such as safety.
During 1999, Messrs. Krebs and Tellier met more often to discuss matters
of common interest, including the improvement of service to the customers
served by Burlington Northern Santa Fe and Canadian National, particularly for
those whose traffic is interchanged between the two companies. These
discussions touched upon, among other things, the improvement of interline
movement, particularly in the Chicago area, as well as how to insulate
Burlington Northern Santa Fe and Canadian National from the effects of service
disruptions encountered by other carriers following recent mergers.
These discussions rapidly evolved into discussions on what the two
companies could do together to offer better and more reliable service to our
customers. The discussions first focused on the creation of an alliance modeled
on those uniting certain international air carriers. However, after exploring
these possibilities, Messrs. Krebs and Tellier came to the conclusion that only
by placing the two companies under common leadership and ownership could they
achieve the level of improvement in service both had in mind and thereby
maximize shareholder value.
Because of the common corporate philosophy of Burlington Northern Santa Fe
and Canadian National, which holds customer needs to be paramount, the
discussions progressed rapidly and positively with respect to the possibility
of combining the two companies.
The first meeting during which the possibility of combining the two
companies was seriously discussed was held between Messrs. Krebs and Tellier on
October 6, 1999. Messrs. Krebs and Tellier had several telephone conversations
in the following weeks and both became convinced that a transaction resulting
in the combination of Burlington Northern Santa Fe and Canadian National was
not only possible but that such a transaction would be to the advantage of both
companies' customers, particularly those customers whose traffic is
interchanged between the two companies, and shareholders.
Neither Burlington Northern Santa Fe nor Canadian National contacted,
evaluated or inquired as to alternative combination partners after the October
6, 1999 meeting between Messrs. Krebs and Tellier. Each company believed that
the other company offered unique strategic advantages that could not be
achieved through a combination with another railroad.
Burlington Northern Santa Fe first contacted its financial advisor,
Goldman Sachs, shortly after the October 6, 1999 meeting between Messrs. Krebs
and Tellier. Goldman Sachs participated in a number of meetings at which the
possibility of combining the two companies was considered and provided
Burlington Northern Santa Fe's board of directors and management financial
advice regarding a possible transaction. Goldman Sachs was asked to deliver a
fairness opinion in connection with a combination.
The Beacon Group was advising Canadian National with respect to general
strategic issues and was therefore contacted early on in the negotiations.
Canadian National first contacted Salomon Smith Barney shortly after the
October 6, 1999 meeting between Messrs. Krebs and Tellier, and Nesbitt Burns in
the second half of November 1999. All three firms participated in meetings at
which the possibility of combining the two companies was considered and
provided Canadian National's board of directors and management financial advice
regarding a possible transaction. In addition, Salomon Smith Barney and Nesbitt
Burns were asked to deliver fairness opinions in connection with a combination.
I-25
<PAGE>
Chapter One - The Combination
Messrs. Krebs and Tellier, together with Mr. Jeffrey Ward, Canadian
National's Executive Vice-President, Strategic Planning, met on October 26,
1999. During this meeting it was agreed to commence the systematic evaluation
of the benefits that could arise from a combination of our companies and, to
the extent that such evaluation proved positive, to continue and accelerate
discussions with a view toward trying to devise a transaction that would result
in the two companies being combined in a mutually acceptable manner.
Messrs. Krebs and Tellier exchanged telephone calls during the following
week and a meeting was scheduled for November 4, 1999. In addition to Messrs.
Krebs and Tellier, several senior officers of both companies, as well as
outside legal and financial advisors to Burlington Northern Santa Fe,
participated in this meeting. At this meeting it was agreed to explore the
possibility of designing a transaction that would meet the following broad
parameters: the transaction would have to be a true merger of equals and not a
"taking over" of one party by the other; the transaction would have to comply
with the letter and spirit of the CN Commercialization Act and the restrictions
contained in that statute; and the exchange ratio in the transaction would have
to be based on the market prices of Canadian National common shares and
Burlington Northern Santa Fe common stock without a premium being paid to
either shareholder group. In the following days, the legal and financial
advisors to both companies exchanged ideas on how to effect a transaction that
would meet those criteria. In addition, the assessments of the potential
benefits of a combination of the two companies, including synergies and
improved customer service, were accelerated.
A meeting involving Messrs. Krebs and Tellier and senior officers of both
companies, as well as our respective outside legal and financial advisors, was
held on November 11, 1999. At this meeting it was agreed that, in addition to
the above criteria, a transaction would have to be tax-efficient for both
companies and our respective shareholders. Those present examined various
alternatives and the broad parameters of the transaction started to take shape.
The representatives of both companies agreed that further analytical work was
also required on the merits of a transaction from the points of view of both
the companies' shareholders and customers.
During the period between November 11 and November 19, 1999, the legal and
financial advisors to, as well as senior executives of, both companies
continued to exchange ideas on how best to achieve the business combination
being considered. More analytical work on the potential benefits of such a
combination was also done.
On November 19, 1999, representatives of both companies met and had
extensive discussions on the merits of a combination, including the positive
results of the assessments referred to above for both the shareholders and the
customers of the two companies. Extensive discussions on the possible structure
of a transaction were also held. The parties agreed to meet again on November
30, 1999.
On November 23, 1999, a meeting of the board of directors of Canadian
National was held by telephone conference. During the meeting, Mr. Tellier
reported on the on-going discussions between the representatives of Canadian
National and Burlington Northern Santa Fe and gave a broad outline of the
potential benefits of a combination of the two companies. The board unanimously
agreed that the discussions should continue.
On November 30, 1999, representatives of both companies met. Extensive
discussions on the structure of a transaction were held and, although many key
issues remained open, agreement in principle was reached on certain points.
Between November 30, 1999 and December 18, 1999, Canadian National,
Burlington Northern Santa Fe and our respective advisors continued to hold
discussions regarding a possible business combination transaction. During this
period, the parties also negotiated the terms of the combination agreement and
related transaction documentation, including a proposed plan of arrangement.
On December 5, 1999, the board of directors of Burlington Northern Santa
Fe held a telephonic meeting regarding the possible combination transaction.
On December 6, 1999, Mr. Tellier briefed the Canadian National board of
directors extensively on the progress made in discussions with Burlington
Northern Santa Fe and on those issues that remained outstanding. Canadian
I-26
<PAGE>
Chapter One - The Combination
National's board of directors expressed its concurrence with management's
recommendation that discussions continue.
On December 9, 1999, Burlington Northern Santa Fe's board of directors
held a regularly scheduled meeting at which time various aspects of a potential
combination transaction were discussed. Following the meeting, representatives
of Canadian National, including Mr. Tellier, and representatives of Burlington
Northern Santa Fe, including Mr. Krebs, met to discuss further a possible
business combination. Following that meeting, the legal advisors to both
companies met to discuss legal issues associated with a possible business
combination. No agreement was reached on the outstanding open issues.
Messrs. Krebs and Tellier had several telephone conversations over the
next few days and a further meeting was held on the morning of December 13,
1999. During the course of that meeting, Messrs. Krebs and Tellier, together
with Mr. E. Hunter Harrison, Executive Vice-President and Chief Operating
Officer of Canadian National, and Mr. Matthew K. Rose, President and Chief
Operating Officer of Burlington Northern Santa Fe, made substantial progress
toward the resolution of the outstanding open issues and agreed to seek
authority from our respective boards of directors to enter into a binding
combination agreement, subject to the preparation of mutually satisfactory
definitive documentation and mutually satisfactory resolution of all remaining
open issues.
On December 16, 1999, Burlington Northern Santa Fe's board of directors
held a telephonic meeting regarding the possible combination transaction, at
which time various aspects of a potential combination transaction were again
discussed.
On December 18, 1999, Burlington Northern Santa Fe's board of directors
held a telephonic meeting to consider the proposed combination transaction.
Burlington Northern Santa Fe's board of directors received presentations from
its management and financial and legal advisors regarding the combination. At
that meeting, Goldman Sachs gave to Burlington Northern Santa Fe's board of
directors its oral opinion, subsequently confirmed in writing, that, as of that
date, the exchange ratio in the combination transaction was fair, from a
financial point of view, to the holders of the outstanding Burlington Northern
Santa Fe common stock. Following those presentations, the receipt of the
Goldman Sachs opinion and deliberative discussions, Burlington Northern Santa
Fe's board of directors unanimously voted to approve and declare advisable the
combination agreement, the stock option agreements entered into in connection
with the combination agreement and the transactions contemplated by those
agreements and resolved to recommend that Burlington Northern Santa Fe
shareholders vote to approve the combination agreement and the merger involving
Burlington Northern Santa Fe contemplated by the combination agreement.
As contemplated by the combination agreement, Burlington Northern Santa
Fe's board of directors also approved a shareholder rights plan and declared a
dividend, payable to Burlington Northern Santa Fe shareholders of record on
December 31, 1999, of one right for each outstanding share of Burlington
Northern Santa Fe common stock.
On December 18, 1999, Canadian National's board of directors met to
consider the proposed combination transaction. Canadian National's board of
directors received presentations from its management and financial and legal
advisors regarding the combination. At the meeting, each of Salomon Smith
Barney and Nesbitt Burns gave to Canadian National's board of directors its
oral opinion, subsequently confirmed in writing, that, as of that date, the
exchange ratio was fair to Canadian National shareholders from a financial
point of view. Following those presentations, the receipt of the Salomon Smith
Barney and Nesbitt Burns opinions and deliberative discussions, all members of
Canadian National's board of directors (other than Messrs. Armellino, Lumley
and Lynch, who abstained) voted to approve the combination agreement, the stock
option agreements entered into in connection with the combination agreement and
the transactions contemplated by those agreements and resolved to recommend
that Canadian National shareholders vote to approve the plan of arrangement
involving Canadian National contemplated by the combination agreement. Messrs.
Armellino, Lumley and Lynch abstained from the vote for the reasons described
in "Interests of Certain Persons in the Combination--Boards of Directors and
Management--Relationship with Financial Advisors".
I-27
<PAGE>
Chapter One - The Combination
The exchange ratio in the combination agreement was established through
discussions between Messrs. Tellier and Krebs, following discussions with the
financial advisors to each company. The exchange ratio reflects the concept
that had been agreed upon in early discussions between Messrs. Tellier and
Krebs that the exchange ratio was to reflect the market price of each company's
common stock at the time the combination agreement was executed and that no
premium was to be paid to the shareholders of either company.
On December 18, 1999, the combination agreement and the related stock
option agreements were executed by Canadian National and Burlington Northern
Santa Fe.
On December 20, 1999, Canadian National and Burlington Northern Santa Fe
publicly announced that they had entered into the combination agreement.
On February 17, 2000, Canadian National and Burlington Northern Santa Fe
entered into an amended and restated combination agreement. The amendments
agreed to by the parties reflected a number of technical and conforming
changes, none of which materially affected the substantive terms of the
combination.
Our Reasons for the Combination
In approving and recommending the combination, the boards of directors of
Canadian National and Burlington Northern Santa Fe considered a number of
material factors that they believed favored the combination. These factors are
described below.
Strategic Advantages of the Combined Enterprise
As a result of the combination, we believe we will offer to customers the
most extensive rail network in North America, with new single-line north-south
traffic routes, high-quality, efficient service and low implementation risk. We
expect our enhanced services to increase revenues by attracting additional
traffic from existing and new customers and to permit cost reductions through
new economies of scale and scope. As a result, the boards of directors of both
Canadian National and Burlington Northern Santa Fe believe that the combined
companies will be able to create substantially greater shareholder value than
could be achieved by the companies individually.
The combination of Canadian National and Burlington Northern Santa Fe is a
major strategic move in the North American transportation business that we
believe will benefit both customers and shareholders. The combination will
create a North American railroad with approximately 50,000 route-miles of
track, offering extensive single-line service across Canada and the central and
western United States. It opens for shippers in Canada, the United States and
Mexico the expanded scope of a unified network and new single-line routes in
the fast-growing north-south trade corridors. We also believe that the
combination will result in rail market share growth by generating new business
opportunities and added efficiencies through improved use of our assets and
service scheduling.
A key driver of the combination for both Canadian National and Burlington
Northern Santa Fe is the expected delivery of faster, more reliable service,
raising the performance standard of the rail industry to improve its
competitive position versus trucking. We intend this combination to address
inefficient interfaces between rail networks in the transfer of both goods and
information that have led to a decline in rail's share of the transportation
market.
Shippers and railroads understand that service and efficiency are greatly
improved when shipments are routed over a seamless network from origin to
destination. Combining the Canadian National and Burlington Northern Santa Fe
routes should give shippers the ability to forward or receive products over a
new single-line network to or from markets that they cannot access in that
manner now. The combination will create new single-line routes bringing
products closer to end markets as shipments move shorter distances while
avoiding historically congested interchange points that result in delays.
I-28
<PAGE>
Chapter One - The Combination
Faster, more reliable service
We expect that the combination will enable us to provide an improved level
of service that will yield revenue growth.
o The combination will create extensive single-line service
capabilities across Canada and the central and western United States,
which we expect will reduce the amount of interchange traffic and
improve service quality.
o The combination will create new single-line north-south traffic
routes that are expected to provide more direct and efficient lanes
that bypass congested areas and open new markets to shippers and
their customers. Four new single-line north-south corridors will be
created to move products between Canada and the United States.
o The combination is designed to create truck-competitive service in
key corridors that we expect will give shippers viable alternatives
to high trucking costs and thereby reduce truck traffic. For example,
we expect that the combination will allow us to leverage Burlington
Northern Santa Fe's industry leading intermodal service to customers
across a larger network.
o We expect that the combination will improve the information aspects
of transportation, including ordering, tracking and billing, over our
combined network, thereby reducing transaction costs and creating
"one-stop" shopping benefits for shippers.
Efficiencies
Canadian National and Burlington Northern Santa Fe are the most efficient
major Class I railroads in North America today based on their 1999 operating
ratios, which measure the relationship between a company's operating revenues
and operating expenses. We expect the combination to increase our companies'
combined operating revenues which, coupled with the expected cost synergies and
anticipated improvements in operating efficiencies, will have the effect of
lowering our combined operating ratio.
o Anticipated service and transit time improvements, as well as the
combined management of our asset base, should translate into major
efficiencies in the utilization of rolling stock and plant. This
would allow us to accommodate expected growth in traffic without
having to invest heavily in new capacity.
o The prospect of "best practices" transfer between the two railroads
is significant. For example, Canadian National's precision scheduling
has significantly improved carload service, resulting in both
improved service to customers as well as significant asset savings.
o Opportunities for economies of scale are expected to provide major
savings in purchasing and a variety of other shared services.
o We believe there are significant opportunities for savings in the
area of information technology, where both companies have already
made major advances using similar transportation information systems
and will work together to develop a common vision.
In all, we expect that the combined companies will be in a strong position
to realize significant scale economies leading to efficiencies benefitting both
customers and shareholders.
Solid leadership
The senior management team at Canadian National and North American
Railways is expected to include the four individuals named below:
I-29
<PAGE>
Chapter One - The Combination
<TABLE>
Post-Combination Position at Canadian
Name Current Position National and North American Railways
- ---- ---------------- -------------------------------------
<S> <C> <C>
Robert D. Krebs Chairman and Chief Executive Officer of Chairman
Burlington Northern Santa Fe
Paul M. Tellier President and Chief Executive Officer of Canadian President and Chief Executive Officer
National
E. Hunter Harrison Executive Vice-President and Chief Operating Chief Operating Officer
Officer of Canadian National
Thomas N. Hund Senior Vice President and Chief Financial Officer Chief Financial Officer
of Burlington Northern Santa Fe
</TABLE>
In addition, Matthew K. Rose, currently President and Chief Operating
Officer of Burlington Northern Santa Fe, will serve as President and Chief
Executive Officer of Burlington Northern Santa Fe, which will be a wholly owned
subsidiary of North American Railways after the combination is completed.
The individuals named above have wide and diversified experience and
proven records as outstanding managers of major railroads. They will strive to
implement the combination with no disruption to customers. In this context, in
his role as Chief Operating Officer of Canadian National and North American
Railways, E. Hunter Harrison will strive to ensure that "best practices" are
coordinated and that a service-oriented and efficient operating strategy is
developed.
Smooth implementation
We believe that the dedication of our companies to improved customer
service, the unique geographic and organizational structure of this combination
and the proven track record of both organizations in successfully executing
past combinations will contribute to the success and smooth implementation of
the combination. Our two railroads generally connect with each other at their
end points in western Canada, the upper Midwest, Chicago and the Mississippi
valley and have few parallel or overlapping routes. This makes the combination
easier to implement operationally because there are few redundant facilities
and operations. As an end-to-end combination of two highly efficient railroads
with a similar customer focus and service philosophy, we expect to avoid the
service pitfalls following certain previous railroad transactions. Our belief
that the combination can be implemented smoothly without the service
difficulties that have affected other railroad transactions was a significant
factor in our decision to go forward with the combination.
We believe that the strength of the two companies and the structure of the
proposed combination will contribute to the success of the combination and
facilitate smooth implementation.
o We are combining the two most efficient railroads among all of major
Class I railroads in North America (based on their 1999 operating
ratios). We are not attempting to absorb a weaker carrier.
o The end-to-end combination of our companies should not be highly
complex from an operational perspective. We are not attempting to
split an existing railroad into two parts.
o Canadian National and Burlington Northern Santa Fe already utilize
similar transportation information systems. We are not attempting to
introduce a significantly different system to either company.
o The anticipated organizational structure preserves each company's
identity and customer focus. We are not attempting a major
organizational restructuring that would cause the loss of key
personnel.
The business model that we are using to take this major strategic step is
designed to produce a smooth combination of our two rail systems. Our approach
to this combination builds on the strengths of the two companies, while
preserving their long-established local presences and their individual
cultures.
I-30
<PAGE>
Chapter One - The Combination
Anticipated synergies
We believe that the combination will allow the combined companies to
realize significant synergies. We currently estimate that the annual impact of
these synergies on operating income will be between $500 million and $600
million (Cdn$750 million and Cdn$890 million). These annual synergies are
expected to be realized about evenly over the first three years after the
combination is completed. Of the total amount of anticipated synergies, we
currently expect that at least half will be achieved through efficiencies and
the balance through revenue growth.
Based on these anticipated synergies, we currently expect the combination
to be accretive to earnings per share for the combined companies from the first
year following completion of the combination and to be accretive to earnings
per share by approximately 12-17% by the third year of combined operations. As
a result of the uncertainties associated with estimating synergies and the
assumptions we have made, our combination may in fact be significantly more or
less accretive than this estimated range.
In addition to the amount and timing of synergies, these accretion
estimates are subject to a number of assumptions, including assumptions related
to the following factors:
o general macro-economic conditions affecting transportation markets
in North America;
o key commercial initiatives of both companies and their likely impact
on our companies relative to our competitors;
o anticipated growth in revenues, operating income and earnings of our
two companies on a stand-alone basis;
o impact of purchase accounting adjustments; and
o timing and level of share repurchases.
Key categories of anticipated revenue synergies include:
o increased volumes of auto parts and merchandise traffic in key
truck-competitive corridors between southern Ontario and Michigan and
Mexico and the southwestern United States;
o increased automotive traffic between plants in Michigan and southern
Ontario to the southwestern United States, the West Coast and Mexico;
o increased north-south traffic as new single-line transportation
services are developed;
o increased bulk commodities traffic from western Canada to the United
States;
o increased chemicals traffic to the midwestern United States and the
West Coast from Gulf production regions;
o increased forest products revenues from single-line service linking
major producing regions and consumption areas in Canada and the
United States; and
o general traffic increases from a wide customer base as a result of
expanded single-line service and improved service levels provided by
the combination.
We believe that these anticipated revenue enhancements reflect the
combined companies' ability and determination to exploit the opportunities for
improved service presented by the combination.
Key categories of anticipated cost synergies include:
I-31
<PAGE>
Chapter One - The Combination
o lower locomotive, car fleet and transportation costs due to
utilization of more direct and efficient routes that reduce mileage
and avoid congested areas, and the implementation of best practices
and a new operating plan focused on delivering high-quality and
efficient service across the combined companies;
o reduced purchasing costs due to significant leverage of the combined
companies to negotiate supply contracts, redesign internal logistics
activities and lower inventories; and
o economies of scale in selected general and administrative activities,
information technology and selected support functions.
We believe that these anticipated cost savings, building upon the current
service enhancement efforts of Canadian National and Burlington Northern Santa
Fe and the strength of the combination, should enhance, rather than threaten,
quality of service.
Neither Canadian National nor Burlington Northern Santa Fe as a matter of
course publicly discloses its expectations of its future performance or of the
performance of any particular transaction it may undertake. The foregoing
estimates are based upon a variety of assumptions involving judgments on, among
other things, future economic, financial, competitive and regulatory
conditions, all of which are beyond the control of Canadian National and
Burlington Northern Santa Fe. Accordingly, we cannot assure you that we will
realize the increase in operating income or other synergies referred to above,
and the actual increase in operating income and the actual synergies, if any,
we realize from the combination may vary materially from our estimates shown
above. Furthermore, we cannot assure you that the U.S. Surface Transportation
Board will not impose conditions on the assets or operations of the combined
companies that will affect our ability to realize the anticipated synergies or
that will impose additional costs on the combined companies. In light of the
uncertainties inherent in estimates on this type, you should not regard the
inclusion of such estimates in this document as a representation by Canadian
National, Burlington Northern Santa Fe, North American Railways or any other
person that we will achieve such increases in operating income or such
synergies. We advise investors not to place undue reliance on these estimates.
None of Canadian National, Burlington Northern Santa Fe or North American
Railways intends publicly to update or otherwise publicly to revise the
estimates set forth above, except as may be required in the U.S. Surface
Transportation Board application process, even if experience or future changes
make it clear that the expected increase in operating income or the expected
synergies will not be realized or that the actual costs to be incurred will
exceed the foregoing estimates. The foregoing estimates have not been prepared
in accordance with the U.S. Securities and Exchange Commission's regulations
with respect to financial forecasts and similar matters.
Other Factors Considered By the Canadian National Board That Favored the
Combination
The Canadian National board of directors also considered the following
material factors that it believed favored the combination:
o Canadian National common shareholders would hold approximately
one-third of the publicly traded securities of the combined
enterprise, which was consistent with the board's concept of a
transaction in which neither Canadian National nor Burlington
Northern Santa Fe shareholders would receive a premium;
o the fact that terms and conditions of the combination agreement
generally were customary for transactions of this type and allowed
Canadian National to achieve significant business objectives.
Particular terms and conditions focused on by the board included the
restrictions on Canadian National's and Burlington Northern Santa
Fe's conduct of their businesses pending completion of the
combination, the conditions to completing the combination, the
termination fees payable under certain circumstances, the grant by
Canadian National and Burlington Northern Santa Fe of options to
acquire stock of the other in certain circumstances, pursuant to the
stock option agreements (see "The Stock Option Agreements"), and the
fact that Canadian National's board of directors retains the right to
participate in discussions or negotiations with, and provide
information to, a party
I-32
<PAGE>
Chapter One - The Combination
considering making an alternative proposal for Canadian National in
certain circumstances (see "The Combination Agreement");
o Canadian National shareholders would receive stapled securities in a
substantially larger enterprise generally on a tax-free basis (see
"The Combination--Material Tax Consequences of the Combination");
o the fact that North American Railways' use of the purchase method of
accounting to account for the combination would not have a
substantial negative effect on North American Railway's future
earnings relative to the scope of the combination;
o the analyses and presentations of Salomon Smith Barney, Nesbitt Burns
and The Beacon Group, and the separate opinions of Salomon Smith
Barney and Nesbitt Burns to the effect that, as of December 18, 1999,
and based upon and subject to the various considerations set forth in
those opinions, the exchange ratio was fair, from a financial point
of view, to Canadian National shareholders;
o the fact that members of Canadian National's current management and
board of directors would continue to play a significant role in the
management of each of the combined companies after the combination is
completed;
o Canadian National would name as many members of the board of
directors as Burlington Northern Santa Fe, and North American
Railways' board of directors would be identical to Canadian
National's board of directors after the combination is completed,
allowing both companies to function as a single enterprise, while
complying with the CN Commercialization Act;
o the combination must be approved by a special resolution passed by
not less than 66 2/3% of the votes cast at a meeting of Canadian
National common shareholders and optionholders, and by the Quebec
Superior Court, which Canadian National is advised will consider,
among other things, the fairness of the arrangement to Canadian
National common shareholders and optionholders, both of which help to
ensure that the combination, if effected, would reflect the wishes of
Canadian National's shareholders and optionholders;
o under the arrangement, Canadian National common shareholders have the
right to dissent, so that, if they do not wish to participate in the
transaction approved by their fellow shareholders they may elect to
pursue dissenters' rights;
Other Factors Considered By the Burlington Northern Santa Fe Board that Favored
the Combination
The Burlington Northern Santa Fe board of directors also considered the
following material factors that it believed favored the combination:
o Burlington Northern Santa Fe shareholders would hold approximately
two-thirds of the publicly traded securities of the combined
enterprise, which was consistent with the board's concept of a
transaction in which neither Canadian National nor Burlington
Northern Santa Fe shareholders would receive a premium;
o the fact that the terms and conditions of the combination agreement
generally were customary for transactions of this type and allowed
Burlington Northern Santa Fe to achieve significant business
objectives. Particular terms and conditions focused on by the board
included the restrictions on Burlington Northern Santa Fe's and
Canadian National's conduct of their businesses pending completion of
the combination, the conditions to completing the combination, the
termination fees payable under certain circumstances, the grant by
Burlington Northern Santa Fe and Canadian National of options to
acquire stock of the other in certain circumstances, pursuant to the
stock option agreements (see "The Stock Option Agreements"), and the
fact that Burlington Northern Santa Fe's board of directors retains
the
I-33
<PAGE>
Chapter One - The Combination
right to participate in discussions or negotiations with, and provide
information to, a party considering making an alternative proposal
for Burlington Northern Santa Fe in certain circumstances (see "The
Combination Agreement");
o Burlington Northern Santa Fe shareholders would receive stapled
securities in a substantially larger enterprise in a transaction that
is tax-free to them, except for a nominal amount of income or gain
(see "The Combination--Material Tax Consequences of the
Combination");
o the fact that North American Railways' use of the purchase method of
accounting to account for the combination would not have a
substantial negative effect on North American Railway's future
earnings relative to the scope of the combination;
o the analyses, presentations and opinion of Goldman Sachs to the
effect that, as of December 18, 1999, and based upon and subject to
the various considerations set forth in its opinion, the exchange
ratio was fair, from a financial point of view, to the holders of the
outstanding shares of Burlington Northern Santa Fe common stock. The
board was aware that the contribution analysis of Goldman Sachs
indicated that Canadian National would contribute a smaller
percentage of historical revenues, operating income, EBITDA and net
income than the percentage of the ownership of the combined
enterprise that Canadian National's shareholders would receive;
o the fact that members of Burlington Northern Santa Fe's current
management and board of directors would continue to play a
significant role in the management of each of the combined companies
after the combination is completed;
o the possibility that the 15% threshold on ownership of voting rights
in the combined companies after the combination is completed may
prevent a takeover that would be beneficial to Burlington Northern
Santa Fe shareholders;
o Burlington Northern Santa Fe would name as many members of the board
of directors as Canadian National, and North American Railways' board
of directors would be identical to Canadian National's board of
directors after the combination is completed, allowing both companies
to function as a single enterprise with neither company's existing
board of directors controlling the combined companies' operations;
o the combination must be approved by the affirmative vote of a
majority of the shares of Burlington Northern Santa Fe common stock
outstanding, which will ensure that the combination, if effected,
would reflect the wishes of Burlington Northern Santa Fe's
shareholders;
Factors Considered by Each Board That Did Not Favor the Combination
Each of the Canadian National and Burlington Northern Santa Fe boards
considered the following factors that did not favor the combination:
o the possibility of not receiving regulatory clearance for the
combination, including the risks associated with obtaining the
necessary approvals for the combination, as well as the fact that
regulators may impose conditions on the operations of the combined
companies; and
o the possibility that successfully coordinating the separate
businesses of Burlington Northern Santa Fe and Canadian National
would be more difficult than anticipated and the attendant risks of
not achieving the anticipated synergies and other benefits and of
diverting management focus and resources from other strategic
opportunities and operational matters for an extended period of time.
I-34
<PAGE>
Chapter One - The Combination
Each board concluded, however, that these risks were worth taking because
the boards believed that it was likely that regulatory approval of the
combination without excessive conditions, and the anticipated benefits from the
combination, could be achieved and because of the favorable factors listed
above.
At a meeting of the Canadian National board of directors held on December
18, 1999, the board of directors determined by a unanimous vote of those
directors voting that the combination, including the arrangement, is fair to
Canadian National shareholders and is in the best interests of Canadian
National. Canadian National's board of directors also recommended that the
Canadian National shareholders vote in favor of the arrangement resolution at
the meeting. In reaching its determination and making this recommendation,
Canadian National's board of directors considered the factors described above.
At its December 18, 1999 meeting, the Burlington Northern Santa Fe board
of directors unanimously determined that the combination agreement and the
transactions that it contemplates, including the merger of a wholly owned
subsidiary of North American Railways with and into Burlington Northern Santa
Fe, are advisable for Burlington Northern Santa Fe and Burlington Northern
Santa Fe's shareholders. Accordingly, Burlington Northern Santa Fe's board of
directors has unanimously adopted a resolution approving the combination
agreement and the transactions that it contemplates and recommends that
Burlington Northern Santa Fe's shareholders vote "FOR" approval of the
combination agreement and the transactions that it contemplates, including the
merger of a wholly owned subsidiary of North American Railways with and into
Burlington Northern Santa Fe. In reaching its determination and making this
recommendation, Burlington Northern Santa Fe's board of directors considered
the factors described above.
In making their decisions, the Canadian National and Burlington Northern
Santa Fe boards of directors also considered and evaluated, among other things:
o information concerning the business, operations, property, assets,
financial condition, operating results and prospects of Burlington
Northern Santa Fe and Canadian National;
o the results and scope of the due diligence review conducted by
Burlington Northern Santa Fe's management and financial and legal
advisors with respect to Canadian National's business and operations;
o current industry, economic and market conditions and trends and its
informed expectations of the future of the North American railroad
industry; and
o historical market prices and trading information with respect to
Burlington Northern Santa Fe common stock and Canadian National
common shares.
In reaching their determinations to approve and recommend the combination
and merger, the Canadian National and Burlington Northern Santa Fe boards of
directors did not assign any relative or specific weight to the foregoing
factors that were considered, and individual directors may have given different
weight to different factors.
Opinions of Financial Advisors
We each retained our own financial advisors to assist us and our boards of
directors in our consideration of valuation, financial and other matters
relating to the combination. Burlington Northern Santa Fe retained Goldman
Sachs as its financial advisor and to render a fairness opinion and Canadian
National retained Salomon Smith Barney, Nesbitt Burns and The Beacon Group as
its financial advisors. Canadian National asked Salomon Smith Barney and
Nesbitt Burns to render fairness opinions.
Opinion of Canadian National Financial Advisor Salomon Smith Barney
Canadian National retained Salomon Smith Barney in a letter agreement
dated November 23, 1999 to act as a financial advisor to Canadian National and
to review the fairness of the exchange ratio to the holders of Canadian
National common shares. Salomon Smith Barney gave an opinion to the Canadian
National board of directors on
I-35
<PAGE>
Chapter One - The Combination
December 18, 1999 to the effect that, based upon and subject to the
considerations and limitations set forth in such opinion, Salomon Smith
Barney's experience as investment bankers, its work described below and other
factors it deemed relevant, as of such date, the exchange ratio was fair, from
a financial point of view, to the holders of Canadian National common shares.
The full text of the written opinion of Salomon Smith Barney, dated as of
December 18, 1999, which identifies the assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached as Annex F to this document. Shareholders of Canadian National are
urged to, and should, read this opinion in its entirety.
In connection with rendering its opinion, Salomon Smith Barney reviewed,
among other things, the following:
o a draft of the combination agreement together with certain of the
exhibits to the combination agreement, including a draft of the plan
of arrangement;
o certain publicly available information concerning Canadian National
and Burlington Northern Santa Fe;
o certain internal financial information and data concerning Canadian
National and Burlington Northern Santa Fe, including financial
forecasts provided to or otherwise discussed with Salomon Smith
Barney by the managements of Canadian National and Burlington
Northern Santa Fe, including information relating to certain
strategic implications and operational benefits anticipated to result
from the combination;
o current and historical market prices and trading volumes for Canadian
National and Burlington Northern Santa Fe common shares;
o certain stock market and other publicly available information
relating to the business of other companies whose operations Salomon
Smith Barney considered relevant in evaluating those of Canadian
National or Burlington Northern Santa Fe;
o the financial terms of the combination in relation to the historical
and projected earnings and other operating data for Canadian National
and Burlington Northern Santa Fe and the capitalization and financial
condition of Canadian National and Burlington Northern Santa Fe; and
o the pro forma financial impact of the combination on Canadian
National and Burlington Northern Santa Fe.
Salomon Smith Barney also conducted such other analyses and examinations
and considered such other information and financial, economic and market
criteria as it deemed appropriate in arriving at its opinion. Salomon Smith
Barney also discussed the business, operations and prospects of Canadian
National and Burlington Northern Santa Fe, as well as other matters Salomon
Smith Barney believed relevant to its inquiry, with certain senior officers,
directors and other representatives and advisors of Canadian National and
certain senior officers and other representatives and advisors of Burlington
Northern Santa Fe.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied, without independent verification, upon the accuracy
and completeness of all of the financial and other information and data
publicly available or furnished to or otherwise reviewed by or discussed with
Salomon Smith Barney and further relied upon the assurances of management of
Canadian National that management was not aware of any facts that would make
any of such information inaccurate or misleading. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by
or discussed with it, Salomon Smith Barney was advised by the managements of
Canadian National and Burlington Northern Santa Fe that such forecasts and
other information and data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of Canadian
National and Burlington Northern Santa Fe as to the future financial
performance of Canadian National and Burlington Northern Santa Fe and the
strategic implications and operational benefits anticipated to result from the
combination. Salomon Smith Barney expressed no view with respect to such
I-36
<PAGE>
Chapter One - The Combination
forecasts and other information and data or the assumptions on which they were
based. Salomon Smith Barney assumed, with the consent of Canadian National,
that such operational benefits will be achieved. Salomon Smith Barney further
assumed that no restrictions imposed in the course of obtaining, and that no
delay in obtaining, the necessary regulatory and governmental approvals,
including approval of the U.S. Surface Transportation Board, for the
combination would have a material adverse effect on the strategic implications
and operational benefits expected to be achieved as a result of the
combination. Salomon Smith Barney further assumed, with the consent of Canadian
National, that the combination would have the tax and accounting consequences
described in discussions with, and materials furnished to it by,
representatives of Canadian National and Burlington Northern Santa Fe (as
described in "The Combination--Material Tax Consequences of the Combination"
and "The Combination--Accounting Treatment"). Salomon Smith Barney did not make
and was not provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Canadian National or Burlington
Northern Santa Fe nor did it make any physical inspection of the properties or
assets of Canadian National or Burlington Northern Santa Fe. Representatives of
Canadian National advised Salomon Smith Barney, and Salomon Smith Barney
assumed, that the final terms of the combination agreement, including the
exhibits to the combination agreement and the plan of arrangement would not
vary materially from those set forth in the drafts reviewed by it. Salomon
Smith Barney further assumed that the combination would be consummated in
accordance with the terms of the combination agreement, without waiver of any
of the conditions precedent to the combination contained in the combination
agreement.
Salomon Smith Barney's opinion, as summarized in this section, related to
the fairness, from a financial point of view, of the exchange ratio to the
holders of Canadian National common shares. Salomon Smith Barney expressed no
opinion as to what the value of the stapled securities consisting of Canadian
National voting shares and Canadian National exchangeable shares or the stapled
securities consisting of North American Railways common stock and Canadian
National voting shares would be when issued in connection with the combination
or the price at which any securities of any of the parties would trade
subsequent to the announcement or completion of the combination. Salomon Smith
Barney was not requested to, and did not, solicit third party indications of
interest in a possible business combination with Canadian National, nor was it
requested to consider, and its opinion did not address, the relative merits of
the combination as compared to any alternative business strategies that might
exist for Canadian National or the effect of any other transaction in which
Canadian National might engage. Salomon Smith Barney's opinion is necessarily
based upon information available to it, and financial, stock market and other
conditions and circumstances existing and disclosed to it, at or prior to
December 18, 1999 and Salomon Smith Barney assumed no responsibility to update
or revise its opinion based upon circumstances or events occurring after that
date.
Salomon Smith Barney's advisory services and opinion were provided for the
information of the board of directors of Canadian National in its evaluation of
the combination, and are not intended to be and do not constitute a
recommendation of the combination to Canadian National or a recommendation to
any Canadian National shareholder as to how such Canadian National shareholder
should vote on any matters relating to the combination or as to whether any
shareholder should elect to exchange Canadian National exchangeable shares for
North American Railways common stock.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to the Canadian National board of directors on December 18, 1999,
with respect to certain analyses performed by Salomon Smith Barney in
evaluating the fairness of the exchange ratio to the holders of Canadian
National common shares. The following is a summary of that presentation. The
summary of certain of the financial analyses includes information presented in
tabular format. In order to understand the financial analyses used by Salomon
Smith Barney, the tables below must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. The following quantitative information, to the extent it is
based on market data, is, except as otherwise indicated, based on market data
as it existed at or prior to December 18, 1999 and does not necessarily reflect
current or future market conditions.
I-37
<PAGE>
Chapter One - The Combination
Historical trading analyses
Implied historical exchange ratios. Salomon Smith Barney derived implied
historical exchange ratios by dividing the closing price per share of Canadian
National common shares by the closing price per share of Burlington Northern
Santa Fe common stock for each trading day in the calendar period from December
15, 1996 through December 15, 1999. Salomon Smith Barney also calculated the
average implied exchange ratios for various periods, including each of the
following periods ending December 15, 1999:
Last 3 years 0.848
Last 1 year 0.954
Last 180 days 1.024
Last 90 days 1.068
Last 60 days 1.061
Last 30 days 1.052
Last 20 days 1.041
Last 10 days 1.010
Last 5 days 1.019
December 15, 1999 1.009
Proposed Exchange Ratio 1.050
Salomon Smith Barney also noted that during the last year, the highest and
lowest closing price per share of Canadian National common shares was
approximately $23 and $37, respectively, and the highest and lowest closing
price per share of Burlington Northern Santa Fe common stock was approximately
$25 and $38, respectively.
Implied valuation analyses
Salomon Smith Barney performed analyses using publicly available
information concerning certain comparable companies as well as historical and
projected financial information for Canadian National and Burlington Northern
Santa Fe to derive certain implied valuation information for Canadian National
and Burlington Northern Santa Fe.
Comparable company analysis. Salomon Smith Barney reviewed certain
publicly available financial, operating and stock market information obtained
from the most recent U.S. Securities and Exchange Commission filings, publicly
available research reports and First Call Corporation estimates for Canadian
National and compared such information with information for a group of five
publicly traded companies, including Canadian National, that operate in the
rail sector that Salomon Smith Barney deemed comparable to Canadian National
(CSX Corporation, Norfolk Southern Corporation, Union Pacific Corporation and
Burlington Northern Santa Fe). For each of these companies, Salomon Smith
Barney derived and compared, among other things:
o the ratio of each company's closing stock price on December 15, 1999
to its estimated earnings per share ("EPS") for 2000; and
o the ratio of each company's firm value on December 15, 1999 to (a)
its estimated earnings before taking into account interest expense
and taxes ("EBIT") for 2000 and (b) its estimated earnings before
taking into account interest expense, taxes, depreciation and
amortization ("EBITDA") for 2000.
For the purposes of this analysis, forecasted financial information for
the comparable companies was derived from equity research reports published by
certain investment banks. Firm value was calculated as the sum of the value of:
o all shares of common stock, assuming the exercise of all in-the-money
options, warrants and convertible securities, less the proceeds from
such exercise; plus
o non-convertible indebtedness; plus
I-38
<PAGE>
Chapter One - The Combination
o non-convertible preferred stock; plus
o minority interests; plus
o out-of-the-money convertible securities; minus
o investments in unconsolidated affiliates and cash.
For CSX Corporation and Norfolk Southern Corporation, the unconsolidated
interest in Conrail was not deducted from firm value, and Conrail related
figures were included in revenues, EBIT and EBITDA. For Canadian National, all
figures related to Illinois Central Corporation were fully consolidated.
Using a range of ratios determined based on these companies, excluding
Norfolk Southern Corporation, Salomon Smith Barney derived a range of implied
per share equity values for Canadian National. In deriving the implied per
share equity values based on the ratios of estimated EBIT and EBITDA, Salomon
Smith Barney first derived implied firm values and then subtracted each
company's net debt to determine the aggregate equity value and then divided
that number by the number of diluted Canadian National shares outstanding.
The following table sets forth certain of the results of these
calculations:
<TABLE>
Implied Equity Value
Canadian per Canadian National
Comparable Companies Range National Share
-------------------------- -------- ---------------------
<S> <C> <C> <C>
Ratio of Closing Price
on December 15, 1999 to:
(a) Estimated Earnings Per
Share for 2000............. 10.3x to 11.7x 10.1x $28.94 to $32.87
Ratio of Firm Value to:
(b) Estimated EBIT for
2000....................... 7.8x to 9.7x 8.3x $26.55 to $36.40
(c) Estimated EBITDA for 5.6x to 7.0x 6.3x $24.92 to $34.62
2000.......................
</TABLE>
Using the data calculated with respect to the comparable companies,
Salomon Smith Barney derived a reference range for the implied value of a
Canadian National common share of $25.00 to $34.00, and noted that the December
15, 1999 closing price of $28.63 was within this range.
For Burlington Northern Santa Fe, Salomon Smith Barney derived and
compared the same ratios as discussed above with respect to Canadian National.
The following table sets forth certain of the results of these
calculations:
<TABLE>
Burlington Implied Equity Value
Northern per Burlington Northern
Comparable Companies Range Santa Fe Santa Fe Share
-------------------------- ---------- -----------------------
<S> <C> <C> <C>
Ratio of Closing Price
on December 15, 1999 to:
(a) Estimated Earnings Per
Share for 2000............. 10.3x to 11.7x 10.5x $27.76 to $31.54
I-39
<PAGE>
Chapter One - The Combination
Ratio of Firm Value to:
(b) Estimated EBIT for
2000....................... 7.8x to 9.7x 7.8x $27.88 to $37.89
(c) Estimated EBITDA for
2000....................... 5.6x to 7.0x 5.6x $27.79 to $38.03
</TABLE>
Using the data calculated with respect to the comparable companies,
Salomon Smith Barney derived a reference range for the implied value of a
Burlington Northern Santa Fe common share of $28.00 to $38.00, and noted that
the December 15, 1999 closing price of $28.38 was within that range.
Discounted cash flow analyses. Using cash flow projections provided by the
management of Canadian National and Burlington Northern Santa Fe, respectively,
Salomon Smith Barney performed discounted cash flow analyses with respect to
each company, without taking into account synergies forecasted by management to
result from the combination transaction. Based on information concerning each
company's weighted average cost of capital, Salomon Smith Barney utilized a
range of discount rates from 9.0% to 11.0% for each company. Based on its
judgment regarding the characteristics of the two companies, Salomon Smith
Barney utilized terminal value multiples for forecasted 2003 EBITDA ranging
from 5.5x to 7.5x for each company. Based on this analysis, Salomon Smith
Barney derived a range for the implied equity value per share of Canadian
National common stock of $27.00 to $34.00 and a range for the implied equity
value per share of Burlington Northern Santa Fe common stock of $30.00 to
$38.00.
Contribution analysis
Salomon Smith Barney analyzed the relative contributions of each of
Canadian National and Burlington Northern Santa Fe to the pro forma combined
companies with respect to certain market and financial data and the resulting
implied exchange ratios for Canadian National. The following table describes
the relative contributions of Canadian National and Burlington Northern Santa
Fe, respectively, to the pro forma combined companies. The computations in the
table were based on forecasted financial information for each of Canadian
National and Burlington Northern Santa Fe for 1999 and 2000 as provided by
management. In performing this analysis, Salomon Smith Barney did not take into
account any anticipated cost savings, revenue enhancements or other potential
effects of the combination. Salomon Smith Barney also analyzed the implied
exchange ratio for Canadian National based on the midpoint of the discounted
cash flow analysis and comparable company analyses described above.
The following table sets forth certain of the results of these
calculations:
<TABLE>
Burlington Northern Canadian National
Santa Fe Contribution Contribution Implied Exchange Ratio
---------------------- ------------------ ----------------------
<S> <C> <C> <C>
1999 Estimated
Revenues................................... 72.0% 28.0% 0.756x
EBITDA..................................... 70.2% 29.8% 0.864x
EBIT....................................... 69.3% 30.7% 0.922x
Net Income................................. 69.0% 31.0% 0.970x
Total Assets............................... 68.3% 31.7% 0.984x
Common Shareholders' Equity................ 66.1% 33.9% 1.107x
2000 Estimated
Revenues................................... 72.0% 28.0% 0.755x
EBITDA..................................... 69.5% 30.5% 0.907x
EBIT....................................... 68.7% 31.3% 0.961x
Net Income................................. 67.0% 33.0% 1.063x
Discounted Cash Flow Midpoint.............. -- -- 0.903x
I-40
<PAGE>
Chapter One - The Combination
Burlington Northern Canadian National
Santa Fe Contribution Contribution Implied Exchange Ratio
---------------------- ------------------ ----------------------
Comparable Company Midpoint................ -- -- 0.894x
December 15, 1999 price per share.......... -- -- 1.009x
</TABLE>
Combination analysis
Accretion/Dilution analysis. Salomon Smith Barney performed an analysis of
the implied impact of the combination on future per share earnings of Canadian
National based on two scenarios: a Base Synergy Case assuming full achievement
of synergies phased in 13-15% in 2001, 44-45% in 2002, 74-75% in 2003, and 100%
in 2004, and a Sensitivity Synergy Case assuming full achievement of synergies
phased in linearly over 2001 to 2003. In each case, Salomon Smith Barney
performed the analyses based on the closing price of Burlington Northern Santa
Fe on December 15, 1999 and made pro forma adjustments to the estimated
combined operating earnings of the pro forma combined companies based on
estimates of the managements of both companies as to cost savings expected to
result from the combination and a revaluation of the Canadian National assets
based on purchase accounting treatment. Based on these analyses, the proposed
transaction would be accretive to Canadian National shareholders on an EPS
basis in the years 2001, 2002 and 2003.
The foregoing is a summary of the material financial analyses furnished by
Salomon Smith Barney to the Canadian National board of directors, but it does
not purport to be a complete description of the analyses performed by Salomon
Smith Barney or of its presentations to the Canadian National board of
directors. The preparation of financial analyses and fairness opinions is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. Salomon Smith Barney
made no attempt to assign specific weights to particular analyses or factors
considered, but rather made qualitative judgments as to the significance and
relevance of the analyses and factors considered. Accordingly, Salomon Smith
Barney believes that its analyses and the summary set forth above must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Salomon Smith Barney, without considering all of such
analyses and factors, could create a misleading or incomplete view of the
processes underlying the analyses conducted by Salomon Smith Barney and its
opinion. As such, in providing its oral opinion to Canadian National's board of
directors on December 18, 1999, Salomon Smith Barney did not indicate how each
of the analyses described above, considered individually, supported its
fairness opinion. In its analyses, Salomon Smith Barney made numerous
assumptions with respect to Canadian National, Burlington Northern Santa Fe,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Canadian
National and Burlington Northern Santa Fe. Any estimates contained in Salomon
Smith Barney's analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. Estimates of values of
companies do not purport to be appraisals or necessarily to reflect the prices
at which companies may actually be sold. Because such estimates are inherently
subject to uncertainty, none of Canadian National, Burlington Northern Santa
Fe, the Canadian National or Burlington Northern Santa Fe board of directors,
Salomon Smith Barney or any other person assumes responsibility if future
results or actual values differ materially from the estimates. Salomon Smith
Barney's analyses were prepared solely as part of Salomon Smith Barney's
analysis of the fairness of the exchange ratio to the holders of Canadian
National common shares from a financial point of view and were provided to the
Canadian National board of directors in that connection. The opinion of Salomon
Smith Barney was only one of the factors taken into consideration by the
Canadian National board of directors in making its determination to approve the
combination agreement and the transactions contemplated by that agreement.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Canadian National selected
Salomon Smith Barney to act as its financial advisor on the basis of Salomon
Smith Barney's international reputation and Salomon Smith Barney's familiarity
with Canadian National. Salomon Smith Barney has in the past provided, and is
currently providing, investment banking services to Canadian National and has
in the past provided
I-41
<PAGE>
Chapter One - The Combination
investment banking services to Burlington Northern Santa Fe unrelated to the
combination, for which services it has received and will receive compensation.
In addition, in the ordinary course of business, Salomon Smith Barney and its
affiliates may actively trade the securities of Canadian National and
Burlington Northern Santa Fe for their own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney and its affiliates (including Citigroup
Inc. and its affiliates) may have other business and financial relationships
with Canadian National, Burlington Northern Santa Fe and their respective
affiliates.
Pursuant to Salomon Smith Barney's engagement letter, Canadian National
agreed to pay Salomon Smith Barney the following fees: (1) $250,000, payable
upon execution of the engagement letter, (2) $4,250,000, payable upon the
execution of the combination agreement, (3) $4,500,000, payable upon approval
of the combination by the shareholders of Canadian National and Burlington
Northern Santa Fe, and (4) $9,000,000, payable upon the completion of the
combination. In the event the combination is not completed, Salomon Smith
Barney would be entitled to 10% of any cash payment made to Canadian National
of the termination fees contemplated by the combination agreement, but,
together with any fee previously paid by Canadian National, such amount would
not exceed $9,000,000. Canadian National has also agreed to reimburse Salomon
Smith Barney for its reasonable travel and other out-of-pocket expenses
incurred in connection with its engagement (including the reasonable fees and
disbursements of its counsel) and to indemnify Salomon Smith Barney against
certain liabilities and expenses relating to or arising out of its engagement,
including certain liabilities under the federal securities laws. Canadian
National has also agreed to pay Salomon Smith Barney approximately $500,000 in
connection with the consent solicitation relating to Canadian National's 5.25%
convertible preferred securities due June 30, 2029 in connection with the
combination. Since January 1, 1998, Salomon Smith Barney has received an
aggregate of $1,300,000 from Canadian National for other investment banking
services. Salomon Smith Barney is also acting as an agent for Canadian
National's open market share repurchases for which it will receive customary
fees.
Opinion of Canadian National Financial Advisor Nesbitt Burns
Canadian National retained Nesbitt Burns in a letter agreement dated as of
December 1, 1999 to act as a financial advisor to Canadian National and to
review the fairness, from a financial point of view, of the exchange ratio to
the holders of Canadian National common shares. Nesbitt Burns rendered an
opinion to the Canadian National board of directors on December 18, 1999 to the
effect that, based upon and subject to the considerations and limitations set
forth in such opinion, Nesbitt Burns' experience as investment bankers, its
work described below and other factors it deemed relevant, as of such date, the
exchange ratio was fair, from a financial point of view, to the holders of
Canadian National common shares.
The full text of the written opinion of Nesbitt Burns, dated as of
December 18, 1999, which identifies the assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached as Annex G to this document. Canadian National shareholders are urged
to, and should, read this opinion in its entirety.
In connection with rendering its opinion, Nesbitt Burns reviewed, among
other things, the following:
o a draft of the combination agreement together with certain of the
exhibits to the combination agreement, including a draft of the plan
of arrangement;
o certain publicly available information concerning Canadian National
and Burlington Northern Santa Fe;
o certain internal financial information and data concerning Canadian
National and Burlington Northern Santa Fe, including financial
forecasts prepared by their managements and information relating to
certain strategic implications and operational benefits anticipated
to result from the combination prepared by the respective managements
of Canadian National and Burlington Northern Santa Fe;
o current and historical market prices and trading volumes for Canadian
National and Burlington Northern Santa Fe common shares;
I-42
<PAGE>
Chapter One - The Combination
o certain stock market and other publicly available information
relating to the business of other companies whose operations Nesbitt
Burns considered relevant in evaluating those of Canadian National
and Burlington Northern Santa Fe;
o the financial terms of the combination in relation to the historical
and projected earnings and other financial and operating data for
Canadian National and Burlington Northern Santa Fe and the
capitalization and financial condition of Canadian National and
Burlington Northern Santa Fe; and
o the pro forma financial impact of the combination on Canadian
National and Burlington Northern Santa Fe.
Nesbitt Burns also conducted such other analyses and examinations and
considered such other information and financial, economic and market criteria
as it deemed appropriate in arriving at its opinion. Nesbitt Burns also
discussed the business, operations and prospects of Canadian National and
Burlington Northern Santa Fe, as well as other matters Nesbitt Burns believed
relevant to its inquiry, with certain senior officers, directors and other
representatives and advisors of Canadian National and certain senior officers
of Burlington Northern Santa Fe.
In its review and analysis and in arriving at its opinion, Nesbitt Burns
assumed and relied, without independent verification, upon the accuracy and
completeness of all of the financial and other information and data publicly
available or furnished to or otherwise reviewed by or discussed with Nesbitt
Burns and further relied upon the assurances of management of Canadian National
that they were not aware of any facts that would make any of such information
inaccurate or misleading. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with it,
Nesbitt Burns was advised by the managements of Canadian National and
Burlington Northern Santa Fe that such forecasts and other information and data
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of Canadian National and Burlington
Northern Santa Fe as to the future financial performance of Canadian National
and Burlington Northern Santa Fe and the strategic implications and operational
benefits anticipated to result from the combination. Nesbitt Burns expressed no
view with respect to such forecasts and other information and data or the
assumptions on which they were based. Nesbitt Burns assumed, with the consent
of Canadian National, that such operational benefits will be achieved. Nesbitt
Burns further assumed that no restrictions imposed in the course of obtaining,
and that no delay in obtaining, the necessary regulatory and governmental
approvals, including approval of the U.S. Surface Transportation Board, for the
combination would have a material adverse effect on the strategic implications
and operational benefits expected to be achieved as a result of the
combination. Nesbitt Burns further assumed, with the consent of Canadian
National, that the combination would have the tax and accounting consequences
described in discussions with, and materials furnished to it by,
representatives of Canadian National and Burlington Northern Santa Fe (as
described in "The Combination--Material Tax Consequences of the Combination"
and "The Combination--Accounting Treatment"). Nesbitt Burns did not make and
was not provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Canadian National or Burlington
Northern Santa Fe nor did it make any physical inspection of the properties or
assets of Canadian National or Burlington Northern Santa Fe. Representatives of
Canadian National advised Nesbitt Burns, and Nesbitt Burns assumed, that the
final terms of the combination agreement, including the exhibits to the
combination agreement and the plan of arrangement would not vary materially
from those set forth in the drafts reviewed by it. Nesbitt Burns further
assumed that the combination would be consummated in accordance with the terms
of the combination agreement, without waiver of any of the conditions precedent
to the combination contained in the combination agreement.
Nesbitt Burns' opinion, as summarized in this section, related to the
fairness, from a financial point of view, of the exchange ratio to the holders
of Canadian National common shares. Nesbitt Burns expressed no opinion as to
what the value of the stapled securities consisting of Canadian National voting
shares and Canadian National exchangeable shares or the stapled securities
consisting of North American Railways common stock and Canadian National voting
shares would be when issued in connection with the combination or the price at
which any securities of any of the parties will trade subsequent to the
announcement or completion of the combination. Nesbitt Burns was not requested
to, and did not, solicit third party indications of interest in a possible
business combination with Canadian National, nor was it requested to consider,
and its opinion does not address, the relative merits of the
I-43
<PAGE>
Chapter One - The Combination
combination as compared to any alternative business strategies that might exist
for Canadian National or the effect of any other transaction in which Canadian
National might engage. Nesbitt Burns' opinion is necessarily based upon
information available to it, and financial, stock market and other conditions
and circumstances existing and disclosed to it, at or prior to December 18,
1999, and Nesbitt Burns assumed no responsibility to update or revise its
opinion based upon circumstances or events occurring after that date.
Nesbitt Burns' advisory services and opinion were provided for the
information of the board of directors of Canadian National in its evaluation of
the combination, and are not intended to be and do not constitute a
recommendation of the combination to Canadian National or a recommendation to
any Canadian National shareholder as to how such Canadian National shareholder
should vote on any matters relating to the combination or as to whether any
shareholder should elect to exchange Canadian National exchangeable shares for
North American Railways common stock.
In connection with rendering its opinion, Nesbitt Burns made a
presentation to the Canadian National board of directors on December 18, 1999,
with respect to certain analyses performed by Nesbitt Burns in evaluating the
fairness of the exchange ratio to the holders of Canadian National common
shares. The following is a summary of that presentation. The summary of certain
of the financial analyses includes information presented in tabular format. In
order to understand the financial analyses used by Nesbitt Burns, the tables
below must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. The following
quantitative information, to the extent it is based on market data, is, except
as otherwise indicated, based on market data as it existed at or prior to
December 18, 1999 and does not necessarily reflect current or future market
conditions.
Historical trading analyses
Implied historical exchange ratios. Nesbitt Burns derived implied
historical exchange ratios by dividing the closing price per share of Canadian
National common shares by the closing price per share of Burlington Northern
Santa Fe common stock for each trading day in the calendar period from January
1, 1998 through December 17, 1999. Nesbitt Burns also calculated the average
implied exchange ratios for various periods ending December 17, 1999:
Last 3 years 0.849
Last 1 year 0.946
Last 180 days 1.030
Last 90 days 1.067
Last 60 days 1.060
Last 30 days 1.051
Last 20 days 1.033
Last 10 days 1.020
Last 5 days 1.023
December 17, 1999 1.049
Proposed Exchange Ratio 1.050
Implied valuation analyses
Nesbitt Burns performed analyses using publicly available information
concerning certain companies that Nesbitt Burns considered to be relevant or
comparable as well as historical and projected financial information for
Canadian National and Burlington Northern Santa Fe to derive certain implied
valuation information for Canadian National and Burlington Northern Santa Fe.
Comparable company analysis. Nesbitt Burns reviewed certain publicly
available financial, operating and stock market information for Canadian
National and a group of four other publicly traded companies that operate in
the rail sector that Nesbitt Burns deemed comparable to Canadian National
(Burlington Northern Santa Fe, CSX
I-44
<PAGE>
Chapter One - The Combination
Corporation, Norfolk Southern Corporation and Union Pacific Corporation). For
each of these companies, Nesbitt Burns derived and compared, among other
things:
o the ratio of each company's closing stock price on December 13, 1999
to its actual earnings per share ("EPS") for the last twelve months
("LTM") for which public financial information was available and to
its estimated EPS for 1999, 2000 and 2001, respectively;
o the ratio of each company's enterprise value to (a) its actual
earnings before taking into account interest expense and taxes
("EBIT") for the LTM period for which public financial information
was available and estimated EBIT for 1999 and 2000, respectively, and
(b) its actual earnings before taking into account interest expense,
taxes, depreciation and amortization ("EBITDA") for the LTM period
for which public financial information was available and estimated
EBITDA for 1999 and 2000, respectively; and
o the ratio of each company's enterprise value to its actual total
revenues for the LTM period for which public financial information
was available and to its estimated total revenues for 1999 and 2000.
For the purposes of this analysis, estimated revenues, EBITDA and EBIT for
the comparable companies were derived from information taken from equity
research reports and Value Line, and EPS estimates were derived from analysts'
published estimates as compiled by Institutional Brokers Estimate System
("I/B/E/S"). I/B/E/S is a data service that monitors and publishes compilations
of earnings estimates by selected research analysts regarding companies of
interest to institutional investors. Enterprise value was calculated as:
o the closing price on December 15, 1999 of the respective company's
common shares multiplied by the number of diluted shares outstanding;
plus
o the book value of total debt, preferred shares and minority
interests; minus
o cash.
Where applicable, for certain of the companies, figures were adjusted for
certain extraordinary or unusual items.
Using the ratios for these companies, and applying its judgment
(including, among other things, giving more weight to the ratios of estimated
EBITDA, EBIT and EPS and excluding Norfolk Southern Corporation), Nesbitt Burns
established an indicative range of implied enterprise value and price-to-EPS
ratios. Nesbitt Burns also computed an average for these comparables, excluding
Norfolk Southern Corporation. By multiplying the indicative range by Canadian
National's estimated EBITDA, EBIT and EPS, Nesbitt Burns derived an indicative
range of per share equity values for Canadian National.
The following table sets forth certain of the results of these
calculations:
<TABLE>
Canadian Comparable Indicative Equity
National Indicative Range Companies Mean Value per Share
-------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Ratio of Closing Price
on December 15, 1999 to:
(a) Estimated Earnings Per
Share for 1999............... 11.6x 12.0x to 15.0x 14.6x $30 to $37
(b) Estimated Earnings Per
Share for 2000............... 10.2x 10.0x to 12.0x 11.0x $28 to $34
(c) Estimated Earnings Per
Share for 2001............... 9.2x 9.5x to 11.0x 9.7x $30 to $34
I-45
<PAGE>
Chapter One - The Combination
Canadian Comparable Indicative Equity
National Indicative Range Companies Mean Value per Share
-------- ---------------- --------------- -----------------
Ratio of Enterprise Value to:
(a) Estimated EBIT for
1999......................... 9.1x 9.0x to 11.0x 10.2x $28 to $38
(b) Estimated EBIT for
2000......................... 8.0x 8.0x to 10.0x 8.7x $30 to $41
(c) Estimated EBITDA for
1999......................... 6.7x 6.5x to 7.5x 6.8x $27 to $34
(d) Estimated EBITDA for
2000......................... 6.1x 6.0x to 7.0x 6.0x $29 to $36
</TABLE>
For Burlington Northern Santa Fe, Nesbitt Burns derived and compared the
same ratios as discussed above with respect to Canadian National, except it
excluded Burlington Northern Santa Fe from the comparables and included
Canadian National, resulting in different indicative ranges and means.
The following table sets forth certain of the results of these
calculations:
<TABLE>
Burlington
Northern Comparable Indicative Equity
Santa Fe Indicative Range Companies Mean Value per Share
---------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Ratio of Closing Price
on December 15, 1999 to:
(a) Estimated Earnings Per
Share for 1999............... 11.9x 12.0x to 14.5x 14.5x $29 to $35
(b) Estimated Earnings Per
Share for 2000............... 10.6x 10.0x to 11.0x 10.9x $27 to $29
(c) Estimated Earnings Per
Share for 2001............... 10.0x 9.0x to 10.0x 9.4x $26 to $29
Ratio of Enterprise Value to:
(a) Estimated EBIT for
1999......................... 8.6x 9.5x to 10.5x 10.4x $32 to $37
(b) Estimated EBIT for
2000......................... 8.0x 8.0x to 9.0x 8.7x $28 to $33
(c) Estimated EBITDA for
1999......................... 6.1x 6.5x to 7.5x 7.0x $31 to $38
(d) Estimated EBITDA for
2000......................... 5.7x 5.5x to 6.5x 6.1x $27 to $34
</TABLE>
Based on the above data, Nesbitt Burns established an indicative value
range per Canadian National common share of $28.00 to $34.00 and an indicative
value range per Burlington Northern Santa Fe common share of $27.00 to $35.00,
and noted that Canadian National's December 15, 1999 closing price of $28.63
and Burlington Northern Santa Fe's December 15, 1999 closing price of $28.38
were within the lower portions of their respective ranges. Based on these
ranges, Nesbitt Burns derived a range of implied exchange ratios of 0.80 to
1.26.
Discounted cash flow analyses. Using cash flow projections provided by the
management of Canadian National and Burlington Northern Santa Fe, respectively,
Nesbitt Burns performed discounted cash flow analyses with respect to each
company, without taking into account synergies forecasted by management to
result from the combination. Based on estimates of each company's weighted
average cost of capital, Nesbitt Burns utilized a range of discount
I-46
<PAGE>
Chapter One - The Combination
rates from 9.0% to 10.5% for each company. Based on its judgment regarding the
characteristics of the two companies, Nesbitt Burns utilized terminal value
multiples for forecasted 2003 EBITDA ranging from 6.0x to 7.0x for Canadian
National and from 5.5x to 6.5x for Burlington Northern Santa Fe. Based on this
analysis, Nesbitt Burns derived a range for the implied equity value per
Canadian National common share of approximately $28.00 to $36.00 and a range
for the implied equity value per Burlington Northern Santa Fe common share of
approximately $28.00 to $36.00. Based on these ranges, Nesbitt Burns derived a
range of implied exchange ratios of 0.78 to 1.29.
Precedent transaction analysis. Nesbitt Burns presented information with
respect to certain stock-for-stock merger transactions in the rail sector
announced since June 1994, but did not rely on this information in reaching its
opinion because those transactions reflected unique general economic and market
conditions and specific strategic and financial circumstances peculiar to those
transactions that were not relevant to an analysis of the fairness of the
present transaction, which was structured based upon the concept that the
exchange ratio was to reflect the market price of each company's common stock
at the time the combination agreement was executed and that no premium was to
be paid to the shareholders of either company.
Contribution analysis
Nesbitt Burns analyzed the relative contributions of each of Canadian
National and Burlington Northern Santa Fe to the pro forma combined companies
with respect to certain operating, market and financial data and determined the
resulting implied exchange ratios for Canadian National. The following table
describes the relative contributions of Canadian National and Burlington
Northern Santa Fe, respectively, to the pro forma combined companies. The
computations in the table were based on actual information for 1998 and
estimated financial information for each of Canadian National and Burlington
Northern Santa Fe for 1999, 2000 and 2001, in each case as provided by
management. In performing this analysis, Nesbitt Burns did not take into
account any anticipated cost savings, revenue enhancements or other potential
effects of the combination.
The following table sets forth certain of the results of these
calculations:
Canadian Burlington Implied
National Northern Santa Fe Exchange
Contribution Contribution Ratio
------------ ----------------- --------
Revenue
1999 Estimated.............. 28.0% 72.0% 0.867x
2000 Estimated.............. 28.0% 72.0% 0.866x
2001 Estimated.............. 28.0% 72.0% 0.867x
EBITDA
1999 Estimated.............. 29.8% 70.2% 0.947x
2000 Estimated.............. 30.5% 69.5% 0.978x
2001 Estimated.............. 30.4% 69.6% 0.976x
EBIT
1999 Estimated.............. 30.7% 69.3% 0.989x
2000 Estimated.............. 31.3% 68.7% 1.017x
2001 Estimated.............. 31.2% 68.8% 1.013x
Net Income
1999 Estimated.............. 31.1% 68.9% 1.007x
2000 Estimated.............. 33.0% 67.0% 1.099x
2001 Estimated.............. 33.1% 66.9% 1.106x
Total Assets
1999 Estimated.............. 31.7% 68.3% 1.038x
2000 Estimated.............. 31.9% 68.1% 1.046x
I-47
<PAGE>
Chapter One - The Combination
Canadian Burlington Implied
National Northern Santa Fe Exchange
Contribution Contribution Ratio
------------ ----------------- --------
2001 Assets Estimated....... 31.7% 68.3% 1.034x
1998 Route Miles............ 28.8% 71.2% 0.903x
Estimated 1999 Employees.... 29.9% 70.1% 0.951x
December 15, 1999 price per
share.................. -- -- 1.009x
20 Day Average price per
share ending December
15, 1999............... -- -- 1.059x
December 15, 1999 market
value of equity........ 30.8% 69.2% 0.995x
Combination analysis
Accretion/Dilution analysis. Nesbitt Burns performed an analysis of the
implied impact of the combination on future per share earnings and book value
of Canadian National on a pro-forma basis, calculated as the combined companies
pro-forma amounts multiplied by 1.05. In each case, Nesbitt Burns performed the
analyses based on the closing price of Burlington Northern Santa Fe on December
16, 1999 and made pro forma adjustments to the estimated combined operating
earnings of the pro forma combined companies based on estimates of the
managements of both companies as to revenue enhancements and cost savings
expected to result from the combination and a revaluation of the Canadian
National assets based on purchase accounting treatment. Based on these
analyses, the proposed transaction would be accretive to Canadian National
shareholders on an EPS and book value per share basis in the years 2001, 2002
and 2003.
Pro forma analysis. Nesbitt Burns performed an analysis of the implied
impact of the combination on the future net debt to capitalization, pre-tax
interest coverage and EBITDA to interest coverage ratios of the combined
companies on a pro-forma basis and compared these to similar ratios for
Canadian National on a stand-alone basis. Nesbitt Burns made the same pro forma
adjustments to the projected financial statements of the combined entity and
relied on the same management projections described under "Accretion/Dilution"
analysis above, and concluded that the impact of the combination on such ratios
was not material.
The foregoing is a summary of the material financial analyses furnished by
Nesbitt Burns to the Canadian National board of directors, but it does not
purport to be a complete description of the analyses performed by Nesbitt Burns
or of its presentation to the Canadian National board of directors. The
preparation of financial analyses and fairness opinions is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. Nesbitt Burns made no attempt to assign
specific weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of the analyses and
factors considered. Accordingly, Nesbitt Burns believes that its analyses and
the summary set forth above must be considered as a whole, and that selecting
portions of such analyses and of the factors considered by Nesbitt Burns,
without considering all of such analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by
Nesbitt Burns and its opinion. As such, in providing its oral opinion to
Canadian National's board of directors on December 18, 1999, Nesbitt Burns did
not indicate how each of the analyses described above, considered individually,
supported its fairness opinion. In its analyses, Nesbitt Burns made numerous
assumptions with respect to Canadian National, Burlington Northern Santa Fe,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Canadian
National and Burlington Northern Santa Fe. Any estimates contained in Nesbitt
Burns' analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than those suggested by such analyses. Estimates of values of companies do not
purport to be appraisals or necessarily to reflect the prices at which
companies may actually be sold. Because such estimates are inherently subject
to uncertainty, none of Canadian National, Burlington Northern Santa Fe, the
Canadian National or Burlington Northern Santa Fe board of directors, Nesbitt
Burns or any other person assumes responsibility if future results or actual
values differ materially from the estimates. Nesbitt Burns' analyses were
prepared solely as part of Nesbitt Burns' analysis of the fairness, from a
financial point of view, of the exchange ratio to the holders of Canadian
National common shares and were provided to the Canadian National board of
directors in that connection. The opinion of Nesbitt Burns was only one of the
factors taken into consideration by
I-48
<PAGE>
Chapter One - The Combination
the Canadian National board of directors in making its determination to approve
the combination agreement and the transactions contemplated by that agreement.
Nesbitt Burns is one of Canada's largest investment banking firms, with
operations in all facets of corporate and government finance, mergers and
acquisitions, equity and fixed income sales and trading, investment research
and investment management.
Canadian National selected Nesbitt Burns to act as its financial advisor
on the basis of Nesbitt Burns' international reputation and Nesbitt Burns'
familiarity with Canadian National. Nesbitt Burns has in the past provided
investment banking services to Canadian National for which services it has
received compensation. In the ordinary course of its business, Nesbitt Burns
and its affiliates may actively trade or hold the securities of Canadian
National and Burlington Northern Santa Fe for their own account or for the
account of their customers and, accordingly, may at any time hold a long or
short position in such securities. The Honorable Edward C. Lumley, a director
of Canadian National, is Vice Chairman of Nesbitt Burns Inc. In addition,
Nesbitt Burns and its affiliates may maintain relationships with Canadian
National, Burlington Northern Santa Fe and their respective affiliates.
See "Comparison of Shareholder Rights and Description of Capital Stock".
Pursuant to Nesbitt Burns' engagement letter, Canadian National agreed to
pay Nesbitt Burns the following fees: (1) Cdn$3,333,333, payable upon execution
of the combination agreement, (2) Cdn$3,333,333, payable upon approval of the
combination by the shareholders of Canadian National and Burlington Northern
Santa Fe, and (3) Cdn$3,333,334, payable upon the completion of the
combination. In the event the combination is not completed, Nesbitt Burns would
be entitled to Cdn$5,000,000 of any cash payment made to Canadian National of
the termination fees contemplated by the combination agreement, taking into
account amounts previously paid by Canadian National. Canadian National has
also agreed to reimburse Nesbitt Burns for its reasonable travel and other
out-of-pocket expenses incurred in connection with its engagement (including
the reasonable fees and disbursements of its counsel) and to indemnify Nesbitt
Burns against certain liabilities and expenses relating to or arising out of
its engagement, including certain liabilities under the federal securities
laws. Since January 1, 1998, Nesbitt Burns has received an aggregate of
approximately $5,000,000 from Canadian National for other investment banking
services. Nesbitt Burns is also acting as agent for Canadian National's open
market share repurchases for which it will receive customary fees.
Opinion of Burlington Northern Santa Fe Financial Advisor Goldman Sachs
On December 18, 1999, Goldman Sachs delivered its oral opinion to the
board of directors of Burlington Northern Santa Fe that as of the date of that
opinion, the exchange ratio pursuant to the combination agreement was fair,
from a financial point of view, to the holders of the outstanding shares of
Burlington Northern Santa Fe common stock. Goldman Sachs subsequently confirmed
its oral opinion by delivery of its written opinion dated as of December 18,
1999.
The full text of the written opinion of Goldman Sachs, dated as of
December 18, 1999, which identifies the assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached as Annex H to this document. Burlington Northern Santa Fe shareholders
are urged to, and should, read this opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other
things:
o the combination agreement;
o Annual Reports to shareholders and Annual Reports on Form 10-K of
Burlington Northern Santa Fe and its predecessors for the five years
ended December 31, 1998;
o various interim reports to shareholders and Quarterly Reports on
Form 10-Q of Burlington Northern Santa Fe;
I-49
<PAGE>
Chapter One - The Combination
o Annual Reports to shareholders and Annual Information Forms for the
four years ended December 31, 1998 of Canadian National;
o various interim reports of Canadian National to its shareholders;
o various other communications from Burlington Northern Santa Fe and
Canadian National to their respective shareholders; and
o certain internal financial analyses and forecasts for Burlington
Northern Santa Fe and Canadian National prepared by their respective
managements, including certain operating synergies and purchase
accounting adjustments projected by the respective managements of
Burlington Northern Santa Fe and Canadian National to result from the
transaction contemplated by the combination agreement.
Goldman Sachs also held discussions with members of the senior management
of Burlington Northern Santa Fe and Canadian National regarding the strategic
rationale for, and potential benefits of, the transaction contemplated by the
combination agreement and the past and current business operations, financial
condition and future prospects of their respective companies and of the
combined operations of Burlington Northern Santa Fe and Canadian National. In
addition, Goldman Sachs:
o reviewed the reported price and trading activity for the shares of
Burlington Northern Santa Fe common stock and Canadian National
common stock;
o compared various financial and stock market information for
Burlington Northern Santa Fe and Canadian National with similar
information for selected other companies with publicly traded
securities;
o reviewed the financial terms of selected recent business combinations
in the railroad industry specifically and other industries generally;
and
o performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of the financial
and other information reviewed by it and assumed such accuracy and completeness
for purposes of rendering its opinion. In that regard, Goldman Sachs assumed
with the consent of Burlington Northern Santa Fe that the financial forecasts
provided by the management of Burlington Northern Santa Fe for its December 16,
1999 meeting of its board of directors, and by the management of Canadian
National, including the synergies and purchase accounting adjustments, have
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the managements of Burlington Northern Santa Fe and
Canadian National and will be realized in the amounts and at the times
contemplated in such forecasts. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of Burlington
Northern Santa Fe or Canadian National or any of their subsidiaries and Goldman
Sachs has not been furnished with any such evaluation or appraisal.
The advisory services and the opinion of Goldman Sachs are provided for
the information and assistance of the board of directors of Burlington Northern
Santa Fe in connection with its consideration of the transaction contemplated
by the combination agreement and do not constitute a recommendation as to how
any shareholder should vote with respect to the proposed transaction.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the board of
directors of Burlington Northern Santa Fe on December 18, 1999. Goldman Sachs
utilized substantially the same type of financial analyses in connection with
providing the written opinion attached to this document as Annex H.
In order to understand the financial analyses used by Goldman Sachs, the
tables below must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial analyses.
I-50
<PAGE>
Chapter One - The Combination
Selected companies analysis. Goldman Sachs reviewed and compared financial
information, ratios and public market multiples for the following five publicly
traded corporations in the railway industry:
o Burlington Northern Santa Fe;
o Canadian National;
o CSX Corporation;
o Norfolk Southern Corporation; and
o Union Pacific Corporation.
Goldman Sachs also calculated and compared various financial multiples and
ratios based on information it obtained about the selected companies from their
most recent U.S. Securities and Exchange Commission filings, publicly available
research reports, I/B/E/S estimates and closing prices on December 15, 1999.
I/B/E/S is a data service that monitors and publishes compilations of earnings
estimates by selected research analysts regarding companies of interest to
institutional investors. Goldman Sachs did not review the methodologies or
assumptions used by I/B/E/S in compiling its earnings estimates.
Goldman Sachs' analyses of the selected companies compared the following:
o estimated calendar year 1999 and 2000 price/earnings ratios based on
I/B/E/S median estimates;
o five-year earnings per share growth rate provided by I/B/E/S median
estimates;
o ratio of the estimated calendar year 2000 price/earnings ratio to the
five-year earnings per share growth rate;
o latest twelve-month operating margins based on earnings before
interest and taxes, or EBIT;
o latest twelve-month margins based on earnings before interest, taxes,
depreciation and amortization, or EBITDA; and
o dividend yield.
The results of these analyses are summarized as follows:
<TABLE>
Selected Companies Burlington
--------------------------------- Northern Canadian
Range Mean Median Santa Fe National
--------------- ----- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
Price/Earnings Ratio-1999.......... 11.6x 28.2x 16.7x 14.5x 11.8x 11.6x
Price/Earnings Ratio-2000.......... 10.2x 14.1x 11.5x 10.9x 10.5x 10.2x
5-Year EPS Growth Rate............. 10.0% 13.0% 10.6% 10.0% 10.0% 13.0%
2000 PE to 5-Year EPS Growth Rate.. 0.8x 1.4x 1.1x 1.1x 1.1x 0.8x
LTM Margin-EBITDA.................. 16.2% 39.5% 28.2% 27.2% 33.9% 39.5%
LTM Margin-EBIT.................... 10.7% 27.2% 19.3% 20.0% 24.1% 27.2%
Dividend Yield..................... 1.4% 3.8% 2.4% 1.8% 1.7% 1.4%
</TABLE>
Goldman Sachs also calculated one year forward and two year forward
price/earnings ratios for each of Burlington Northern Santa Fe, Canadian
National, CSX Corporation, Norfolk Southern Corporation and the Standard &
Poor's 500 Composite Index on June 1, 1995 (except Canadian National); June 1,
1996; June 1, 1997; June 1, 1998, and December 15, 1999. Goldman Sachs first
calculated the one year forward price/earnings ratio for each selected date by
dividing the actual stock price on each selected date by the I/B/E/S estimated
earnings per
I-51
<PAGE>
Chapter One - The Combination
share, as of that date, for the fiscal year including that date. Goldman Sachs
then calculated a two year forward price/earnings ratio for each selected date
by dividing the actual stock price on each selected date by the forecasted
earnings per share for the following fiscal year. Goldman Sachs then determined
the median one year forward and two year forward P/E ratio for each company
over the selected period.
The results of these analyses are summarized as follows:
Median Median
One Year Forward P/E Two Year Forward P/E
-------------------- --------------------
Burlington Northern Santa Fe....... 13.8x 11.3x
Canadian National.................. 12.8x 10.9x
CSX Corporation.................... 12.8x 11.4x
Norfolk Southern Corporation....... 14.9x 13.4x
S&P 500 Index...................... 19.9x 18.8x
Selected transactions analysis. Goldman Sachs analyzed certain information
relating to the following twenty-six selected stock-for-stock worldwide merger
transactions announced since July 1997 where the enterprise value of the
merging corporation ranged from $4 billion to $16 billion:
o Allied Signal Inc./Honeywell Inc.;
o The Kroger Co./Fred Meyer, Inc.;
o Scottish Power plc/PacifiCorp;
o Global Crossing Ltd./Frontier Corporation;
o American Electric Power Company, Inc./Central and South West
Corporation;
o Albertson's Inc./America Stores Company;
o The Dow Chemical Company/Union Carbide Corporation;
o Siebe plc/BTR plc;
o Lockheed Martin Corporation/Northrop Grummon Corporation;
o Royal Bank of Canada/Bank of Montreal;
o Banca Intesa S.p.A./Banca Commericilla Italiana S.p.A.;
o Motorola Inc./General Instruments Corp.;
o KingFisher plc/ASDA Group Inc.;
o Gemstar International Group Limited/TV Guide, Inc.;
o Nortel Networks Corporation/Bay Networks, Inc.;
o Halliburton Co./Dresser Industries, Inc.;
o Infinity Broadcasting Corp./Outdoor Systems, Inc.;
I-52
<PAGE>
Chapter One - The Combination
o Abbott Laboratories/Alza Corp.;
o Newell Co./Rubbermaid Inc.;
o International Paper Company/Union Camp Corporation;
o At Home Corp./Excite, Inc.;
o ALLTEL Corp./360 Communications Company;
o Alcoa Inc./Reynolds Metals Co.;
o El Paso Energy Corp./Sonat Inc.;
o General Dynamics Corporation/Gulfstream Aerospace Corporation; and
o Cardinal Health Inc./Allegiance Corp.
Goldman Sachs' analyses of the selected stock-for-stock worldwide merger
transactions compared the following to the results for the proposed
transaction:
o the merging corporation's percentage interest in the combined
companies after the combination;
o the premium offered merging corporation shareholders to the merging
company's stock price one day prior to announcement of the
combination; and
o the percentage of the board of directors of the combined companies
held by the merging company after the combination.
The results of these analyses are summarized as follows:
<TABLE>
Selected Worldwide Mergers
-------------------------------- Proposed
Range Mean Median Transaction
---------- ----- ------ -----------
<S> <C> <C> <C> <C>
Merging Corporation Interest in Newco..... 9.1%-56.5% 32.9% 33.5% 31.7%
Premium vs. Prior 1 Day Stock Price....... 9.9%-67.2% 28.1% 24.7% 0.2%
Merging Corporation Percent in Board
of Newco............................... 7.7%-50.0% 28.4% 24.0% 50.0%
</TABLE>
Goldman Sachs also performed certain analyses relating to six major rail
merger transactions announced since 1994, but did not rely on this information
in reaching its opinion because, in the judgment of Goldman Sachs, these
transactions reflected economic and market conditions and strategic and
financial circumstances applicable to those transactions that were not relevant
to an analysis of the fairness of the proposed combination of Burlington
Northern Santa Fe and Canadian National. Unlike this transaction, which is
structured as a combination of equals and does not offer a premium to the
shareholders of either Burlington Northern Santa Fe or Canadian National, the
five completed selected major rail mergers each involved an acquisition in
which a premium was to be paid to the shareholders of the acquired company. A
sixth transaction, which was aborted, involved the acquisition of a subsidiary
for which a premium could not be calculated. Moreover, unlike this transaction,
which is structured as a stock-for-stock merger, five of the six selected major
rail mergers were transactions in which cash or cash and stock were offered as
consideration and the sixth transaction was aborted.
Historical exchange ratio analysis. Goldman Sachs reviewed the historical
trading prices for Burlington Northern Santa Fe common stock and Canadian
National common shares and calculated implied exchange ratios based on a
comparison of historical average closing prices for each company for the
periods set forth below.
I-53
<PAGE>
Chapter One - The Combination
Goldman Sachs then calculated the premium or discount of the exchange ratio of
1.05 to be received in the combination to each of these implied exchange
ratios.
The results of these analyses are summarized as follows:
Implied Premium/
Period Exchange Ratio (Discount)
- ------ -------------- ---------
December 17, 1999........................ 1.05x 0.2%
One week ended December 17, 1999......... 1.02x 2.7%
Two weeks ended December 17, 1999........ 1.02x 2.9%
One month ended December 17, 1999........ 1.04x 0.7%
Three months ended December 17, 1999..... 1.06x (1.2)%
Six months ended December 17, 1999....... 1.07x (1.7)%
One year ended December 17, 1999......... 0.95x 10.8%
Two years ended December 17, 1999........ 0.89x 17.7%
Three years ended December 17, 1999...... 0.85x 23.7%
Contribution analysis. Goldman Sachs reviewed historical and estimated
future operating and financial information including, among other things,
revenues, operating income, EBITDA, net income, market capitalization and
levered market capitalization for Burlington Northern Santa Fe and Canadian
National and the pro forma combined companies resulting from the combination
using I/B/E/S estimates. Goldman Sachs also analyzed the relative income
statement contribution of Burlington Northern Santa Fe and Canadian National to
the combined companies on a pro forma basis before taking into account any of
the possible benefits that may be realized following the combination for actual
years 1997 and 1998 and estimated years 1999 and 2000. Projections for
estimated years 1999 and 2000 were based on financial data provided to Goldman
Sachs by I/B/E/S International, Inc. The results of these analyses are
summarized as follows:
<TABLE>
Canadian National Burlington Northern Implied Exchange
Contribution Santa Fe Contribution Ratio
------------------- --------------------- -------------------
<S> <C> <C> <C>
Revenues
1997..................... 30% 70% 0.97
1998..................... 28% 72% 0.88
Operating Income*
1997..................... 28% 72% 0.88
1998..................... 29% 71% 0.93
EBITDA*
1997..................... 28% 72% 0.88
1998..................... 26% 74% 0.80
Net Income*
1997..................... 28% 72% 0.87
1998..................... 26% 74% 0.80
1999**................... 31% 69% 1.02
2000**................... 31% 69% 1.04
- -------------------
</TABLE>
* Excludes nonrecurring charges.
** Based on 1999 and 2000 I/B/E/S estimates and excludes nonrecurring
charges.
Goldman Sachs also calculated Canadian National's contribution to both the
levered and unlevered market capitalization of the combined companies on a
fully diluted basis as of December 15, 1999. The results of these analyses are
summarized as follows:
I-54
<PAGE>
Chapter One - The Combination
Levered Market
Market Cap.* Cap.*
------------ --------------
Canadian National Contribution
To Combined Entity........................ 31% 32%
Implied Exchange Ratio......................... 1.01 1.05
- -------------------
* Determined as of December 15, 1999 and calculated on a fully diluted basis.
Pro forma combination impact. Goldman Sachs prepared pro forma analyses of
the financial impact of the combination using earnings estimates for Burlington
Northern Santa Fe and Canadian National prepared by their respective
managements. For each of the years 2001, 2002 and 2003, Goldman Sachs compared
the earnings per share of Burlington Northern Santa Fe common stock, on a stand
alone basis, to the earnings per share of the common stock of the combined
companies on a pro forma basis. Goldman Sachs performed this analysis based on
the closing price of Burlington Northern Santa Fe and Canadian National on
December 15, 1999, assuming pre-tax synergies of $500 million phased in over
the years 2001 to 2003 and an annual pre-tax amortization of transaction-
related asset writeup of $75 million. Based on these analyses, the proposed
transaction would be accretive to Burlington Northern Santa Fe's shareholders
on an earnings per share basis in the years 2001, 2002 and 2003. Goldman Sachs
assumed for purposes of the analyses that 2001 was the first year of the
combination.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses and did not reach
separate conclusions as to each analysis that it performed. Rather, Goldman
Sachs reached a single conclusion as to fairness based on its experience and
professional judgment and the analysis as a whole. As such, in providing its
oral opinion to Burlington Northern Santa Fe's board of directors on December
18, 1999, Goldman Sachs did not indicate how each of the analyses described,
considered individually, above supported its fairness determination. No company
or transaction used in the above analyses as a comparison is directly
comparable to Burlington Northern Santa Fe or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the board of directors of Burlington Northern Santa Fe as to the
fairness, from a financial point of view, to the holders of the outstanding
shares of Burlington Northern Santa Fe common stock of the exchange ratio
pursuant to the combination agreement. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by these analyses.
Moreover, forecasts of future results and estimates of values are not
appraisals and do not necessarily reflect the prices at which companies may be
sold. Because such analyses are inherently subject to uncertainty, being based
upon numerous factors or events beyond the control the parties or their
respective advisors, none of the board of directors or management of Burlington
Northern Santa Fe, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, Goldman Sachs' opinion was one of many factors taken
into consideration by the board of directors of Burlington Northern Santa Fe in
making its determination to approve the combination agreement. The foregoing
summary does not purport to be a complete description of the analyses performed
by Goldman Sachs and is qualified by reference to the written opinion of
Goldman Sachs set forth in Annex H to this document.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Burlington Northern Santa Fe, having provided certain investment
banking services to Burlington Northern Santa Fe from time to time, including
having acted as:
o financial advisor to Santa Fe Pacific Corporation in connection with
its merger with Burlington Northern Inc. in 1995, which resulted in
the formation of Burlington Northern Santa Fe;
I-55
<PAGE>
Chapter One - The Combination
o underwriter in various public offerings of debt securities by
Burlington Northern Santa Fe, including as:
o lead managing underwriter of $200 million of 7.25% Debentures
due 2097 in July 1997 and $200 million of remarketable bonds
due 2029 in November 1998;
o co-managing underwriter of $171 million of 6.23%
Pass-Through Certificates due 2018 in November 1998, $200
million of 6.125% Notes due 2009 and $200 million of 6.750%
Debentures due 2029 in March 1999, and $298 million of
7.57% Pass-Through Trust Certificates due 2021 in September
1999; and
o lead manager for $200 million of 6.7% Debentures due 2028 in
July 1998;
o agent for $100 million remarketable bonds due 2031 in March 1998; and
o financial advisor in connection with, and having participated in
certain of the negotiations leading to, the combination agreement.
Goldman Sachs has also provided certain investment banking services to
Canadian National from time to time, including having acted as:
o co-managing underwriter in the public offering of $25.9 million of
6.719% Pass Through Certificates due 2013 and $103.7 million of
7.195% Pass Through Certificates due 2016 issued in November 1997;
o joint lead managing underwriter in the public offering of 4,600,000
common shares of Canadian National issued in June 1999; and
o lead managing underwriter in the public offering of 4,600,000
Convertible Preferred Securities issued in June 1999.
In addition, Goldman Sachs acted as the financial advisor to Canadian National
in connection with its acquisition of Illinois Central Corporation in February
1998.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Burlington Northern Santa Fe and of Canadian National for its own account
and for the account of customers.
Pursuant to a letter agreement dated December 5, 1999, Burlington Northern
Santa Fe engaged Goldman Sachs to act as financial advisor to assist Burlington
Northern Santa Fe in connection with the transactions contemplated by the
combination agreement. Pursuant to this engagement letter, Burlington Northern
Santa Fe will pay Goldman Sachs $6,000,000 in cash when the shareholders of
Burlington Northern Santa Fe approve the combination, which will be credited
toward any other fees due to Goldman Sachs under the engagement letter and is
subject to refund as described below. If the combination is completed,
Burlington Northern Santa Fe will pay Goldman Sachs a fee of $22,500,000 and up
to an additional $2,500,000 if the average closing price of Burlington Northern
Santa Fe common stock for the 20 trading days commencing 10 trading days prior
to the consummation date of the combination is at least $40 per share. In the
event the combination is not completed, Goldman Sachs would be required to
refund the $6,000,000 fee described above but would be entitled to 10% of any
cash payment made to Burlington Northern Santa Fe of the termination fees
contemplated by the combination agreement.
Burlington Northern Santa Fe also has agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the U.S. federal securities laws.
I-56
<PAGE>
Chapter One - The Combination
Accounting Treatment
North American Railways will account for the combination using the
purchase method of accounting in accordance with Opinion No. 16, "Business
Combinations" of the Accounting Principles Board of the American Institute of
Certified Public Accountants. Under this method, North American Railways will
prepare its financial statements reflecting the assets and liabilities of
Burlington Northern Santa Fe at their historical cost basis and the fair value
of the North American Railways common stock issued or issuable to the Canadian
National shareholders will be allocated to the assets and liabilities of
Canadian National based on their relative fair value. Following the
combination, Canadian National will continue to prepare its financial
statements on Canadian National's historical cost basis.
Material Tax Consequences of the Combination
U.S. Federal Income Tax Consequences
The following discussion summarizes the opinions of Mayer, Brown & Platt,
with respect to Burlington Northern Santa Fe and its shareholders, and Davis
Polk & Wardwell, with respect to Canadian National and its shareholders, as to
the material U.S. federal income and estate tax considerations generally
applicable to U.S. Holders and Canadian Holders, as defined below, who
participate in the combination. We have filed these opinions with the U.S.
Securities and Exchange Commission as exhibits to the registration statement
related to this document. See "Chapter Five--Additional Information for
Shareholders--Where You Can Find More Information". An opinion of counsel is
not binding upon either the U.S. Internal Revenue Service or the courts.
Neither Burlington Northern Santa Fe nor Canadian National intends to obtain an
advance ruling from the U.S. Internal Revenue Service with respect to the tax
consequences of the combination.
The opinions of counsel and this discussion are based upon the U.S.
Internal Revenue Code of 1986, the Treasury regulations, administrative
pronouncements and judicial decisions in effect as of the date hereof, all of
which are subject to change, possibly with retroactive effect, and the
Canada-United States Income Tax Convention (the "Tax Treaty"). In addition, the
opinions of counsel are based on:
o certain customary factual representations made by Burlington Northern
Santa Fe, Canadian National and North American Railways, including
representations as to (1) the nature and value of the securities and
other consideration to be exchanged in the transaction; (2)
issuances, acquisitions, dispositions and redemptions involving the
stock of Burlington Northern Santa Fe, Canadian National or North
American Railways before or after the combination; (3) the
continuation, after the transaction, of the historic business of
Burlington Northern Santa Fe; and (4) the assets and liabilities of
Burlington Northern Santa Fe and North American Railways; and
o certain customary factual assumptions set forth in such opinions,
including assumptions that (1) the description of the transaction,
representations and statements set forth in the transaction
agreements, this document and accompanying exhibits are accurate, and
that the transaction will in fact occur as described in those
documents; (2) any representation or statement that is anticipated to
be true, is made "to the best of knowledge," or is similarly
qualified is in fact correct; and (3) where a representation states
that a person is not a party to, does not have, or is not aware of
any plan, intention, understanding or agreement, there is in fact no
such plan, intention, understanding or agreement.
Any material inaccuracy in the representations and assumptions could alter
the conclusions reached by counsel in their opinions. It is a condition to the
completion of the combination that each of Burlington Northern Santa Fe and
Canadian National receive an opinion from its respective counsel, dated as of
the completion of the combination, that the combination will not result in the
recognition of income, gain or loss, for U.S. federal income tax purposes, by
the shareholders, except for the receipt of cash in lieu of fractional shares
by Canadian National shareholders and the receipt of Canadian National voting
shares by Burlington Northern Santa Fe shareholders.
I-57
<PAGE>
Chapter One - The Combination
This discussion does not address all aspects of United States federal
income taxation that may be applicable to a shareholder in light of the
shareholder's particular circumstances or to shareholders subject to special
treatment under United States federal income tax laws including, without
limitation:
o financial institutions;
o insurance companies;
o tax-exempt entities;
o dealers in securities;
o certain United States expatriates;
o persons who hold Burlington Northern Santa Fe common shares or
Canadian National common shares as part of a straddle, hedge,
conversion transaction or other integrated investment;
o U.S. Holders whose functional currency is not the U.S. dollar;
o non-U.S. Holders other than Canadian Holders;
o shareholders who hold Canadian National common shares or
Burlington Northern Santa Fe common shares through a partnership
or other pass-through entity; and
o shareholders who acquired Burlington Northern Santa Fe common
shares or Canadian National common shares through exercise of
employee stock options or otherwise as compensation.
This discussion is limited to shareholders who hold their Canadian
National common shares and Burlington Northern Santa Fe common shares as
capital assets within the meaning of Section 1221 of the U.S. Internal Revenue
Code and does not address the tax treatment of Canadian Holders who own,
directly or indirectly, more than 5% of the Burlington Northern Santa Fe common
shares or Canadian National common shares outstanding prior to the combination
or who will own more than 5% of either type of the outstanding stapled
securities after the combination.
For purposes of this discussion, a "U.S. Holder" is a beneficial owner of
Burlington Northern Santa Fe common shares, Canadian National common shares or
stapled securities that is:
o a citizen or resident of the United States for United States
federal income tax purposes;
o a corporation, or other entity taxable as a corporation, or
partnership organized under the laws of the United States or any
state thereof;
o an estate the income of which is subject to United States
federal income taxation regardless of source; or
o a trust if a United States court is able to exercise primary
supervision over the administration of such trust and one or
more United States persons have the authority to control all
substantial decisions of such trust.
A "Canadian Holder" is a beneficial owner of Burlington Northern Santa Fe
common shares, Canadian National common shares or stapled securities who:
o is a Canadian resident who is not a resident or citizen of the
United States;
I-58
<PAGE>
Chapter One - The Combination
o does not conduct a U.S. trade or business or maintain a
permanent establishment in the United States; and
o in the case of an individual, is not present in the United
States for 183 days or more during the taxable year of any
disposition of Burlington Northern Santa Fe common shares,
Canadian National common shares or stapled securities.
SHAREHOLDERS ARE ADVISED TO CONSULT THEIR TAX ADVISOR REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
COMBINATION.
U.S. Holders
The following discussion applies only to U.S. Holders who receive stapled
securities consisting of North American Railways common shares and Canadian
National voting shares pursuant to the combination. This discussion does not
address Canadian National common shareholders who are U.S. Holders and who
elect to receive stapled securities consisting of Canadian National
exchangeable shares and Canadian National voting shares pursuant to the
combination. There are potential adverse Canadian withholding and, on exchange,
United States federal income tax consequences to a U.S. Holder of owning
stapled securities consisting of Canadian National exchangeable shares and
Canadian National voting shares. Therefore, Canadian National shareholders who
are U.S. Holders and who are considering making an election to receive stapled
securities consisting of Canadian National exchangeable shares and Canadian
National voting shares pursuant to the combination should consult their own tax
advisors concerning the consequences of making such an election and of owning
stapled securities consisting of Canadian National exchangeable shares and
Canadian National voting shares.
Burlington Northern Santa Fe shareholders. Except as described in the next
paragraph, a U.S. Holder will recognize no income, gain or loss upon the
exchange of Burlington Northern Santa Fe common shares for the stapled
securities consisting of North American Railways common shares and Canadian
National voting shares.
While there is no specific authority addressing the treatment of the
receipt of Canadian National voting shares, a U.S. Holder should recognize
gain, if any, on the exchange (measured by the extent to which a U.S. Holder's
basis in its Burlington Northern Santa Fe common shares is less than the fair
market value of the North American Railways common shares and Canadian National
voting shares received therefor), but not in excess of the fair market value of
the Canadian National voting shares received by such U.S. Holder. In that case,
a U.S. Holder's basis in the North American Railways common shares should equal
the exchanging U.S. Holder's basis in its Burlington Northern Santa Fe common
shares exchanged therefor, decreased by the fair market value of the Canadian
National voting shares received and increased by the amount of gain, if any,
recognized with respect to the Canadian National voting shares received.
However, the U.S. Internal Revenue Service may take the position that a U.S.
Holder should be treated as receiving ordinary income equal to the fair market
value of the Canadian National voting shares. In that case, a U.S. Holder's
basis in the North American Railways common shares would equal the U.S.
Holder's basis in its Burlington Northern Santa Fe common shares exchanged
therefor. In either case, a U.S. Holder's holding period in its North American
Railways common shares will include such shareholder's holding period in the
Burlington Northern Santa Fe common shares exchanged therefor, a U.S. Holder's
holding period in the Canadian National voting shares will commence on the date
of the exchange, and a U.S. Holder's basis in the Canadian National voting
shares will equal their fair market value on the date of the exchange.
Burlington Northern Santa Fe will provide its shareholders with
information regarding the estimated value of the Canadian National voting
shares. Such valuation will not be binding upon the U.S. Internal Revenue
Service.
Canadian National common shareholders. A Canadian National common
shareholder who is a U.S. Holder and who exchanges Canadian National common
shares for stapled securities consisting of North American Railways common
shares and Canadian National voting shares pursuant to the combination will not
recognize gain or loss on such exchange for U.S. federal income tax purposes.
The aggregate basis of the stapled securities so received will be the same as
the basis in the Canadian National common shares exchanged therefor, and the
holding period of the
I-59
<PAGE>
Chapter One - The Combination
stapled securities will include such shareholder's holding period in the
Canadian National common shares. A Canadian National common shareholder who
receives cash in lieu of a fractional share of North American Railways will
recognize gain or loss equal to the difference between such shareholder's basis
in the Canadian National common shares allocable to the fractional share and
the amount of the cash received. Such gain or loss will be a long-term capital
gain or loss if the Canadian National common shares exchanged therefor were
held for more than one year at the time of the exchange.
A Canadian National common shareholder who is a U.S. Holder and who
exercises dissenters' rights will recognize gain or loss at the time of the
combination equal to the difference between such shareholder's basis in its
Canadian National common shares and the fair market value of his or her claim.
Such gain or loss will be long-term capital gain or loss if the Canadian
National common shares exchanged therefor were held for more than one year at
the time of the exchange. Any cash ultimately received in excess of the value
of the claim is likely to be taxable as ordinary income.
Canadian Holders
Exchange of Burlington Northern Santa Fe common shares or Canadian
National common shares. Canadian Holders will not be subject to U.S. federal
income tax as a result of an exchange pursuant to the combination of either (1)
Burlington Northern Santa Fe common shares for stapled securities consisting of
North American Railways common shares and Canadian National voting shares,
except that if the U.S. Internal Revenue Service successfully asserts the
alternative treatment regarding the receipt of Canadian National voting shares
as described under "--U.S. Holders-Burlington Northern Santa Fe Shareholders",
income may be recognized to the extent of the fair market value of the Canadian
National voting shares, or (2) Canadian National common shares for stapled
securities of either type and cash in lieu of a fractional share. In addition,
a Canadian Holder of Canadian National common shares who exercises dissenters'
rights will not be subject to U.S. federal income tax with respect to
consideration received as a result of the exercise of such rights. Canadian
shareholders owning more than 5% of Burlington Northern Santa Fe common shares
should consult their tax advisors regarding the tax consequences of the
exchange under the Foreign Investment in Real Property Tax Act of 1980.
Dividends on Canadian National exchangeable shares. No statutory, judicial
or administrative authority exists that directly addresses the United States
federal income tax treatment of the Canadian National exchangeable shares and,
therefore, such treatment is subject to some uncertainty. Burlington Northern
Santa Fe and Canadian National intend to take the position that dividends paid
to Non-U.S. Holders on the Canadian National exchangeable shares are not
subject to U.S. withholding tax. If, contrary to this position, dividends on
the Canadian National exchangeable shares were determined to be subject to U.S.
withholding tax, Canadian Holders of Canadian National exchangeable shares
would likely be subject to United States withholding tax at a rate of 30%,
which rate could be reduced if the provisions of the Tax Treaty apply. Under
the Tax Treaty, a maximum rate of 15% applies to dividends from United States
sources distributed to residents of Canada who qualify for the benefits of the
Tax Treaty.
Sale or exchange of Canadian National exchangeable shares. A Canadian
Holder that disposes of its stapled securities consisting of Canadian National
exchangeable shares and Canadian National voting shares or that exercises such
holder's right to exchange its Canadian National exchangeable shares (held as
part of its stapled securities) for North American Railways common shares (to
be held as part of stapled securities) will not be subject to United States
federal income tax on gain (if any) realized as a result of the sale or
exchange.
Dividends on North American Railways common shares. Dividends paid to a
Canadian Holder of North American Railways common shares will generally be
subject to United States federal withholding tax at a rate of 30%. However,
under the Tax Treaty, a maximum rate of 15% applies to dividends from United
States sources distributed to residents of Canada who qualify for the benefits
of the Tax Treaty. A Canadian Holder may be required to satisfy certain
certification requirements to claim treaty benefits or otherwise claim a
reduction of, or exemption from, the United States federal withholding tax
described above. Special rules may apply where North American Railways common
shares are held through a partnership or other pass-through entity.
I-60
<PAGE>
Chapter One - The Combination
Sale or exchange of North American Railways common shares. A Canadian
Holder that disposes of stapled securities consisting of North American
Railways common shares and Canadian National voting shares will not be subject
to United States federal income tax on gain, if any, realized as a result of
the sale or exchange.
United States estate tax considerations. North American Railways common
stock will be deemed to be a United States situs asset for purposes of United
States federal estate tax law and, therefore, North American Railways common
shares held as part of a stapled security by an individual Canadian Holder at
the time of his or her death will generally be subject to the United States
federal estate tax, except as may be otherwise be provided by the Tax Treaty.
As there is no direct authority regarding the treatment of the Canadian
National exchangeable shares for United States federal estate tax purposes,
individual Non-U.S. Holders holding Canadian National exchangeable shares as
part of a stapled security are urged to consult their individual tax advisors.
The Tax Treaty provides that United States federal estate tax paid by a
resident of Canada may, under certain circumstances, be allowed as a deduction
from the amount of any Canadian tax otherwise payable by the individual for the
year in which the individual died. This summary does not purport to be a
complete description of all of the provisions of the Tax Treaty that may affect
the taxation of Canadian residents. Non-U.S. Holders should consult their tax
advisors as to application of the provisions of the Tax Treaty to them.
Material Canadian Federal Income Tax Consequences
In the opinion of Stikeman, Elliott, Canadian counsel for Canadian
National, and Torys, Canadian counsel for Burlington Northern Santa Fe, the
following is a summary of the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) (the "Canadian Tax Act") of
receiving Canadian National voting shares and either North American Railways
common shares or Canadian National exchangeable shares pursuant to the
arrangement generally applicable to Canadian National shareholders who, for
purposes of the Canadian Tax Act and at all relevant times,
o hold their Canadian National common shares and will hold their
Canadian National voting shares, Canadian National exchangeable
shares and/or North American Railways common shares as capital
property;
o deal at arm's length with Canadian National, North American Railways
and Burlington Northern Santa Fe; and
o are not and will not be affiliated with Canadian National, North
American Railways or Burlington Northern Santa Fe.
The following also summarizes the principal Canadian federal income tax
considerations under the Canadian Tax Act of the combination generally
applicable to Burlington Northern Santa Fe shareholders who, for the purposes
of the Canadian Tax Act and at all relevant times, hold their Burlington
Northern Santa Fe common shares and will hold their Canadian National voting
shares and North American Railways common shares as capital property, and deal
at arm's length and are not and will not be affiliated with Canadian National,
North American Railways or Burlington Northern Santa Fe.
This summary does not apply to shareholders who are Canadian Residents and
with respect to whom North American Railways will be a foreign affiliate within
the meaning of the Canadian Tax Act.
Burlington Northern Santa Fe common shares, Canadian National common
shares, Canadian National voting shares, Canadian National exchangeable shares
and North American Railways common shares will generally be considered to be
capital property to a holder unless held in the course of carrying on a
business, in an adventure in the nature of trade or as "mark-to-market
property" for purposes of the Canadian Tax Act. A shareholder who is a resident
of Canada for purposes of the Canadian Tax Act (a "Canadian Resident") and
whose Canadian National common shares, Canadian National voting shares and/or
Canadian National exchangeable shares might not otherwise qualify as capital
property may be entitled to obtain such qualification by making an irrevocable
election
I-61
<PAGE>
Chapter One - The Combination
permitted by subsection 39(4) of the Canadian Tax Act. Shareholders who do not
hold their Burlington Northern Santa Fe or Canadian National common shares or
who will not hold their Canadian National voting shares, Canadian National
exchangeable shares and/or North American Railways common shares as capital
property should consult their own tax advisors regarding their particular
circumstances as this summary does not apply to these holders. This summary
does not take into account the potential application to certain "financial
institutions", as defined in the Canadian Tax Act, of the "mark-to-market"
rules.
This summary is based on the Canadian Tax Act, the regulations thereunder
and counsel's understanding of published administrative practices and policies
of the Canada Customs and Revenue Agency, all in effect as of the date of this
document. This summary takes into account all proposals to amend the Canadian
Tax Act and the regulations thereunder publicly announced by or on behalf of
the Canadian Minister of Finance prior to the date hereof, although no
assurances can be given that the proposed amendments will be enacted in the
form proposed, or at all. This summary does not take into account or anticipate
any other changes in law, whether by judicial, governmental or legislative
action or decision, nor does it take into account provincial, territorial or
foreign income tax legislation or considerations, which may differ from the
Canadian federal income tax considerations described herein. No advance income
tax ruling has been sought or obtained from the Canada Customs and Revenue
Agency to confirm the tax consequences of any of the transactions described
herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE DESCRIBED TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.
For the purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of North American Railways common shares
(including dividends, adjusted cost base and proceeds of disposition) must be
expressed in Canadian dollars; amounts denominated in United States dollars
must be converted into Canadian dollars based on the prevailing United States
dollar exchange rate, generally at the time such amounts arise. In computing a
shareholder's liability for tax under the Canadian Tax Act, any cash amounts
received by such holder in United States dollars must be converted into the
Canadian dollar equivalent, and the amount of any non-cash consideration
received by such holder must be expressed in Canadian dollars at the time such
consideration is received.
Canadian National shareholders resident in Canada
The following portion of the summary is applicable to a Canadian National
shareholder who is or is deemed to be a Canadian Resident at all relevant
times.
Exchange of Canadian National common shares for Canadian National voting
shares and Canadian National exchangeable shares and ancillary rights. A
Canadian National shareholder who exchanges Canadian National common shares for
Canadian National voting shares and Canadian National exchangeable shares (and
certain voting and exchange rights referred to herein as the ancillary rights)
will be deemed to have disposed of the Canadian National common shares for
proceeds of disposition equal to the greater of (1) the adjusted cost base to
the Canadian National shareholder of such holder's Canadian National common
shares at the time of the exchange and (2) the sum of (a) any cash received in
respect of a fractional Canadian National voting share and a fractional
Canadian National exchangeable share, and (b) the fair market value of
ancillary rights acquired by the Canadian National shareholder on the exchange.
Accordingly, so long as, at the time of the exchange, the adjusted cost base to
the Canadian National shareholder of such holder's Canadian National common
shares exceeds the sum of (1) any cash received in respect of a fractional
Canadian National voting share and a fractional Canadian National exchangeable
share and (2) the fair market value of ancillary rights acquired by the
Canadian National shareholder on the exchange, the Canadian National
shareholder will not realize a capital gain or capital loss on the exchange.
See "--Material Canadian Federal Income Tax Consequences--Taxation of Capital
Gain or Capital Loss".
I-62
<PAGE>
Chapter One - The Combination
The combined cost to the Canadian National shareholder of the Canadian
National exchangeable shares and Canadian National voting shares acquired
pursuant to the exchange will be equal to the adjusted cost base to the
Canadian National shareholder of such holder's Canadian National common shares
at the time of the exchange (less the sum of any cash received in respect of a
fractional Canadian National voting share and a fractional Canadian National
exchangeable share and the fair market value of ancillary rights acquired by
the Canadian National shareholder on the exchange). Given the value of the
Canadian National voting shares, substantially all of this cost will be
allocated to the Canadian National exchangeable shares. The cost to such
Canadian National shareholder of the ancillary rights acquired pursuant to the
exchange will be equal to the fair market value of such ancillary rights.
A Canadian National shareholder who receives Canadian National
exchangeable shares will be required to determine the fair market value of the
ancillary rights on a reasonable basis for purposes of the Canadian Tax Act.
Canadian National is of the view and has advised counsel that the ancillary
rights have only nominal value so that such a holder should not realize a
capital gain on the exchange of Canadian National common shares for Canadian
National voting shares and Canadian National exchangeable shares and ancillary
rights. Such a determination of value is not binding on the Canada Customs and
Revenue Agency, and counsel can express no opinion on matters of determination
such as this.
Exchange of Canadian National exchangeable shares for North American
Railways common shares pursuant to the arrangement. A Canadian National
shareholder who transfers Canadian National exchangeable shares to North
American Railways in exchange for North American Railways common shares
pursuant to the arrangement will be considered to have disposed of such
Canadian National exchangeable shares for proceeds of disposition equal to the
fair market value of North American Railways common shares acquired by such
holder on the exchange and, as a result, such holder will in general realize a
capital gain (or capital loss) to the extent that such proceeds of disposition,
net of any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to such holder of the Canadian National exchangeable shares
immediately before the exchange. See "--Material Canadian Federal Income Tax
Consequences--Taxation of Capital Gain or Capital Loss". The cost to the
Canadian National shareholder of North American Railways common shares acquired
on the exchange of Canadian National exchangeable shares will be equal to the
fair market value of the North American Railways common shares at the time of
the exchange and will be averaged with the adjusted cost base to such holder of
other North American Railways common shares held by such holder as capital
property.
Exchange of Canadian National options for options to acquire stapled
securities. A holder of an option granted by Canadian National to purchase
Canadian National common shares, other than the option granted to Burlington
Northern Santa Fe, (a "Canadian National option") who exchanges such option for
an option to acquire stapled securities consisting of North American Railways
common shares and Canadian National voting shares (the replacement options)
will not be considered to have disposed of the Canadian National option
provided that (1) the only consideration received by the holder on the exchange
is a replacement option and (2) the total value of North American Railways
common shares and Canadian National voting shares the holder is entitled to
acquire under the replacement option immediately after the exchange (in excess
of the total amount payable by the holder to acquire the North American
Railways common shares and Canadian National voting shares) does not exceed the
total value of the Canadian National common shares the holder was entitled to
acquire under the Canadian National option immediately before the exchange (in
excess of the amount payable by the holder to acquire the Canadian National
common shares). As the only consideration a holder of a Canadian National
option will receive on the exchange of such option will be a replacement option
and Canadian National has advised counsel that the values referred to in (2)
above will be equal, no disposition should arise on the exchange of a Canadian
National option for a replacement option.
Call rights. Canadian National is of the view, and has advised counsel,
that the liquidation call right and the retraction call right have nominal
value. On this basis, no Canadian National shareholder should realize a gain at
the time that either of such rights is granted to North American Railways. Such
determinations of value are not binding on the Canada Customs and Revenue
Agency and counsel can express no opinion on matters of factual determination
such as this.
I-63
<PAGE>
Chapter One - The Combination
Dividends on Canadian National exchangeable shares. In the case of a
holder of Canadian National exchangeable shares who is an individual, dividends
received or deemed to be received by the holder on Canadian National
exchangeable shares will be included in computing the holder's income and will
be subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from taxable Canadian corporations.
Subject to the discussion below as to the denial of the dividend
deduction, in the case of a holder of Canadian National exchangeable shares
that is a corporation, other than a "specified financial institution" as
defined in the Canadian Tax Act, dividends received or deemed to be received by
the holder on Canadian National exchangeable shares will be included in
computing the holder's income and will normally be deductible in computing its
taxable income. A corporation will, in general, be a specified financial
institution for purposes of the Canadian Tax Act if it is a bank, a trust
company, a credit union, an insurance corporation or a corporation whose
principal business is the lending of money to persons with whom the corporation
is dealing at arm's length or the purchasing of debt obligations issued by such
persons or a combination thereof, a prescribed corporation, and corporations
controlled by or related to such entities.
Where North American Railways (or any person with whom North American
Railways does not deal at arm's length) is a specified financial institution at
the time a dividend is paid on an Canadian National exchangeable share, then
dividends received or deemed to be received by the holder of the Canadian
National exchangeable share that is a corporation will be fully includible in
income and may not be deductible in computing taxable income under Part I of
the Canadian Tax Act. Counsel has been advised that neither North American
Railways nor any person with whom it does not deal at arm's length is a
specified financial institution at the current time or is expected to become a
specified financial institution. However, there can be no assurance that this
status will not change prior to any dividend being received or deemed to be
received on the Canadian National exchangeable shares.
In the case of a holder of Canadian National exchangeable shares that is a
specified financial institution, such a dividend also will not be deductible in
computing its taxable income unless either: (1) the specified financial
institution did not acquire the Canadian National exchangeable shares in the
ordinary course of the business carried on by the financial institution or (2)
at the time of the receipt of the dividend by the specified financial
institution, the Canadian National exchangeable shares are listed on a
prescribed stock exchange in Canada and the specified financial institution,
either alone or together with persons with whom it does not deal at arm's
length, does not receive and is not deemed to receive dividends in respect of
more than 10% of the issued and outstanding Canadian National exchangeable
shares.
A holder of Canadian National exchangeable shares that is a "private
corporation" (as defined in the Canadian Tax Act) or any other corporation
resident in Canada and controlled or deemed to be controlled by or for the
benefit of an individual or a related group of individuals may be liable under
Part IV of the Canadian Tax Act to pay a refundable tax of 33 1/3 % on dividends
received or deemed to be received on the Canadian National exchangeable shares
to the extent that such dividends are deductible in computing the holder's
taxable income.
A holder of Canadian National exchangeable shares that is a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
throughout the relevant taxation year may be liable to pay an additional
refundable tax of 6 2/3% on dividends or deemed dividends on Canadian National
exchangeable shares that are not deductible in computing the holder's taxable
income. Canadian National exchangeable shares will be "taxable preferred
shares" and "short-term preferred shares" for purposes of the Canadian Tax Act.
Dividends received or deemed to be received on Canadian National exchangeable
shares will not be subject to the 10% tax under Part IV.I of the Canadian Tax
Act.
Dividends on North American Railways common shares. In the case of a
holder of North American Railways common shares who is an individual, dividends
received by the holder on North American Railways common shares will be
included in computing the holder's income and will not be subject to the
gross-up and dividend tax credit rules in the Canadian Tax Act. In the case of
a holder of North American Railways common shares that is a corporation,
dividends received by the holder on North American Railways common shares will
be included in computing the holder's income and generally will not be
deductible in computing the holder's taxable income. A holder of North American
Railways common shares that is a Canadian-controlled private corporation may be
liable
I-64
<PAGE>
Chapter One - The Combination
to pay an additional refundable tax of 6 2/3% on such dividends. United States
non-resident withholding tax on dividends generally will be eligible for
foreign tax credit or deduction treatment where applicable under the Canadian
Tax Act.
Retraction or exchange of Canadian National exchangeable shares. On the
retraction of Canadian National exchangeable shares, the holder of the Canadian
National exchangeable shares (1) will receive a dividend equal to any declared
and unpaid dividend on each Canadian National exchangeable share redeemed that
was held by the holder on any dividend record date which occurred prior to the
redemption date and (2) will be deemed to have received a dividend equal to the
amount, if any, by which the retraction proceeds (i.e. the fair market value at
that time of North American Railways common shares received by the holder of
the Canadian National exchangeable shares from Canadian National on the
retraction) exceeds the paid-up capital (for purposes of the Canadian Tax Act)
at the time of the retraction of the Canadian National exchangeable shares. The
amount of any such dividend and/or deemed dividend will be subject to the tax
treatment described above under "--Material Canadian Federal Income Tax
Consequences--Dividends on Canadian National Exchangeable Shares". On the
retraction of Canadian National exchangeable shares, the holder of the Canadian
National exchangeable shares will also be considered to have disposed of the
Canadian National exchangeable shares for proceeds of disposition equal to the
retraction proceeds less the amount of such deemed dividend. The holder of the
Canadian National exchangeable shares retracted will, in general, realize a
capital gain (or a capital loss) equal to the amount by which the adjusted cost
base to the holder of the Canadian National exchangeable shares immediately
before retraction is less than (or exceeds) such proceeds of disposition. See
"--Taxation of Capital Gain or Capital Loss". In the case of a holder of
Canadian National exchangeable shares that is a corporation, in some
circumstances, the amount of any deemed dividend arising on retraction may be
treated as proceeds of disposition and not as a dividend.
On the exchange of Canadian National exchangeable shares by the holder
thereof with North American Railways for North American Railways common shares,
the holder will, in general, realize a capital gain (or a capital loss) to the
extent the proceeds of disposition of the Canadian National exchangeable
shares, net of any reasonable costs of disposition, exceed (or are less than)
the adjusted cost base to the holder of the Canadian National exchangeable
shares immediately before the exchange. For these purposes, the proceeds of
disposition will be the fair market value, at the time of the exchange, of
North American Railways common shares received on the exchange. See "--Material
Canadian Federal Income Tax Consequences--Taxation of Capital Gain or Capital
Loss".
Because of the existence of the call rights, the exchange right and the
automatic exchange right, a holder of Canadian National exchangeable shares
cannot control whether such holder will receive North American Railways common
shares by way of retraction of the Canadian National exchangeable shares by
Canadian National or by way of purchase of the Canadian National exchangeable
shares by North American Railways. As described above, the Canadian federal
income tax consequences of a retraction differ from those of a purchase.
Acquisition and disposition of North American Railways common shares. The
cost to a holder of North American Railways common shares who receives North
American Railways common shares on the retraction or exchange of Canadian
National exchangeable shares will be equal to the fair market value of the
North American Railways common shares at the time of such event and will be
averaged with the adjusted cost base of any other North American Railways
common shares held at that time by the holder as capital property.
A disposition or deemed disposition of North American Railways common
shares by a holder will generally result in a capital gain (or capital loss) to
the extent that the proceeds of disposition, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder of
such shares immediately before the disposition.
Taxation of capital gain or capital loss. Three-quarters of any capital
gain (the "taxable capital gain") realized by a Canadian National shareholder
will be included in the Canadian National shareholder's income for the year of
disposition. Three-quarters of any capital loss realized (the "allowable
capital loss") may be deducted by the Canadian National shareholder against
taxable capital gains for the year of disposition.
I-65
<PAGE>
Chapter One - The Combination
Any excess of allowable capital losses over taxable capital gains for the
year of disposition may be carried back up to three taxation years or forward
indefinitely and deducted against net taxable capital gains in those other
years to the extent and in the circumstances prescribed in the Canadian Tax
Act.
Capital gains realized by an individual or trust, other than certain
trusts, may give rise to alternative minimum tax under the Canadian Tax Act. A
Canadian-controlled private corporation may be liable to pay an additional
refundable tax of 6 2/3 % on taxable capital gains.
If the holder of a Canadian National common share and/or Canadian National
exchangeable share is a corporation, the amount of any capital loss arising on
a disposition or deemed disposition of any such share may be reduced by the
amount of dividends received or deemed to have been received by it on such
share to the extent and under circumstances prescribed by the Canadian Tax Act.
Similar rules may apply where a corporation is a member of a partnership or a
beneficiary of a trust that owns a Canadian National common share and/or
Canadian National exchangeable share or where a trust or partnership of which a
corporation is a beneficiary or a member is a member of a partnership or a
beneficiary of a trust that owns any such share.
Foreign property information reporting. In general, a "specified Canadian
entity", as defined in the Canadian Tax Act, for a taxation year or fiscal
period whose total cost amount of "specified foreign property", as defined in
the Canadian Tax Act, at any time in the year or fiscal period exceeds
Cdn$100,000, is required to file an information return for the year or period
disclosing prescribed information, including the cost amount, any dividends
received in the year, and any gains or losses realized in the year, in respect
of such property. With some exceptions, a taxpayer resident in Canada in the
year will be a specified Canadian entity. Canadian National exchangeable
shares, replacement options and North American Railways common shares will be
specified foreign property to a holder. Accordingly, holders of Canadian
National exchangeable shares, replacement options and/or North American
Railways common shares should consult their own advisors regarding compliance
with these rules.
Qualified investments. Provided the Canadian National exchangeable shares
and Canadian National voting shares are listed on a prescribed stock exchange
in Canada (which currently includes The Toronto Stock Exchange), the Canadian
National exchangeable shares and Canadian National voting shares will be
"qualified investments" for trusts governed by Registered Retirement Savings
Plans, Registered Retirement Income Funds, Deferred Profit Sharing Plans and
Registered Education Savings Plans, as defined in the Canadian Tax Act.
Similarly, North American Railways common shares will be qualified investments
under the Canadian Tax Act for such plans provided such shares are listed on
the New York Stock Exchange (or are listed on another prescribed stock
exchange). The ancillary rights will not be qualified investments under the
Canadian Tax Act for such plans. However, Canadian National is of the view that
the fair market value of these rights is nominal.
Foreign property. Provided the Canadian National exchangeable shares are
listed on a prescribed stock exchange in Canada (which currently includes The
Toronto Stock Exchange), the Canadian National exchangeable shares will not be
foreign property under the Canadian Tax Act for trusts governed by Registered
Retirement Savings Plans, Registered Retirement Income Funds and Deferred
Profit Sharing Plans, for registered pension plans or for certain other persons
to whom Part XI of the Canadian Tax Act applies. The Canadian National voting
shares also will not be foreign property for such plans. The ancillary rights
will be foreign property under the Canadian Tax Act. However, Canadian National
is of the view that the fair market value of these rights is nominal. North
American Railways common shares will be foreign property under the Canadian Tax
Act.
Dissenting shareholders. A dissenting shareholder is entitled, if the
arrangement becomes effective, to receive the fair value of Canadian National
common shares held by the dissenting shareholder. The dissenting shareholder
will be considered to have disposed of the Canadian National common shares for
proceeds of disposition equal to the amount received by the dissenting
shareholder less the amount of any deemed dividend referred to below and any
interest awarded by the Quebec Superior Court. See "--Material Canadian Federal
Income Tax Consequences--Taxation of Capital Gain or Capital Loss". Where the
amount is received from Canadian National, the Canadian National shareholder
also will be deemed to receive a taxable dividend equal to the amount by which
the amount received (other than in respect of interest awarded by the Quebec
Superior Court) exceeds the paid-up capital of such shareholder's Canadian
National common shares. In the case of a Canadian National shareholder
I-66
<PAGE>
Chapter One - The Combination
that is a corporation, in some circumstances, the amount of any such deemed
dividend may be treated as proceeds of disposition and not as a dividend. Any
interest awarded to a dissenting shareholder by the Quebec Superior Court will
be included in the dissenting shareholder's income for the purposes of the
Canadian Tax Act. Pursuant to the proposed amendments to the Canadian Tax Act,
a dissenting shareholder will not be entitled to the benefit of the
"replacement property" provisions of the Canadian Tax Act.
Canadian National shareholders not resident in Canada
The following portion of the summary is applicable to a Canadian National
shareholder who, for purposes of the Canadian Tax Act, has not been and will
not be resident (or deemed resident) in Canada at any time while such Canadian
National shareholder has held Canadian National common shares and will hold
Canadian National voting shares, North American Railways common shares and/or
Canadian National exchangeable shares and to whom such shares are not "taxable
Canadian property" (as defined in the Canadian Tax Act). Special rules, which
are not discussed in this summary, may apply to a non-resident that is an
insurer carrying on business in Canada and elsewhere.
Generally, Canadian National common shares, Canadian National voting
shares, Canadian National exchangeable shares and North American Railways
common shares will not be taxable Canadian property at a particular time
provided that such shares are listed on a prescribed stock exchange (which
currently includes The Toronto Stock Exchange and the New York Stock Exchange),
the holder does not use or hold, and is not deemed to use or hold, such shares
in carrying on a business in Canada and the holder, persons with whom the
holder does not deal at arm's length, or the holder together with all such
persons has not owned (or had under option) 25% or more of the issued shares of
any class or series of the capital stock of Canadian National or North American
Railways, as the case may be, at any time during the 60-month period that ends
at the particular time.
Disposition of Canadian National common shares, Canadian National voting
shares, Canadian National exchangeable shares and North American Railways
common shares. A Canadian National shareholder who is not a Canadian Resident
will not be subject to tax under the Canadian Tax Act on (1) the exchange of
Canadian National common shares for Canadian National voting shares and
Canadian National exchangeable shares or the exchange of Canadian National
exchangeable shares for North American Railways common shares, other than upon
a retraction (which does not include an exchange pursuant to the exercise of
the call rights, the exchange right and the automatic exchange right) of such
Canadian National exchangeable shares or to the extent a wholly owned
subsidiary of North American Railways pays or credits an amount in respect of
any declared and unpaid dividend on a Canadian National exchangeable share
purchased that was held by the holder on a dividend record date which occurred
prior to the purchase (a "dividend amount") to such holder, (2) the sale or
other disposition of Canadian National exchangeable shares, other than upon a
retraction (which does not include an exchange pursuant to the exercise of the
call rights, the exchange right and the automatic exchange right), (3) the sale
or other disposition of North American Railways common shares or (4) the sale
or other disposition of Canadian National voting shares.
On the retraction of Canadian National exchangeable shares by Canadian
National, the holders of the Canadian National exchangeable shares will receive
and/or be deemed to have received a dividend. Any such dividend and/or deemed
dividend will be subject to Canadian withholding tax at the rate of 25% unless
reduced by the provisions of an applicable tax treaty.
Dividends and interest. Dividends (including deemed dividends) paid or
credited (or deemed to be paid or credited) to holders of Canadian National
exchangeable shares by Canadian National and dividend amounts paid or credited
by a wholly owned subsidiary of North American Railways, are subject to
non-resident withholding tax under the Canadian Tax Act at the rate of 25%
unless such rate is reduced under the provisions of an applicable income tax
treaty.
Where a Canadian National shareholder is deemed to have received a taxable
dividend or interest consequent upon the exercise of dissent rights, such
amounts will be subject to Canadian withholding tax at the rate of 25% unless
the rate is reduced under the provisions of an applicable tax treaty. See
"--Material Canadian Federal Income Tax Consequences--Canadian National
Shareholders Resident in Canada--Dissenting Shareholders".
I-67
<PAGE>
Chapter One - The Combination
Tax Treaty. Under the provisions of the Canada-United States Income Tax
Convention, the non-resident withholding tax rate is generally reduced to 15%
in the case of dividends and 10% in the case of interest, paid to a resident of
the United States who qualifies for the benefits of the Canada-United States
Income Tax Convention.
Burlington Northern Santa Fe shareholders resident in Canada
The following portion of this summary is applicable to a Burlington
Northern Santa Fe shareholder who is or is deemed to be a Canadian Resident at
all relevant times. A Burlington Northern Santa Fe shareholder will not realize
a capital gain or capital loss on the exchange of Burlington Northern Santa Fe
common shares for North American Railways common shares unless the shareholder
elects in such holder's return of income for the taxation year of the holder in
which the combination takes place not to have the foreign merger provisions of
the Canadian Tax Act apply. The cost to the Burlington Northern Santa Fe
shareholder of the North American Railways common shares acquired pursuant to
the exchange will be equal to the adjusted cost base to the shareholder of such
holder's Burlington Northern Santa Fe common shares at the time of the exchange
and will be averaged with the adjusted cost base to such holder of other North
American Railways common shares held by such holder as capital property. A
Burlington Northern Santa Fe shareholder will be required to include in income
the fair market value of the Canadian National voting shares received on the
arrangement by reason of being a Burlington Northern Santa Fe shareholder. The
cost to such Burlington Northern Santa Fe shareholder of the Canadian National
voting shares acquired on the arrangement by reason of being a Burlington
Northern Santa Fe shareholder will be equal to the fair market value of those
Canadian National voting shares at the time of the arrangement and will be
averaged with the adjusted cost base to such holder of other Canadian National
voting shares held by such holder as capital property.
The tax considerations to Burlington Northern Santa Fe shareholders of
receiving dividends on North American Railways common shares, holding North
American Railways common shares and disposing of North American Railways common
shares are the same as for Canadian National shareholders. See "Material Tax
Consequences of the Combination--Material Canadian Federal Income Tax
Consequences--Canadian National shareholders resident in Canada--Dividends on
North American Railways common shares; Acquisition and disposition of North
American Railways common shares; Taxation of capital gain or capital loss;
Foreign property information reporting; Qualified investments".
Regulatory Review and Approval
United States Surface Transportation Board
To complete the combination, we must obtain the approval of the U.S.
Surface Transportation Board. We and our railroad affiliates plan to file an
application seeking approval of the U.S. Surface Transportation Board as soon
as practicable. The U.S. Surface Transportation Board will conduct a formal
proceeding on the application. In ruling on our application, we expect that the
U.S. Surface Transportation Board will consider at least the following:
(1) the effect of the proposed transaction on the adequacy of
transportation to the public;
(2) the effect on the public interest of including, or failing to
include, other rail carriers in the area involved in the combination;
(3) the total fixed charges that result from the combination;
(4) the interest of rail carrier employees affected by the combination;
and
(5) whether the proposed transaction would have an adverse effect on
competition among rail carriers in the affected region or in the
national rail system.
The U.S. Surface Transportation Board has the authority to impose
conditions on its approval of the combination to alleviate competitive or other
concerns. If conditions are imposed, and if they would significantly and
adversely affect the economic benefits of the combination to Burlington
Northern Santa Fe, Canadian National
I-68
<PAGE>
Chapter One - The Combination
and their shareholders, taken as a whole, Canadian National or Burlington
Northern Santa Fe may elect not to consummate the transaction. Under certain
circumstances, the party that elects not to consummate the combination must pay
a fee to the other if the other wishes to consummate the transaction. See "The
Combination Agreement--Termination of the Combination Agreement and Termination
Fees". There is no assurance that U.S. Surface Transportation Board approval
will be obtained or obtained on terms that fall within the standard described
above, or that, even if the terms fall within that standard, the terms of the
U.S. Surface Transportation Board approval would not have a detrimental effect
on the combined companies.
Three of the five factors listed above are, in our view, unlikely to
affect whether our application is approved by the U.S. Surface Transportation
Board. As to factor (2)--inclusion of other carriers--Canadian National and
Burlington Northern Santa Fe do not believe that this factor is likely to
affect adversely U.S. Surface Transportation Board approval of the transaction
on acceptable terms. As to factor (3)--effect on fixed charges--the capital
structure of the combined companies will be sufficiently strong that this
factor is unlikely, in our view, to be viewed negatively by the U.S. Surface
Transportation Board in deciding whether to approve the combination. As to
factor (4)--the interest of affected carrier employees--the U.S. Surface
Transportation Board has adopted a standard set of labor protective conditions,
known as the New York Dock conditions, that it imposes in transactions such as
ours. We expect that those conditions would be imposed upon the combination and
that this factor would not adversely affect approval of the transaction.
The remaining two factors, factor (1)--effect on the adequacy of
transportation--and factor (5)--effect on rail competition, are reflected in
the public interest balancing test that the U.S. Surface Transportation Board
applies in reviewing railroad consolidations such as our proposed combination.
On the one hand, the U.S. Surface Transportation Board considers the public
benefits of the transaction such as better service to shippers, efficiencies,
cost savings and the like. On the other hand, the U.S. Surface Transportation
Board considers any public harms from the transaction, including any adverse
effects on the adequacy of rail service and on safety and the environment. The
principal harm of concern to the U.S. Surface Transportation Board and the
principal issue that is likely to be raised by parties either opposing the
approval of our combination or seeking the imposition of conditions, is
reduction in competition. In applying the public interest balancing test, the
U.S. Surface Transportation Board is guided by the United States Congress'
intent to encourage mergers, consolidations and joint use of facilities that
tend to rationalize and improve the U.S. rail system.
In making its assessment, the U.S. Surface Transportation Board has not in
the past considered cumulative impacts or crossover effects from potential
combinations or transactions that other railroads may enter into, or that the
applicants may consider in the future. The U.S. Surface Transportation Board
has announced, however, that in our proceeding it will waive its traditional
"one case at a time" rule so that the applicants and other parties can submit
evidence of the effect that our transaction and any likely subsequent
transactions would have on the rail industry. In light of the rail service
disruptions that occurred after some recent transactions, the U.S. Surface
Transportation Board has also invited evidence of the likely effects that its
decisions could have on rail service in the future. The role and relative
weight to be given to this anticipated evidence on "downstream effects" in
judging whether our proposed transaction is consistent with the public interest
has not yet been determined by the U.S. Surface Transportation Board. In
scheduling a public hearing for March 8, 2000 seeking the views of interested
persons on the subject of major railroad consolidations and the present and
future structure of the North American rail industry, the U.S. Surface
Transportation Board stated that it did not intend to use that proceeding to
prejudge our yet-to-be-filed application. It is possible, however, that the
views expressed at the hearing will be considered by the U.S. Surface
Transportation Board in issuing future decisions and directives concerning the
submission and evaluation of evidence on "downstream effects" in our
proceeding.
In light of the policies the U.S. Surface Transportation Board expressed
in its 1996 decision relating to the combination of the Union Pacific and
Southern Pacific Railroads, we are willing to provide an opportunity for
another railroad to compete in those situations where we are now the only
providers of effective competition. We believe that there are relatively few
such situations, and that the reduction in the anticipated benefits of the
combination that would be effected by granting such competitive opportunity
would not be material. Such opportunity may take the form of a grant of
trackage rights over rail properties, or it may be structured in other ways,
any of which could diminish the value of the affected rail properties. The U.S.
Surface Transportation Board
I-69
<PAGE>
Chapter One - The Combination
may impose such arrangements as conditions to its approval of the combination,
and may also require other burdensome arrangements regarding rail competition,
rail service, environmental or other aspects of the public interest, as
conditions to its approval of the combination.
We intend to present to the U.S. Surface Transportation Board our case
that the combination satisfies the public interest balancing test. First, we
will seek to show that a combination has significant public benefits, including
improved rail services. Second, we will seek to show that our combination will
have no significant adverse effect on rail competition and, indeed, will
strengthen competition. Third, we will submit evidence in response to the U.S.
Surface Transportation Board's request for evidence regarding cumulative
impacts or crossover effects and rail service. While we intend to present a
persuasive case, there can be no assurance that our application will not be
denied, or will not be granted subject to onerous conditions.
Under existing law, the U.S. Surface Transportation Board is required to
enter a final order with respect to our application within approximately 15
months after the application is accepted. We have requested a shorter schedule,
which the U.S. Surface Transportation Board is permitted to grant. However,
there is no assurance that the U.S. Surface Transportation Board will adopt a
shorter schedule. Under existing law, other railroads and other interested
parties may seek to intervene to oppose our application or to seek protective
conditions in the event approval by the U.S. Surface Transportation Board is
granted. In addition, any appeals from the U.S. Surface Transportation Board
final order might not be resolved for a substantial period of time after the
entry of such order by the U.S. Surface Transportation Board.
Competition Act (Canada)
The Competition Act (Canada), which is a federal statute of general
application, applies to the substantive review and regulation of all mergers in
Canada. The Competition Act (Canada) establishes a regime for pre-merger
notification and review of merger transactions that exceed certain size
thresholds. Where a merger exceeds such thresholds, the parties must either
file a pre-merger notification and wait for the expiration of the applicable
waiting period or, in lieu thereof, obtain an advance ruling certificate from
the Commissioner of Competition under the Competition Act (Canada).
The combination, however, is not subject to pre-merger notification under
the Competition Act (Canada) as the combination does not exceed the applicable
thresholds under the Competition Act (Canada) that trigger the pre- merger
notification requirements. Even where a merger is not subject to pre-merger
notification requirements, however, it is still subject to review by the
Commissioner of Competition under the Competition Act (Canada) either prior to
or following its completion. In this regard, unless an advance ruling
certificate is issued, the Commissioner of Competition has the jurisdiction to
challenge a completed merger for up to three years following its completion.
The substantive test under the Competition Act (Canada) for the
Commissioner of Competition to commence a challenge is whether the transaction
"prevents or lessens, or is likely to prevent or lessen, competition
substantially."
Where the Commissioner of Competition concludes that a proposed
transaction is likely to substantially lessen or prevent competition in a
relevant market, the Commissioner of Competition can either negotiate
conditions with the parties to alleviate his concerns or can seek an order of
the Competition Tribunal:
o prohibiting the completion of all or part of the proposed transaction
on an interim or permanent basis (if the parties insist on proceeding
with the merger transaction without addressing the Commissioner of
Competition's concerns); or
o in the case of a completed transaction, requiring the divestiture of
shares or assets or the dissolution of the transaction or, with the
consent of the person against whom the order is sought, requiring
that person to take any other action.
The obligations of Canadian National and Burlington Northern Santa Fe to
consummate the combination are subject to the condition that any applicable
waiting period and any extensions thereof under the Competition Act
I-70
<PAGE>
Chapter One - The Combination
(Canada) shall have expired and the Commissioner of Competition shall have
provided the parties with assurances that the Commissioner of Competition shall
not take any action to enforce any relevant provision of the Competition Act
(Canada) in respect of any of the transactions contemplated by the combination
agreement on terms that would significantly and adversely affect the economic
benefits of the transactions contemplated by the combination agreement to
Burlington Northern Santa Fe, Canadian National and their shareholders, taken
as a whole.
Canadian National and Burlington Northern Santa Fe intend to apply to the
Commissioner of Competition for an advance ruling certificate, whereby,
provided that the combination is substantially completed within one year after
the advance ruling certificate is issued, the Commissioner of Competition
cannot seek an order of the Competition Tribunal in respect of the combination
solely on the basis of information that is the same or substantially the same
as the information on the basis of which the advance ruling certificate was
issued. We are not required to obtain such an advance ruling certificate to
complete the combination.
Approval of Quebec Superior Court
See "Canadian National Transaction Mechanics-Approval of the Quebec
Superior Court and Completion of the Arrangement" for a discussion of the
requirement of, and process for, obtaining approval by the Quebec Superior
Court of the plan of arrangement.
United States State Takeover Statutes
As a Delaware corporation, Burlington Northern Santa Fe is subject to
Section 203 of the Delaware General Corporation Law. Section 203 would prevent
an "interested shareholder" (generally defined as a person beneficially owning
15% or more of a corporation's voting stock) from engaging in a "business
combination" with a Delaware corporation for three years following the date the
person became an interested shareholder unless certain conditions are
satisfied. The transactions contemplated by the combination agreement are
exempt from the provisions of Section 203.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations that are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In 1982, in Edgar v. MITE Corp., the U.S.
Supreme Court invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987, in
CTS Corp. v. Dynamics Corp. of America, the U.S. Supreme Court held that the
State of Indiana may, as a matter of corporate law and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of
a target corporation without the prior approval of the remaining shareholders.
The state law before the U.S. Supreme Court in that case was by its terms
applicable only to corporations that had a substantial number of shareholders
in the state and were incorporated there.
Canadian National and Burlington Northern Santa Fe, directly or through
subsidiaries, conduct business in a number of states throughout the United
States, some of which have enacted takeover laws. Neither Burlington Northern
Santa Fe nor Canadian National knows whether any of these laws will, by their
terms, apply to the combination and they have not filed information or sought
approvals pursuant to any such laws. Should any person seek to apply any state
takeover law, Burlington Northern Santa Fe and Canadian National will take such
action as then appears desirable, which may include challenging the validity or
applicability of any such statute in appropriate court proceedings. In the
event it is asserted that one or more state takeover laws is applicable to the
combination, and an appropriate court does not determine that it is
inapplicable or invalid as applied to the combination, Canadian National,
Burlington Northern Santa Fe and North American Railways might be required to
file certain information with, or receive approvals from, the relevant state
authorities.
I-71
<PAGE>
Chapter One - The Combination
Other Laws
Canadian National and Burlington Northern Santa Fe conduct operations in a
number of jurisdictions where other regulatory filings or approvals may be
required or advisable in connection with the completion of the combination.
Canadian National and Burlington Northern Santa Fe are currently in the process
of reviewing whether other filings or approvals may be required or desirable in
these other jurisdictions. We recognize that some of these filings may not be
completed before the completion of the combination, and that some of these
approvals, which are not as a matter of practice required to be obtained prior
to effectiveness of transactions similar to the combination, may not be
obtained prior to the completion of the combination.
Dissent and Appraisal Rights
Burlington Northern Santa Fe Shareholders
Holders of Burlington Northern Santa Fe common stock are not entitled to
appraisal rights under Delaware law in connection with the combination or the
related merger that will result in Burlington Northern Santa Fe becoming a
wholly owned subsidiary of North American Railways.
Under U.S. law, as interpreted by the U.S. Supreme Court in Schwabacher v.
United States, the U.S. Surface Transportation Board must determine that the
terms of our proposed combination, if approved by the U.S. Surface
Transportation Board, are fair to the shareholders of both companies. As part
of the approval proceeding (see "The Combination--Regulatory Review and
Approval"), we intend to submit evidence to that effect. While holders of
Burlington Northern Santa Fe common stock are not entitled to appraisal rights
under Delaware law, they will have an opportunity to participate in that
proceeding, as will holders of Canadian National common shares.
Canadian National Shareholders
The interim order (forming part of Annex I) obtained from the Quebec
Superior Court in connection with the arrangement expressly provides Canadian
National common shareholders the right to dissent from the arrangement
resolution pursuant to section 190 of the Canada Business Corporations Act and
the plan of arrangement, as such provisions are modified in the interim order.
In general, any Canadian National common shareholder who dissents from the
arrangement resolution in compliance with section 190 of the Canada Business
Corporations Act will be entitled, in the event the arrangement resolution is
approved and the arrangement becomes effective, to be paid by Canadian National
the fair value of the Canadian National common shares held by such dissenting
shareholder determined as of the close of business on the day before the
arrangement effective date.
The dissent provisions under the Canada Business Corporations Act provide
that a shareholder may only make a claim thereunder with respect to all the
shares of a class held by the shareholder on behalf of any one beneficial owner
and registered in the shareholder's name. One consequence of this provision is
that a Canadian National common shareholder may only exercise the right to
dissent under the dissent procedures in respect of Canadian National common
shares that are registered in that holder's name. In many cases, shares
beneficially owned by a person are registered either:
o in the name of an intermediary that the non-registered holder deals
with in respect of the shares (such as banks, trust companies,
securities dealers and brokers, trustees or administrators of
self-administered registered retirement savings plans, registered
retirement income funds, registered educational savings plans and
similar plans, and their nominees); or
o in the name of a clearing agency, such as The Canadian Depositary for
Securities Limited, of which the intermediary is a participant.
Accordingly, a non-registered holder of Canadian National common
shares will not be entitled to exercise the right to dissent unless
the Canadian National common shares are re- registered in the
non-registered holder's name.
I-72
<PAGE>
Chapter One - The Combination
A non-registered holder who wishes to exercise the right to dissent should
immediately contact the intermediary with whom the non-registered holder deals
in respect of the holder's Canadian National common shares and either:
o instruct the intermediary to exercise the right to dissent on the
non-registered holder's behalf which, if the Canadian National common
shares are registered in the name of The Canadian Depositary for
Securities Limited or other clearing agency, would require that such
shares first be re-registered in the name of the intermediary; or
o instruct the intermediary to re-register the Canadian National common
shares in the name of the non-registered holder, in which case the
non-registered holder would have to exercise the right to dissent
directly.
A Canadian National common shareholder who wishes to dissent from the
arrangement resolution must provide written notice of the holder's dissent to
Canadian National by depositing such notice of dissent with Canadian National,
or mailing it to Canadian National by registered mail, at its head office at
935 de La Gauchetiere Street West, Montreal, Quebec, H3B 2M9, to the attention
of the Senior Vice President, Chief Legal Officer and Corporate Secretary of
Canadian National so it is received by 5:00 p.m. (Montreal time) on the
business day preceding the Canadian National meeting. The filing of a notice of
dissent does not deprive a Canadian National common shareholder of the right to
vote at the Canadian National meeting; however, the Canada Business
Corporations Act provides, in effect, that a Canadian National common
shareholder who has submitted a notice of dissent in respect of the arrangement
resolution who then votes in favor of such resolution will no longer be
considered a dissenting shareholder. The Canada Business Corporations Act does
not provide, and Canadian National will not assume, that a vote against the
arrangement resolution or an abstention constitutes a notice of dissent but a
Canadian National common shareholder need not vote the holder's securities
against the arrangement resolution in order to dissent. Similarly, the
revocation of a proxy conferring authority on the proxy holder to vote in favor
of the arrangement resolution does not constitute a notice of dissent; however,
any proxy granted by a Canadian National common shareholder who intends to
dissent, other than a proxy that instructs the proxy holder to vote against the
arrangement resolution, should be validly revoked in order to prevent the proxy
holder from voting such securities in favor of the arrangement resolution and
thereby causing the Canadian National common shareholder to forfeit the
holder's right to dissent.
The interim order provides that Canadian National is required, within 10
days after the arrangement effective date, to notify each of the dissenting
shareholders that the arrangement has been effected. Such notice is not
required to be sent to any Canadian National common shareholder who voted in
favor of the resolution from which the holders submitted a notice of dissent
nor to any Canadian National common shareholder who has withdrawn the holder's
notice of dissent. A dissenting shareholder who has not withdrawn the holder's
notice of dissent must then, within 20 days after receipt of notice that the
arrangement has been effected or, if the dissenting shareholder does not
receive such notice, within 20 days after the holder learns that the
arrangement has been effected, send to Canadian National a demand for payment,
containing the holder's name and address, the number of Canadian National
common shares in respect of which the holder's dissents, and a demand for
payment of the fair value of such shares. Within 30 days after sending a demand
for payment, the dissenting shareholder must send to Canadian National or its
transfer agent the certificates representing the shares in respect of which the
holder dissents.
A dissenting shareholder who fails to send certificates representing the
shares in respect of which the holder dissents forfeits the holder's right to
dissent. Canadian National or its transfer agent will endorse on any share
certificate received from a dissenting shareholder a notice that the holder is
a dissenting shareholder and will promptly return the share certificates to the
dissenting shareholder.
After sending a demand for payment, a dissenting shareholder ceases to
have any rights as a holder of the Canadian National common shares in respect
of which the shareholder has dissented other than the right to be paid the fair
value of such shares as determined under the dissent procedures, unless:
o the dissenting shareholder withdraws the demand for payment before
Canadian National makes an offer to pay;
I-73
<PAGE>
Chapter One - The Combination
o Canadian National fails to make a timely offer to pay to the
dissenting shareholder and the dissenting shareholder withdraws the
holder's demand for payment; or
o the directors of Canadian National revoke the arrangement resolution;
in all of which cases the dissenting shareholder's rights as a shareholder are
reinstated.
In addition, pursuant to the plan of arrangement, Canadian National common
shareholders who duly exercise such rights of dissent and who:
o are ultimately entitled to be paid fair value for their Canadian
National common shares will be deemed to have transferred their
Canadian National common shares to Canadian National immediately
prior to the arrangement effective date to the extent the fair value
of their Canadian National common shares is paid by Canadian
National, and such shares will be canceled on the arrangement
effective date; or
o are ultimately not entitled, for any reason, to be paid fair value
for their Canadian National common shares will be deemed to have
participated in the arrangement on the same basis as a non-dissenting
holder of Canadian National common shares and will receive Canadian
National voting shares and Canadian National exchangeable shares,
which may be deemed to be North American Railways elected
exchangeable shares and to have been exchanged for North American
Railways common shares, all in accordance with the plan of
arrangement.
Canadian National is required, not later than seven days after the later
of the arrangement effective date and the date on which Canadian National
receives a demand for payment from a dissenting shareholder, to send such
dissenting shareholder an offer to pay for the holder's Canadian National
common shares in an amount considered by Canadian National's board of directors
to be the fair value of those shares, accompanied by a statement showing the
manner in which such fair value was determined. Every offer to pay must be on
the same terms. Canadian National must pay for the Canadian National common
shares of a dissenting shareholder within ten days after an offer to pay has
been accepted by the dissenting shareholder, but any such offer lapses if
Canadian National does not receive an acceptance of the offer within 30 days
after the offer to pay has been made.
If Canadian National fails to make an offer to pay for a dissenting
shareholder's Canadian National common shares or if a dissenting shareholder
fails to accept an offer which has been made, Canadian National may, within 50
days after the arrangement effective date or within such further period as the
Quebec Superior Court may allow, apply to the Quebec Superior Court to fix a
fair value for the Canadian National common shares of dissenting shareholders.
If Canadian National fails to apply to the Quebec Superior Court, a dissenting
shareholder may apply to the Quebec Superior Court (or any other court having
jurisdiction under section 190 of the Canada Business Corporation Act) for the
same purpose within a further period of 20 days or within any further period
that the court may allow. A dissenting shareholder is not required to give
security for costs in such an application.
Upon an application to the Quebec Superior Court, all dissenting
shareholders whose Canadian National common shares have not been purchased by
Canadian National will be joined as parties and bound by the decision of the
Quebec Superior Court, and Canadian National will be required to notify each
affected dissenting shareholder of the date, place and consequences of the
application and of the holder's right to appear and be heard in person or by
counsel. Upon any such application to the Quebec Superior Court, the Quebec
Superior Court may determine whether any person is a dissenting shareholder who
should be joined as a party, and the Quebec Superior Court will then fix a fair
value for the Canadian National common shares of all dissenting shareholders.
The final order of the Quebec Superior Court will be rendered against Canadian
National in favor of each dissenting shareholder and for the amount of the fair
value of the holder's Canadian National common shares as fixed by the Quebec
Superior Court. The Quebec Superior Court may, in its discretion, allow a
reasonable rate of interest on the amount payable to each dissenting
shareholder from the arrangement effective date until the date of payment. An
application by either Canadian National or a dissenting shareholder must made
to the Quebec Superior Court (or any other court having jurisdiction under
section 190 of the Canada Business Corporations Act).
I-74
<PAGE>
Chapter One - The Combination
The foregoing is only a summary of the dissent procedures under the Canada
Business Corporations Act, as modified by the interim order, and under the plan
of arrangement, which are technical and complex. A complete copy of section 190
of the Canada Business Corporations Act and the interim order is attached to
this document as Annex J and Annex I. It is recommended that any Canadian
National common shareholder wishing to avail himself, herself or itself of
dissent rights under the dissent procedures of the Canada Business Corporations
Act seek legal advice as failure to comply strictly with the provisions of the
Canada Business Corporations Act, the interim order and the plan of arrangement
may prejudice the right of dissent. For a general summary of material income
tax implications to a dissenting shareholder, see "Material Tax Consequences of
the Combination".
See also "Chapter Three--Comparison of Shareholder Rights and Description
of Capital Stock".
Securities Law Matters
United States
The Canadian National voting shares, Canadian National exchangeable
shares, trust interests and North American Railways common stock to be issued
to Canadian National shareholders at the completion of the combination will not
be registered under the U.S. Securities Act of 1933 and, instead, will be
issued in reliance upon the exemption from registration available pursuant to
Section 3(a)(10) of the U.S. Securities Act of 1933. Section 3(a)(10) of the
U.S. Securities Act of 1933 exempts securities issued in exchange for one or
more outstanding securities from the general requirement of registration where
the terms and conditions of the issuance and exchange of such securities have
been approved by any court of competent jurisdiction, after a hearing upon the
fairness of the terms and conditions of the issuance and exchange at which all
persons to whom such securities will be issued have the right to appear. The
Quebec Superior Court reviewing the arrangement is authorized to conduct a
hearing to determine the fairness of the terms and conditions of the
arrangement, including the proposed issuance of securities to holders of
Canadian National common shares. Subject to the approval of the arrangement by
the Canadian National shareholders and Canadian National optionholders (except
for Burlington Northern Santa Fe), the Quebec Superior Court will hold a
hearing on the fairness of the arrangement. Assuming the Quebec Superior Court
concludes that the arrangement is fair to Canadian National shareholders and
issues an order approving the arrangement, the exemption from registration
provided by Section 3(a)(10) of the U.S. Securities Act of 1933 will be
available.
The stapled securities consisting of Canadian National voting shares and
Canadian National exchangeable shares, including the interest in a trust
entitling the holder to voting rights at North American Railways, and the
stapled securities consisting of Canadian National voting shares and North
American Railways common stock will be freely transferable under U.S. federal
securities laws, except that resales of any stapled securities that are
received by persons who are deemed to be "affiliates" (as defined under the
U.S. Securities Act of 1933) of Canadian National or Burlington Northern Santa
Fe prior to the combination may be resold by them only in transactions
permitted by the resale provisions of Rule 145(d) under the U.S. Securities Act
of 1933 or as otherwise permitted under the U.S. Securities Act of 1933.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or are under common
control with, an issuer and may include certain officers and directors of an
issuer as well as principal shareholders of an issuer. Prior to completing the
combination, Canadian National, Burlington Northern Santa Fe and North American
Railways will use their reasonable best efforts to enter into agreements with
each affiliate of Canadian National, Burlington Northern Santa Fe and North
American Railways pursuant to which each such affiliate will agree to comply
with the requirements of Rule 145.
North American Railways has agreed that the issuance of North American
Railways common stock from time to time in exchange for the Canadian National
exchangeable shares will be registered under the U.S. Securities Act of 1933
prior to the completion of the combination.
I-75
<PAGE>
Chapter One - The Combination
Canada
North American Railways and Canadian National have applied for and expect
to receive rulings or orders of certain provincial securities regulatory
authorities in Canada to permit (1) the issuance to Canadian National
shareholders, at the election of Canadian National shareholders, of stapled
securities consisting of either Canadian National voting shares and Canadian
National exchangeable shares (including the ancillary rights) or Canadian
National voting shares and North American Railways common stock and (2) the
resale of (a) the stapled securities consisting of Canadian National voting
shares and North American Railways common stock and (b) the stapled securities
consisting of Canadian National voting shares and Canadian National
exchangeable shares, in such provinces without restriction, provided that no
unusual effort is made to prepare the market for any such resale or to create a
demand for the securities which are the subject of any such resale and no
extraordinary commission or consideration is paid in respect thereof.
I-76
<PAGE>
Chapter One - The Combination
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Canadian National common shares are listed on the New York Stock Exchange
under the symbol "CNI" and on The Toronto Stock Exchange under the symbol
"CNR". Burlington Northern Santa Fe common stock is listed on the New York
Stock Exchange under the symbol "BNI". Burlington Northern Santa Fe common
stock is also listed on The Chicago Stock Exchange and the Pacific Exchange.
The following table shows, for the periods indicated, the high and low of
the last reported sales prices per share for Canadian National common shares
and Burlington Northern Santa Fe common stock on the New York Stock Exchange,
as reported by The Wall Street Journal, and the dividends per share. All prices
and dividends per share amounts have been adjusted as appropriate for Canadian
National's two-for-one stock split on September 27, 1999, and Burlington
Northern Santa Fe's three-for-one stock split on September 1, 1998.
<TABLE>
Burlington Northern Santa Fe
Canadian National Common Shares Common Stock
------------------------------------ -----------------------------------
High Low Dividend High Low Dividend
------ ------ -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter............$32.66 $22.66 $0.092 $35.56 $28.33 $ 0.100
Second Quarter........... 33.44 26.16 0.091 35.58 31.56 0.100
Third Quarter............ 29.06 21.22 0.087 35.48 27.38 0.120
Fourth Quarter........... 27.56 20.84 0.086 34.25 29.75 0.120
1999
First Quarter............$28.59 22.81 $ 0.099 $ 35.75 $32.25 0.120
Second Quarter........... 34.31 27.44 0.102 37.81 30.25 0.120
Third Quarter............ 36.50 28.00 0.102 33.25 26.50 0.120
Fourth Quarter........... 33.75 25.69 0.101 31.88 23.13 0.120
2000
First Quarter (through $ $ $0.121* $ $ $ 0.120
</TABLE>
_______ __, 2000)........
- -------------------
* Canadian National has declared a dividend of Cdn$0.175 for the first
quarter of 2000 ($0.121 based on the closing rate of the Bank of Canada at
December 31, 1999).
On December 17, 1999, the last full trading day prior to the announcement
of the combination, Canadian National closed at $29.75 and Burlington Northern
Santa Fe closed at $28.375, in each case on the New York Stock Exchange. On
__________, 2000, the last full trading date prior to the printing of this
document, Canadian National closed at $___ and Burlington Northern Santa Fe
closed at $___, in each case on the New York Stock Exchange. We urge you to
obtain current market quotations prior to making any decision with respect to
the combination.
The New York Stock Exchange has conditionally approved the listing of the
stapled securities consisting of North American Railways common stock and
Canadian National voting shares, subject to official notice of issuance and
approval of the combination by the shareholders of Canadian National and
Burlington Northern Santa Fe. We expect that the stapled security consisting of
North American Railways common stock and Canadian National voting shares will
be listed on the New York Stock Exchange, The Chicago Stock Exchange and the
Pacific Exchange under the ticker symbol "____". The Toronto Stock Exchange has
conditionally approved the listing of the stapled security consisting of North
American Railways common stock and Canadian National voting shares under the
ticker symbol "NAR", subject to the requirements of that exchange. The Toronto
Stock Exchange has also conditionally approved the listing of the stapled
security consisting of Canadian National exchangeable shares and Canadian
National voting shares under the ticker symbol "CNR", subject to the
requirements of that exchange. In each case, The Toronto Stock Exchange has
reserved the right to review any material change to the terms of the
combination and to amend or revoke its conditional listing approval.
I-77
<PAGE>
Chapter One - The Combination
We expect no changes in Burlington Northern Santa Fe's dividend policies
before the combination is completed. Canadian National's board of directors has
approved an increase of its annual dividend to Canadian $0.70 per share in
2000. As a result, Burlington Northern Santa Fe and Canadian National dividends
are substantially identical. Canadian National and Burlington Northern Santa Fe
have agreed to coordinate dividend payments prior to the completion of the
combination to ensure fair treatment of both companies' shareholders. We expect
that North American Railways and, with respect to its exchangeable shares,
Canadian National will pay quarterly dividends after the combination. The
ability of Burlington Northern Santa Fe, Canadian National and North American
Railways to pay dividends in the future will depend on business conditions, the
combined companies' financial condition and earnings and other factors. After
the combination, however, in all cases the shareholders of the combined
companies will receive equivalent dividends regardless of which stapled
securities they hold.
I-78
<PAGE>
Chapter One - The Combination
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 18, 1999, Canadian National and Burlington Northern Santa Fe
entered into a combination agreement. To comply with Canadian legal
requirements that, among other things, prohibit any person and that person's
associates from holding more than 15% of the voting rights in Canadian
National, while ensuring that the combination will be tax-efficient for each
company's shareholders, the combined enterprise will consist of two public
companies: North American Railways and Canadian National. Upon completion of
the combination, North American Railways will be the parent company of
Burlington Northern Santa Fe and will own all of the limited voting equity
shares of Canadian National. All shareholders will have voting interests in
both North American Railways and Canadian National and economic interests in
the combined companies.
In the combination, Burlington Northern Santa Fe shareholders will receive
one share of North American Railways common stock and one Canadian National
voting share for each Burlington Northern Santa Fe share. In the combination,
Canadian National shareholders will receive, for each Canadian National common
share, 1.05 Canadian National voting shares and either 1.05 Canadian National
exchangeable shares or 1.05 shares of North American Railways common stock. The
Canadian National exchangeable shares will be exchangeable at any time on a
one-for-one basis for shares of North American Railways common stock. Canadian
National shareholders who elect to receive the Canadian National exchangeable
shares will also receive the right to vote on matters submitted to North
American Railways shareholders in proportion to their economic interest in the
combined companies. Dividends paid on the North American Railways common stock
and the Canadian National exchangeable shares will be equivalent.
Each share of North American Railways common stock will be "stapled" to a
Canadian National voting share and will trade as a single security. Similarly,
each Canadian National exchangeable share will be "stapled" to a Canadian
National voting share and will trade as a single security. In addition,
Canadian National will issue to North American Railways limited voting equity
shares carrying 10.1% of the voting rights in Canadian National and 100% of
Canadian National's equity. The result of these arrangements will be that, at
all times, each company will have the same public shareholder base with each
public shareholder effectively having the same economic benefits and voting
rights on a per security basis.
The combination is subject to, among other things, approval by the
shareholders of both companies, as well as approvals by the Quebec Superior
Court and the U.S. Surface Transportation Board. See "The Combination-
Regulatory Review and Approval".
The unaudited pro forma condensed combined financial statements included
in this document have been prepared in accordance with U.S. GAAP to reflect the
formation of North American Railways, the one-for-one exchange of Burlington
Northern Santa Fe common stock for North American Railways common stock and the
exchange of 1.05 shares of North American Railways common stock and 1.05
Canadian National voting shares for each Canadian National common share
(including the shares of North American Railways common stock issuable to
holders of the Canadian National exchangeable shares upon the exchange of those
shares for North American Railways common stock). North American Railways will
account for the combination using the purchase method of accounting in
accordance with Opinion No. 16, "Business Combinations" of the Accounting
Principles Board of the American Institute of Certified Public Accountants.
Under this method, North American Railways will prepare its financial
statements reflecting the assets and liabilities of Burlington Northern Santa
Fe at their historical cost basis and the fair value of the North American
Railways common stock issued or issuable to the Canadian National shareholders
will be allocated to the assets and liabilities of Canadian National based on
their relative fair value. The accompanying unaudited pro forma condensed
combined statement of operations for the year ended December 31, 1999 reflects
the combination of Canadian National and Burlington Northern Santa Fe as if it
occurred on January 1, 1999. The accompanying unaudited pro forma condensed
combined balance sheet at December 31, 1999 reflects the combination of
Canadian National and Burlington Northern Santa Fe as if it occurred on
December 31, 1999.
The accompanying unaudited pro forma condensed combined financial
statements are prepared for illustrative purposes only and are not necessarily
indicative of the financial position or results of operations that might have
I-79
<PAGE>
Chapter One - The Combination
occurred had the applicable transactions actually taken place on the dates
indicated, or of future results of operations or financial position of the
combined companies. The pro forma adjustments do not reflect any potential
revenue or cost synergies or one-time costs to achieve such synergies which may
arise from the combination. These unaudited pro forma condensed combined
financial statements do not reflect adjustments to conform accounting policies
of Canadian National and Burlington Northern Santa Fe. Based on a preliminary
assessment, the U.S. GAAP accounting policies of the two companies do not
materially differ.
The unaudited pro forma condensed combined financial statements are based
on the historical consolidated financial statements of Canadian National and
Burlington Northern Santa Fe and should be read in conjunction with (1) those
historical financial statements and the related notes, which are incorporated
by reference, (2) the selected historical consolidated financial data,
including the related notes, appearing elsewhere in this document, (3) the
selected unaudited pro forma combined financial data appearing elsewhere in
this document and (4) the unaudited comparative per share data appearing
elsewhere in this document.
<TABLE>
Pro Forma Condensed Combined Balance Sheet
As at December 31, 1999
Unaudited
(Dollars in Millions)
North
American
Burlington Railways
Canadian Canadian Northern Pro Forma Pro Forma
National National(a) Santa Fe Adjustments Combined
------------ -----------) ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets...................... Cdn$ 1,515 $ 1,050 $ 1,066 $ -- $ 2,116
Property and equipment, net......... 14,620 10,130 21,681 1,632(1,2) 33,443
Other assets........................ 295 204 953 621(1,3) 1,778
----------- ------- ------- ------- ------
Total assets........................ Cdn$ 16,430 $11,384 $23,700 $ 2,253 $37,337
=========== ======= ======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities................. Cdn$ 1,764 $ 1,222 $ 2,075 $ 81 (1,4) $ 3,378
Long-term debt and commercial paper. 3,948 2,736 5,655 (93)(1,5) 8,298
Convertible preferred securities.... 334 231 -- (37)(1,5) 194
Deferred income taxes............... 2,975 2,061 6,097 1,042 (1,6) 9,200
Other liabilities................... 1,287 892 1,701 4 (1,7) 2,597
----------- ------- ------- ------- -------
Total liabilities................... 10,308 7,142 15,528 997 23,667
Shareholders' equity................ 6,122 4,242 8,172 1,256(8,9) 13,670
----------- ------- ------- ------- -------
Total liabilities and shareholders'
equity........................... Cdn$ 16,430 $11,384 $23,700 $ 2,253 $37,337
=========== ======= ======= ======= =======
- -------------------
(a) Canadian National's reporting currency is the Canadian dollar. For the
unaudited pro forma condensed combined balance sheet, the Canadian dollar
amounts have been translated into U.S. dollars at a rate of $0.6929 per
Canadian dollar, which was the closing rate of the Bank of Canada at
December 31, 1999.
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
</TABLE>
I-80
<PAGE>
Chapter One - The Combination
<TABLE>
Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1999
Unaudited
(Dollars in Millions, Except Per Share Data)
North
American
Burlington Railways
Canadian Canadian Northern Pro Forma Pro Forma
National National(a) Santa Fe Adjustments Combined
------------ -----------) ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.............................. Cdn$ 5,236 $ 3,524 $ 9,100 $ -- $ 12,624
Operating expenses, excluding
depreciation and amortization...... 3,279 2,207 5,998 -- 8,205
Depreciation and amortization......... 490 330 897 25(2) 1,252
----------- -------- -------- -------- --------
Total operating expenses.............. 3,769 2,537 6,895 25 9,457
----------- -------- -------- -------- --------
Operating income...................... 1,467 987 2,205 (25) 3,167
Interest expense...................... 314 211 387 (8)(5) 590
Other income, net..................... 55 37 1 -- 38
----------- -------- -------- -------- --------
Income before income taxes from
continuing operations.............. 1,208 813 1,819 (17) 2,615
Income tax expense (recovery)......... 462 311 682 (8)(10) 985
----------- -------- -------- -------- --------
Income from continuing operations..... Cdn$ 746 $ 502 $ 1,137 $ (9) $ 1,630
=========== ======== ======== ======== ========
Earnings per share (11):
Basic:
Income from continuing
operations...................... Cdn$ 3.78 $ 2.54 $ 2.46 $ 2.43
Diluted:
Income from continuing
operations...................... Cdn$ 3.71 $ 2.50 $ 2.44 $ 2.40
Average shares (in millions):
Basic.............................. 197.3 197.3 463.2 670.4
Diluted............................ 202.5 202.5 466.8 679.4
- -------------------
(a) Canadian National's reporting currency is the Canadian dollar. For the
unaudited pro forma condensed combined statement of operations, the
Canadian dollar amounts have been translated into U.S. dollars at an
average rate of $0.6730 per Canadian dollar, which was the average of the
Bank of Canada rates for the year ended December 31, 1999.
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
</TABLE>
I-81
<PAGE>
Chapter One - The Combination
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1: Pro forma purchase price allocation
The unaudited pro forma condensed combined financial statements have been
prepared based on the value for North American Railways common stock to be
issued to Canadian National shareholders pursuant to the combination agreement
dated December 18, 1999 (including the shares issuable to holders of the
Canadian National exchangeable shares upon the exchange of those shares for
North American Railways common stock) of $5,446 million (calculated as shown in
the table below). The fair value was based on Burlington Northern Santa Fe
common stock ($25.63 per share) determined using the average of the closing
daily Burlington Northern Santa Fe common stock price as reported by The Wall
Street Journal for the two trading days preceding, the day of, and the two
trading days following, the December 20, 1999 announcement of the combination.
The following summarizes the pro forma purchase price (dollars and shares in
millions, except per share data) :
<TABLE>
<S> <C>
Shares of Canadian National common stock outstanding at December 31, 1999........................... 202.4
Exchange ratio...................................................................................... 1.05
------
Shares of North American Railways common stock to be issued (a)..................................... 212.5
Per share value of Burlington Northern Santa Fe common stock........................................ $25.63
------
Total value of North American Railways common stock to be issued ................................... $5,446
North American Railways stock options to be issued in exchange for Canadian National stock
options........................................................................................ 52
Estimated Burlington Northern Santa Fe investment banking, legal and other transaction costs........ 50
------
Pro forma purchase price............................................................................ $5,548
======
</TABLE>
- -------------------
(a) Including shares issuable to holders of Canadian National exchangeable
shares upon the exchange of those shares for North American Railways
common stock.
North American Railways will account for the combination using the purchase
method of accounting in accordance with Opinion No. 16, "Business Combinations"
of the Accounting Principles Board of the American Institute of Certified
Public Accountants. Under this method, North American Railways will prepare its
financial statements reflecting the assets and liabilities of Burlington
Northern Santa Fe at their historical cost basis and the fair value of the
North American Railways common stock issued or issuable to the Canadian
National shareholders will be allocated to the assets and liabilities of
Canadian National based on their relative fair value. Purchase accounting
adjustment amounts included in these unaudited pro forma condensed combined
financial statements may be revised as additional information becomes
available. Since the purchase price allocation will be made when the
combination is completed, and Canadian National's shareholders' equity balance
at that time will likely be different from that at December 31, 1999, the
purchase price allocation and the related amortization of fair value
adjustments may be different from the amounts included in these unaudited pro
forma condensed combined financial statements. If the final allocation differs
from that included in these pro forma financial statements, Canadian National
and Burlington Northern Santa Fe do not believe the pro forma results of
operations will be materially affected because the majority of the purchase
price will be allocated to long-lived assets and land.
I-82
<PAGE>
Chapter One - The Combination
The pro forma purchase price has been allocated as shown in the table below (in
millions):
<TABLE>
<S> <C>
Net assets of Canadian National at December 31, 1999................................................ $ 4,242
Estimated Canadian National investment banking, legal and other transaction costs, net of tax (9)... (14)
--------
Adjusted net assets of Canadian National............................................................ 4,228
Increase (decrease) to Canadian National's net asset value at December 31, 1999
as a result of estimated fair value adjustments:
Property and equipment, net (2)........................................................... 1,632
Other assets (3).......................................................................... 621
Other liabilities (7)..................................................................... (4)
Long-term debt (including current portion) (4, 5)......................................... 88
Convertible preferred securities (5)...................................................... 37
Deferred income taxes (6)................................................................. (1,054)
--------
Pro forma purchase price............................................................. $ 5,548
========
</TABLE>
The accompanying unaudited pro forma condensed combined financial statements
are prepared for illustrative purposes only and are not necessarily indicative
of the financial position or results of operations that might have occurred had
the applicable transactions actually taken place on the dates indicated, or of
future results of operations or financial position of the combined companies.
The pro forma adjustments do not reflect any potential revenue or cost
synergies or one-time costs to achieve such synergies which may arise from the
combination. The effect of any such one time costs would generally be an
adjustment to the purchase price allocation for Canadian National. For
Burlington Northern Santa Fe, such one time costs would be recognized in the
combined company's statement of operations.
Canadian National's primary reporting to its shareholders is under Canadian
GAAP in Canadian dollars. In addition, Canadian National furnishes U.S. GAAP
financial statements in Canadian dollars. For purposes of these pro forma
condensed combined financial statements, Canadian National's U.S. GAAP
financial information is presented in U.S. dollars to be consistent with the
U.S. dollar reporting of Burlington Northern Santa Fe. Following the
combination, Canadian National will continue to prepare its financial
statements on Canadian National's historical cost basis.
Note 2: Property and equipment, net
Canadian National's net property and equipment has been adjusted based on its
estimated fair value resulting in an increase in property and equipment, net of
$1,632 million at December 31, 1999. A significant portion of the estimated
fair value has been allocated to railroad track structures and land.
Depreciable assets will be depreciated over an assumed estimated weighted
average remaining life of approximately 30 years. Depreciation expense of $25
million for the year ended December 31, 1999, related to the increase in fair
value has been included in the unaudited pro forma condensed combined
statements of operations.
Note 3: Other assets
Canadian National's recorded pension asset has been adjusted to reflect the net
fair value of the pension fund assets and the related pension benefit
obligation using a 7.0% discount rate at December 31, 1999 resulting in an
increase in other assets of $646 million. A 0.25% change in the discount rate
used to measure the pension benefit obligation would result in a change in the
fair value of approximately $75 million. In addition, other assets include an
increase of $14 million to reflect the estimated fair value of other
investments and the elimination of $39 million for deferred debt issue costs of
Canadian National.
I-83
<PAGE>
Chapter One - The Combination
Note 4: Current liabilities
The increase in current liabilities of $81 million as at December 31, 1999
reflects the estimated investment banking, legal and other transaction costs of
Burlington Northern Santa Fe of $50 million and $26 million for Canadian
National (see Note 9) and an increase of $5 million in the current portion of
long-term debt (see note 5).
Note 5: Long-term debt and convertible preferred securities
Canadian National's long-term debt, excluding capital lease obligations, has
been decreased by $112 million to its estimated fair value as of December 31,
1999, based on interest rates as of that date. This adjustment will be
amortized over the average remaining life of the related debt resulting in an
increase to interest expense of $5 million for the year ended December 31,
1999. Canadian National's capital lease obligations have been increased by $24
million to their estimated fair value as of December 31, 1999, based on
interest rates as of that date. This adjustment will be amortized over the
average remaining life of the capital lease obligations resulting in a decrease
to interest expense of $11 million for the year ended December 31, 1999. The
total fair value adjustment for long-term debt and capital lease obligations
includes an increase of $5 million related to current amounts which has been
included as an adjustment to current liabilities (see note 4).
In addition, Canadian National's convertible preferred securities have been
decreased by $37 million based on their fair value at December 31, 1999. This
adjustment will be amortized over the average remaining life of the securities
resulting in an increase to interest expense of $1 million for the year ended
December 31, 1999.
The total impact of the above adjustments was to decrease interest expense by
$5 million and has been included in the unaudited pro forma condensed combined
statement of operations. In addition, the amortization of deferred debt issue
costs of $3 million recorded by Canadian National for the year ended December
31, 1999 has been eliminated in the unaudited pro forma statement of
operations.
Note 6: Deferred income taxes
There will be no adjustments to the tax value of Canadian National's assets and
liabilities as a result of the combination. Accordingly, deferred income taxes
of $1,054 million at December 31, 1999 have been reflected for temporary
differences caused by book and tax differences after the allocation of the pro
forma purchase price based on Canadian National's statutory income tax rate of
44.4%. In addition, the deferred tax adjustment includes a deferred tax
recovery of $12 million related to Canadian National's estimated investment
banking, legal and other transaction costs.
Note 7: Other liabilities
Other liabilities were increased by $4 million at December 31, 1999 reflecting
an adjustment in Canadian National's liability for other post-retirement
benefits to the estimated fair value.
Note 8: Shareholders' equity
Canadian National shareholders' equity balance of $4,242 million has been
eliminated in the pro forma adjustments. Shareholders' equity has been
increased by $5,446 million for the fair value of North American Railways
shares to be issued or exchangeable for Canadian National shares and by $52
million for the intrinsic value of replacement stock options on North American
Railways common stock and Canadian National voting shares to be issued in
exchange for Canadian National's outstanding stock options.
Note 9: Costs of the combination
Estimated investment banking, legal and other transaction costs of $50 million
to be incurred by Burlington Northern Santa Fe have been included in the pro
forma purchase price. Canadian National's future estimated investment banking,
legal and other transaction costs of $26 million, $14 million after tax,
related to the
I-84
<PAGE>
Chapter One - The Combination
combination have been reflected as a reduction of equity in the unaudited pro
forma condensed combined balance sheet. These costs will be charged to the
results of operations of Canadian National when incurred. In 1999, Canadian
National has charged to operations $14 million, $8 million after tax, in
transaction costs.
Note 10: Income tax expense
Income tax expense reflects the effect of pro forma adjustments at Canadian
National's statutory income tax rate of 44.4%.
Note 11: Earnings per share
The pro forma weighted average shares outstanding represent the sum of the
Burlington Northern Santa Fe weighted average common shares outstanding plus
Canadian National's weighted average shares adjusted for the exchange ratio of
1.05 shares of North American Railways common stock and 1.05 Canadian National
voting shares for each Canadian National common share (including the North
American Railways shares issuable to holders of the Canadian National
exchangeable shares upon the exchange of those shares for North American
Railways common stock).
I-85
<PAGE>
Chapter One - The Combination
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
In considering the recommendation of the boards of directors of Canadian
National and Burlington Northern Santa Fe with respect to the combination,
shareholders should be aware that certain members of the management and boards
of directors of Canadian National and Burlington Northern Santa Fe have
interests in the combination that may be different from, or in addition to, the
interests of the other shareholders of Canadian National and Burlington
Northern Santa Fe generally, and that could represent conflicts of interest.
Boards of Directors and Management
Boards of Directors
After the combination is completed, the boards of directors of North
American Railways and Canadian National will be identical and will consist of
15 members, including initially six members drawn from each of the current
Canadian National and Burlington Northern Santa Fe boards of directors and
three new appointees as follows:
o From the current Canadian National board of directors: Purdy Crawford,
J.V. Raymond Cyr, The Honorable Edward C. Lumley, David G.A. McLean,
Robert Pace and Paul M. Tellier;
o From the current Burlington Northern Santa Fe board of directors: John
J. Burns, Jr., Robert D. Krebs, Roy S. Roberts, J. Steven Whisler,
Edward E. Whitacre, Jr., and Michael B. Yanney;
o The three new appointees: Laurent Beaudoin, C.C., FCA, Chairman,
Bombardier Inc.; Steven A. Burd, Chairman, President and Chief
Executive Officer, Safeway Inc.; and Jean C. Monty, President and
Chief Executive Officer, BCE Inc.
Laurent Beaudoin, age 62, has been Chairman of the board of directors and
of the executive committee of Bombardier Inc. since February 1, 1999. From June
18, 1996 to February 1, 1999, Mr. Beaudoin served as President, Chairman and
Chief Executive Officer of Bombardier Inc. and, prior thereto, as Chairman and
Chief Executive Officer since April 1978.
Steven A. Burd, age 50, has been a member of the board of directors of
Safeway, Inc. since September 7, 1993 and has served as Chairman of the board
of directors of Safeway, Inc. since May 12, 1998. He has been Chief Executive
Officer of Safeway, Inc. since April 30, 1993 and President of Safeway, Inc.
since October 26, 1992.
Jean C. Monty, age 53, has served as President and Chief Executive Officer
of BCE Inc. since May 6, 1998. From October 1, 1997 to May 6, 1998, Mr. Monty
served as President and Chief Operating Officer of BCE Inc. Mr. Monty also
serves as Chairman and Chief Executive Officer of Bell Canada, Chairman of the
Board of BCE Media and is a member of the boards of directors of Nortel
Networks Corporation, Teleglobe Inc. and Bombardier Inc.
Management
Upon completion of the combination, Robert D. Krebs, Chairman and Chief
Executive Officer of Burlington Northern Santa Fe, will become Chairman of
North American Railways and Canadian National; Paul M. Tellier, President and
Chief Executive Officer of Canadian National, will become Chief Executive
Officer of North American Railways and Canadian National; E. Hunter Harrison,
Executive Vice-President and Chief Operating Officer of Canadian National, will
become Chief Operating Officer of North American Railways and Canadian
National; and Thomas N. Hund, Senior Vice President and Chief Financial Officer
of Burlington Northern Santa Fe, will become Chief Financial Officer of North
American Railways and Canadian National. In addition, Matthew K. Rose,
President and Chief Operating Officer of Burlington Northern Santa Fe, will
become President and Chief Executive Officer of Burlington Northern Santa Fe,
which will be a wholly owned subsidiary of North American Railways after the
combination is completed.
I-86
<PAGE>
Chapter One - The Combination
Stock Ownership
As of _____________, 2000, Canadian National's directors and executive
officers beneficially owned less than 1% of Canadian National's outstanding
common shares and Burlington Northern Santa Fe's directors and executive
officers beneficially owned less than 1% of Burlington Northern Santa Fe's
outstanding common stock.
Relationship with Financial Advisors
Alexander P. Lynch, a director of Canadian National, is a general partner
of The Beacon Group, L.L.C. The Honorable Edward C. Lumley, a director of
Canadian National, is Vice Chairman of Nesbitt Burns Inc. The Beacon Group and
Nesbitt Burns Inc. acted as financial advisors to Canadian National in
connection with the combination and will be compensated for those services.
Michael R. Armellino, a director of Canadian National, is a retired partner of
Goldman Sachs, which acted as financial advisor to Burlington Northern Santa Fe
in connection with the combination. Messrs. Armellino, Lynch and Lumley
abstained from the vote of the Canadian National board of directors on the
combination.
Retention and Severance Matters
Burlington Northern Santa Fe
Current executive severance agreements
Shareholder approval of the combination agreement will constitute a change
in control under Burlington Northern Santa Fe's executive severance agreements.
As a result, the minimum term of the executive severance agreements will be
extended to one year after the combination is completed. In addition, upon a
qualifying termination of employment coincident with or following a change in
control, an executive (other than Robert D. Krebs) would receive benefits equal
to three times (one time for certain officers) base salary and target bonus
plus a tax make-whole payment (limited to the extent that its value, when
aggregated with other benefits or payments would result in an excise tax under
Section 4999 of the U.S. Internal Revenue Code), life, disability and health
benefits for a period of up to thirty-six months, vesting of all time-based
restricted stock (but not performance-based restricted stock), vesting of stock
options (see "--Stock Options and Restricted Stock Awards" below), outplacement
and legal fees and expenses relating to claims under the severance agreement.
Benefits under the severance agreements are limited if the total benefits
provided would result in an excise tax under Section 4999 of the U.S. Internal
Revenue Code (relating to golden parachute payments) except where the total of
the benefits exceeds 120% of three times the "base amount" (as defined in
Section 280G of the U.S. Internal Revenue Code), in which case the benefits
will be paid in full with all accompanying excise taxes due. If payments under
the individual severance agreements are triggered following a change in
control, the estimated amounts (excluding any value of the stock options and
restricted stock awards described below), based on current compensation levels,
payable to four of Burlington Northern Santa Fe's five most highly compensated
executive officers under their respective agreements would be as follows:
Charles L. Schultz, $3,793,546, Jeffrey R. Moreland, $3,307,397, and Thomas N.
Hund, $3,500,105. The estimated amount (excluding any value of the stock
options and restricted stock awards described below) for Robert D. Krebs, whose
agreement provides only for vesting of all time-based restricted stock but not
performance-based restricted stock, vesting of stock options and payment of any
remaining obligations under the Burlington Northern Santa Fe estate enhancement
program (relating to life insurance) would be $108,333.
Prior executive severance agreements
Certain officers, including Matthew K. Rose, retain benefits under a prior
executive severance agreement form. These agreements provide benefits similar
to those provided under the agreements discussed above except that the bonus
would be paid at maximum level, certain additional pension benefits are
provided, and a tax make-whole payment is not provided. If payment is made to
Matthew K. Rose, one of Burlington Northern Santa Fe's five most highly
compensated officers, under the terms of his individual executive severance
agreement, the estimated amount (excluding any value of the stock options and
restricted stock awards described below) based upon his current compensation
level would be $4,656,598.
I-87
<PAGE>
Chapter One - The Combination
Stock options and restricted stock awards
Under Burlington Northern Santa Fe's current and prior executive severance
agreements, consummation of the combination will accelerate, irrespective of
termination of employment, the vesting of, or lapse of restrictions and
restricted periods applicable to, specific grants of stock options outstanding
and restricted stock awards (other than performance-based awards and some
retention awards), to the extent not previously vested. Consummation of the
combination will also accelerate the vesting of or lapse of restrictions and
restricted periods applicable to specific grants of stock options or restricted
stock (other than performance-based awards and some retention awards) under
Burlington Northern Santa Fe's employee retention program.
If the combination were completed as of July 1, 2001, the number of
outstanding stock options and shares of restricted stock for which acceleration
would occur for the five most highly compensated executive officers of
Burlington Northern Santa Fe would be as follows: (1) for stock options, Mr.
Krebs, 33,000 shares; Mr. Rose, 33,334 shares; Mr. Schultz, 25,000 shares; Mr.
Moreland, zero shares; and Mr. Hund, 25,000 shares; and (2) for restricted
stock, Mr. Krebs, 58,401 shares; Mr. Rose, 27,136 shares; Mr. Schultz, 5,090
shares; Mr. Moreland, 10,679 shares; and Mr. Hund, 24,984 shares. The number of
outstanding stock options and shares of restricted stock for which acceleration
would occur may be higher for each of Burlington Northern Santa Fe's five most
highly compensated executive officers in the event shareholder approval is
received and a qualifying termination of employment occurs prior to completion
of the combination.
Canadian National
At its meeting held on January 25, 2000, Canadian National's board of
directors approved the elements of a retention plan consisting of employment
security agreements for executive officers and incentive compensation
arrangements for certain members of senior management. As of the date of this
document, no specific arrangements have been implemented. It is expected that
formal employment security agreements between Canadian National and executive
officers will be executed in the near future and before the annual and special
meeting.
Pursuant to the provisions of Canadian National's management long-term
incentive plan, shareholder approval of the combination will accelerate the
vesting of all outstanding stock options granted prior to the announcement of
the combination (other than performance-based options), to the extent not
previously vested. If the securityholders approve the combination at the annual
and special meeting, the number of outstanding stock options for which
acceleration of vesting would occur for the five most highly compensated
executive officers of Canadian National would be as follows: Paul M. Tellier,
55,167 shares; E. Hunter Harrison, 30,000 shares; Jack T. McBain, 15,167
shares; Keith L. Heller, 13,917 shares; and Torrance Wylie, zero shares.
Pursuant to the provisions of Canadian National's senior executive bonus
share rights plan, shareholder approval of the combination will accelerate the
vesting of all outstanding rights granted prior to the announcement of the
combination, to the extent not previously vested. If the securityholders
approve the combination at the annual and special meeting, the number of
outstanding rights for which acceleration of vesting would occur for the five
most highly compensated executive officers of Canadian National would be as
follows: Paul M. Tellier, 30,000 rights; E. Hunter Harrison, zero rights; Jack
T. McBain, 10,560 rights; Keith L. Heller, 10,560 rights; and Torrance Wylie,
zero rights. Subject to the attainment of performance targets, the above rights
would have vested in the first quarter of 2001.
Burlington Northern Santa Fe's board of directors was aware of these
interests and considered them, among other matters, when approving the
combination.
Canadian National's board of directors was aware of these interests and
considered them, among other matters, when approving the combination.
I-88
<PAGE>
Chapter One - The Combination
THE COMPANIES
Canadian National Railway Company
Canadian National, directly and through its subsidiaries, is engaged
primarily in the rail transportation business. Canadian National spans Canada
and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico,
serving the Canadian ports of Vancouver, Prince Rupert, Montreal and Halifax
and Gulf of Mexico ports in New Orleans, Louisiana and Mobile, Alabama, and the
key cities of Vancouver, Edmonton, Calgary, Winnipeg, Montreal, Toronto,
Buffalo, Chicago, Detroit, Memphis, St. Louis and Jackson, Mississippi, with
connections to all points in North America. Canadian National's revenues are
derived from the movement of a diversified and balanced portfolio of goods
including petroleum and chemicals, grain and fertilizers, coal, metals and
minerals, forest products, intermodal - the hauling of freight, usually in
containers or truck trailers, through a combination of different modes of
transportation such as rail, truck or water carriers - and automotive.
Burlington Northern Santa Fe Corporation
Burlington Northern Santa Fe is engaged primarily in railroad
transportation through its principal operating subsidiary, The Burlington
Northern Santa Fe Railway Company, which operates one of the largest railway
networks in the United States. Burlington Northern Santa Fe's system covers 28
states in the western two-thirds of the United States and two Canadian
provinces. Burlington Northern Santa Fe serves all major ports in the western
United States and certain Gulf of Mexico ports and has Mexican and Canadian
gateways and important gateways to the eastern United States. Burlington
Northern Santa Fe derives a substantial portion of its revenues from intermodal
transportation - the hauling of freight, usually in containers or truck
trailers, through a combination of different modes of transportation such as
rail, truck or water carriers - and the transportation of coal and agricultural
commodities. Other significant aspects of Burlington Northern Santa Fe's
business include the transportation of chemicals, forest products, consumer
goods, metals, minerals and automobiles and automobile parts.
North American Railways, Inc.
North American Railways was incorporated in Delaware on December 17, 1999
for the purpose of effecting the combination. North American Railways is owned
equally by Canadian National and Burlington Northern Santa Fe and has not
engaged in any activity since its formation other than activities related to
the combination. Canadian National and Burlington Northern Santa Fe have agreed
not to permit North American Railways to engage in any activities other than
activities in connection with the combination. After the combination is
completed, Burlington Northern Santa Fe will be a wholly owned subsidiary of
North American Railways.
I-89
<PAGE>
Chapter One - The Combination
THE COMBINATION AGREEMENT
The following summary of the combination agreement is qualified by
reference to the complete text of the combination agreement, which is
incorporated by reference and attached as Annex A. We encourage you to read the
combination agreement because it is the legal document that governs the
combination.
Structure of the Combination
To comply with Canadian legal requirements while ensuring that the
transaction will be tax-efficient to each company's shareholders, the combined
enterprise will consist of two public companies as follows:
[GRAPHIC OMITTED]
I-90
<PAGE>
Chapter One - The Combination
Timing of Completion
We will complete the combination within two business days after the day on
which the last of the conditions set forth in the combination agreement has
been satisfied or waived, unless Canadian National and Burlington Northern
Santa Fe agree in writing to a different date.
Combination Consideration
The combination agreement provides that each Canadian National common
share outstanding immediately prior to the completion of the combination will,
at the completion of the combination, be converted into the right to receive
1.05 stapled securities, each stapled security consisting of one Canadian
National voting share and, at the shareholder's election, either one share of
North American Railways common stock or one Canadian National exchangeable
share (together with an associated interest in a trust entitling the holder to
voting rights at North American Railways and certain exchange rights described
below). The Canadian National exchangeable shares will be exchangeable at any
time on a one-for-one basis for shares of North American Railways common stock.
The combination agreement provides that each share of Burlington Northern
Santa Fe common stock outstanding immediately prior to the completion of the
combination will, at the completion of the merger of a subsidiary of North
American Railways with and into Burlington Northern Santa Fe, be converted on a
one-for-one basis into the right to receive one share of North American
Railways common stock. Any shares of Burlington Northern Santa Fe common stock
owned by Burlington Northern Santa Fe or any subsidiary of Burlington Northern
Santa Fe as treasury stock will be automatically canceled and cease to exist
without any payment for those shares. In addition, as part of the plan of
arrangement contemplated by the combination agreement, holders of Burlington
Northern Santa Fe common stock will receive one Canadian National voting share
for each share of North American Railways common stock that they are entitled
to receive under the merger. Holders of Burlington Northern Santa Fe common
stock will receive the North American Railways common stock and the Canadian
National voting shares in the form of stapled securities and the constituent
North American Railways common stock and Canadian National Voting shares will
not be independently traded or transferrable.
The combination agreement also provides that the 5.25% convertible
preferred securities due June 30, 2029 of Canadian National are convertible, at
the election of the holders of such securities, into stapled securities
consisting of Canadian National voting shares and Canadian National
exchangeable shares or into stapled securities consisting of Canadian National
voting shares and North American Railways common stock. In addition, effective
at the completion of the combination, North American Railways will be a
co-obligor, together with Canadian National, of the 5.25% convertible preferred
securities due June 30, 2029 of Canadian National.
Treatment of Stock Options; Other Stock-Based Awards
Canadian National
At the completion of the combination, each outstanding option granted by
Canadian National to purchase Canadian National common shares will be converted
into an option to acquire stapled securities consisting of Canadian National
voting shares and shares of North American Railways common stock having the
same terms and conditions as the Canadian National stock option so converted.
The number of stapled securities for which a converted Canadian National stock
option will be exercisable and the exercise price of a converted Canadian
National stock option will reflect the 1.05 exchange ratio in the combination.
All other terms, rights and privileges of the converted Canadian National stock
options will remain unaltered.
Each other stock-based award granted by Canadian National under its
employee or director plans or arrangements will be converted, at the completion
of the combination, into a similar stapled security stock-based award, adjusted
as appropriate to preserve the award's inherent value.
I-91
<PAGE>
Chapter One - The Combination
Burlington Northern Santa Fe
At the completion of the combination, each outstanding option granted by
Burlington Northern Santa Fe to purchase shares of Burlington Northern Santa Fe
common stock will be converted into an option to acquire stapled securities
consisting of Canadian National voting shares and North American Railways
common stock having the same terms and conditions as the Burlington Northern
Santa Fe stock option so converted. The exercise price of a converted
Burlington Northern Santa Fe stock option will remain the same and the holder
of a converted Burlington Northern Santa Fe stock option will be entitled to
receive a number of stapled securities equal to the number of shares of
Burlington Northern Santa Fe common stock such optionholder would have received
prior to the combination. All other terms, rights and privileges of the
converted Burlington Northern Santa Fe stock options will remain unaltered.
Each other stock-based award granted by Burlington Northern Santa Fe under
its employee or director plans or arrangements will be converted, at the
completion of the combination, into a similar stapled security stock-based
award, adjusted as appropriate to preserve the award's inherent value.
Exchange of Shares
Burlington Northern Santa Fe
Burlington Northern Santa Fe will appoint an exchange agent to handle the
exchange of Burlington Northern Santa Fe stock certificates in the combination
for stapled securities. Soon after the combination is completed, the exchange
agent will send to each holder of Burlington Northern Santa Fe common stock a
letter of transmittal for use in the exchange and instructions explaining how
to surrender Burlington Northern Santa Fe stock certificates to the exchange
agent. Holders of Burlington Northern Santa Fe common stock that surrender
their certificates to the exchange agent, together with a properly completed
letter of transmittal, will receive the appropriate number of stapled
securities. Holders of unexchanged shares of Burlington Northern Santa Fe
common stock will not be entitled to receive any dividends or other
distributions payable by North American Railways after the combination is
completed until they surrender their certificates. Amounts payable to a holder
of Burlington Northern Santa Fe common stock will be paid, without interest,
upon surrender of their stock certificates.
Canadian National
Canadian National will appoint a depositary to handle the exchange of
Canadian National common shares for stapled securities. Prior to the completion
of the combination, the depositary will send to each Canadian National
shareholder a letter of transmittal and election form for use in the exchange
and instructions explaining how to surrender Canadian National stock
certificates for stapled securities. Canadian National shareholders who are not
residents of Canada for Canadian tax purposes will receive stapled securities
consisting of Canadian National voting shares and North American Railways
common stock unless they specifically request to receive Canadian National
exchangeable shares instead of North American Railways common stock in their
letter of transmittal and election form. Shareholders who are residents of
Canada for Canadian tax purposes will receive stapled securities consisting of
Canadian National voting shares and Canadian National exchangeable shares
(together with an associated interest in a trust entitling the holder to voting
rights at North American Railways and certain exchange rights described below)
unless they specifically request North American Railways common stock instead
of the Canadian National exchangeable shares in their letter of transmittal and
election form.
For those Canadian National shareholders who elect or are deemed to elect
to receive stapled securities that include North American Railways common stock
rather than Canadian National exchangeable shares, the depositary will deliver
the Canadian National exchangeable shares to NAR Holdings Company, a wholly
owned subsidiary of North American Railways formed specifically for the purpose
of holding equity and voting interests in Canadian National, in exchange for
the North American Railways common stock to be included in the stapled
securities. Each Canadian National exchangeable share, upon transfer to NAR
Holdings Company in exchange for North American Railways common stock pursuant
to the arrangement, will automatically convert into one Canadian National
special limited voting share and one Canadian National non-voting equity share.
The Canadian National special limited
I-92
<PAGE>
Chapter One - The Combination
voting shares and Canadian National non-voting equity shares, together, will at
all times represent 100% of the common equity interests in Canadian National
and 10.1% of the total voting rights in Canadian National regardless of the
number of special limited voting shares and non-voting equity shares actually
issued to NAR Holdings Company.
Fractional Shares
Because shares of Burlington Northern Santa Fe common stock will be
converted into stapled securities on a one-for-one basis, holders of Burlington
Northern Santa Fe common stock can only receive rights to whole stapled
securities. No fractional shares will be issued to Canadian National
shareholders. See "Canadian National Transaction Mechanics--Fractional Shares"
for a discussion of the treatment of fractional shares.
Canadian National and North American Railways Boards of Directors after the
Combination is Completed
Canadian National and Burlington Northern Santa Fe have agreed to take the
necessary corporate action so that, as of the completion of the combination:
o each of the boards of directors of Canadian National and North
American Railways will have 15 members;
o each of the boards of directors of Canadian National and North
American Railways will be identical;
o six directors will be named by Canadian National, six by Burlington
Northern Santa Fe and three jointly:
o from Canadian National, Paul M. Tellier, Purdy Crawford, J.V.
Raymond Cyr, The Honorable Edward C. Lumley, David G.A. McLean
and Robert Pace will become directors;
o from Burlington Northern Santa Fe, Robert D. Krebs will become
Chairman of each board of directors; John J. Burns, Jr., Roy S.
Roberts, J. Steven Whisler, Edward E. Whitacre, Jr. and
Michael B. Yanney will become directors; and
o the jointly designated directors are Laurent Beaudoin, Steven A.
Burd and Jean C. Monty.
Under Canadian law, a majority of Canadian National's directors must be
Canadian residents. Following the combination, this requirement will
effectively apply to North American Railways as well. It is possible that this
Canadian legal requirement could become more or less restrictive in the future.
Significant Covenants
Each of Canadian National and Burlington Northern Santa Fe has undertaken
a number of covenants in the combination agreement. The following summarizes
the more significant of these covenants.
Non-Solicitation
Each party has agreed that neither it nor any of its subsidiaries nor any
of the officers and directors of it or its subsidiaries shall, and that it
shall direct and use its best efforts to cause its and its subsidiaries'
employees, agents and representatives (including any investment banker,
attorney or accountant retained by it or any of its subsidiaries) not to,
directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to an
alternative proposal (as defined below). Each of the parties has further agreed
that neither it nor any of its subsidiaries nor any of the officers and
directors of it or any of its subsidiaries shall, and that it shall direct and
use its best efforts to cause its representatives not to, directly or
indirectly, have any discussion with or provide any confidential information or
data relating to or in contemplation of an alternative proposal or engage in
any negotiations or discussions concerning an alternative proposal, or
otherwise facilitate any
I-93
<PAGE>
Chapter One - The Combination
effort or attempt to make or implement an alternative proposal; provided,
however, that nothing contained in the combination agreement shall prevent
either party or its directors from:
(1) complying with Rule 14d-9 and Rule 14e-2 promulgated under the U.S.
Securities Exchange Act of 1934 with regard to an alternative
proposal or, in the case of Canadian National, complying with the
requirements of the Canada Business Corporations Act and applicable
Canadian securities laws in relation to the preparation and
dissemination of directors' circulars in response to take-over bids
and the calling and holding of requisitioned shareholders meetings;
(2) prior to the taking of the vote to be taken at their respective
shareholder meetings, engaging in any discussions or negotiations
with, or providing any information to, any person in response to an
unsolicited bona fide written alternative proposal; or
(3) prior to the taking of the vote to be taken at their respective
shareholder meetings, subject to the obligation to duly convene the
shareholder meetings at which a vote of the shareholders shall be
taken regarding the approval and adoption of the combination
agreement or the applicable combination or arrangement resolutions,
as the case may be, recommending such an unsolicited bona fide
written alternative proposal to the shareholders of such party if,
and only to the extent that, with respect to the actions referred to
in clauses (2) or (3), (A) such party has complied with the terms of
this paragraph, (B) the board of directors of such party concludes in
good faith (after consultation with its outside legal counsel and its
financial advisors) that such alternative proposal is reasonably
capable of being completed, taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making
the proposal, and would, if consummated, result in a transaction more
favorable to such party's shareholders from a financial point of view
than the transactions contemplated by the combination agreement, (C)
the board of directors of such party determines in good faith after
consultation with outside legal counsel that the failure to take such
action would result in the reasonable likelihood that the board of
directors would breach its fiduciary duties to the company or its
shareholders under applicable law, and (D) prior to entering into
negotiations or discussions with, or providing any information or
data to, any person in connection with an alternative proposal by any
such person, the board of directors of such party shall receive from
such person an executed confidentiality agreement on terms
substantially similar to those contained in the confidentiality
agreement between Canadian National and Burlington Northern Santa Fe;
provided, however, that such confidentiality agreement must contain
terms that allow such party to comply with its obligations under this
paragraph. For these purposes, the combination agreement provides
that an "alternative proposal" means, with respect to any person, any
proposal or offer with respect to a merger, organization,
amalgamation, arrangement, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving such person, or any purchase or sale of the
consolidated assets, including stock of such person's subsidiaries,
of such person or any of its subsidiaries, taken as a whole, having
an aggregate value equal to 15% or more of its market capitalization,
or any purchase or sale of, or tender or exchange offer for, 15% or
more of such person's or any of such person's subsidiaries' equity
securities.
The parties have also agreed to immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted previously with respect to any alternative proposal and to
take the necessary steps to promptly inform each of its representatives of the
obligations undertaken. Each party has agreed that it will notify the other
party promptly, but in any event within 24 hours, if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such discussions or negotiations are sought to be initiated or continued
with, any of its representatives indicating, in connection with such notice,
the name of such person making such inquiry, proposal, offer or request and the
substance of any such inquiries, proposals or offers and the substance of any
such discussions or negotiations. Each party has agreed to keep the other party
informed, on a timely basis, of the status and terms of any such inquiries,
proposals or offers and the status of any such discussions or negotiations.
Without limiting the generality of the foregoing, the notice (which the
combination agreement requires to be given by a party at least five business
days in advance of any public announcement or other dissemination of the
withdrawal, modification or change in such party's board of directors'
recommendation to its shareholders in respect of the transactions contemplated
by the combination agreement) shall set forth all material
I-94
<PAGE>
Chapter One - The Combination
terms of the alternative proposal or other matter forming the basis for the
withdrawal, modification or change by such party's board of directors of its
recommendation and such notice shall be updated in writing on a current basis
in the event that any such material terms are modified or changed. Without
limiting the recipient's right to make proposals in general, the recipient of
such notice shall be permitted to make one or more proposals to such party
during this five business day period and such proposals shall be considered by
such party. The parties have also agreed to promptly request each person that
has previously executed a confidentiality agreement in connection with its
consideration of any alternative proposal to return all confidential
information previously furnished to such person by or on behalf of such party
or any of its subsidiaries.
Canadian National Board's Covenant to Recommend
The Canadian National board of directors will recommend the approval and
adoption of the arrangement to Canadian National shareholders and take all
lawful action to solicit such approval and adoption. However, the Canadian
National board of directors is permitted not to make, to withdraw or to modify
this recommendation if the Canadian National board of directors by a majority
vote determines in its good faith judgment that it is necessary to do so to
comply with its fiduciary duty to Canadian National or its shareholders under
applicable law, after receiving the advice of outside legal counsel.
Burlington Northern Santa Fe Board's Covenant to Recommend
The Burlington Northern Santa Fe board of directors will recommend the
approval and adoption of the combination agreement to Burlington Northern Santa
Fe shareholders and take all lawful action to solicit such approval and
adoption. However, the Burlington Northern Santa Fe board of directors is
permitted not to make, to withdraw or to modify this recommendation if the
Burlington Northern Santa Fe board of directors by a majority vote determines
in its good faith judgment that it is necessary to do so to comply with its
fiduciary duty to Burlington Northern Santa Fe or its shareholders under
applicable law, after receiving the advice of outside legal counsel.
Interim Operations of Canadian National and Burlington Northern Santa Fe
Each of Canadian National and Burlington Northern Santa Fe has undertaken
a separate covenant that places restrictions on it and its subsidiaries until
the combination is completed or the combination agreement is terminated. In
general, Canadian National and its subsidiaries and Burlington Northern Santa
Fe and its subsidiaries are required to conduct their business in the ordinary
course consistent with past practice and to use their reasonable best efforts
to preserve intact their business organizations and relationships with third
parties. The companies have also agreed to some specific restrictions that are
subject to exceptions described in the combination agreement. The most
significant of these restrictions undertaken by each company include
restrictions on:
o amending its organizational documents other than as contemplated by
the combination agreement;
o entering into any merger, liquidation or other significant transaction;
o issuing or disposing of equity securities, options or other
securities convertible into or exercisable for equity securities,
except to a limited extent to employees or directors;
o declaring dividends, except for regular cash dividends less than or
equal to $0.48 per share annually on Burlington Northern Santa Fe
common stock or Cdn$0.70 per share annually on Canadian National
common shares;
o redeeming or repurchasing its capital stock, except for repurchases
in amounts that do not exceed the limitations specified in the
combination agreement;
o making cash capital expenditures;
I-95
<PAGE>
Chapter One - The Combination
o increasing employee compensation or benefits, except for normal
ordinary course increases consistent with past practice and in other
specified circumstances;
o disposing, leasing or licensing any material assets, except for
disposing, leasing or licensing any assets pursuant to existing
commitments and in other specified circumstances;
o taking any action that would result in the combination constituting a
change of control under any of the company's employee plans;
o incurring or guaranteeing debt, except under existing and replacement
credit facilities and in other specified circumstances; and
o making loans, advances or contributions to, or investments in, any
other person, except under specified circumstances.
Reasonable Best Efforts Covenant
Canadian National and Burlington Northern Santa Fe have agreed to
cooperate with each other and use their reasonable best efforts to take all
actions and do all things necessary or advisable under the combination
agreement and applicable laws to complete the combination and the other
transactions contemplated by the combination agreement.
Implementation Committee
Pursuant to the combination agreement, Canadian National and Burlington
Northern Santa Fe established an implementation committee consisting of two
representatives of Canadian National and three representatives of Burlington
Northern Santa Fe immediately after the combination agreement was signed. The
initial Canadian National representatives are Paul M. Tellier and E. Hunter
Harrison. The initial Burlington Northern Santa Fe representatives are Robert
D. Krebs, Thomas N. Hund and Matthew K. Rose. The implementation committee is
responsible for directing the preparation and presentation to the U.S. Surface
Transportation Board of all filings and other presentations required to obtain
U.S. Surface Transportation Board approval for the combination and for
developing plans for coordinating the businesses of Canadian National and
Burlington Northern Santa Fe after the combination is completed. The
implementation committee acts by consensus and not by majority vote of its
members and its authority will expire upon the completion of the combination.
The composition of the implementation committee reflects the nature of the
issues to be addressed by the committee with respect to Canadian National and
Burlington Northern Santa Fe, and the fact that the U.S. Surface Transportation
Board process will relate to issues in the United States, rather than to the
relative influence of Canadian National and Burlington Northern Santa Fe on the
implementation committee.
Interline Coordination
Canadian National and Burlington Northern Santa Fe have agreed to develop
and implement a range of mutually beneficial interline coordinations prior to
completion of the combination, consistent with applicable law, including
matters related to information technology, procurement and marketing.
Other Covenants
The combination agreement contains a number of other mutual covenants of
the parties, the most significant of which are that each party agrees:
o not to jeopardize the intended tax treatment of the combination;
o to cooperate to comply with applicable regulatory requirements
necessary to effect the combination;
I-96
<PAGE>
Chapter One - The Combination
o to cooperate to comply with U.S. and Canadian securities laws
applicable to the combination, including the required filing with the
U.S. Securities and Exchange Commission of a registration statement on
Form S-3 registering the shares of North American Railways common
stock issuable upon the exchange of Canadian National exchangeable
shares and a registration statement on Form S-8 registering the shares
of North American Railways common stock issuable upon the exercise of
replacement options issued to Canadian National option holders in the
combination;
o to take all actions necessary to cause North American Railways to
perform its obligations under the combination agreement;
o to use reasonable best efforts to have the stapled securities
consisting of North American Railways common stock and Canadian
National voting shares listed on the New York Stock Exchange, The
Chicago Stock Exchange and the Pacific Exchange; and
o to use reasonable best efforts to have the stapled securities
consisting of Canadian National exchangeable shares and Canadian
National voting shares listed on The Toronto Stock Exchange.
Representations and Warranties
The combination agreement contains substantially reciprocal
representations and warranties made by Canadian National and Burlington
Northern Santa Fe to each other. The most significant of these relate to:
o corporate authorization to enter into the combination;
o the shareholder votes required to approve the combination;
o governmental approvals required in connection with the combination;
o absence of any breach of organizational documents, law or certain
material agreements as a result of the combination;
o capitalization;
o ownership of subsidiaries;
o filings with the U.S. Securities and Exchange Commission and/or
Canadian securities regulators;
o information provided for inclusion in this document;
o financial statements ;
o absence of certain material changes since a specified balance sheet
date;
o absence of undisclosed material liabilities;
o litigation;
o tax matters;
o employee benefits matters;
o compliance with laws;
o finders' or advisors' fees;
I-97
<PAGE>
Chapter One - The Combination
o environmental matters; and
o year 2000 compliance.
In addition, Burlington Northern Santa Fe represented and warranted to
Canadian National as to the inapplicability of the Delaware anti-takeover
statute and Burlington Northern Santa Fe's shareholder rights plan to the
combination and the Burlington Northern Santa Fe stock option. For information
about the anti-takeover statute and the Burlington Northern Santa Fe
shareholder rights plan, see "Chapter Three--Comparison of Shareholder Rights
and Description of Capital Stock--Comparison of Shareholder Rights--Shareholder
Rights Plan" and "--Anti-Takeover Provisions" and "Chapter Three--Comparison of
Shareholder Rights and Description of Capital Stock--Description of Canadian
National, Burlington Northern Santa Fe and North American Railways Capital
Stock--Burlington Northern Santa Fe Rights Plan".
The representations and warranties in the combination agreement will not
survive after the combination is completed or the combination agreement is
terminated, with certain limited exceptions.
Conditions to the Completion of the Combination
Mutual Conditions for Completion of the Combination
The obligations of Canadian National and Burlington Northern Santa Fe to
complete the combination are subject to the satisfaction or, to the extent
legally permissible, waiver of the following conditions:
o approval by the Canadian National and Burlington Northern Santa Fe
shareholders;
o approval by the U.S. Surface Transportation Board without the
imposition of certain conditions (see "--Termination of Combination
Agreement and Termination Fees--U.S. Surface Transportation Board
Termination Fee");
o obtaining from the Quebec Superior Court an interim order and final
order that has been fully appealed and not reversed or has become
final and non-appealable;
o approval for listing on The Toronto Stock Exchange of the stapled
securities consisting of Canadian National voting shares and Canadian
National exchangeable shares;
o approval for listing on the New York Stock Exchange of the stapled
securities consisting of shares of North American Railways common
stock and Canadian National voting shares;
o absence of legal prohibition on completion of the combination;
o Canadian National's registration statement on Form F-4 and the
registration statements of North American Railways on Form S-4, Form
S-3 and Form S-8, including this document, being effective and not
subject to any stop order issued or threatened to be issued by the
U.S. Securities and Exchange Commission;
o receipt of assurances from the Commissioner of Competition under the
Competition Act (Canada) that the Commissioner will not take certain
actions under the Competition Act (Canada) (see "The
Combination--Regulatory Review and Approval--Competition Act
(Canada)");
o receipt of opinions of Canadian National's and Burlington Northern
Santa Fe's counsel that the combination will not result in the
recognition of income, gain or loss by the shareholders for U.S.
federal income tax purposes, except for the receipt of cash instead of
fractional shares by Canadian National
I-98
<PAGE>
Chapter One - The Combination
shareholders and the receipt of Canadian National voting shares by
Burlington Northern Santa Fe shareholders;
o absence of a material adverse effect or any reasonable expectation of
a material adverse effect on Canadian National or Burlington Northern
Santa Fe during the period from December 31, 1998 until the
combination is completed;
o accuracy as of completion of the combination of the representations
and warranties made by the other party to the extent specified in the
combination agreement; and
o performance in all material respects by the other party of the
obligations required to be performed by it at or prior to completion
of the combination.
Termination of the Combination Agreement and Termination Fees
Termination Events
The combination agreement may be terminated and the transactions that it
contemplates may be abandoned at any time prior to the completion of the
combination regardless of whether approval by the shareholders of Burlington
Northern Santa Fe or Canadian National has been received:
(1) by mutual written consent of Burlington Northern Santa Fe and
Canadian National;
(2) by either Burlington Northern Santa Fe or Canadian National, if the
combination has not been completed by December 31, 2002;
(3) by either Burlington Northern Santa Fe or Canadian National, if (a)
any judgment, injunction, order or decree enjoining Burlington
Northern Santa Fe or Canadian National from consummating the merger
or arrangement is entered and such judgment, injunction, order or
decree becomes final and nonappealable or (b) the Quebec Superior
Court elects not to issue the final order approving the arrangement
and the Quebec Superior Court's decision on the matter has been
fully appealed (and not reversed) or has become final and
nonappealable;
(4) by either Burlington Northern Santa Fe or Canadian National, if the
approvals of the shareholders of Burlington Northern Santa Fe or
Canadian National contemplated by the combination agreement have not
been obtained by reason of the failure to obtain the required vote
at a meeting of shareholders;
(5) by Burlington Northern Santa Fe, if Canadian National's board of
directors withdraws, adversely modifies or changes its approval or
recommendation of the combination agreement or the transactions that
it contemplates or the arrangement resolution;
(6) by Canadian National, if Burlington Northern Santa Fe's board of
directors withdraws, adversely modifies or changes its approval or
recommendation of the combination agreement or the transactions that
it contemplates;
(7) by Burlington Northern Santa Fe, upon a breach of any
representation, warranty, covenant or agreement of Canadian
National, or if any representation or warranty of Canadian National
becomes untrue, in either case such that the conditions set forth in
the combination agreement would be incapable of being satisfied by
December 31, 2002 (or as otherwise extended), provided that the
conditions will be considered incapable of being satisfied by such
date if Canadian National willfully breaches the combination
agreement;
(8) by Canadian National, upon a breach of any representation, warranty,
covenant or agreement of Burlington Northern Santa Fe or if any
representation or warranty of Burlington Northern Santa Fe
I-99
<PAGE>
Chapter One - The Combination
becomes untrue, in either case such that the conditions set forth in
the combination agreement would be incapable of being satisfied by
December 31, 2002 (or as otherwise extended), provided that the
conditions will be considered incapable of being satisfied by such
date if Burlington Northern Santa Fe willfully breaches the
combination agreement; or
(9) by either Burlington Northern Santa Fe or Canadian National at any
time prior to December 31, 2002, if the U.S. Surface Transportation
Board issues a decision that has not been stayed or enjoined that
(a) constitutes a final order approving, exempting or otherwise
authorizing consummation of the transactions contemplated by the
combination agreement (or subsequently presented to the U.S. Surface
Transportation Board by agreement of Burlington Northern Santa Fe
and Canadian National), including the arrangement and the merger, as
may require such authorization and (b)(1) changes the 1.05 exchange
ratio or (2) imposes on Burlington Northern Santa Fe, North American
Railways, Canadian National or any of their respective subsidiaries
any other terms or conditions, including labor protective
provisions, but excluding conditions imposed by the U.S. Interstate
Commerce Commission in New York Dock Railway-Control-Brooklyn
Eastern District, that would significantly and adversely affect the
economic benefits of the transactions contemplated by the
combination agreement to Burlington Northern Santa Fe, Canadian
National and their shareholders, taken as a whole.
Termination Fee
Burlington Northern Santa Fe. Burlington Northern Santa Fe has agreed to
pay Canadian National a fee equal $450 million if:
o an alternative proposal is made to Burlington Northern Santa Fe or
directly to Burlington Northern Santa Fe shareholders generally or
any person publicly announces an intention (whether or not
conditional) to make an alternative proposal with respect to
Burlington Northern Santa Fe and thereafter (a) Burlington Northern
Santa Fe shareholders do not adopt the combination agreement at the
Burlington Northern Santa Fe shareholder meeting and (b) the
combination agreement is terminated by either Canadian National or
Burlington Northern Santa Fe; or
o the combination agreement is terminated by Canadian National pursuant
to clause (6) or (8) above (but, with respect to clause (8), solely
with respect to a breach of the non-solicitation covenants of
Burlington Northern Santa Fe described above and set forth in the
combination agreement).
Canadian National. Canadian National has agreed to pay Burlington
Northern Santa Fe a fee equal to $200 million if:
o an alternative proposal is made to Canadian National or directly to
Canadian National shareholders generally or any person publicly
announces an intention (whether or not conditional) to make an
alternative proposal with respect to Canadian National and thereafter
(a) Canadian National shareholders do not adopt the arrangement
resolution at the Canadian National shareholder meeting and (b) the
combination agreement is terminated by either Burlington Northern
Santa Fe or Canadian National; or
o the combination agreement is terminated by Burlington Northern Santa
Fe pursuant to clause (5) or (7) above (but, with respect to clause
(7), solely with respect to a breach of the non-solicitation
covenants of Canadian National described above and set forth in the
combination agreement).
U.S. Surface Transportation Board Termination Fee
Burlington Northern Santa Fe. Burlington Northern Santa Fe has agreed to
pay Canadian National a fee equal to $300 million if:
(1) Burlington Northern Santa Fe sends Canadian National a written notice
stating either that Burlington Northern Santa Fe intends to terminate
the combination agreement pursuant to clause (9) under
I-100
<PAGE>
Chapter One - The Combination
"--Termination Events" or does not intend to complete the
combination in reliance on the corresponding condition in the
combination agreement;
(2) within five business days after the date that Canadian National
receives Burlington Northern Santa Fe's notice referred to in (1),
Canadian National sends Burlington Northern Santa Fe a written notice
that, notwithstanding the alleged adverse U.S. Surface Transportation
Board decision, Canadian National is willing to complete the
combination;
(3) within three business days after receiving the notice referred to in
(2), Burlington Northern Santa Fe does not send Canadian National a
written notice that, notwithstanding the alleged adverse U.S. Surface
Transportation Board decision, Burlington Northern Santa Fe is
willing to complete the combination and is revoking the notice
referred to in (1); and
(4) the conditions to completion of the combination for Canadian National
and Burlington Northern Santa Fe other than the condition related to
the U.S. Surface Transportation Board decision (and any other
condition to completion of the combination to the extent relating to
any matter referred to in the condition related to the U.S. Surface
Transportation Board decision) have been or promptly could be
satisfied or, if appropriate, waived.
Canadian National. Canadian National has agreed to pay Burlington
Northern Santa Fe a fee equal to $150 million if:
(1) Canadian National sends Burlington Northern Santa Fe a written notice
stating either that Canadian National intends to terminate the
combination agreement pursuant to clause (9) under "--Termination
Events" or does not intend to complete the combination in reliance on
the corresponding condition in the combination agreement;
(2) within five business days after the date that Burlington Northern
Santa Fe receives Canadian National's notice referred to in (1),
Burlington Northern Santa Fe sends Canadian National a written notice
that, notwithstanding the alleged adverse U.S. Surface Transportation
Board decision, Burlington Northern Santa Fe is willing to complete
the combination;
(3) within three business days after receiving the notice referred to in
(2), Canadian National does not send Burlington Northern Santa Fe a
written notice that, notwithstanding the alleged adverse U.S. Surface
Transportation Board decision, Canadian National is willing to
complete the combination and is revoking the notice referred to in
(1); and
(4) the conditions to completion of the combination for Burlington
Northern Santa Fe and Canadian National other than the condition
related to the U.S. Surface Transportation Board decision (and any
other condition to completion of the combination to the extent
relating to any matter referred to in the condition related to the
U.S. Surface Transportation Board decision) have been or promptly
could be satisfied or, if appropriate, waived.
Other Expenses
Except for the termination fees described above and except as described in
the next sentence, all costs and expenses incurred in connection with the
combination agreement and related transactions will be paid by the party
incurring such costs or expenses. Burlington Northern Santa Fe and Canadian
National have agreed to share equally all expenses incurred by either of them
in connection with any action approved or authorized by the implementation
committee. We estimate that combination-related fees and expenses, consisting
primarily of U.S. Securities and Exchange Commission and U.S. Surface
Transportation Board filing fees, fees and expenses of investment bankers,
attorneys and accountants, and financial printing and other related charges,
will total approximately $90 million assuming the combination is completed.
I-101
<PAGE>
Chapter One - The Combination
Amendments; Waivers
Any provision of the combination agreement may be amended or waived prior
to completion of the combination if the amendment or waiver is in writing and
signed, in the case of an amendment, by the parties to the combination
agreement or, in the case of a waiver, by the party against whom the waiver is
to be effective. After the approval of the combination agreement by the
shareholders of Canadian National and Burlington Northern Santa Fe, no
amendment or waiver that by law requires further approval by shareholders will
be effective without the further approval of such shareholders.
I-102
<PAGE>
Chapter One - The Combination
BURLINGTON NORTHERN SANTA FE TRANSACTION MECHANICS
To implement the combination, a wholly owned subsidiary of North American
Railways will merge with and into Burlington Northern Santa Fe under Delaware
law. Burlington Northern Santa Fe will continue as the surviving corporation of
the merger and will continue to be governed by Delaware law. As a result of the
merger, Burlington Northern Santa Fe will be a wholly owned subsidiary of North
American Railways.
NORTH AMERICAN RAILWAYS TRANSACTION MECHANICS
In connection with the combination, Canadian National and Burlington
Northern Santa Fe will amend North American Railways' certificate of
incorporation to include the following material provisions:
o a limitation that no person together with that person's associates
may hold more than 15% of the voting rights in North American
Railways;
o a requirement that members of North American Railways' board of
directors also be members of Canadian National's board of directors;
o a requirement that the head office of North American Railways be
located in the Montreal Urban Community, Quebec, Canada; and
o a restriction on the transferability of North American Railways
common stock that will ensure that shares of North American Railways
common stock and Canadian National voting shares are traded as a
single stapled security.
Each of these provisions of North American Railways' certificate of
incorporation will be subject to amendment restrictions that will provide,
among other things, that the provision cannot be amended without the unanimous
approval of North American Railways' board of directors and the affirmative
vote of at least 85% of the votes cast by North American Railways shareholders.
For a more detailed description of the provisions in North American Railways'
certificate of incorporation that will become effective after the combination
is completed, see "Chapter Three--Comparison of Shareholder Rights".
As a result of the combination North American Railways, through its wholly
owned subsidiary NAR Holdings Company, will own 100% of the common equity and
10.1% of the voting power of Canadian National. Under the plan of arrangement,
described below, NAR Holdings Company will acquire all of the non-voting equity
shares of Canadian National, which will represent 100% of the common equity in
Canadian National. NAR Holdings Company will also acquire all of the special
limited voting shares of Canadian National which will represent 10.1% of the
total number of votes entitled to be cast at any meeting of Canadian National
shareholders, at all times, regardless of the number of such shares
outstanding. The Canadian National voting shares held as part of the stapled
securities will, as a result, represent as a class 89.9% of the total number of
votes entitled to be cast at any meeting of Canadian National shareholders, at
all times, regardless of the number of such shares outstanding.
CANADIAN NATIONAL TRANSACTION MECHANICS
To implement the combination, Canadian National will effect a plan of
arrangement under Canadian law. The plan of arrangement will provide for the
authorization and issuance of Canadian National securities called for by the
combination agreement to be issued to Canadian National and Burlington Northern
Santa Fe shareholders. The following summary of the plan of arrangement is
qualified by reference to the complete text of the plan of arrangement and
related arrangement resolution, which are incorporated by reference and
attached as Annex B and Annex C. The following summary of the Canadian National
transaction mechanics is also qualified by reference to the complete text of
the voting and exchange trust agreement, which is incorporated by reference and
attached as Annex K.
I-103
<PAGE>
Chapter One - The Combination
The Arrangement
Pursuant to the terms of the plan of arrangement and commencing at the
completion of the combination, the following events will occur in the following
order:
(1) The authorized share capital of Canadian National will be reorganized
by the creation of the following four classes of shares in the
capital of Canadian National:
(a) Canadian National voting shares, the authorized number of which
will be unlimited;
(b) Canadian National exchangeable shares, the authorized number of
which will be unlimited;
(c) Canadian National special limited voting shares, the authorized
number of which will be unlimited; and
(d) Canadian National non-voting equity shares, the authorized
number of which will be unlimited;
(2) Each outstanding Canadian National common share will be changed into
1.05 Canadian National voting shares and 1.05 Canadian National
exchangeable shares;
(3) Simultaneously with the event in paragraph (2), each North American
Railways elected exchangeable share will be transferred by the holder
thereof to a wholly owned Canadian subsidiary of North American
Railways (NAR Holdings Company) in exchange for one North American
Railways common share issued by North American Railways;
(4) Simultaneously with the events in paragraphs (2) and (3), each North
American Railways elected exchangeable share acquired by NAR Holdings
Company will be converted into one Canadian National special limited
voting share and one Canadian National non-voting equity share;
(5) Simultaneously with the events in paragraphs (2), (3) and (4), NAR
Holdings Company will and will be deemed to have subscribed for and
agreed to purchase, and Canadian National will issue and sell to NAR
Holdings Company, one Canadian National special limited voting share
and one Canadian National non-voting equity share at a subscription
price equal to the closing trading price per Canadian National common
share on The Toronto Stock Exchange on the trading day that is two
days before the date on which the combination is completed divided by
1.05;
(6) The persons entitled to receive North American Railways common stock
pursuant to the merger, excluding stock issued pursuant to the
exchange provided for in paragraph (3), will be deemed to have
subscribed for and agreed to purchase at a purchase price of $0.05
per share, or such other amount as the parties may agree, and
Canadian National will issue to each such person, one Canadian
National voting share for each such share of North American Railways
common stock upon payment by North American Railways to Canadian
National of the aggregate subscription price therefor;
(7) North American Railways will issue to and deposit with the trustee
the special voting share, in consideration of the payment to North
American Railways of $0.01 by Canadian National, to be held of record
by the trustee as trustee for and on behalf of, and for the use and
benefit of, the holders of the Canadian National exchangeable shares
in accordance with the voting and exchange trust agreement (described
below);
(8) Each Canadian National option will be exchanged for a replacement
option. See "The Combination Agreement--Treatment of Stock Options;
Other Stock-Based Awards--Canadian National";
(9) The authorized share capital of Canadian National will be amended by
the elimination of the Canadian National common shares as a class of
authorized shares; and
I-104
<PAGE>
Chapter One - The Combination
(10) Certain conforming amendments to Canadian National's by-laws will be
made as set forth in Appendix IV to Annex B.
Each holder of record of Canadian National common shares, immediately
prior to the election deadline that will be specified in the letter of
transmittal and election form that will be sent to Canadian National common
shareholders prior to the arrangement effective time, will be entitled, with
respect to all or a portion of such shares, to make an election to exchange all
or any Canadian National exchangeable shares issuable to such holder pursuant
to the arrangement for North American Railways common stock, and such shares
will be "North American Railways elected exchangeable shares" and will be
exchanged for North American Railways common stock pursuant to paragraph (3)
above. Each holder of Canadian National common shares who is not a resident of
Canada for purposes of the Canadian Tax Act will be deemed to have elected to
exchange all of the Canadian National exchangeable shares issuable to such
holder pursuant to paragraph (3) above for North American Railways common stock
and all such shares will be deemed to be North American Railways elected
exchangeable shares, except where and to the extent that such non-resident
holder specifically elects in the holder's letter of transmittal and election
form not to have such exchange occur.
See "--Procedures for Election and Exchange of Canadian National Common
Share Certificates" for procedures to be followed in order to obtain
certificates for stapled securities representing Canadian National voting
shares and Canadian National exchangeable shares and stapled securities
representing Canadian National voting shares and North American Railways common
stock issuable pursuant to the arrangement.
Fractional Shares
No stapled security certificates representing fractional Canadian National
voting shares and fractional Canadian National exchangeable shares or stapled
security certificates representing fractional Canadian National voting shares
and fractional shares of North American Railways common stock will be delivered
in exchange for Canadian National common shares pursuant to the arrangement.
Instead, each person otherwise entitled to a fractional interest in such shares
will receive a cash payment from the depositary representing such person's pro
rata portion of the net proceeds after expenses received by the depositary upon
the sale of whole stapled securities representing an accumulation of all
fractional interests. The depositary will effect the sale of the accumulated
interests in the stapled securities representing fractional Canadian National
voting shares and fractional Canadian National exchangeable shares on The
Toronto Stock Exchange. The depositary will effect the sale of the accumulated
interests in the stapled securities representing fractional Canadian National
voting shares and fractional shares of North American Railways common stock on
the New York Stock Exchange.
Approval of the Quebec Superior Court and Completion of the Arrangement
An arrangement under the Canada Business Corporations Act requires
approval by a court of competent jurisdiction, in this instance the Quebec
Superior Court. Prior to the mailing of this document, Canadian National
obtained an interim order providing for the calling and holding of the Canadian
National meeting and other procedural matters. A copy of the interim order
forms part of Annex I. The notice of application for the final order approving
the arrangement also forms part of Annex I.
Subject to the approval of the arrangement by the Canadian National
shareholders and optionholders at the Canadian National meeting, the hearing in
respect of the final order is scheduled to take place on May 18, 2000 at 9:00
a.m. (Montreal time) in the Quebec Superior Court in room 2.16 at the Montreal
Court House at 1 Notre Dame East, Montreal, Quebec. Any Canadian National
securityholder who wishes to present evidence or argument at that hearing must
file and serve Canadian National's counsel an appearance on or before May 1,
2000, in accordance with the rules of the Quebec Superior Court and the
provisions of the interim order. If the appearance is with a view to contesting
the application for the final order, a Canadian National securityholder must
file and serve Canadian National's counsel with a written contestation on or
before May 11, 2000 together with all materials on which it relies, in
accordance with the rules of the Quebec Superior Court and the provisions of
the interim order. The Quebec Superior Court will consider, among other things,
the fairness and reasonableness of the arrangement and the compliance of the
arrangement with applicable legal requirements, including the requirement under
the CN
I-105
<PAGE>
Chapter One - The Combination
Commercialization Act that no person together with that person's associates may
hold or control more than 15% of the voting rights in Canadian National. The
Quebec Superior Court may approve the arrangement in any manner the Quebec
Superior Court may direct, subject to compliance with such terms and
conditions, if any, as the Quebec Superior Court deems fit.
Assuming the final order approving the arrangement is granted and, if an
appeal is filed, the order is affirmed and the other conditions to completion
of the combination contained in the combination agreement are satisfied or
waived, it is anticipated that the following will occur: the steps set forth in
the plan of arrangement will be completed; articles of arrangement for Canadian
National will be filed with the Director appointed under the Canada Business
Corporations Act to give effect to the arrangement; the voting and exchange
trust agreement and the cooperation agreement will be executed and delivered;
and the various other documents necessary to consummate the transactions
contemplated by the combination agreement will be executed and delivered.
Procedures for Election and Exchange of Canadian National Common Share
Certificates
Assuming approval of the arrangement resolution and provided that the
combination agreement has not been terminated, the depositary will send a
letter of transmittal and election form to registered holders of Canadian
National common shares at least 20 business days prior to the expected date on
which the combination will be completed.
The letter of transmittal and election form, when properly completed and
signed and returned together with a certificate or certificates for Canadian
National common shares and all other required documents, will enable each
holder of Canadian National common shares to obtain a certificate for that
number of stapled securities representing the number of Canadian National
voting shares and Canadian National exchangeable shares or shares of North
American Railways common stock, as applicable, equal to the number of Canadian
National common shares previously held by such holder multiplied by 1.05 (in
each case, rounded down to the nearest whole share if the calculation results
in a fractional share).
Any use of the mails to transmit a certificate representing Canadian
National common shares and a related letter of transmittal and election form is
at the risk of the holder tendering the documents. If these documents are
mailed, we recommend that you use registered mail, with return receipt
requested, properly insured.
If the depositary has not received a properly completed and signed letter
of transmittal and election form together with certificates representing
Canadian National common shares and all other required documents by the
election deadline in respect of particular Canadian National common shares,
then those shares will be treated under the arrangement as follows:
o each Canadian National common shareholder who appears, based upon the
share register, to be a resident of Canada for purposes of the
Canadian Tax Act, will be entitled to receive after the completion of
the combination only stapled securities representing Canadian
National voting shares and Canadian National exchangeable shares upon
receipt by the depositary of a properly completed and signed letter
of transmittal and election form, together with certificates
representing its Canadian National common shares and all other
required documents; and
o each Canadian National common shareholder who appears, based upon the
share register or otherwise, not to be a resident of Canada for
purposes of the Canadian Tax Act will be entitled to receive after
the completion of the combination only stapled securities
representing Canadian National voting shares and shares of North
American Railways common stock upon receipt by the depositary of a
properly completed and signed letter of transmittal and election
form, together with certificates representing its Canadian National
common shares and all other required documents.
Stapled security certificates representing the appropriate number of
Canadian National voting shares and Canadian National exchangeable shares or
shares of North American Railways common stock, as applicable, issuable to a
former holder of Canadian National common shares who has complied with the
procedures described
I-106
<PAGE>
Chapter One - The Combination
above, together with a check in the amount, if any, payable with respect to the
proceeds of sale of fractional shares will, as soon as practicable after the
arrangement effective date (1) be forwarded to the holder at the address
specified in the letter of transmittal and election form by insured first class
mail or (2) be made available for pick up by the holder as requested by the
holder in the letter of transmittal and election form at the office of the
depositary specified by the holder in the letter of transmittal and election
form.
Where a certificate for Canadian National common shares has been
destroyed, lost or misplaced, the registered holder of that certificate for
Canadian National common shares should contact Canadian National's transfer
agent as directed in the letter of transmittal and election form regarding the
issuance of a replacement certificate upon the holder satisfying such
requirements as may be imposed by Canadian National in connection with issuance
of the replacement certificate.
I-107
<PAGE>
Chapter One - The Combination
THE CO-OPERATION AGREEMENT
The following summary of the co-operation agreement is qualified by
reference to the complete text of the cooperation agreement, which is
incorporated by reference and attached as Annex L.
General
At completion of the combination, North American Railways and Canadian
National will enter into a cooperation agreement on the date on which the
combination is completed. The co-operation agreement will provide that North
American Railways and Canadian National will be governed so as to give full
effect to the following core principles:
o North American Railways and Canadian National will be separate
companies but will operate together as a single economic enterprise
and will be managed on a unified basis for the benefit of the public
shareholders of both companies as a combined group;
o Members of the boards of directors and the Chief Executive Officer of
both North American Railways and Canadian National will be identical
and other members of senior management will be selected to allow the
companies to be managed on a unified basis;
o Participating shares and voting shares of the companies, other than
the Canadian National limited voting equity shares, will be issued,
traded and transferred together in the form of stapled securities,
with the consequences that all holders of such shares (1) will
benefit identically when dividends are declared or other
distributions are made by either company or on liquidation of either
company and (2) will have the right to vote or to direct votes in
each company; and
o North American Railways will comply with the provisions of the CN
Commercialization Act, a statute of Canada, that is applicable to
Canadian National, as to the restriction on ownership of voting
shares and the location of its head office and shall adopt the
principles of the Official Languages Act (Canada) to the extent
provided in the co-operation agreement.
Governance
Board Structure and Governance
The co-operation agreement will provide that North American Railways and
Canadian National will do everything necessary and within their powers to
ensure that the same set of individuals make up the board of directors of each
of North American Railways and Canadian National and will require that the
North American Railways certificate of incorporation provide that an individual
must be a member of the Canadian National board of directors in order to be a
member of the North American Railways board of directors. The co-operation
agreement also will require that:
(1) North American Railways' certificate of incorporation and Canadian
National's articles contain provisions (a) preventing any single
person, including associates, from holding more than 15% of the
voting rights in the relevant company, (b) enforcing the restrictions
on shareholding described in clause (a) and (c) requiring that the
headquarters of each of North American Railways and Canadian National
be located in the Montreal Urban Community, Quebec, Canada;
(2) North American Railways and Canadian National hold their shareholder
meetings as close as possible in time;
(3) the nominating committees of North American Railways and Canadian
National propose a common slate of directors for election;
I-108
<PAGE>
Chapter One - The Combination
(4) the same person serve as chairman of the board of directors of each
of North American Railways and Canadian National;
(5) North American Railways and Canadian National have identical board
committees, including the nominating committee, audit committee and
compensation committee;
(6) the membership of the board committees of North American Railways and
Canadian National be identical;
(7) the same person serve as chief executive officer of both companies;
(8) both companies have common senior management; and
(9) the auditors of both companies be the same international accounting
firm.
Shareholder Matters
The co-operation agreement will provide that shareholder meetings of North
American Railways and Canadian National will take place at the offices of
Canadian National or elsewhere in Canada, as determined by the boards of
directors of North American Railways and Canadian National, and that both
companies must have identical record dates for their shareholder meetings.
North American Railways and Canadian National also will be required to hold
their shareholder meetings as close as possible in time and at the same
location. If the shareholders of either North American Railways or Canadian
National enjoy appraisal or dissent rights under applicable law, the
co-operation agreement will provide that the shareholders of the other company
will be granted equivalent rights even if such rights are not required for both
companies.
Inter-Company Transactions
The co-operation agreement will provide that North American Railways and
Canadian National, in their dealings with one another, will deal as if they
were at arm's length, to the extent required by applicable tax law. The
co-operation agreement also will provide that no special board review, minority
shareholder approval or other similar procedures for the protection of minority
shareholders will be required for transactions between North American Railways
and Canadian National or involving their affiliates.
Capital Structure
Canadian National special limited voting shares
In the co-operation agreement, North American Railways and Canadian
National will agree to vote the Canadian National special limited voting shares
in a manner consistent with the principles listed under "-General" above.
Availability of Canadian National exchangeable shares and North American
Railways common stock
North American Railways will covenant in the co-operation agreement to
reserve for issue, free from preemptive and other rights, a number of shares of
North American Railways common stock equal to the total number of Canadian
National exchangeable shares outstanding or issuable pursuant to options or
other rights so that the shares of North American Railways common stock will be
available in exchange for any and all Canadian National exchangeable shares
presented for exchange. North American Railways also will covenant to take all
such actions reasonably necessary or desirable to permit Canadian National to
perform its obligations upon the retraction of Canadian National exchangeable
shares or the liquidation, dissolution or winding-up of Canadian National. Upon
presentation of any Canadian National exchangeable shares for exchange into
North American Railways common stock, North American Railways will be obligated
to perform or cause the performance of the required exchange promptly. Canadian
National also will covenant to reserve for issue, free from preemptive and
other rights, an unlimited number of Canadian National voting shares to permit
all future issuances and sales of stapled securities.
I-109
<PAGE>
Chapter One - The Combination
Issuance and Classification of Shares by Canadian National
Canadian National will agree not to subdivide, redivide, reclassify or
change the number of outstanding Canadian National exchangeable shares unless a
corresponding change is simultaneously made to the Canadian National voting
shares and shares of North American Railways common stock outstanding. Unless
it obtains the prior approval of North American Railways and a majority of the
shares of North American Railways common stock at a meeting at which a quorum
is present, Canadian National will not be permitted to issue or distribute
Canadian National exchangeable shares or rights to such shares to holders of
such shares, nor will Canadian National be permitted to issue any other class
of security, right, evidence of indebtedness or asset of Canadian National to
holders of Canadian National exchangeable shares unless a corresponding or, in
some cases, an economically equivalent issuance or distribution is made to
holders of North American Railways common stock. Canadian National also will be
required to notify North American Railways promptly of any plans to issue
Canadian National exchangeable shares or rights to such shares.
Issuance and Classification of Shares by North American Railways
North American Railways will agree not to subdivide, redivide, reclassify
or change the number of outstanding shares of North American Railways common
stock unless a corresponding change is simultaneously made to the Canadian
National exchangeable shares and the Canadian National voting shares
outstanding. Unless it obtains the prior approval of Canadian National and a
majority of the Canadian National exchangeable shares at a meeting at which a
quorum is present, North American Railways will not be permitted to issue or
distribute shares of North American Railways common stock or rights to such
shares to holders of such shares, nor will North American Railways be permitted
to issue any other class of security, right, evidence of indebtedness or asset
of North American Railways to holders of North American Railways common stock
unless a corresponding or, in some cases, an economically equivalent issuance
or distribution is made to holders of Canadian National exchangeable shares.
Business Combinations and Tender Offers
In connection with any business combination for which shares of North
American Railways or Canadian National will be issued, the co-operation
agreement will permit only the issuance of stapled securities. In the event
that either North American Railways or Canadian National becomes the subject of
a proposal to enter into a business combination, the directors of North
American Railways and Canadian National will be obligated to seek to ensure
that shareholders of both North American Railways and Canadian National are
entitled to participate on an economically equivalent basis.
Dividends
Neither Canadian National nor North American Railways will be permitted to
declare or pay any cash or stock dividends or make any distributions on
Canadian National exchangeable shares or North American Railways common stock
represented by stapled securities unless the other company simultaneously
declares or pays a corresponding dividend or distribution on its shares
represented by stapled securities. However, Canadian National will be permitted
to pay cash dividends in Canadian dollars and North American Railways in U.S.
dollars. In addition, the two companies will be permitted to treat stock
dividends differently. Canadian National will be permitted, in lieu of
distributing stock in payment of any validly declared stock dividend, to split
the Canadian National voting shares and Canadian National exchangeable shares
that make up part of the outstanding stapled securities to achieve an
equivalent effect. Similarly, North American Railways will be permitted, in
lieu of distributing stock in payment of any validly declared stock dividend,
to split the North American Railways common stock that makes up part of the
outstanding stapled securities to achieve an equivalent effect. If the boards
of directors of Canadian National and North American Railways determine that a
payment from one company is necessary or appropriate in connection with the
payment of a dividend or the making of a distribution by the other company,
then an equalizing payment will be made.
I-110
<PAGE>
Chapter One - The Combination
Amendments
The co-operation agreement will authorize the boards of directors of
Canadian National and Burlington Northern Santa Fe to make formal and technical
amendments to the co-operation agreement that are not prejudicial to the
interests of shareholders of either company. The directors also will be
authorized to depart from the cooperation agreement if they unanimously
determine that the departure is consistent with the core principles described
above, permissible under applicable law and in the best interests of the two
companies considered as a single economic enterprise. Changes to the detailed
provisions maintaining the economic equivalence of North American Railways
common stock and Canadian National exchangeable shares generally require the
approval of the affected class of shareholders. Any other amendment, including
an amendment to the core principles referred to above, requires unanimous
approval by the boards of directors of each company and the affirmative vote of
not less than 85% of the votes cast at a meeting of shareholders of each
company at which a quorum is present, provided that the number of affirmative
votes constitutes at least a majority of the votes entitled to be cast on such
amendment by holders of each company's shares.
I-111
<PAGE>
Chapter One - The Combination
THE STOCK OPTION AGREEMENTS
General
In connection with the combination agreement, the parties have granted
reciprocal stock options to each other with respect to, in the case of Canadian
National, 28,895,812 Canadian National common shares and, in the case of
Burlington Northern Santa Fe, 64,992,261 shares of Burlington Northern Santa Fe
common stock. The number of shares subject to the stock options is subject to
adjustment in each case so that the number of shares subject to the option will
always be equal to but may not exceed 12.5% of the outstanding common shares of
the option issuer after giving effect to the issuance of shares of common stock
under the option. The exercise price of an option is, in each case, the average
of the closing price of the option issuer's common stock on the New York Stock
Exchange on the five trading days preceding the date of notice of exercise.
Stock Option Granted to Canadian National by Burlington Northern Santa Fe
Burlington Northern Santa Fe and Canadian National entered into the
Burlington Northern Santa Fe stock option agreement, dated as of December 18,
1999, which grants Canadian National an irrevocable option to purchase up to
64,992,261 shares of Burlington Northern Santa Fe common stock. The following
summary of the Burlington Northern Santa Fe stock option agreement is qualified
by reference to the complete text of the Burlington Northern Santa Fe stock
option agreement, which is incorporated by reference and attached as Annex D.
Exercise of the Stock Option
Canadian National can exercise its option in whole or in part at any time
prior to the termination of the option by sending a written notice to
Burlington Northern Santa Fe in which Canadian National specifies (1) the
number of shares of Burlington Northern Santa Fe common stock that Canadian
National desires to purchase pursuant to exercise of the option and (2) a place
and date for closing of the exercise between three and 30 business days from
the date on which the notice is sent. A triggering event is any event that
entitles Canadian National to receive the $450 million cash termination fee
payable by Burlington Northern Santa Fe pursuant to the combination agreement.
See "The Combination Agreement--Termination of the Combination Agreement and
Termination Fees--Termination Fee". The exercise price of the option is the
average closing price of Burlington Northern Santa Fe's common stock on the New
York Stock Exchange for the five trading days preceding the date notice of
exercise is sent.
The number of shares of Burlington Northern Santa Fe common stock that
Canadian National will receive upon exercise of the option is subject to
anti-dilution and other adjustments to reflect changes in the outstanding
shares of Burlington Northern Santa Fe common stock, including appropriate
adjustments to reflect such changes in the outstanding Burlington Northern
Santa Fe common stock as stock dividends, stock splits, mergers,
recapitalizations, conversions and share exchanges. In addition, if Burlington
Northern Santa Fe enters into a business combination with a party other than
Canadian National pursuant to which Burlington Northern Santa Fe common stock
ceases to exist, Burlington Northern Santa Fe is required to make arrangements
to convert the option into or exchange it for a substantially identical option
in the common stock or other securities or property of the entity with which
Burlington Northern Santa Fe consolidates or merges. Burlington Northern Santa
Fe is required to deliver the shares to Canadian National promptly, except that
Burlington Northern Santa Fe may postpone the closing or delivery of its shares
to Canadian National after receiving Canadian National's notice if closing or
delivery of the shares would violate any applicable law, regulation, injunction
or order of any governmental entity.
Termination of the Stock Option
The option terminates upon the earliest to occur of (1) the closing of the
arrangement or the merger, (2) a court ruling finally enjoining exercise of the
option granted to Burlington Northern Santa Fe by Canadian National, (3) the
execution by Canadian National of a written agreement to enter into a business
combination with an entity other than Burlington Northern Santa Fe or (4) the
close of business on the day that is 18 months after Canadian National is
I-112
<PAGE>
Chapter One - The Combination
entitled to receive the $450 million cash termination fee from Burlington
Northern Santa Fe if Canadian National fails to give notice during that period.
Listing and Registration Rights
Burlington Northern Santa Fe has agreed to use its reasonable best efforts
to obtain listing approval for the shares to be issued to Canadian National
pursuant to the option from all securities exchanges on which Burlington
Northern Santa Fe's common stock is listed, subject to official notice of
issuance. Burlington Northern Santa Fe has also granted Canadian National
customary rights concerning registration of the option shares pursuant to which
Canadian National may request that Burlington Northern Santa Fe register the
option shares under the U.S. Securities Act of 1933.
Effect of the Stock Option
The Burlington Northern Santa Fe stock option is intended to make it more
likely that the combination will be completed on the agreed terms and to
compensate Canadian National for its efforts and costs in case the combination
is not completed under circumstances generally involving a third party proposal
for a business combination with Burlington Northern Santa Fe. The option may
discourage proposals for alternative business combinations with Burlington
Northern Santa Fe, even if a third party were prepared to offer Burlington
Northern Santa Fe shareholders consideration with a higher market value than
the value of the stapled securities to be exchanged for shares of Burlington
Northern Santa Fe common stock in the combination.
Stock Option Granted to Burlington Northern Santa Fe by Canadian National
Canadian National and Burlington Northern Santa Fe entered into the
Canadian National stock option agreement, dated as of December 18, 1999, which
grants Burlington Northern Santa Fe an irrevocable option to purchase up to
28,895,812 common shares of Canadian National. The following summary of the
Canadian National stock option agreement is qualified by reference to the
complete text of the Canadian National stock option agreement, which is
incorporated by reference and attached as Annex E.
Exercise of the Stock Option
Burlington Northern Santa Fe can exercise its option in whole or in part
at any time prior to the termination of the option by sending a written notice
to Canadian National in which Burlington Northern Santa Fe specifies (1) the
number of Canadian National common shares that Burlington Northern Santa Fe
desires to purchase pursuant to exercise of the option and (2) a place and date
for closing of the exercise between three and 30 business days from the date on
which the notice is sent. A triggering event is any event that entitles
Burlington Northern Santa Fe to receive the $200 million cash termination fee
payable by Canadian National pursuant to the combination agreement. See "The
Combination Agreement--Termination of the Combination Agreement and Termination
Fees--Termination Fee". The exercise price of the option is the average closing
price of Canadian National's common shares on the New York Stock Exchange for
the five trading days preceding the date notice of exercise is sent.
The number of Canadian National common shares that Burlington Northern
Santa Fe will receive upon exercise of the option is subject to anti-dilution
and other adjustments to reflect changes in the outstanding Canadian National
common shares, including appropriate adjustments to reflect such changes in the
outstanding Canadian National common shares as stock dividends, stock splits,
mergers, recapitalizations, conversions and share exchanges. In addition, if
Canadian National enters into a business combination with a party other than
Burlington Northern Santa Fe pursuant to which the Canadian National common
shares cease to exist, Canadian National is required to make arrangements to
convert the option into or exchange it for a substantially identical option in
the common stock or other securities or property of the entity with which
Canadian National consolidates or merges. Canadian National is required to
deliver the shares to Burlington Northern Santa Fe promptly, except that
Canadian National may postpone the closing or delivery of its shares to
Burlington Northern Santa Fe after receiving
I-113
<PAGE>
Chapter One - The Combination
Burlington Northern Santa Fe's notice if closing or delivery of the shares
would violate any applicable law, regulation, injunction or order of a
governmental entity.
Termination of the Stock Option
The option terminates upon the earliest to occur of (1) the closing of the
arrangement or the merger, (2) a court ruling finally enjoining exercise of the
option granted to Canadian National by Burlington Northern Santa Fe, (3) the
execution by Burlington Northern Santa Fe of a written agreement to enter into
a business combination with an entity other than Canadian National or (4) the
close of business on the day that is 18 months after Burlington Northern Santa
Fe is entitled to receive the $200 million cash termination fee from Canadian
National if Burlington Northern Santa Fe fails to give notice during that
period.
Listing and Registration Rights
Canadian National has agreed to use its reasonable best efforts to obtain
listing approval for the shares to be issued to Burlington Northern Santa Fe
pursuant to the option from all securities exchanges on which Canadian
National's common shares are listed, subject to official notice of issuance.
Canadian National has also granted Burlington Northern Santa Fe customary
rights concerning registration of the option shares pursuant to which
Burlington Northern Santa Fe may request that Canadian National register the
option shares under the U.S.
Securities Act of 1933.
Effect of the Stock Option
The Canadian National stock option is intended to make it more likely that
the combination will be completed on the agreed terms and to compensate
Burlington Northern Santa Fe for its efforts and costs in case the combination
is not completed under circumstances generally involving a third party proposal
for a business combination with Canadian National. The option may discourage
proposals for alternative business combinations with Canadian National, even if
a third party were prepared to offer Canadian National shareholders
consideration with a higher market value than the value of the stapled
securities to be exchanged for Canadian National common shares in the
combination.
I-114
<PAGE>
CHAPTER TWO
INFORMATION ABOUT THE MEETINGS AND VOTING
Canadian National's board of directors is using this document to solicit
proxies from the holders of Canadian National common shares and stock options,
if applicable, for use at the Canadian National meeting. Burlington Northern
Santa Fe's board of directors is also using this document to solicit proxies
from the holders of Burlington Northern Santa Fe common stock for use at the
Burlington Northern Santa Fe meeting. We are first mailing this document and
accompanying form of proxy to Canadian National and Burlington Northern Santa
Fe shareholders on or about __________ __, 2000.
Matters Relating to the Meetings
<TABLE>
<CAPTION>
Canadian National Meeting Burlington Northern Santa Fe Meeting
------------------------- ------------------------------------
<S> <C> <C>
Time and Place: __________, 2000 __________, 2000
[Time] [Time]
[Address] [Address]
Purpose of 1. for the holders of Canadian National 1. for the holders of Burlington Northern
Meeting is to Vote common shares and options (except for Santa Fe common stock to vote on the
on the Following Burlington Northern Santa Fe) to adoption of the combination
Items: consider and, if determined advisable, agreement, as it may be amended from
approve, with or without variation, a time to time, and the transactions that
special resolution (the "arrangement it contemplates, including the merger
resolution") in respect of a plan of of a wholly owned subsidiary of North
arrangement (the "arrangement"), all as American Railways with and into
more particularly described in this Burlington Northern Santa Fe, with
document; the result that Burlington Northern
Santa Fe will become a wholly owned
2. for the holders of Canadian National subsidiary of North American
common shares to receive the Railways; and
consolidated financial statements of
Canadian National for the year ended 2. to consider other related business that
December 31, 1999, and the report of its properly comes before the meeting or
auditors; any adjournment or postponement of
the meeting.
3. for the holders of Canadian National
common shares to elect directors;
4. for the holders of Canadian National
common shares to appoint its auditors;
and
5. to conduct other business that is
properly raised.
Record Date: The record date for shares and options entitled The record date for shares entitled to vote is
to vote is _____________, 2000. ________________________.
Outstanding As of ______________ _, 2000, there were As of __________ _, 2000, there were
Shares and _____ outstanding Canadian National common ______ shares of Burlington Northern Santa
Canadian shares and options to purchase _____ Canadian Fe common stock outstanding and entitled to
National Options National common shares. vote.
Held on Record
Date:
II-1
<PAGE>
Chapter Two - Information about the Meetings and Voting
Canadian National Meeting Burlington Northern Santa Fe Meeting
------------------------- ------------------------------------
Securities Entitled Securities of Canadian National entitled to vote Shares entitled to vote are Burlington
to Vote: are Canadian National common shares and Northern Santa Fe common stock
options to purchase Canadian National outstanding at the close of business on the
common shares (other than the stock options record date.
granted to Burlington Northern Santa Fe)
outstanding at the close of business on the Each share of Burlington Northern Santa Fe
record date. common stock that you own entitles you to
one vote.
Each Canadian National common share that
you own entitles you to one vote on all matters. Shares held by Burlington Northern Santa Fe
Option holders are entitled to one vote for each in its treasury are not voted.
Canadian National common share subject to
option on the arrangement resolution only (and
not on any other matter).
Quorum A quorum of shareholders is necessary to hold A quorum of shareholders is necessary to
Requirement: a valid meeting. hold a valid meeting.
The presence in person or by proxy at the The presence in person or by proxy at the
meeting of at least two persons holding shares meeting of holders of shares representing at
representing at least 10% of the Canadian at least a majority of the votes of the
National common shares entitled to vote at the Burlington Northern Santa Fe common stock
meeting is a quorum. entitled to vote at the meeting is a quorum.
Abstentions and broker "non-votes" count as
present for establishing a quorum. Shares
held by Burlington Northern Santa Fe in its
treasury do not count toward a quorum. A
broker "non-vote" occurs on an item when a
broker is not permitted to vote on that item
without instruction from the beneficial owner
of the shares and no instruction is given.
Shares Approximately _______ Canadian National Approximately _______ shares of
Beneficially common shares and options. These securities Burlington Northern Santa Fe common
Owned by represent in total approximately _______% of stock, including shares which may be
Canadian Canadian National's voting shares, for acquired within 60 days upon the exercise of
National and purposes of voting on the arrangement stock options. These securities represent in
Burlington resolution. total less than 1% of the voting power of
Northern Santa Burlington Northern Santa Fe's voting
Fe Directors and These individuals have indicated that they will securities, voting together as a single class.
Executive Officers vote in favor of the arrangement resolution and
as of the other annual meeting matters. These individuals have indicated that they
_____________: will vote in favor of the combination.
</TABLE>
II-2
<PAGE>
Chapter Two - Information about the Meetings and Voting
Vote Necessary to Approve the Proposal Related to the Combination at the
Canadian National and Burlington Northern Santa Fe Special Meetings
Votes cast by holders of Canadian National common shares on the Canadian
National annual meeting proposals are separate from, and will have no effect
on, the vote on the approval of the arrangement resolution.
<TABLE>
Item Vote Necessary
---- --------------
<S> <C> <C> <C>
I. Combination Proposal Canadian Approval of the special resolution in respect of a plan of
National: arrangement, as described in "Chapter One--Canadian
National Transaction Mechanics--The Arrangement", requires a
vote of two-thirds of the votes cast by holders of Canadian
National common shares and holders of Canadian National options,
voting together as a single class. Abstentions and
broker "non-votes" have no effect on the vote.
Burlington Approval of the combination agreement and the transactions
Northern that it contemplates requires the affirmative vote of a majority
Santa Fe: of the shares of Burlington Northern Santa Fe common stock
outstanding and entitled to vote. Abstentions and broker "non-
votes" will have the effect of a "no" vote.
If your broker holds your shares in its name, your broker is not
permitted to vote your shares on the proposal unless it receives
instructions from you.
</TABLE>
Vote Necessary to Approve Canadian National Annual Meeting Proposals
<TABLE>
Item Vote Necessary
---- --------------
<S> <C> <C>
I. Election of Directors Majority of the votes cast by holders of Canadian National common shares.
Abstentions and broker "non-votes" have no effect on the vote.
II. Appointment of Auditors Majority of the votes cast by holders of Canadian National common shares.
Abstentions and broker "non-votes" have no effect on the vote.
</TABLE>
II-3
<PAGE>
Chapter Two - Information about the Meetings and Voting
Proxies
Voting Your Proxy. You may vote in person at your meeting or by proxy. We
recommend you vote by proxy even if you plan to attend your meeting. You can
always change your vote at the meeting.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxyholder will vote your shares as you have directed. You may vote for
or against any proposal or abstain from voting. In addition, if you are a
Canadian National shareholder, you may vote for or withhold from voting in
respect of the election of the slate of directors nominated by management and
the appointment of auditors for your company. Please complete, sign, date and
return the enclosed proxy card in the envelope provided as soon as possible.
If you submit your proxy but do not make specific choices, your
proxyholder will vote your shares:
<TABLE>
Canadian National Burlington Northern Santa Fe
..................................................................................................
<S> <C> <C> <C>
o "FOR" the arrangement resolution o "FOR" the combination proposal
o "FOR" the slate of directors nominated o In its discretion as to other business
by management that properly comes before the
o "FOR" the appointment of auditors Burlington Northern Santa Fe special
o In its discretion as to any other business meeting or at any adjournment or
that properly comes before the postponement of the meeting
Canadian National meeting or at any
adjournment or postponement of the
meeting
</TABLE>
By granting a proxy to vote "FOR" the combination agreement and the
transactions that it contemplates, including the merger of a wholly owned
subsidiary of North American Railways with and into Burlington Northern Santa
Fe, Burlington Northern Santa Fe shareholders will be authorizing the voting of
their shares in favor of the adoption of the combination agreement and any
amendments to the combination agreement and the transactions that it
contemplates.
Appointing Your Proxyholder. The persons named in the enclosed form of
proxy are representatives of management. However, you have the right to appoint
any person or company, who need not be a shareholder, to attend and act on your
behalf at the meeting. You may exercise this right by writing in the name of
such person or company in the blank space provided in the enclosed form of
proxy or by completing another form of proxy.
Revoking Your Proxy. You may revoke your proxy before it is voted by:
o submitting a new proxy with a later date;
o notifying your company's Corporate Secretary in writing before the
meeting that you have revoked your proxy;
o in the case of Canadian National shareholders, depositing an
instrument in writing with the chairman of the meeting (or in any
other manner permitted by law); or
o voting in person at the meeting.
Voting in person. If you plan to attend a meeting and wish to vote in
person, we will give you a ballot at the meeting. However, if your shares are
held in the name of your broker, bank or other nominee, you must, in the case
of Canadian National shareholders, bring the enclosed voting instruction form
to the meeting. Burlington Northern Santa Fe shareholders must bring an account
statement or letter from the nominee indicating that you are the
II-4
<PAGE>
Chapter Two - Information about the Meetings and Voting
beneficial owner of the shares on _____________, 2000, the record date for
voting. A person who acquires Canadian National common shares after the record
date may be entitled to vote at the meeting in respect of such shares provided
that the transferee establishes ownership of the shares and demands not later
than the close of business on _____________, 2000 to be included in the list of
shareholders entitled to vote at the meeting.
Voting Instruction Card - Canadian National Employees. Common shares
purchased by employees of Canadian National under the Employee Share Investment
Plan dated September 1, 1997 are known as employee shares. Employee shares
remain registered in the name of The Trust Company of Bank of Montreal as
custodian, unless the employees have withdrawn their shares from the Employee
Share Investment Plan in accordance with its provisions.
Voting rights attached to the employee shares that are registered in the
name of The Trust Company of Bank of Montreal can be exercised by employees, or
their attorneys authorized in writing, by indicating on the enclosed voting
instruction card the necessary directions to The Trust Company of Bank of
Montreal or any other person or company (who need not be a shareholder) as to
how they wish their employee shares to be voted at the meeting. The employee
shares will be voted pursuant to the directions of the beneficial owner. If no
choice is specified for an item, the employee shares will be voted in favor of
management's propositions and be voted at the discretion of The Trust Company
of Bank of Montreal or such other person indicated in respect of amendments to
management's propositions or on such other business as may properly be brought
before the meeting. Only employee shares in respect of which a voting
instruction card has been signed and returned will be voted.
A holder of employee shares may revoke his or her directions indicated on
a voting instruction card at any time by instrument in writing executed by the
holder of employee shares, or by the holder's attorney duly authorized in
writing, and (1) deposited with the Corporate Secretary of Canadian National at
the registered office of Canadian National at any time up to and including the
last business day preceding the day of the meeting or any adjournment thereof,
(2) filed with the chairman of the meeting on the day of the meeting or (3) in
any other manner permitted by law.
The voting instruction card must be used only with respect to employee
shares. In the event that an employee holds common shares outside the Employee
Share Investment Plan, he or she must also complete the enclosed proxy form
with respect to the additional common shares. No proxy form is to be completed
with respect to employee shares.
People with disabilities. We can provide reasonable assistance to help you
participate in the meeting if you tell us about your disability and your plan
to attend. Please call or write the Corporate Secretary of your company at
least two weeks before your meeting at the number or address under "Chapter
One--Summary--The Companies".
Proxy solicitation. We will pay our own costs of soliciting proxies.
In addition to this mailing, Canadian National and Burlington Northern
Santa Fe employees and agents may solicit proxies personally, electronically,
by telephone, or otherwise. Canadian National is paying Georgeson Shareholder
Communications Canada and Innisfree M&A Incorporated a fee of Cdn$300,000 and
$25,000, respectively, plus expenses, to help with the solicitation. Burlington
Northern Santa Fe is paying Georgeson Shareholder Communications Inc. a fee of
$15,500 plus expenses, to help with the solicitation.
The extent to which these proxy soliciting efforts will be necessary
depends entirely upon how promptly proxies are submitted. You should send in
your proxy by mail without delay. We also reimburse brokers and other nominees
for their expenses in sending these materials to you and getting your voting
instructions.
Do not send in any stock certificates with your proxy cards. Prior to, in
the case of Canadian National, and as soon as practicable after the combination
is completed, in the case of Burlington Northern Santa Fe, the exchange agent
will mail transmittal forms with instructions for the surrender of stock
certificates for Burlington Northern Santa Fe common stock and the depositary
will mail transmittal and election forms with instructions for the
II-5
<PAGE>
Chapter Two - Information about the Meetings and Voting
surrender of Canadian National common shares in exchange for the securities to
be received as a result of the combination.
Other Business; Adjournments
We currently are not aware of any other business to be acted upon at
either meeting. If, however, other matters are properly brought before either
meeting, or any adjourned meeting, your proxyholders will have discretion to
vote or act on those matters according to their best judgment, including to
adjourn the meeting.
Adjournments may be made for the purpose of, among other things,
soliciting additional proxies. Any adjournment may be made from time to time by
approval of the holders of shares representing a majority of the votes present
in person or by proxy at the meeting, whether or not a quorum exists, without
further notice other than by an announcement made at the meeting. Neither of us
currently intends to seek an adjournment of our meeting.
II-6
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
CHAPTER THREE
COMPARISON OF SHAREHOLDER RIGHTS AND
DESCRIPTION OF CAPITAL STOCK
COMPARISON OF SHAREHOLDER RIGHTS
The rights of holders of Burlington Northern Santa Fe common stock are
currently governed by the Delaware General Corporation Law, Burlington Northern
Santa Fe's amended and restated certificate of incorporation and Burlington
Northern Santa Fe's by-laws. The rights of holders of Canadian National common
shares are currently governed by the Canada Business Corporations Act, Canadian
National's articles of continuance (as amended) and Canadian National's
by-laws.
The rights of holders of Canadian National securities to be issued in
connection with the combination will be governed by the Canada Business
Corporations Act and Canadian National's articles and by-laws, as modified as
described in this document. The rights of holders of North American Railways
common stock to be issued in connection with the combination will be governed
by the Delaware General Corporation Law and North American Railways'
certificate of incorporation and by-laws, as modified as described in this
document.
As a result of the combination, Burlington Northern Santa Fe shareholders
will receive a stapled security consisting of North American Railways common
stock and Canadian National voting shares and, as a result, will have rights
and privileges of the underlying North American Railways common stock governed
by the Delaware General Corporation Law, North American Railways' certificate
of incorporation and North American Railways' by-laws and the underlying
Canadian National voting shares governed by the Canada Business Corporations
Act, Canadian National's articles and Canadian National's by-laws. Canadian
National shareholders who receive a stapled security consisting of Canadian
National voting shares and Canadian National exchangeable shares will have
rights and privileges of the underlying Canadian National voting shares and
Canadian National exchangeable shares governed by the Canada Business
Corporations Act, Canadian National's articles and Canadian National's by-laws.
Canadian National shareholders who elect to receive this stapled unit will also
receive an interest in a trust pursuant to which the shareholder will have
voting rights at North American Railways proportionate to that shareholder's
economic interest in the combined companies. Those rights are described under
the heading "--Description of Canadian National, Burlington Northern Santa Fe
and North American Railways Capital Stock--Canadian National--Voting Rights
with Respect to North American Railways" Canadian National shareholders who
elect to receive a stapled security consisting of North American Railways
common stock and Canadian National voting shares, as well as Canadian National
shareholders who receive Canadian National exchangeable shares at completion of
the combination and subsequently exchange those shares for North American
Railways common stock, will have the rights and privileges of the underlying
North American Railways common stock under the Delaware General Corporation
Law, North American Railways' certificate of incorporation and North American
Railways' by-laws and the underlying Canadian National voting shares under the
Canada Business Corporations Act, Canadian National's articles and Canadian
National's by-laws.
The co-operation agreement to be entered into in connection with the
combination will include a number of provisions affecting the rights of North
American Railways and Canadian National shareholders. See "Chapter One--The
Combination--The Co-Operation Agreement" for a description of these matters.
North American Railways' certificate of incorporation and Canadian National's
articles will provide that they will comply with their obligations under the
co-operation agreement.
All references in this chapter to North American Railways' certificate of
incorporation are references to the certificate of incorporation of North
American Railways that will become effective at the completion of the
combination, a copy of which is attached as Annex M. Copies of Canadian
National's articles and by-laws and Burlington Northern Santa Fe's amended
certificate of incorporation and by-laws are incorporated by reference and will
be sent to holders of Canadian National common shares and Burlington Northern
Santa Fe common stock upon request. See "Chapter Five--Additional Information
for Shareholders--Where You Can Find More Information". The summary contained
in the following chart is not intended to be complete and is qualified by
reference to the Delaware General Corporation Law, the Canada Business
Corporations Act, the Canadian National articles and by-laws, the Burlington
Northern Santa Fe amended and restated certificate of incorporation and by-laws
and the North American Railways certificate of incorporation and by-laws.
III-1
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Summary of Material Differences Between Current Rights of Canadian National and
Burlington Northern Santa Fe Shareholders and Rights Those Shareholders Will
Have as Shareholders of the Combined Companies After the Combination
<TABLE>
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
<S> <C> <C> <C>
Authorized See "Description of See "Description of See "Description of
Capital Stock: Canadian National, Canadian National, Canadian National,
Burlington Northern Santa Burlington Northern Santa Burlington Northern Santa
Fe and North American Fe and North American Fe and North American
Railways Capital Railways Capital Railways Capital
Stock--Burlington Northern Stock--Canadian National". Stock--North American Railways".
"Stapling": Burlington Northern Santa Canadian National securities North American Railways'
Fe securities are not subject are not subject to any such certificate of incorporation
to any such requirement. requirement. will require that North
American Railways common
After the combination, stock must be "stapled"
Canadian National voting to Canadian National
shares will be voting shares.
"stapled" either
to North American
Railways common stock or
Canadian National
exchangeable shares.
Share The co-operation agreement will provide that neither
Issuances: Canadian National nor North American Railways will issue
participating or voting shares except as follows: (1) North
American Railways will be permitted to issue North
American Railways common stock only upon exchange of
Canadian National exchangeable shares or if Canadian
National issues Canadian National voting shares and the
directors of Canadian National and North American
Railways are satisfied that the Canadian National voting
shares issued will trade as a single security together with the
related North American Railways common stock and (2)
Canadian National will be permitted to issue exchangeable
shares only when it also issues Canadian National voting
shares and the directors of Canadian National and North
American Railways are satisfied that the Canadian National
exchangeable shares issued will trade as a single security
with the related Canadian National voting shares. After the
combination is completed, both Canadian National's articles
and North American Railways' certificate of incorporation
will contain provisions requiring compliance with those
provisions of the co-operation agreement.
Payment of The Delaware General Under the Canada Business Same as Burlington
Dividends: Corporation Law permits a Corporations Act, a Northern Santa Fe.
corporation, unless otherwise corporation may pay a
restricted by its certificate dividend by issuing fully
of incorporation, to declare paid shares of the
and
III-2
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
pay dividends out of surplus corporation. A corporation
or, if there is no surplus, out may also pay a dividend in
of the net profits for the money or property, but
fiscal year in which the cannot declare or pay a
dividend is declared and/or dividend unless there are
the preceding fiscal year reasonable grounds for
(provided, with respect to a believing that:
dividend out of net profits, o the corporation is, or
that the amount of capital of would after the payment
the corporation is not less be, unable to pay its
than the aggregate amount of liabilities as they become
capital represented by the due; or
issued and outstanding stock of o the realizable value of the
all classes having a preference corporation's assets
upon the distribution of would thereby be less
assets). In addition, the than the aggregate of its
Delaware General Corporation liabilities and stated
Law generally provides that a capital of all classes.
corporation may redeem or
repurchase its shares only if
the capital of the corporation
is not impaired and such
redemption or repurchase would
not impair the capital of the
corporation.
Co-Operation The co-operation agreement will provide that dividends and
Agreement other distributions paid in respect of North American
Requirements for Railways common stock and Canadian National
Payment of exchangeable shares must be equivalent.
Dividends:
Number of Burlington Northern Santa Canadian National's articles North American Railways'
Directors: Fe's by-laws provide that the provide that the number of by-laws will provide that the
number of directors will be directors will be at least number of directors shall be
as determined by the seven and no more than 21. not less than seven nor more
Burlington Northern Santa Canadian National's by-laws than 21.
Fe board of directors but provide that Canadian
shall be not less than three National's board of directors
nor more than 21. The may determine the number
Burlington Northern Santa of directors within the
Fe board currently consists parameters set by the
of 15 directors. articles. The Canadian
National board currently
consists of 16
directors.
Director The Delaware General A majority of the directors North American Railways'
Qualifications: Corporation Law does not of a Canada Business certificate of incorporation
have any residency or other Corporations Act will provide that a
director qualification corporation and any of its qualification to serve as a
III-3
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
requirements. committees must be resident director of North American
Canadians. The Canada Railways is that the
Business Corporations Act individual also serve as a
also requires that a director of Canadian
corporation whose securities National. As a result, a
are publicly traded have not majority of the directors of
fewer than three directors, at National American Railways
least two of whom are not will be required to be
officers or employees of the resident Canadians.
corporation or any of its
affiliates.
Identical The co-operation agreement will provide that each company
Boards: will take all necessary steps within its power to ensure that
the boards of directors of Canadian National and North
American Railways are identical.
Classification of Burlington Northern Santa Canadian National does not Same as Burlington
Board of Fe does not have a classified have a classified board. The Northern Santa Fe.
Directors: board. The Burlington Canadian National by-laws
Northern Santa Fe by-laws require that all directors be
require that all directors be elected at each annual
elected at each annual meeting of shareholders for
meeting of shareholders for a a term of one year.
term of one year.
Removal of The Delaware General The Canada Business Same as Burlington
Directors: Corporation Law provides Corporations Act and the Northern Santa Fe.
that a director may be Canadian National by-laws
removed with or without allow the removal of a
cause by holders of a director by the shareholders
majority of shares entitled to by ordinary resolution
vote at an election of passed at a meeting specially
directors, unless the called for that purpose. An
corporation's certificate of ordinary resolution is a
incorporation requires a resolution passed by a
higher vote. Burlington majority of the votes cast by
Northern Santa Fe's shareholders who voted at
certificate of incorporation the meeting.
does not have such a
requirement.
Fiduciary Duties Under the Delaware General Under the Canada Business Same as Burlington
of Directors: Corporation Law, directors Corporations Act, the duty Northern Santa Fe.
have fiduciary duties, which of loyalty requires directors
are generally categorized as of a Canadian corporation to
duties of care and loyalty. act honestly and in good
The duty of care requires faith with a view to the best
directors to act in an interests of the corporation.
informed and deliberative Under the Canada Business
manner and to inform Corporations Act, the duty
III-4
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
themselves, prior to making of care requires that the
a business decision, of all directors of a Canadian
material information corporation exercise the
reasonably available to them. care, diligence and skill that
The duty of loyalty may a reasonably prudent person
require directors to act in would exercise in
good faith to advance the comparable circumstances.
best interests of the Courts have interpreted these
corporation and its duties to mean substantially
shareholders, as opposed to the same thing as is
any self-interest. described under "Burlington
Northern Santa Fe
Shareholder Rights".
Head Office The Burlington Northern The CN Commercialization North American Railways'
Location: Santa Fe certificate of Act and the Canadian certificate of incorporation
incorporation does not National articles require that will require that North
contain any provision with Canadian National's head American Railways' head
respect to the company's office be located in the office be located in the
head office. Montreal Urban Community, Montreal Urban Community,
Quebec, Canada. Quebec, Canada.
Restrictions on The Burlington Northern The Canadian National North American Railways'
Ownership Santa Fe certificate of articles provide that no certificate of incorporation
Rights: incorporation does not person together with that will include restrictions on
contain restrictions on person's associates may hold ownership of North
ownership rights. or control more than 15% of American Railways voting
the voting rights in Canadian rights substantially identical
National. If this 15% to the restrictions on
threshold is exceeded, the ownership of Canadian
board of directors may take National voting shares
a range of actions, including included in Canadian
requiring the holder to sell National's articles.
shares in excess of the 15%
threshold or denying the
holder voting rights. See
"Description of Canadian
National, Burlington
Northern Santa Fe and North
American Railways Capital
Stock--Canadian
National--Restrictions on
Ownership".
Amendments to The Delaware General Santa Fe Under the Canada Business Subject to the following
Burlington Corporation Law generally Corporations Act, an paragraph, same as
Northern Santa requires that an amendment amendment to a Burlington Northern Santa
Fe and North to a corporation's certificate corporation's articles Fe.
American of incorporation be approved generally requires
Railways first by the corporation's shareholder approval by North American Railways'
Certificates of board of directors and then special resolution, which is a certificate of incorporation
III-5
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
Incorporation and by the holders of a majority resolution passed by not less will provide that, in addition
By-Laws and of the outstanding stock. In than two-thirds of the votes to the requirements of the
Canadian addition, certain cast by shareholders who Delaware General
National Articles amendments must also be voted on the resolution. Corporation Law, the
and By-Laws: approved by the holders of a provisions of the certificate
majority of the outstanding Under the Canada Business of incorporation with respect
stock of a separate class or Corporations Act, unless the to the 15% ownership
classes. articles or by-laws otherwise restriction, board
provide, the directors may, qualification, "stapling" and
The Delaware General by resolution, make, amend head office location may be
Corporation Law provides or repeal any by-law that amended only with the
that the power to adopt, regulates the business or affirmative vote of all
amend or repeal the by-laws affairs of a corporation. directors other than directors
of a corporation shall be in Where the directors make, who are unable to vote due
the shareholders entitled to amend or repeal a by-law, to medical reasons and the
vote, provided that the they are required under the affirmative vote of at least
corporation in its certificate Canada Business 85% of the votes cast at a
of incorporation may confer Corporations Act to submit meeting of shareholders at
such power on the board of the by-law, amendment or which a quorum is present.
directors in addition to the repeal to the shareholders In addition, (1) the
shareholders. Burlington and the shareholders may provisions of the certificate
Northern Santa Fe's confirm, reject or amend the of incorporation relating to
certificate of incorporation by-law, amendment or repeal the 15% ownership
expressly authorizes the by an ordinary resolution, restriction and the head
board of directors to adopt, which is a resolution passed office location may not be
amend or repeal Burlington by a majority of the votes amended unless the board of
Northern Santa Fe's by-laws. cast by shareholders who directors first receives an
voted on the resolution. opinion from a Canadian law
firm of national standing that
the amendment would not
have a significant risk of
violating Canadian law, (2)
the provision of the
certificate of incorporation
relating to "stapling" may
not be amended unless the
board of directors first
receives an opinion from a
Canadian law firm of
national standing that the
amendment would not have
a significant risk of violating
Canadian law and the board
of directors has concluded
that Canadian National and
North American Railways
should no longer be operated
as a single economic
enterprise and (3) the
provision of the certificate of
III-6
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
incorporation relating to the
qualification of directors
may not be amended unless
the board has concluded that
Canadian National and
North American Railways
should no longer be operated
as a single economic
enterprise.
Shareholder The co-operation agreement will provide that with respect to
Meetings: all Canadian National and North American Railways
shareholder meetings, the record date and the location will
be the same and the time of the meetings will be as close as
possible.
Quorum for Under the Delaware General Under the Canada Business Same as Burlington
Shareholder Corporation Law, a quorum Corporations Act, unless the Northern Santa Fe.
Meetings: consists of a majority of corporation's by-laws
shares entitled to vote at the otherwise provide, a quorum
meeting present in person or of shareholders is present at
by proxy unless the a meeting, irrespective of the
certificate of incorporation number of persons actually
or by-laws provide present at the meeting, if the
otherwise, but in no event holders of a majority of the
may a quorum consist of less shares entitled to vote at the
than one-third of shares meeting are present in
entitled to vote at the person or represented by
meeting. proxy.
The Burlington Northern Canadian National's by-laws
Santa Fe by-laws provide provide that a quorum at any
that a quorum at any shareholder meeting shall be
shareholder meeting shall be two persons present in
a majority of the issued and person, each being entitled
outstanding stock of to vote at the meeting or a
Burlington Northern Santa duly appointed proxy holder
Fe entitled to vote at such for an absent shareholder so
meeting, present in person or entitled, and together
by proxy. holding in person or by
proxy not less than 10% of
the outstanding Canadian
National shares entitled to be
voted at the meeting.
Vote Required for The Burlington Northern The Canadian National by- Same as Burlington
Certain Santa Fe by-laws provide laws provide that, unless Northern Santa Fe.
Shareholder that, unless otherwise otherwise required by law or
Actions: required by law or the by its articles, shareholder
Burlington Northern Santa action is taken by a majority
Fe certificate of of the votes cast on a
III-7
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
incorporation, the question at any shareholder
affirmative vote of a meeting.
majority of the shares
present or represented at the
meeting and entitled to vote
on such matter shall be
deemed the act of the
shareholders.
Vote Required for The Delaware General Under the Canada Business Same as Burlington
Extraordinary Corporation Law generally Corporations Act, certain Northern Santa Fe.
Transactions: requires the affirmative vote extraordinary corporate
of a majority of the shares of actions, such as
outstanding stock entitled to amalgamations,
vote to authorize any continuances, sales, leases or
merger, consolidation, exchanges of all or
dissolution or sale of all or substantially all of the
substantially all of the assets property of a corporation
of a corporation, except that other than in the ordinary
no authorizing shareholder course of business, and other
vote is required of a extraordinary corporate
corporation surviving a actions such as liquidations
merger if or dissolutions, are required
o such corporation's to be approved by special
certificate of resolution. A special
incorporation is not resolution is a resolution
amended in any respect by passed by not less than
the merger; two-thirds of the votes cast
o each share of stock of by the shareholders who
such corporation voted on the resolution. In
outstanding immediately certain cases, a special
prior to the effective date resolution to approve an
of the merger will be an extraordinary corporate
identical outstanding or action is also required to be
treasury share of the approved separately by the
surviving corporation holders of a class or series of
after the effective date of shares.
the merger; and
o the number of shares to be A corporation may also
issued in the merger does apply to a court for an order
not exceed 20% of such approving an arrangement
corporation's outstanding (which includes an
common stock amalgamation, a transfer of
immediately prior to the all or substantially all the
effective date of the property of a corporation to
merger. another body corporate in
exchange for property,
Approval by a parent money or securities of the
corporation's shareholders body corporate, or
also is not required under the liquidation and dissolution)
III-8
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
Delaware General where it is not insolvent and
Corporation Law for mergers where it is not practicable
of a subsidiary of which the for the corporation to make
parent corporation owns at such fundamental change in
least 90% of the outstanding accordance with the
shares of each class of stock provisions of the Canada
entitled to vote on a merger Business Corporations Act.
with and into its parent The court may make any
corporation. interim or final order it
thinks fit with respect to
such a proposed
arrangement.
Shareholder Under the Delaware General Under the Canada Business Same as Burlington
Action by Written Corporation Law, unless Corporations Act, Northern Santa Fe.
Consent: otherwise provided in a shareholder action without a
corporation's certificate of meeting may be taken only
incorporation, shareholders by written resolution signed
may act by written consent. by all shareholders who
However, the Burlington would be entitled to vote
Northern Santa Fe certificate thereon at a meeting.
of incorporation and by-laws
provide that any action
required or permitted to be
taken by the shareholders
must be effected at a duly
called annual or special
meeting of shareholders and
not by written consent.
Calling of Special Under the Delaware General Under the Canada Business Same as Burlington
Shareholder Corporation Law, written Corporations Act, notice of Northern Santa Fe.
Meeting: notice of any meeting of the time and place of any
shareholders must be given meeting of shareholders
not less than ten nor more must be sent not less than 21
than 60 days before the date days nor more than 50 days
of the meeting to each before the meeting to each
shareholder entitled to vote shareholder entitled to vote
at the meeting (provided at the meetings.
that, for a merger or sale of
all or substantially all of a
corporation's assets, a The Canada Business
minimum of 20 days notice Corporations Act provides
is required and, for a merger, that shareholder meetings
the holders of all stock are may be called by the board
entitled to such notice). of directors, and must be
called by the board of
Under the Delaware General directors when requisitioned
Corporation Law, unless the by holders of not less than
certificate of incorporation 5% of the issued shares of
III-9
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
or by-laws authorize the corporation that carry the
additional persons, only the right to vote at the meeting
board of directors may call a sought. Under Canadian
special shareholder meeting. National's by-laws, the
Neither Burlington Northern board of directors, the
Santa Fe's certificate of chairperson of the board, the
incorporation nor by-laws vice-chairperson, if any, or
contains such a provision. the president has power to
call a special meeting at any
time.
Shareholder Burlington Northern Santa Canadian National has no It is not anticipated that
Rights Plan: Fe adopted a shareholder shareholder rights plan. North American Railways
rights plan on December 18, will have a shareholder
1999. For a description of rights plan.
that plan, see "Description of
Canadian National,
Burlington Northern Santa
Fe and North American
Railways Capital
Stock--Burlington Northern
Santa Fe--Burlington
Northern Santa Fe Rights
Plan".
Indemnification of The Delaware General Under the Canada Business Same as Burlington
Officers and Corporation Law provides Corporations Act, Canadian Northern Santa Fe.
Directors: that a corporation may National may, and pursuant
indemnify any person: to Canadian National's
o who was or is a party or is by-laws Canadian National
threatened to be made a has agreed to, indemnify a
party to any threatened, director or officer, a former
pending or completed director or officer or a
action, suit or proceeding, person who acts or acted at
whether civil, criminal, Canadian National's request
administrative or as a director or officer of a
investigative, by reason of body corporate of which
the fact that Canadian National is or was
o the person is or was a shareholder or creditor,
a director, officer, and his or her heirs and legal
employee or agent of representatives (an
the corporation; or "Indemnifiable Person"),
o is or was serving at against all costs, charges and
the request of the expenses, including an
corporation as a amount paid to settle an
director, officer, action or satisfy a judgment,
employee or agent of reasonably incurred by him
another corporation, or her in respect of any civil,
partnership, joint criminal or administrative
venture, trust or action or proceeding to
III-10
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
other enterprise; which he or she is made a
against all reasonable party by reason of being or
expenses (including having been a director or
attorneys' fees) and, except officer of Canadian National
in actions initiated by or in or such body corporate, if:
the right of the corporation, o he or she acted honestly
against all judgments, fines and in good faith with a
and amounts paid in view to the best interest of
settlement in actions brought Canadian National; and
against them, if the o in the case of a criminal
indemnitee: or administrative action or
o acted in good faith and in proceeding that is
a manner which he or she enforced by a monetary
reasonably believed to be penalty, he or she had
in, or not opposed to, the reasonable grounds to
best interests of the believe that his or her
corporation; and conduct was lawful.
o in the case of a criminal
proceeding, had no An Indemnifiable Person is
reasonable cause to entitled under the Canada
believe that his or her Business Corporations Act
conduct was unlawful; to such indemnity from
except that no Canadian National if he or
indemnification shall be she was substantially
made in respect of an action successful on the merits in
initiated by, or in the right of his or her defense of the
the corporation, with respect action or proceeding and
to any claim, issue or matter fulfilled the conditions set
as to which such person has out in the bullet points
been adjudged liable to the above. Substantial success
corporation unless and only on the merits is not a
to the extent that the court requirement for indemnity
determines that, in view of under the Canadian National
all the circumstances, such by-law. The indemnity does
person is fairly and not apply to an action
reasonably entitled to brought against the
indemnity for such expenses Indemnifiable Person by or
as such court deems proper. on behalf of Canadian
National, except that where
The corporation shall Canadian National obtains
indemnify a present or the approval of a court to
former director or officer to indemnify an Indemnifiable
the extent that he or she is Person in respect of an
successful on the merits or action by or on behalf of the
otherwise in the defense of corporation or such body
any claim, issue or matter corporate to procure a
associated with such an judgment in its favor, to
action. which such person is made a
party by reason of being or
Burlington Northern Santa having been a director or
III-11
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
Fe's by-laws provide for officer of the corporation or
indemnification of present body corporate, if he or she
and former directors, fulfills the conditions set out
employees and agents to the in the bullet points above.
fullest extent permitted by
the Delaware General
Corporation Law.
Director Liability: The Delaware General The Canada Business Same as Burlington
Corporation Law provides Corporations Act does not Northern Santa Fe.
that a corporation's permit any limitation of a
certificate of incorporation director's liability under the
may include a provision that Canada Business
limits or eliminates the Corporations Act, and
liability of directors to the Canadian National's by-
corporation or its laws, while releasing the
shareholders for monetary directors with respect to
damages for breach of certain matters, does not
fiduciary duty as a director, release the directors from
except for: any liability or duty under
o liability for acts or the Canada Business
omissions not in good Corporations Act. Among
faith or which involve other things, directors are
intentional misconduct or liable under the Canada
a knowing violation of Business Corporations Act
law; to the corporation for any
o breach of the duty of improper:
loyalty; o payment of dividends;
o the payment of unlawful o director indemnification
dividends or expenditure payments;
of funds for unlawful o expenditure of funds for
stock purchases or share purchases or
redemptions; or redemptions; or
o transactions from which a o financial assistance.
director derived an
improper personal benefit.
Burlington Northern Santa
Fe's certificate of
incorporation contains a
provision limiting the
liability of its directors to the
fullest extent permitted by
the Delaware General
Corporation Law.
Anti-Takeover Section 203 of the Delaware The Canada Business Section 203 of the Delaware
Provisions: General Corporation Law Corporations Act does not General Corporation Law
generally provides that any contain a provision will apply to North
person who owns 15% of a comparable to Section 203 American Railways. In
corporation's voting stock of the Delaware General addition, North American
III-12
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
(an interested shareholder) Corporation Law with Railways' certificate of
may not engage in certain respect to business incorporation will include
business combinations with combinations. However, the limitations on ownership
the corporation for a period policies of certain Canadian of North American Railways
of three years following the securities regulatory common stock referred to in
time the person became an authorities, including Policy "Restrictions on Ownership
interested shareholder, Q-27 of the Quebec Rights".
unless: Securities Commission and
o the board of directors of Policy 9.1 of the Ontario North American Railways'
the corporation has Securities Commission, certificate of incorporation
approved, prior to the time contain requirements in will not contain the
such person became an connection with related party interested shareholder
interested shareholder, either transactions. A related party provision that Burlington
the business combination or transaction means, generally, Northern Santa Fe's
the transaction that resulted any transaction by which an certificate of incorporation
in the person becoming an issuer, directly or indirectly, contains.
interested shareholder; acquires or transfers an asset
o upon consummation of the or acquires or issues treasury
transaction that resulted in securities or assumes or
the person becoming an transfers a liability from or
interested shareholder, that to, as the case may be, a
person owns at least 85% related party by any means
of the corporation's voting in any one or any
stock outstanding at the time combination of transactions.
the transaction is "Related party" is defined in
commenced, excluding Policy Q-27 of the Quebec
shares owned by persons Securities Commission and
who are both directors and in Policy 9.1 of the Ontario
officers and shares owned by Securities Commission to
employee stock plans in include directors, senior
which participants do not officers and holders of more
have a right to determine than 10% of the voting
confidentially whether shares securities of the issuer.
will be tendered in a tender Policy Q-27 of the Quebec
or exchange offer; or Securities Commission and
o the business combination is Policy 9.1 of the Ontario
approved by the board of Securities Commission
directors and authorized by require more detailed
the affirmative vote of at disclosure in the proxy
least two-thirds of the materials sent to security
outstanding voting stock not holders in connection with a
owned by the interested related party transaction and,
shareholder at an annual or subject to certain exemptions
special meeting and not by and value thresholds, the
written consent. preparation of a formal
valuation of the subject
For the purposes of matter of the related party
determining whether a transaction and any non-cash
person is the owner of 15% consideration offered
or more of a corporation's therefor and the inclusion of
voting stock for these a summary of the valuation
III-13
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
purposes, ownership is in the proxy material. They
defined broadly to include also require, subject to
direct and indirect beneficial certain exceptions and value
ownership individually, or thresholds, that the minority
with or through any affiliates shareholders of the issuer
or associates and the right, separately approve the
directly or indirectly, to transaction, by either a
acquire the stock or to simple majority or
control the voting or two-thirds of the votes cast
disposition of the stock. depending on the
circumstances.
A "business combination" is
also defined broadly to In addition, Canadian
include: National's articles include
o mergers with and sales or the limitations on ownership
other dispositions of 10% or of voting shares referred to
more of the assets of a in "Restrictions on
corporation with or to an Ownership Rights".
interested shareholder;
o certain transactions
resulting in the issuance or
transfer to the interested
shareholder of any stock of
the corporation or its
subsidiaries;
o certain transactions that
would result in increasing
the proportionate share of
the stock of a corporation or
its subsidiaries owned by the
interested shareholder; and
o receipt by the interested
shareholder of the benefit
(except proportionately as a
shareholder) of any loans,
advances, guarantees,
pledges or other financial
benefits.
A corporation may elect not
to be governed by this
provision if it, by the
affirmative vote of a
majority of the outstanding
shares entitled to vote,
adopts an amendment to its
by-laws or certificate of
incorporation expressly
electing not to be governed
by such section. Any such
an amendment will not be
III-14
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
effective until 12 months
after its adoption and will
not apply to any business
combination with a person
who became an interested
shareholder at or prior to the
adoption of the amendment.
Burlington Northern Santa
Fe's certificate of
incorporation requires the
affirmative vote of not less
than 51% of Burlington
Northern Santa Fe's voting
stock, excluding the voting
stock of an interested
shareholder who is a party to
a business combination, for
the adoption or authorization
of a business combination,
unless the disinterested
directors determine that:
o the interested shareholder
is the beneficial owner of not
less than 80% of Burlington
Northern Santa Fe's voting
stock and has declared its
intention to vote in favor of
or approve such business
combination; or
o the fair market value of the
consideration per share to be
received or retained by the
holders of each class or
series of Burlington
Northern Santa Fe stock in a
business combination is
equal to or greater than the
consideration per share,
including brokerage
commissions and soliciting
dealer's fees, paid by such
interested shareholder in
acquiring the largest number
of shares of such class of
stock previously acquired in
any one transaction or series
of related transactions,
whether before or after the
interested shareholder
became an interested
III-15
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
shareholder, and the
interested shareholder shall
not have received the
benefit, directly or indirectly
(except proportionately as a
shareholder), of any loans,
advances, guarantees,
pledges or other financial
assistance provided by
Burlington Northern Santa
Fe, whether in anticipation
of or in connection with such
business combination or
otherwise.
For purposes of the
foregoing the following
terms have the following
meanings:
"interested shareholder"
means a person other than
the corporation who is:
o the beneficial owner of
10% or more of the stock of
the corporation entitled to
vote for the election of
directors; or
o an affiliate of the
corporation and (1) at any
time within a two-year
period prior to the record
date to vote on a business
combination was the
beneficial owner of 10% or
more of the stock of the
corporation entitled to vote
for the election of directors
or (2) at the completion of
the business combination
will be the beneficial owner
of 10% or more of the stock
of the corporation entitled to
vote for the election of
directors.
"disinterested director"
means a member of
Burlington Northern Santa
Fe's board of directors, other
than the interested
shareholder, who was a
director prior to the time the
interested shareholder
became an interested
III-16
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
shareholder, or any director
who was recommended for
election by the disinterested
directors. Any action to be
taken by the disinterested
directors shall require the
affirmative vote of at least
two-thirds of the
disinterested directors.
"business combination"
means:
o a merger or consolidation
of Burlington Northern
Santa Fe or any of its
subsidiaries with an
interested shareholder;
o the sale, lease, exchange,
pledge, transfer or other
disposition (1) by Burlington
Northern Santa Fe or any of
its subsidiaries of all or a
substantial part of the
corporation's assets to an
interested shareholder or (2)
by an interested shareholder
of any of its assets, except in
the ordinary course of
business, to Burlington
Northern Santa Fe or any of
its subsidiaries;
o the issuance of stock or
other securities of
Burlington Northern Santa
Fe or any of its subsidiaries
to an interested shareholder,
other than on a pro rata basis
to all holders of voting stock
of the same class held by the
interested shareholder;
o the adoption of any plan or
proposal for the liquidation
or dissolution of Burlington
Northern Santa Fe proposed
by or on behalf of an
interested shareholder;
o any reclassification of
III-17
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
securities, recapitalization,
merger or consolidation or
other transaction that has the
effect, directly or indirectly,
of increasing the
proportionate share of any
voting stock beneficially
owned by an interested
shareholder; or
o any agreement, contract or
other arrangement providing
for any of the foregoing
transactions.
"substantial part of the
corporation's assets" means
assets of Burlington
Northern Santa Fe or any of
its subsidiaries in an amount
equal to 20% or more of the
fair market value, as
determined by the
disinterested directors, of the
total consolidated assets of
Burlington Northern Santa
Fe and its subsidiaries taken
as a whole as of the end of
its most recent fiscal year
ended prior to the time the
determination is made.
Derivative Derivative actions may be Under the Canada Business Same as Burlington
Actions: brought in Delaware by a Corporations Act, a Northern Santa Fe.
shareholder on behalf of, and complainant may apply to
for the benefit of, the the court for leave to bring
corporation. The Delaware an action in the name of and
General Corporation Law on behalf of a corporation or
generally provides that a any subsidiary, or to
shareholder must state in the intervene in an existing
complaint that the action to which any such
shareholder was a body corporate is a party, for
shareholder of the the purpose of prosecuting,
corporation at the time of the defending or discontinuing
transaction of which the the action on behalf of the
shareholder complains. A body corporate. Under the
shareholder may not sue Canada Business
derivatively unless the Corporations Act, no action
shareholder first makes may be brought and no
demand on the board of intervention in an action may
directors of the corporation be made unless the
that it bring suit and such complainant has given
III-18
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
demand has been refused, reasonable notice to the
unless the shareholder shows directors of the corporation
that a demand would have or its subsidiary of the
been futile or the refusal was complainant's intention to
wrongful. apply to the court and the
court is satisfied that:
o the directors of the
corporation or its
subsidiary will not bring,
diligently prosecute or
defend or discontinue the
action;
o the complainant is acting
in good faith; and
o it appears to be in the
interests of the
corporation or its
subsidiary that the action
be brought, prosecuted,
defended or discontinued.
Dissent and Under the Delaware General The Canada Business Subject to the following
Appraisal Rights: Corporation Law, in certain Corporations Act provides paragraph, same as
mergers and consolidations, that shareholders of a Burlington Northern Santa
holders of shares of any Canada Business Fe.
class or series have the right, Corporations Act
in certain circumstances, to corporation entitled to vote North American Railways'
demand an appraisal of their on certain matters are certificate of incorporation
shares and to receive entitled to exercise dissent also will provide that holders
payment in cash equal to the rights and to be paid the fair of North American Railways
fair value (exclusive of any value of their shares in common stock will be
element of value arising connection therewith. The entitled to appraisal rights
from the accomplishment or Canada Business with respect to matters for
expectation of the merger or Corporations Act does not which holders of Canadian
consolidation) of such distinguish for this purpose National exchangeable
shares, as determined by the between listed and unlisted shares are entitled to dissent
Court of Chancery of shares. Such matters rights under the Canada
Delaware. The Delaware include: Business Corporations Act.
General Corporation Law o any amalgamation with a
grants appraisal rights only corporation, other than
in the case of mergers or with certain subsidiary
consolidations and not in the corporations;
case of a sale or transfer of o an amendment to the
assets, or a purchase of corporation's articles to
assets for stock regardless of add, change or remove
the number of shares being any provisions restricting
issued, unless otherwise the issue, transfer or
provided in the corporation's ownership of shares;
certificate of incorporation. o an amendment to the
Burlington Northern Santa corporation's articles to
III-19
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
Fe's certificate of add, change or remove
incorporation does not so any restriction upon the
provide. business or businesses
that the corporation may
Further, no appraisal rights carry on;
are available for shares of o a continuance under the
any class or series that are, laws of another
at the record date fixed to jurisdiction, which, in any
determine the shareholders event, is not permitted
who are entitled to notice of with respect to Canadian
and to vote at the National by virtue of the
shareholder meeting called CN Commercialization
to act upon such transaction, Act;
listed on a national securities o a sale, lease or exchange
exchange or designated as a of all or substantially all
national market system of the property of the
security on an interdealer corporation other than in
quotation system by The the ordinary course of
National Association of business;
Security Dealers, Inc. or o a court order permitting a
held of record by more than shareholder to dissent in
2,000 shareholders, unless connection with an
the agreement of merger or application to the court
consolidation requires the for an order approving an
holders of such class or arrangement proposed by
series to receive anything the corporation; or
other than: o certain amendments to the
o stock of the surviving articles of a corporation
corporation; which require a separate
o stock of another class or series vote,
corporation which is provided that a
either listed on a national shareholder is not entitled
securities exchange or to dissent if an
designated as a national amendment to the articles
market system security on is effected by a court
an interdealer quotation order made in connection
system by the National with an action for an
Association of Securities oppression remedy.
Dealers, Inc. or held of
record by more than 2,000
shareholders;
o cash in lieu of fractional
shares; or
o some combination of the
above.
Oppression The Delaware General The Canada Business Same as Burlington
Remedy: Corporation Law does not Corporations Act provides Northern Santa Fe.
provide for an oppression an oppression remedy that
remedy. enables a court to make any
III-20
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
order, both interim and final,
to rectify the matters
complained of, if the
director appointed under
Section 260 of the Canada
Business Corporations Act is
satisfied that upon
application by a complainant
(as defined below) that:
o any act or omission of the
corporation or an affiliate
effects a result;
o the business or affairs of
the corporation or an
affiliate are or have been
carried on or conducted in
a manner; or
o the powers of the
directors of the
corporation or an affiliate
are or have been
exercised in a manner that
is oppressive or unfairly
prejudicial to, or that
unfairly disregards the
interests of any security
holder, creditor, director
or officer of the
corporation.
A complainant includes:
o a present or former
registered holder or
beneficial owner of
securities of a corporation
or any of its affiliates;
o a present or former officer
or director of the
corporation or any of its
affiliates; and
o any other person who in
the discretion of the court
is a proper person to
make such an application.
Because of the breadth of
the conduct that can be
complained of and the wide
scope of the remedies the
court may order, the
III-21
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe Canadian National North American Railways
Shareholder Rights Shareholder Rights Shareholder Rights
.................... ............................... ............................... ...............................
oppression remedy is very
flexible and is frequently
relied upon to safeguard the
interests of shareholders and
other complainants that have
a substantial interest in the
corporation. Under the
Canada Business
Corporations Act, it is not
necessary to prove that the
directors of a corporation
acted in bad faith in order to
obtain an oppression
remedy. Additionally, under
the Canada Business
Corporations Act, a court
may order a corporation or
its subsidiary to pay the
complainant's interim costs,
including reasonable legal
fees and disbursements.
Although the complainant
may be held accountable for
the interim costs on final
disposition of the
complainant, it is not
required to give security for
costs in an oppression
action.
</TABLE>
III-22
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
DESCRIPTION OF CANADIAN NATIONAL, BURLINGTON NORTHERN SANTA FE AND NORTH
AMERICAN RAILWAYS CAPITAL STOCK
Canadian National
Prior to the Combination
Authorized share capital
The authorized share capital of Canadian National consists of
an unlimited number of Canadian National common shares and an unlimited number
of Class A preferred shares and Class B preferred shares, all of which are
without par value, issuable in series. The following description of Canadian
National's share capital is qualified by reference to applicable Canadian law,
including the Canada Business Corporations Act, and Canadian National's
articles. Canadian National's articles are incorporated by reference and will
be sent to Canadian National and Burlington Northern Santa Fe shareholders
upon request. See "Chapter Five--Additional Information for
Shareholders--Where You Can Find More Information".
Canadian National common shares
As of January 31, 2000, there were outstanding 202,458,363 common shares of
Canadian National and options to purchase an aggregate of 10,404,699 further
Canadian National common shares. All of the outstanding Canadian National common
shares are fully paid and nonassessable. The Canadian National common shares
carry and are subject to the following rights, privileges, restrictions and
conditions:
Voting. Each holder of Canadian National common shares is entitled to
receive notice of and to attend all meetings of shareholders of Canadian
National, other than meetings at which only the holders of a particular class or
series are entitled to vote. Each Canadian National common share is entitled to
one vote.
Dividends. Each holder of Canadian National common shares is, at the
discretion of the directors, entitled to receive, out of any amounts properly
applicable to the payment of dividends, and after the payment of any dividends
payable on the preferred shares, any dividends declared and payable by Canadian
National on the Canadian National common shares.
Dissolution. Each holder of Canadian National common shares is entitled to
share pro rata in any distribution of the assets of Canadian National upon the
liquidation, dissolution or winding-up of Canadian National or other
distribution of its assets among its shareholders. Such participation is subject
to the rights, privileges, restrictions and conditions attaching to any issued
and outstanding preferred shares or shares of any other class ranking prior to
the Canadian National common shares.
Preemptive rights. No holder of a Canadian National common share has any
preemptive right to subscribe for any securities of Canadian National.
Canadian National preferred shares
The Class A preferred shares and the Class B preferred shares are issuable
in series and, subject to Canadian National's articles, Canadian National's
board of directors is authorized to fix, before issuance, the designation,
rights, privileges, restrictions and conditions attaching to the shares of each
series. The holders of Class A preferred shares or Class B preferred shares are
not entitled to vote at meetings of shareholders otherwise than as provided by
law, and holders of Class A or Class B preferred shares or of any series of such
shares are not entitled to vote separately as a class or series except as
provided by law. No preferred shares are outstanding.
III-23
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Restrictions on Ownership
Restriction on Individual Holders. As required by the CN Commercialization
Act, a statute of Canada that is applicable to Canadian National, Canadian
National's articles provide that Canadian National is prohibited from accepting
subscriptions for voting shares, issuing voting shares, or registering or
otherwise recognizing the transfer of voting shares of Canadian National if, as
a result of such subscription, issue, transfer, purchase or acquisition, voting
shares of Canadian National to which there are attached more than 15% of the
votes that may ordinarily be cast to elect directors of Canadian National would
be held, beneficially owned or controlled, directly or indirectly, by any one
person together with the associates of such person. A "voting share" is defined
as a share of Canadian National carrying voting rights under all circumstances
or under some circumstances that have occurred and are continuing, and includes
a security currently convertible into such a share and currently exercisable
options and rights to acquire such a share or such a convertible security. For
the purposes of this restriction, a person is an associate of another person if:
o one is a corporation of which the other is an officer or director;
o one is a corporation that is controlled by the other or by a group of
persons of which the other is a member;
o one is a partnership of which the other is a partner;
o one is a trust of which the other is a trustee;
o both are corporations controlled by the same person;
o both are members of a voting trust that relates to voting shares of
Canadian National;
o both, in the reasonable opinion of the directors of Canadian National,
are parties to an agreement or arrangement, a purpose of which is to
require them to act in concert with respect to their interests, direct
or indirect, in Canadian National or are otherwise acting in concert
with respect to those interests; or
o both are at the same time associates, within the meaning of any of the
above paragraphs, of the same person.
Exceptions. The constraints described above do not apply to voting shares
held by way of security only. Furthermore, they do not apply to voting shares of
Canadian National held by the Government of Canada, by one or more underwriters
solely for the purpose of distributing the shares to the public, or in
connection with such distribution or by any person acting solely as an
intermediary in the payment of funds or the delivery of securities, or both, in
connection with trades in securities and that provides centralized facilities
for the clearing of trades in securities, or held by any custodian, depositary
or other agent appointed under an installment receipt agreement or other similar
agreement.
Where a person holds, owns or controls voting shares to which are attached
not more than the lesser of two one-hundredths of 1% of the votes that may
ordinarily be cast to elect directors of Canadian National and five thousand
votes, that person is not an associate of anyone else and no one else is an
associate of that person. Further, a person who would otherwise be an associate
of another person will not be held to be an associate if such person makes a
declaration that no voting shares held by the declarant are held in the right
of, for the use or benefit of or under the control of any such other person and
that the declarant will not act in concert with any such other person with
respect to their interest, direct or indirect, in Canadian National and Canadian
National's board of directors is satisfied with such declaration. Additionally,
two corporations will not be held to be associates solely by reason that each is
an associate of the same individual.
III-24
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Enforcement and Administration of Constraints. Canadian National's articles
provide that where the total number of voting shares held, beneficially owned or
controlled, directly or indirectly, by any one person together with his
associates exceeds 15%, no person shall, in person or by proxy, exercise the
voting rights attached to the voting shares held, beneficially owned or
controlled, directly or indirectly, by such person or that person's associates.
Furthermore, any and all dividends attributable to the percentage of voting
shares held by such persons in excess of 15% shall be forfeited, including any
cumulative dividend. Canadian National's articles confer on Canadian National's
board of directors all powers necessary to give effect to the ownership
restrictions, including the ability to pay dividends or to make other
distributions that would otherwise be prohibited if the event giving rise to the
prohibition were inadvertent or of a technical nature or it would otherwise be
inequitable not to pay the dividends or make the distribution. Canadian
National's articles provide that Canadian National's board of directors may make
by-laws concerning the administration of the constrained share provisions
described above, including by-laws requiring a shareholder to furnish a
declaration indicating whether the person is the beneficial owner of the shares
and whether the person is an associate of any other shareholder. Finally,
Canadian National has the right, for the purpose of enforcing any constraint
imposed pursuant to its articles, to sell, as if it were the owner thereof, any
voting stock that is owned, or that the directors determine may be owned, by any
person or persons contrary to such constraint.
The foregoing restrictions effectively prohibit one or more persons acting
together from acquiring voting control of Canadian National and will prevent
change of control transactions in which Canadian National's shareholders could
receive a premium for their Canadian National common shares.
Subsequent to the Combination
Authorized share capital
In connection with the combination, Canadian National's authorized share
capital will consist of an unlimited number of each of: Canadian National
exchangeable shares, Canadian National voting shares, Canadian National special
limited voting shares, Canadian National non-voting equity shares, Canadian
National Class A preferred shares and Class B preferred shares, of which only
the Canadian National voting shares, the Canadian National exchangeable shares
and the Canadian National special limited voting shares and Canadian National
non-voting equity shares, to be held by NAR Holdings Company, will be issued.
The provisions of Canadian National's articles relating to the preferred shares
will not be changed by the combination.
Canadian National exchangeable shares
The Canadian National exchangeable shares will be exchangeable at any time
on a one-for-one basis for shares of North American Railways common stock
through the retraction, call right, exchange right and automatic exchange right
mechanisms described under "--Retraction of Canadian National Exchangeable
Shares", "--Liquidation Rights with Respect to Canadian National" and
"--Liquidation Rights with Respect to North American Railways". The Canadian
National exchangeable shares will be entitled to dividends equivalent to those
paid on shares of North American Railways common stock as described under
"--Dividend Rights". The Canadian National exchangeable shares, as such,
generally will not be entitled to voting rights at Canadian National shareholder
meetings but will have voting rights at North American Railways shareholder
meetings and will be "stapled" to Canadian National voting shares, all as
described under "--Voting Rights with Respect to Canadian National" and "Voting
Rights with Respect to North American Railways". A number of these rights are
provided for in the voting and exchange trust agreement that Canadian National,
North American Railways, NAR Holdings Company and the trustee will enter into at
completion of the combination in substantially the form attached as Annex K. The
following summary of these rights is qualified by reference to the voting and
exchange trust agreement.
Retraction of Canadian National exchangeable shares. Subject to the
retraction call right described below, each holder of Canadian National
exchangeable shares represented by stapled securities will be entitled at any
time following the completion of the combination to retract (i.e., require
Canadian National to redeem) any or all of the
III-25
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Canadian National exchangeable shares held by the holder for an amount per share
equal to the retraction price. The retraction price for each Canadian National
exchangeable share is an amount equal to the market price of a stapled security
representing North American Railways common stock and Canadian National voting
shares at the time the retraction is made and will be satisfied by the delivery
of one share of North American Railways common stock plus the amount of any
declared but unpaid dividends on the Canadian National exchangeable share.
Holders of Canadian National exchangeable shares may effect such retraction by
presenting a stapled security certificate or certificates to Canadian National
or to the transfer agent representing the number of Canadian National
exchangeable shares the holder desires to retract together with a duly executed
retraction request indicating the number of Canadian National exchangeable
shares the holder desires to retract and the retraction date upon which the
holder desires to receive the retraction price, and such other documents as may
be required to effect the retraction of the retracted shares. The retraction of
retracted shares shall not affect the obligation of Canadian National to pay
dividends declared on the retracted shares prior to the date of their
retraction.
When a holder requests Canadian National to redeem retracted
shares, NAR Holdings Company (a wholly owned subsidiary of North American
Railways which is a Nova Scotia unlimited liability company) will have an
overriding retraction call right to purchase on the retraction date all but
not less than all of the retracted shares, at a purchase price per share equal
to the retraction price plus, on the designated payment date and to the extent
not paid by Canadian National, the dividends declared on the retracted shares
prior to the date of their retraction. To the extent that NAR Holdings
Company pays the dividend amount in respect of the retracted shares, Canadian
National shall no longer be obligated to pay any declared and unpaid dividends
on such retracted shares. Upon receipt of a retraction request, Canadian
National will immediately notify NAR Holdings Company. NAR Holdings Company
must then advise Canadian National within five business days as to whether the
retraction call right will be exercised. If NAR Holdings Company does not so
advise Canadian National, Canadian National will notify the holder as soon as
practicable that NAR Holdings Company will not exercise the retraction call
right. If NAR Holdings Company advises Canadian National that NAR Holdings
Company will exercise the retraction call right within such five business day
period, then, provided the retraction request is not revoked by the holder as
described below, the retraction request shall be considered only to be an
offer by the holder to sell the retracted shares to NAR Holdings Company in
accordance with the retraction call right.
A holder may revoke its retraction request, in writing, at any time prior
to the close of business on the business day immediately preceding the
retraction date, in which case the retracted shares will neither be purchased by
NAR Holdings Company nor be redeemed by Canadian National. If the holder does
not revoke its retraction request, on the retraction date, the retracted shares
will be purchased by NAR Holdings Company or redeemed by Canadian National, as
the case may be, in each case as described above. Canadian National and NAR
Holdings Company will cause the transfer agent to deliver:
(1) stapled securities certificates representing the aggregate number of
shares of North American Railways common stock equal to the aggregate
retraction price together with the Canadian National voting shares
that such holder continues to hold, registered in the name of the
holder or in such other name as the holder may request; and
(2) if applicable, a check for the aggregate dividend amount to the holder
at the address recorded in the securities register or at the address
specified in the holder's retraction request or by holding the same
for pick up by the holder at the registered office of Canadian
National or the office of the transfer agent as specified by Canadian
National, in each case less any amounts withheld on account of tax
required to be deducted and withheld therefrom.
If, as a result of solvency requirements or applicable law, Canadian
National is not permitted to redeem all retracted shares tendered by a
retracting holder, and provided NAR Holdings Company has not exercised its
retraction call right with respect to the retracted shares, Canadian National
will redeem only those retracted shares tendered by the holder as would not be
contrary to such provisions or applicable law and the trustee, on behalf of the
holder of any retracted shares not so redeemed by Canadian National, will
require NAR Holdings Company to
III-26
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
purchase the retracted shares on the retraction date pursuant to the exchange
right provided for in the voting and exchange trust agreement and described
under "-Liquidation Rights with Respect to Canadian National".
Purchase for cancellation. Subject to applicable law, Canadian National may
at any time and from time to time purchase for cancellation all or any part of
the outstanding Canadian National exchangeable shares at any price by tender to
all the holders of record of Canadian National exchangeable shares and Canadian
National voting shares represented by stapled securities then outstanding or
through the facilities of any stock exchange on which the Canadian National
exchangeable shares and Canadian National voting shares represented by stapled
securities are listed or quoted at any price per share. Pursuant to the
co-operation agreement described under "Chapter One--The Combination--The
Co-Operation Agreement", Canadian National will not make such a self-tender
offer unless a substantially contemporaneous offer is made by North American
Railways for an equivalent percentage of the outstanding North American Railways
common stock and Canadian National voting shares represented by stapled
securities.
Voting rights with respect to Canadian National. Except as
required by law and the Canadian National exchangeable share provisions, the
holders of Canadian National exchangeable shares are not entitled as such to
receive notice of or attend any Canadian National shareholder meeting or to
vote at any such meeting. However, each holder of Canadian National
exchangeable shares, which are represented by stapled securities, will also
hold an equal number of Canadian National voting shares, entitled to vote at
all Canadian National shareholder meetings and on all matters except Canadian
National shareholder meetings at which and matters on which only holders of
another specified class or series of shares are entitled to vote separately as
a class or series.
Voting rights with respect to North American Railways. Pursuant to a voting
and exchange trust agreement that North American Railways, NAR Holdings Company,
Canadian National and a trustee will enter into on the date on which the
combination is completed, North American Railways will issue a special voting
share to the trustee for the benefit of the holders (other than North American
Railways and its affiliates) of Canadian National exchangeable shares (referred
to below as "beneficiaries"). The special voting share will have the number of
votes, which may be cast at any meeting at which North American Railways common
shareholders are entitled to vote, equal to the number of outstanding Canadian
National exchangeable shares held by beneficiaries.
Each beneficiary on the record date for any meeting at which North American
Railways common shareholders are entitled to vote will be entitled to instruct
the trustee to exercise one of the votes attached to the special voting share
for each Canadian National exchangeable share held by such beneficiary. The
trustee will exercise (either by proxy or in person) each vote attached to the
special voting share only as directed by the relevant beneficiary and, in the
absence of instructions from a beneficiary as to voting, will not exercise such
votes. A beneficiary may, upon instructing the trustee, obtain a proxy from the
trustee entitling the beneficiary to vote directly at the relevant meeting the
votes attached to the special voting share to which the beneficiary is entitled
to cast.
The trustee will mail or otherwise send to the holders of Canadian National
exchangeable shares the notice of each meeting at which the North American
Railways common shareholders are entitled to vote, together with the related
meeting materials and a statement as to the manner in which the holder may
instruct the trustee to exercise the votes attaching to the special voting
share, such mailing or sending to commence on the same day that North American
Railways mails or otherwise sends such notice and materials to the North
American Railways common shareholders. The trustee will also send to the holders
of Canadian National exchangeable shares copies of all information statements,
interim and annual financial statements, reports and other materials sent by
North American Railways to the North American Railways common shareholders at
the same time as such materials are sent to the North American Railways common
shareholders. To the extent such materials are provided to the trustee by North
American Railways, the trustee will also send to the holders of Canadian
National exchangeable shares all materials sent by third parties to North
American Railways common shareholders, including dissident proxy statements and
tender and exchange offer materials, as soon as possible after such materials
are delivered to the trustee.
III-27
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
All rights of a holder of Canadian National exchangeable shares to exercise
votes attached to the special voting share will cease upon the exchange, whether
by retraction or liquidation or through the exercise of the related call rights,
of such Canadian National exchangeable shares for North American Railways common
stock.
Dividend rights. Holders of Canadian National exchangeable shares will be
entitled to receive, subject to applicable law, dividends:
(1) in the case of a cash dividend declared on the North American
Railways common stock, in an amount in cash for each Canadian National
exchangeable share corresponding to the cash dividend declared on each
share of North American Railways common stock;
(2) in the case of a stock dividend declared on the North American
Railways common stock to be paid in shares of North American Railways
common stock and Canadian National voting shares represented by stapled
securities, in such number of Canadian National exchangeable shares and
Canadian National voting shares represented by stapled securities for each
Canadian National exchangeable share as is equal to the number of shares of
North American Railways common stock and Canadian National voting shares
represented by stapled securities to be paid on each share of North
American Railways common stock, unless, in lieu of such stock dividend,
Canadian National elects to effect a corresponding and contemporaneous
subdivision of the outstanding Canadian National exchangeable shares and
Canadian National voting shares;
(3) in the case of a dividend or other distribution of rights, options
or warrants to subscribe for or purchase shares of North American Railways
common stock and Canadian National voting shares represented by stapled
securities (a "North American Railways Right"), in such number of rights,
options or warrants to subscribe for or purchase Canadian National
exchangeable shares and Canadian National voting shares represented by
stapled securities (a "Canadian National Right") for each Canadian National
exchangeable share as is equal to the number of North American Railways
Rights to be paid or distributed on each share of North American Railways
common stock provided that such Canadian National Rights shall have the
same subscription or exercise price (or the Canadian dollar equivalent
thereof) as the North American Railways Rights and otherwise be on the same
terms as the North American Railways Rights; or
(4) in the case of a dividend or other distribution declared on the
North American Railways common stock in property other than cash, stapled
securities or North American Railways Rights, in such type and amount of
property as is the same as, or corresponds to or, in the event that it is
not reasonably practicable to do so in accordance with applicable legal
requirements as determined by Canadian National's board of directors, as is
economically equivalent to (as determined by Canadian National's board of
directors in good faith and in its sole discretion), the type and amount of
property declared as a dividend on each share of North American Railways
common stock.
Cash dividends on the Canadian National exchangeable shares are payable in
U.S. dollars or the Canadian dollar equivalent thereof, at the option of
Canadian National. The declaration date, record date and payment date for
dividends on the Canadian National exchangeable shares will be the same as the
relevant date for the corresponding dividends on the shares of North American
Railways common stock.
Liquidation rights with respect to Canadian National. In the event of the
liquidation, dissolution or winding-up of Canadian National or any other
proposed distribution of the assets of Canadian National among its shareholders
for the purpose of winding-up its affairs, each holder of Canadian National
exchangeable shares will have, subject to applicable law, preferential rights to
receive from Canadian National for each Canadian National exchangeable share
held by such holder the Canadian National liquidation amount plus the amount of
all declared and unpaid dividends on each such Canadian National exchangeable
share held by such holder on any dividend record date that occurred prior to the
effective date of such liquidation, dissolution or winding-up. The Canadian
National liquidation amount for each Canadian National exchangeable share is an
amount equal to the then-current market price of a stapled security comprising a
share of North American Railways common stock and a Canadian
III-28
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
National voting share and will be satisfied by the delivery of one share of
North American Railways common stock. Upon the occurrence of such liquidation,
dissolution or winding-up, NAR Holdings Company will have an overriding
liquidation call right to purchase all of the outstanding Canadian National
exchangeable shares (other than Canadian National exchangeable shares held by
North American Railways and its affiliates) from the holders thereof on the
effective date of such liquidation, dissolution or winding-up for an amount per
share equal to the Canadian National liquidation amount plus any dividend
amount. In the event that NAR Holdings Company exercises its liquidation call
right and pays the dividend amount, if any, the right of the holders of the
Canadian National exchangeable shares so purchased to receive declared and
unpaid dividends from Canadian National shall be fully satisfied and discharged.
Upon the occurrence and during the continuance of a Canadian National
insolvency event, a holder of Canadian National exchangeable shares will be
entitled to instruct the trustee to exercise the exchange right with respect to
any or all of the Canadian National exchangeable shares held by such holder,
thereby requiring North American Railways to purchase such Canadian National
exchangeable shares from the holder. As soon as practicable following the
occurrence of an insolvency event or any event which may, with the passage of
time and/or the giving of notice, become an insolvency event, Canadian National
and North American Railways will give written notice of such occurrence to the
trustee. As soon as practicable after receipt of such notice, the trustee will
notify each holder of Canadian National exchangeable shares of such event or
potential event and will advise the holder of its rights with respect to the
exchange right. The purchase price payable by North American Railways for each
Canadian National exchangeable share purchased under the exchange right will be
satisfied by issuance of one share of North American Railways common stock plus,
to the extent not paid by Canadian National on the designated payment date, the
amount of all declared and unpaid dividends on each such Canadian National
exchangeable share held by such holder on any dividend record date that occurred
prior to the completion of the combination of such purchase and upon receipt of
such amount, the holder shall no longer be entitled to receive any declared and
unpaid dividends from Canadian National. An "insolvency event" is defined in the
voting and exchange trust agreement to include various bankruptcy and insolvency
events as well as the circumstance where Canadian National is not permitted,
pursuant to solvency requirements of applicable law, to redeem retracted
Canadian National exchangeable shares.
Liquidation rights with respect to North American Railways. In order for
the holders of Canadian National exchangeable shares to participate on a pro
rata basis with the holders of North American Railways common stock, on the
fifth business day prior to the effective date of an North American Railways
liquidation event, each Canadian National exchangeable share will, pursuant to
the automatic exchange right, automatically be exchanged for an equivalent
number of shares of North American Railways common stock plus, to the extent not
paid by Canadian National on the designated payment date, the amount of all
declared and unpaid dividends on each such Canadian National exchangeable share
held by such holder on any dividend record date which occurred prior to the date
of such exchange and, upon receipt of the amount of such declared and unpaid
dividends, the right of the holder of the Canadian National exchangeable share
to receive declared and unpaid dividends from Canadian National shall be fully
satisfied and discharged. Upon a holder's request and surrender of stapled
security certificates representing Canadian National exchangeable shares, duly
endorsed in blank and accompanied by such instruments of transfer as North
American Railways may reasonably require, North American Railways will deliver
to such holder certificates representing an equivalent number of shares of North
American Railways common stock, plus a check for the amount of such dividends,
if any, for the Canadian National exchangeable shares exchanged by such holder
pursuant to the automatic exchange right. For a description of certain North
American Railways obligations with respect to the dividend and liquidation
rights of the holders of Canadian National exchangeable shares, see "Chapter
One--The Combination--The Co-Operation Agreement".
Withholding rights. Canadian National, North American
Railways, NAR Holdings CompaNany and the transfer agent will be entitled to
deduct and withhold from any dividends or consideration otherwise payable to
any holder of Canadian National exchangeable shares, Canadian National voting
shares or North American Railways common stock such amounts as Canadian
National, North American Railways, NAR Holdings Company or the transfer agent
is required to deduct and withhold with respect to such payment under the
Canadian Tax Act, the U.S. Internal Revenue Code or any provision of
provincial, state, local or foreign tax law. Any amounts withheld will be
treated
III-29
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
for all purposes as having been paid to the holder of the shares in
respect of which such deduction and withholding was made, provided that such
withheld amounts are actually remitted to the appropriate taxing authority.
To the extent that the amount so required to be deducted or withheld from any
payment to a holder exceeds the cash portion of the amount otherwise payable
to the holder, Canadian National, North American Railways, NAR Holdings
Company and the transfer agent may sell or otherwise dispose of such portion
of the consideration as is necessary to provide sufficient funds to Canadian
National, North American Railways, NAR Holdings Company or the transfer agent,
as the case may be, to enable it to comply with such deduction or withholding
requirement. Canadian National, North American Railways, NAR Holdings Company
or the transfer agent must notify the holder of any such sale and remit to
such holder any unapplied balance of the net proceeds of such sale. In the
voting and exchange trust agreement, Canadian National and North American
Railways will represent that, based upon facts and law known to each of them
as of the date on which the combination and the arrangement are completed,
Canadian National has no current intention, and North American Railways has no
current intention to cause Canadian National, to deduct or withhold from any
dividend paid to holders of Canadian National exchangeable shares any amounts
under the U.S. Internal Revenue Code.
Ranking. The Canadian National exchangeable shares will be entitled to a
preference over the Canadian National voting shares, the Canadian National
special limited voting shares, the Canadian National non-voting equity shares
and any other shares ranking junior to the Canadian National exchangeable shares
with respect to the payment of dividends and the distribution of assets in the
event of a liquidation, dissolution or winding-up of Canadian National, whether
voluntary or involuntary, or any other distribution of the assets of Canadian
National among its shareholders for the purpose of winding-up its affairs. The
Canadian National exchangeable shares will rank junior to the preferred shares
of Canadian National.
Certain restrictions on distributions. So long as any of the Canadian
National exchangeable shares are outstanding, unless all dividends on the
outstanding Canadian National exchangeable shares corresponding to dividends
declared and paid to date on the North American Railways common stock shall have
been declared and paid on the Canadian National exchangeable shares, Canadian
National shall not at any time without, but may at any time with, the approval
of the holders of the Canadian National exchangeable shares given as described
under "-- Amendment and Approval" do any of the following:
o pay any dividends on the Canadian National limited voting equity
shares or any other shares ranking junior to the Canadian National
exchangeable shares, other than stock dividends payable in Canadian
National limited voting equity shares or any such other shares ranking
junior to the Canadian National exchangeable shares, as the case may
be;
o redeem or purchase or make any capital distribution in respect of
Canadian National limited voting equity shares or any other shares
ranking junior to the Canadian National exchangeable shares;
o redeem or purchase any other shares of Canadian National ranking
equally with the Canadian National exchangeable shares with respect to
the payment of dividends or on dissolution, liquidation or winding-up;
or
o issue any Canadian National exchangeable shares or any other shares of
Canadian National ranking equally with, or superior to, the Canadian
National exchangeable shares other than by way of stock dividends of
stapled securities to the holders of such Canadian National
exchangeable shares.
Transfer requirements. No Canadian National exchangeable share is capable
of being issued, transferred, transmitted or otherwise alienated or disposed of
separately from and otherwise than as part of a stapled security comprised of an
equal number of Canadian National voting shares and Canadian National
exchangeable shares except for:
o the issuances of Canadian National exchangeable shares to Canadian
National shareholders pursuant to the plan of arrangement;
III-30
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
o the transfers of Canadian National exchangeable shares to NAR Holdings
Company and the conversion thereof to Canadian National special
limited voting shares and Canadian National non-voting equity shares
provided for in the plan of arrangement;
o the redemption of Canadian National exchangeable shares by Canadian
National upon a retraction of the Canadian National exchangeable
shares in accordance with the Canadian National exchangeable share
provisions (described above); or
o the transfer of Canadian National exchangeable shares to North
American Railways or NAR Holdings Company, as applicable, pursuant to
the exercise or deemed exercise of a retraction call right, the
liquidation call right, the exchange right or the automatic exchange
rights in accordance with the Canadian National exchangeable share
provisions, the plan of arrangement and/or the voting and exchange
trust agreement, as applicable (described above).
Accordingly, Canadian National will be entitled to treat the registered
holder of stapled securities as the owner exclusively entitled to vote, to
receive notices, to receive dividends or other payments in respect of and
otherwise to exercise all the rights and powers of the owner of the Canadian
National exchangeable shares represented by such stapled security. For purposes
of establishing and maintaining the share register for the outstanding Canadian
National exchangeable shares, Canadian National and its transfer agent shall and
shall be entitled, at all times (subject only to the liquidation call right, the
exchange right and the automatic exchange rights described above and except
where a holder of stapled securities representing Canadian National exchangeable
shares has submitted a retraction request in respect of Canadian National
exchangeable shares represented by such stapled security certificate) to treat
each registered holder of stapled securities as the registered holder of a
number of Canadian National exchangeable shares equal to the number of stapled
securities held by such person. A stapled security certificate shall be the
security certificate, and the only security certificate, that a holder of
Canadian National exchangeable shares shall be entitled to receive in respect of
his or her holding of Canadian National exchangeable shares pursuant to the
Canada Business Corporations Act or otherwise.
Amendment and approval. The rights, privileges, restrictions and conditions
attaching to the Canadian National exchangeable shares may be added to, changed
or removed only with the approval of the holders of the Canadian National
exchangeable shares. Any such approval or any other approval or consent to be
given by the holders of Canadian National exchangeable shares will be deemed to
have been sufficiently given if given in accordance with applicable law subject
to a minimum requirement that such approval or consent be evidenced by a
resolution passed by not less than two-thirds of the votes cast on such
resolution at a meeting of the holders of Canadian National exchangeable shares
duly called and held in accordance with the by-laws of Canadian National.
Canadian National voting shares
Canadian National voting shares comprising part of the stapled securities
which holders of Canadian National common shares and Burlington Northern Santa
Fe common stock will receive pursuant to the combination and the arrangement
will have the following rights and privileges.
Voting Rights. The holders of Canadian National voting shares shall be
entitled to receive notice of and to attend all meetings of the shareholders of
Canadian National and shall have one vote for each Canadian National voting
share at all meetings of the shareholders of Canadian National and on all
matters voted on by shareholders of Canadian National, except for meetings at
which and matters on which only holders of another specified class or series of
shares of Canadian National are entitled to vote separately as a class or
series.
Dividend rights. The holders of Canadian National voting shares, as such,
shall not be entitled to receive any dividends.
Ranking. The Canadian National voting shares will be entitled to a fixed
preference equal to the subscription price over the Canadian National special
limited voting shares, the Canadian National non-voting equity shares and any
III-31
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
other shares ranking junior to the Canadian National voting shares with respect
to the distribution of assets in the event of a liquidation, dissolution or
winding-up of Canadian National, whether voluntarily or involuntarily, or any
other distribution of the assets of Canadian National among its shareholders for
the purpose of winding up its affairs, but will have no other right to
participate in any such distribution. The Canadian National voting shares will
rank junior to the preferred shares of Canadian National and the Canadian
National exchangeable shares in any such distribution.
Certain restrictions on amendments. The Canadian National voting share
provisions provide that Canadian National shall not:
o subdivide, redivide or change the then outstanding Canadian National
voting shares into a greater number of Canadian National voting
shares; or
o reduce, combine, consolidate or change the then outstanding Canadian
National voting shares into a lesser number of Canadian National
voting shares;
unless the same change shall simultaneously be made to the Canadian National
exchangeable shares.
Transfer requirements. The Canadian National voting shares are also subject
to the following transfer requirements. No Canadian National voting share is
capable of being issued, transferred, transmitted or otherwise alienated or
disposed of separately from and otherwise than as part of either:
o a stapled security comprised of an equal number of Canadian National
voting shares and Canadian National exchangeable shares; or
o a stapled security comprised of an equal number of Canadian National
voting shares and shares of North American Railways common stock;
except for the issuances of Canadian National voting shares pursuant to the
plan of arrangement.
Accordingly, Canadian National will be entitled to treat the registered
holder of stapled securities as the owner exclusively entitled to vote, to
receive notices and otherwise to exercise all the rights and powers of the owner
of the Canadian National voting shares represented by such stapled security. For
purposes of establishing and maintaining the share register for the outstanding
Canadian National voting shares, Canadian National and its transfer agent shall
and shall be entitled at all times (subject only to the exercise of the
liquidation call right) to treat each registered holder of stapled securities as
the registered holder of a number of Canadian National voting shares equal to
the aggregate number of stapled securities held by such person. A stapled
security certificate shall be the security certificate, and the only security
certificate, that a holder of Canadian National voting shares shall be entitled
to receive in respect of his or her holding of Canadian National voting shares
pursuant to the Canada Business Corporations Act or otherwise.
Canadian National special limited voting shares
Dividends. The holders of Canadian National special limited voting shares,
as such, will not be entitled to receive any dividends.
Ranking. The Canadian National special limited voting shares will be
entitled to a fixed preference equal to the subscription price over the Canadian
National non-voting equity shares and any other shares ranking junior to the
Canadian National special limited voting shares with respect to the distribution
of assets in the event of a liquidation, dissolution or winding-up of Canadian
National, whether voluntarily or involuntarily, or any other distribution of the
assets of Canadian National among its shareholders for the purpose of winding up
its affairs, but will have no other right to participate in any such
distribution. The Canadian National special limited shares will
III-32
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
rank junior to the preferred shares of Canadian National, the Canadian National
exchangeable shares and the Canadian National voting shares in any such
distribution.
Voting. The holder of the Canadian National special limited voting shares
will be entitled to receive notice of and to attend all meetings of shareholders
of Canadian National and to a number of votes at such meetings equal to 10.1% of
the total number of votes entitled to be cast by all holders of Canadian
National voting shares and Canadian National special limited voting shares,
except meetings at which only holders of another specified class or series of
shares are entitled to vote separately as a class or series. NAR Holdings
Company, as holder of the Canadian National special limited voting shares, is
the recipient of these voting rights in order to minimize the combined
companies' effective tax rate.
Co-operation agreement. Pursuant to the co-operation agreement, the
Canadian National special limited voting shares will not be transferable by NAR
Holdings Company, except to a wholly owned subsidiary of its parent company,
North American Railways, and the voting rights attached to such shares are
required to be exercised in accordance with the core principles described in
"Chapter One--The Combination--The Co-Operation Agreement".
Canadian National non-voting equity shares
Voting. The holders of Canadian National non-voting equity shares, as such,
will not have voting rights except as required by law.
Dividends. The holders of Canadian National non-voting equity shares will
be entitled, subject to the prior rights of the holders of the Canadian National
exchangeable shares and the preferred shares, to receive out of amounts
applicable to the payment of dividends, any dividend, declared and payable by
Canadian National on such shares.
Dissolution. In the event of the liquidation, dissolution or winding-up of
Canadian National, subject to the prior rights of the holders of the Canadian
National exchangeable shares, the Canadian National voting shares, the Canadian
National special limited voting shares and the preferred shares of Canadian
National, the holders of the Canadian National non-voting equity shares will be
entitled to receive the remaining assets of Canadian National.
Co-operation Agreement. Pursuant to the co-operation agreement, the
Canadian National non-voting equity shares will not be transferable by NAR
Holdings Company, except to a wholly owned subsidiary of its parent company,
North American Railways.
Burlington Northern Santa Fe
Prior to the Combination
Authorized capital stock
The authorized capital stock of Burlington Northern Santa Fe consists of
600,000,000 shares of Burlington Northern Santa Fe common stock, par value $0.01
per share, 25,000,000 shares of preferred stock and 50,000,000 shares of Class A
preferred stock, par value $0.01 per share in each case. Of the 25,000,000
authorized shares of preferred stock, 6,900,000 shares have been designated 6
1/4% Cumulative Convertible Preferred Stock, Series A, and 6,000,000 shares have
been designated Junior Participating Preferred Stock, Series B. The following
description of Burlington Northern Santa Fe's capital stock is qualified by
reference to the Delaware General Corporation Law and Burlington Northern Santa
Fe's restated certificate of incorporation. Burlington Northern Santa Fe's
restated certificate of incorporation is incorporated by reference and will be
sent to Canadian National and Burlington Northern Santa Fe shareholders upon
request. See "Chapter Five--Additional Information for Shareholders--Where You
Can Find More Information".
III-33
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Burlington Northern Santa Fe common stock
As of January 31, 2000, there were outstanding 450,783,480 shares of
Burlington Northern Santa Fe common stock and options to purchase an aggregate
of 29,769,814 shares of Burlington Northern Santa Fe common stock. All of the
outstanding shares of Burlington Northern Santa Fe common stock are fully paid
and nonassessable. The Burlington Northern Santa Fe common stock has and is
subject to the following rights, privileges, restrictions and conditions:
Voting. Each holder of Burlington Northern Santa Fe common stock is
entitled to one vote per share in the election of directors and on all other
matters submitted to a vote of shareholders.
Dividends. Subject to the rights and preferences of any issued and
outstanding Burlington Northern Santa Fe preferred stock, each holder of
Burlington Northern Santa Fe common stock is entitled to receive dividends as
may be declared by Burlington Northern Santa Fe's board of directors out of
funds legally available therefor.
Dissolution. Each holder of Burlington Northern Santa Fe common stock is
entitled to share equally in any distribution of the assets of Burlington
Northern Santa Fe upon the liquidation, dissolution or winding-up of Burlington
Northern Santa Fe. Such participation is subject to the rights, privileges,
restrictions and conditions attaching to any issued and outstanding preferred
stock or shares of any other class ranking prior to the Burlington Northern
Santa Fe common stock.
Preemptive rights. No holder of Burlington Northern Santa Fe common stock
has any preemptive right to subscribe for any securities of Burlington Northern
Santa Fe.
Burlington Northern Santa Fe preferred stock
Preferred stock is issuable in series and, subject to Burlington Northern
Santa Fe's certificate of incorporation, Burlington Northern Santa Fe's board of
directors is authorized to fix, before issuance, the designations, rights,
privileges, restrictions and conditions attaching to the shares of each series.
No preferred stock is outstanding.
Burlington Northern Santa Fe rights plan
The following is a summary of Burlington Northern Santa Fe's rights plan.
The Burlington Northern Santa Fe rights plan will not be triggered by the
combination agreement and the transactions that it contemplates. The summary is
qualified by Burlington Northern Santa Fe's Registration Statement on Form 8-A
filed on December 23, 1999, including the Burlington Northern Santa Fe
Corporation Rights Agreement attached as an exhibit to that registration
statement.
On December 18, 1999, Burlington Northern Santa Fe's board of directors
declared a dividend distribution of one right for each outstanding share of
Burlington Northern Santa Fe common stock to shareholders of record at the close
of business on December 31, 1999. Except as described below, each Burlington
Northern Santa Fe right, when exercisable, entitles the registered holder to
purchase from Burlington Northern Santa Fe one one-hundredth of a share of
Junior Participating Preferred Stock, Series B, at a price of $100.00 per one
one-hundredth share, subject to adjustment.
Initially, the Burlington Northern Santa Fe rights attach to all Burlington
Northern Santa Fe common stock certificates representing shares then outstanding
and no separate Burlington Northern Santa Fe right certificates will be
distributed. Until the earlier to occur of:
o ten days following a public announcement that a person or group of
affiliated or associated persons (an "acquiring person") has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of Burlington Northern Santa Fe common stock
(the "shares acquisition date"); or
III-34
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
o ten business days (or such later date as may be determined by action
of Burlington Northern Santa Fe's board of directors prior to the time
that any person becomes an acquiring person) following the
commencement of, or a public announcement of an intention to make, a
tender or exchange offer if, upon consummation of the tender or
exchange offer, such person or group would be the beneficial owner of
15% or more of the outstanding shares of Burlington Northern Santa Fe
common stock (the earlier of such dates being called the "distribution
date");
the Burlington Northern Santa Fe rights will be evidenced by the Burlington
Northern Santa Fe common stock certificates and not by separate certificates.
The Burlington Northern Santa Fe rights plan also provides that, until the
distribution date, the Burlington Northern Santa Fe rights will be transferred
with and only with the Burlington Northern Santa Fe common stock. Until the
distribution date (or earlier redemption, expiration or termination of the
Burlington Northern Santa Fe rights), the transfer of any certificates for
Burlington Northern Santa Fe common stock will also constitute the transfer of
the Burlington Northern Santa Fe rights associated with the Burlington Northern
Santa Fe common stock represented by such certificates. As soon as practicable
following the distribution date, separate certificates evidencing the Burlington
Northern Santa Fe rights will be mailed to holders of record of the Burlington
Northern Santa Fe common stock as of the close of business on the distribution
date and, thereafter, such separate Burlington Northern Santa Fe right
certificates alone will evidence the Burlington Northern Santa Fe rights.
The Burlington Northern Santa Fe rights are not exercisable until the
distribution date and will expire at the earliest of (1) December 18, 2009, (2)
the redemption of the Burlington Northern Santa Fe rights by Burlington Northern
Santa Fe as described below, (3) the time immediately prior to the effectiveness
of the merger of a wholly owned subsidiary of North American Railways with and
into Burlington Northern Santa Fe called for by the combination agreement and
(4) the exchange of all Burlington Northern Santa Fe rights for Burlington
Northern Santa Fe common stock as described below.
In the event that any person (other than Burlington Northern Santa Fe, its
affiliates or any person receiving newly issued shares of Burlington Northern
Santa Fe common stock directly from Burlington Northern Santa Fe) becomes the
beneficial owner of 15% or more of the then outstanding shares of Burlington
Northern Santa Fe common stock, each holder of a Burlington Northern Santa Fe
right will thereafter have the right to receive, upon exercise at the then
current exercise price of the Burlington Northern Santa Fe right, Burlington
Northern Santa Fe common stock or, in certain circumstances, cash, property or
other securities of Burlington Northern Santa Fe having a value equal to two
times the exercise price of the Burlington Northern Santa Fe right. The
Burlington Northern Santa Fe rights plan contains an exemption for any issuance
of Burlington Northern Santa Fe common stock by Burlington Northern Santa Fe
directly to any person (for example, in a private placement or an acquisition by
Burlington Northern Santa Fe in which Burlington Northern Santa Fe common stock
is used as consideration), even if that person would become the beneficial owner
of 15% or more of the Burlington Northern Santa Fe common stock, provided that
such person does not acquire any additional shares of Burlington Northern Santa
Fe common stock.
In the event that, at any time following the shares acquisition date,
Burlington Northern Santa Fe is acquired in a merger or other business
combination transaction or 50% or more of Burlington Northern Santa Fe's assets
or earning power are sold, proper provision will be made so that each holder of
a Burlington Northern Santa Fe right will thereafter have the right to receive,
upon exercise at the then current exercise price of the Burlington Northern
Santa Fe right, Burlington Northern Santa Fe common stock of the acquiring or
surviving company having a value equal to two times the exercise price of the
Burlington Northern Santa Fe right.
Following the occurrence of any of the events set forth in the preceding
two paragraphs, any Burlington Northern Santa Fe rights that are, or, under
certain circumstances specified in the Burlington Northern Santa Fe rights plan,
were, beneficially owned by any acquiring person will immediately become null
and void.
III-35
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
The purchase price payable, and the number of shares of Burlington Northern
Santa Fe preferred stock or other securities or property issuable, upon exercise
of the Burlington Northern Santa Fe rights, are subject to adjustment from time
to time to prevent dilution, among other circumstances, in the event of a stock
dividend on, or a subdivision, split, combination, consolidation or
reclassification of, the Burlington Northern Santa Fe preferred stock or the
Burlington Northern Santa Fe common stock, or a reverse split of the outstanding
shares of Burlington Northern Santa Fe preferred stock or the Burlington
Northern Santa Fe common stock.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Burlington Northern Santa Fe common stock and prior to the acquisition by such
person or group of 50% or more of the outstanding Burlington Northern Santa Fe
common stock, Burlington Northern Santa Fe's board of directors may exchange the
Burlington Northern Santa Fe rights (other than Burlington Northern Santa Fe
rights owned by such person or group, which have become void), in whole or in
part, for Burlington Northern Santa Fe common stock at an exchange ratio of one
share of Burlington Northern Santa Fe common stock per Burlington Northern Santa
Fe right, subject to adjustment.
With some exceptions, no adjustment in the purchase price will be required
until cumulative adjustments require an adjustment of at least 1% in the
purchase price. Burlington Northern Santa Fe will not be required to issue
fractional shares of Burlington Northern Santa Fe preferred stock or Burlington
Northern Santa Fe common stock other than fractions in multiples of one
one-hundredth of a share of Burlington Northern Santa Fe preferred stock and, in
lieu thereof, an adjustment in cash may be made based on the market price of the
Burlington Northern Santa Fe preferred stock or Burlington Northern Santa Fe
common stock on the last trading date prior to the date of exercise.
At any time after the date of the Burlington Northern Santa Fe rights plan
until the time that a person becomes an acquiring person, Burlington Northern
Santa Fe's board of directors may redeem the Burlington Northern Santa Fe rights
in whole, but not in part, at a price of $0.01 per Burlington Northern Santa Fe
right, which may at the option of Burlington Northern Santa Fe be paid in cash,
shares of Burlington Northern Santa Fe common stock or other consideration
deemed appropriate by Burlington Northern Santa Fe's board of directors. Upon
the effectiveness of any action of Burlington Northern Santa Fe's board of
directors ordering redemption of the Burlington Northern Santa Fe rights, the
Burlington Northern Santa Fe rights will terminate and the only right of the
holders of Burlington Northern Santa Fe rights will be to receive the redemption
price.
Until a Burlington Northern Santa Fe right is exercised, the holder of the
Burlington Northern Santa Fe right, as such, will have no rights as a
shareholder of Burlington Northern Santa Fe, including the right to vote or to
receive dividends.
Subsequent to the Combination
Subsequent to the combination, Burlington Northern Santa Fe will be a
wholly owned subsidiary of North American Railways.
North American Railways
Prior to the Combination
Prior to the combination, North American Railways will be owned equally by
Canadian National and Burlington Northern Santa Fe and will conduct no
operations other than in connection with the consummation of the combination.
III-36
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
Subsequent to the Combination
Authorized capital stock
Subsequent to the combination, the authorized capital stock of North
American Railways will consist of _____ shares of common stock, par value $0.01
per share, one share of special voting stock, par value $0.01 per share, and
_____ shares of preferred stock, par value $0.01 per share. The following
description of North American Railways capital stock subsequent to the
combination is qualified by reference to the Delaware General Corporation Law
and North American Railways' certificate of incorporation that will become
effective at the completion of the combination, and the co-operation agreement
to be entered into by Canadian National and North American Railways upon
completion of the combination, copies of which are incorporated by reference and
are attached as Annex L and Annex M.
North American Railways common stock
Based on information available as of _______________ __, 2000, it is
anticipated that, immediately after the combination is completed, approximately
_________ shares of North American Railways common stock will be outstanding.
All such shares will be fully paid and nonassessable. The North American
Railways common stock will have and be subject to the following rights,
privileges, restrictions and conditions:
Voting. Each holder of North American Railways common stock will be
entitled to one vote per share in the election of directors and on all other
matters submitted to a vote of shareholders.
Dividends. Subject to the rights and preferences of North American Railways
preferred stock or shares of any other class ranking prior to the North American
Railways common stock, each holder of North American Railways common stock is
entitled to receive dividends as may be declared by North American Railways'
board of directors out of legally available funds.
Dissolution. Each holder of North American Railways common stock will be
entitled to share equally in any distribution of the assets of North American
Railways upon the liquidation, dissolution or winding-up of North American
Railways. Such participation will be subject to the rights, privileges,
restrictions and conditions attaching to any issued and outstanding preferred
stock or shares of any other class ranking prior to the North American Railways
common stock.
Preemptive rights. No holder of North American Railways common stock will
have any preemptive right to subscribe for any securities of North American
Railways.
Ownership restrictions. The North American Railways common stock will be
subject to ownership restrictions substantially identical to those applicable to
Canadian National voting shares and described in "--Canadian National--
Restrictions on Ownership".
North American Railways special voting stock
In connection with the combination, North American Railways will issue to a
trustee one share of its special voting stock. The trustee will hold the share
of special voting stock for the benefit of holders of Canadian National
exchangeable shares under the terms of a voting and exchange trust agreement
among North American Railways, Canadian National and the trustee, a form of
which is attached as Annex K. The special voting stock will have and be subject
to the following rights, privileges, conditions and restrictions:
Voting. The holder of the share of North American Railways special voting
stock will at all times be entitled to that number of votes equal to the number
of Canadian National exchangeable shares outstanding, other than Canadian
National exchangeable shares held by North American Railways or any of its
subsidiaries. The holder of the share of North American Railways special voting
stock and the holders of North American Railways common
III-37
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
stock will vote as a single class on all matters concerning the voting of North
American Railways' capital stock, except as required by applicable law and
except for other limited circumstances.
Dividends. No dividends will be paid on the North American Railways special
voting stock.
Dissolution. The holder of the share of North American Railways special
voting stock will be entitled to receive one dollar upon the liquidation,
dissolution or winding-up of North American Railways. Such participation will be
subject to the rights, privileges, restrictions and conditions attaching to any
issued and outstanding preferred stock or any other class ranking prior to the
North American Railways special voting stock.
Redemption; Cancellation. North American Railways will redeem for par value
and cancel the share of North American Railways special voting stock when there
are no Canadian National exchangeable shares that are not held by North American
Railways or its subsidiaries.
North American Railways preferred stock
The North American Railways preferred stock is issuable in series and,
subject to North American Railways' certificate of incorporation, the North
American Railways board of directors is authorized to fix, before issuance, the
designations, rights, privileges, restrictions and conditions attaching to the
shares of each series. No North American Railways preferred stock will be
outstanding at the time of the completion of the combination.
Transfer Agent and Registrar
___________________ will be the transfer agent and registrar for the
stapled securities consisting of Canadian National exchangeable shares and
Canadian National voting shares. ___________________ will be the transfer agent
and registrar for the stapled securities consisting of North American Railways
common stock and Canadian National voting shares.
Stock Exchange Listing; Delisting and Deregistration of Burlington Northern
Santa Fe Common Stock and Canadian National Common Shares
It is a condition to the combination that the stapled securities consisting
of Canadian National voting shares and shares of North American Railways common
stock issuable in the combination be approved for listing on the New York Stock
Exchange at or prior to the completion of the combination, subject to official
notice of issuance. It is also a condition to the combination that the stapled
securities consisting of Canadian National voting shares and Canadian National
exchangeable shares issuable in the combination be approved for listing on The
Toronto Stock Exchange at or prior to the completion of the combination, subject
to filing of required documentation. If the combination is completed, Burlington
Northern Santa Fe common stock and Canadian National common shares will cease to
be listed and registered under United States and Canadian securities laws.
LEGAL MATTERS
The validity of the North American Railways common stock to be issued to
Burlington Northern Santa Fe shareholders pursuant to the combination will be
passed upon by Mayer, Brown & Platt. The validity of Canadian National voting
shares to be issued to Burlington Northern Santa Fe shareholders pursuant to the
combination will be passed upon by Stikeman, Elliott. It is a condition to the
completion of the combination that Canadian National and Burlington Northern
Santa Fe receive opinions from Davis Polk & Wardwell and Mayer, Brown & Platt
with respect to certain U.S. federal income tax matters relating to the
combination. See "Chapter One--The Combination--Material Tax Consequences of the
Combination--U.S. Federal Income Tax Consequences".
III-38
<PAGE>
Chapter Three - Comparison of Shareholder Rights
and Description of Capital Stock
EXPERTS
The consolidated financial statements of Canadian National as of December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998 contained in Canadian National's Annual Report on Form 40-F
incorporated by reference in this document have been so incorporated in reliance
on the report of KPMG LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Burlington Northern Santa Fe
incorporated in this document by reference to the Burlington Northern Santa Fe
Annual Report on Form 10-K, as amended, for the year ended December 31, 1998,
have been so incorporated in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated balance sheet of North American Railways as of December
31, 1999 included in this document has been included in reliance on the report
of KPMG LLP and PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firms as experts in auditing and accounting.
The consolidated financial statements as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 of Illinois
Central Corporation incorporated by reference in this document have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and have been so incorporated in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
III-39
<PAGE>
CHAPTER FOUR
OTHER CANADIAN NATIONAL ANNUAL MEETING MATTERS
The information contained in Chapter Four is given as of February 29,
2000, except as indicated otherwise. All dollar amounts in Chapter Four, unless
otherwise indicated, are expressed in Canadian dollars.
Election of Directors
The Articles provide that the Board of Directors of Canadian National (the
"Company") shall consist of a minimum of seven and a maximum of 21 directors.
Pursuant to a resolution of the Board, 15 persons are to be elected as
directors for the current year, each to hold office until the next annual
meeting of the Company or until such person's successor is elected or
appointed. Dr. Edward P. Neufeld, who has been a director since 1995, is not
standing for re-election as a director. At its meeting held on December 7,
1999, pursuant to a recommendation of the Corporate Governance Committee, the
Board of Directors of the Company appointed Mr. E. Hunter Harrison, Executive
Vice-President and Chief Operating Officer of the Company, as a member of the
Board of Directors. The persons nominated are, in the opinion of management,
well qualified to act as directors of the Company for the ensuing year.
The term of office of each of the present directors expires at the close
of the Meeting. The persons named below will be presented for election at the
Meeting as management's nominees and, unless authority is withheld, the persons
designated in the accompanying form of proxy or voting instruction card intend
to vote for the election of these nominees. Management does not contemplate
that any of these nominees will be unable to serve as a director, but should
that occur for any reason before the Meeting, the persons designated in the
accompanying form of proxy reserve the right to vote for another nominee in
their discretion unless the shareholder who has given such proxy has directed
that the shares be withheld from voting in the election of directors.
The following table sets out information regarding the nominees for
election as directors:
<TABLE>
Shares Beneficially Owned,
Served as a Controlled
Name and Municipality Director since Principal Occupation (1) or Directed (2)
--------------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C>
Michael R. Armellino 1996 Retired Partner, 35,000
New York, New York The Goldman Sachs Group
(investment bankers)
Purdy Crawford, O.C., Q.C., LL.D. 1995 Chairman, AT&T Canada Corp. 29,000
Toronto, Ontario (telecommunications company)
and Counsel, Osler, Hoskin &
Harcourt (law firm)
J.V. Raymond Cyr, O.C., LL.D. 1995 Chairman, PolyValor Inc. and 27,000(3)
Montreal, Quebec Vice-Chairman, ART Advanced
Research & Technologies Inc.
(telecommunications companies)
James K. Gray, O.C., LL.D. 1996 Chairman, Canadian Hunter 19,200
Calgary, Alberta Exploration Ltd.
(natural gas company)
E. Hunter Harrison 1999 Executive Vice-President and 1,216,500
Burr Ridge, Illinois Chief Operating Officer of the
Company
IV-1
</TABLE>
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
<TABLE>
Shares Beneficially Owned,
Served as a Controlled
Name and Municipality Director since Principal Occupation (1) or Directed (2)
--------------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C>
V. Maureen Kempston Darkes 1995 President and General Manager, 17,000(4)
O.C., D.Comm., LL.D. General Motors of Canada
Toronto, Ontario Limited
(automobile company)
The Hon. Richard H. Kroft, C.M. 1994 Member of the Senate of Canada 27,000
Winnipeg, Manitoba
Gilbert H. Lamphere 1998 Private Investor 274,398
New York, New York
Denis Losier 1994 President and Chief Executive 27,000
Moncton, New Brunswick Officer, Assumption Life
(life insurance company)
The Hon. Edward C. Lumley, P.C., 1996 Vice-Chairman, 23,000
LL.D. Nesbitt Burns Inc.
Ottawa, Ontario (investment bankers)
Alexander P. Lynch 1998 General Partner, 93,704
New York, New York The Beacon Group, LLC
(private investment and financial
advisory firm)
David G.A. McLean, O.B.C., LL.D. 1994 Chairman of the Board of the 47,170
Vancouver, British Columbia Company
Chairman and Chief Executive
Officer, The McLean Group
(real estate investment company)
Robert Pace 1994 President and Chief Executive 27,000
Halifax, Nova Scotia Officer, The Pace Group
(private holding company)
Cedric E. Ritchie, O.C., LL.D. 1995 Corporate Director and Former 27,000
Toronto, Ontario Chairman and Chief Executive
Officer, The Bank of Nova
Scotia
Paul M. Tellier, P.C., C.C., Q.C., 1992 President and Chief Executive 838,572
LL.D. Officer of the Company
Montreal, Quebec
</TABLE>
- -------------------
(1) The principal occupation of the director and nominee who has not held its
present principal occupation or other management positions with the same
or other associated firms or organizations for the last five years or who
was not elected to its present term of office by a vote of shareholders of
the Company at a meeting, the notice of which was accompanied by a
management proxy circular, is as follows: Mr. E. Hunter Harrison was
President and Chief Executive Officer and a director of Illinois Central
Corporation prior to March 1998.
(2) The information as to shares beneficially owned, controlled or directed
has been furnished by the respective nominees individually and includes
deferred stock units and shares under options.
(3) Pursuant to the terms of the Directors Share Purchase Plan described under
"Directors' Compensation", in each of 1998, 1999 and 2000 Mr. Cyr chose to
be granted 400 deferred stock units in lieu of 400 shares as part of his
director's compensation.
IV-2
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
(4) Pursuant to the terms of the Directors Share Purchase Plan described under
"Directors' Compensation", in each of 1999 and 2000, Mrs. Kempston Darkes
chose to be granted 400 deferred stock units in lieu of 400 shares as part
of her director's compensation.
The Board of Directors has adopted a guideline that each director own,
within five years of joining the Board, not less than $150,000 worth of common
shares of the Company, including share units and similar plans, if any, but not
including the value of unexercised options. The average value of common shares
of the Company owned by non-employee directors is approximately $907,440 (based
on the February 29, 2000 average closing price of the common shares of the
Company on the Toronto and New York stock exchanges).
For the composition of the committees of the Board of Directors, reference
is made to "Corporate Governance" below. Messrs. Tellier and Harrison are the
only executive officers of the Company serving on the Board of Directors.
Corporate Governance
The following description of the Company's corporate governance practices
is responsive to the disclosure requirements of The Toronto Stock Exchange (the
"TSE"). These requirements provide that listed companies must annually disclose
their corporate governance practices by comparing their own practices to those
put forward and recommended in the guidelines of the TSE (the "Guidelines").
The Company is committed to adhering to the highest possible standard in
all aspects of its activities and its corporate governance practices were
designed in a manner consistent with this objective. The role, specific mandate
and functioning rules of the Board of Directors and of each of its committees
are set forth in the Corporate Governance Manual of the Company (the "Manual").
The Manual is revised regularly with a view to continually improving the
practices of the Company by assessing their effectiveness and comparing them
with evolving practices in the field and the changing circumstances and needs
of the Company. The Manual forms part of the documentation which is given to
all persons elected or appointed to the Board of Directors of the Company. In
addition, the Board of Directors, through the Corporate Governance Committee,
has established a performance evaluation program designed to assess its
effectiveness, that of the Committees and that of individual directors. This
process culminates with a meeting of the Corporate Governance Committee with
all directors being invited to participate.
The Board of Directors believes that its corporate governance practices,
as set forth in the Manual and as followed, conform to the Guidelines in all
respects. The Board of Directors is also of the opinion that these practices
are well designed to assist the Company in achieving its principal stated
corporate objective which is the enhancement of shareholder value.
Mandate of the Board of Directors and of its Committees
The role of the Board of Directors is to supervise the management of the
affairs of the Company. The Board of Directors and management believe that this
supervision mandate can best be achieved by ensuring that the Board of
Directors is kept well informed, in a timely manner, of the affairs and
progress of the Company towards specific objectives, while giving management as
much flexibility as possible in discharging its own mandate and performing its
duties.
Given the size of the Company, the nature and geographical scope of its
activities and the great number of laws and regulations to which it is subject,
the Board of Directors has subdivided this supervision mandate into six areas
and has constituted committees that have more direct responsibilities for such
areas. All committees report to the Board of Directors and, subject to certain
limited exceptions, there are no delegations of the Board's authority to
committees.
IV-3
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Audit and Finance Committee
The integrity of the Company's internal controls and financial reporting
and the continuous monitoring of its financial situation are under the
supervision of the Audit and Finance Committee which is composed only of
"outside directors" as such expression is defined in the Guidelines. In
particular, the Audit and Finance Committee is responsible for reviewing the
Company's financial reporting procedures and internal controls. As part of its
responsibility, the Audit and Finance Committee reviews the annual and
quarterly financial statements, financial information contained in publicly
disseminated documents and annual external auditor reports, as well as
significant accounting policies, reporting practices, and internal controls.
The Audit and Finance Committee also monitors the effectiveness of internal
control procedures and information systems established by the Company, which
include accounting and record-keeping controls, management information systems,
and independent inspections and audits. In addition, the Audit and Finance
Committee monitors and approves capital and operating expenditures over certain
stated amounts. Lastly, the Audit and Finance Committee identifies the
principal risks of the Company's business and ensures that appropriate systems
are implemented to manage the risks.
Corporate Governance Committee
The compliance by the Company with all of its statutory obligations,
including communication with the holders of its securities, is under the
supervision of the Corporate Governance Committee. This committee also ensures
that there is a constant monitoring of the Board's performance and of the
effectiveness of the process by which the Board of Directors discharges its
mandate. The composition of the Board of Directors is also under the
supervision of the Corporate Governance Committee.
The Corporate Governance Committee is composed exclusively of "outside
directors" who are all "unrelated directors", as such expressions are defined
in the Guidelines. It is charged with the responsibility of overseeing and
monitoring the corporate governance policies of the Company. This committee
reviews corporate governance matters with the Chairman, the President and Chief
Executive Officer and the Corporate Secretary, and suggests improvements to the
organization and conduct of Board of Directors and committee meetings. The
Corporate Governance Committee is vested with the authority to develop the
appropriate processes for the periodic evaluation of individual directors,
including the Chairman, the Board of Directors as a whole and directors
individually.
The Corporate Governance Committee develops, reviews, and monitors
policies and procedures for meeting the Board's information needs, including
informal and formal access to executive management. This committee also reviews
and reports to the Board of Directors on any request for outside Board
membership of any executive officers. In conjunction with the office of the
Corporate Secretary, the Corporate Governance Committee arranges an orientation
and information program for new directors.
The Corporate Governance Committee annually reviews the credentials of
nominees for election or re-election as members of the Board of Directors. It
considers their continued qualification under applicable law, the continued
validity of the credentials underlying the appointment of each director, and an
evaluation of the effectiveness of Board of Directors participation of such
director. This committee also makes recommendations as to the remuneration of
the Chairman and the other directors. In addition, the Corporate Governance
Committee can in case of emergency give prior approval to certain budgeted
transactions subject to reporting any such prior approvals to the Board of
Directors at its next meeting.
Upon request to the Chairman of the Corporate Governance Committee, a
member of the Board of Directors may engage an outside advisor at the expense
of the Company in appropriate circumstances.
Environment and Safety Committee
The compliance by the Company with the highest standards, as well as
statutory obligations, in regard to the protection of the environment and the
safety of its operations, is under the supervision of the Environment and
Safety Committee. In particular, the Environment and Safety Committee is
constituted to ensure that environmental and health and safety policies,
procedures, and guidelines are developed and implemented. This committee
assesses
IV-4
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
corporate environmental and health and safety practices, monitors systems, and,
where applicable, ensures that remedial plans and programs are carried out. The
Environment and Safety Committee obtains reports on a timely basis in respect
of all material complaints, notices, investigations, and proceedings by
governmental authorities or other parties. It also ensures that employee
training standards and communications policies are developed and implemented.
Human Resources Committee
Succession planning, through the recruitment, training and monitoring of
senior management, and the adoption and implementation of compensation policies
consistent with the objectives of the Company, is under the supervision of the
Human Resources Committee. In particular, the Human Resources Committee ensures
that the President and Chief Executive Officer has established a succession
planning system for all executive management. This committee also monitors and
recommends appointments of executive management. It evaluates executive
performance, including that of the President and Chief Executive Officer,
recommends compensation for the President and Chief Executive Officer, and
executive management, and approves the terms and conditions of executive
management appointments, terminations, and retirements. The compensation
philosophy and policy, designed to directly reward the enhancement of
shareholder value, led to the approval of the Management Long- Term Incentive
Plan by the shareholders at the 1996 annual meeting of the Company, and was
developed under the leadership of this committee. Finally, it ensures the
proper monitoring of pension issues, strategic labor issues, and social issues
such as employment equity and employment assistance programs.
Investment Committee of the Company Pension Trust Fund
The Company Pension Trust Fund is under the supervision of the Investment
Committee. In particular, this committee reviews the investment activities of
the Company Pension Trust Fund. The Investment Committee monitors the
investments of the Company Pension Trust Fund in accordance with the general
investment policy for the year, as approved by the Board, and ratifies
significant Pension Trust Fund investments or loans made and interests
acquired. The Investment Committee also makes recommendations to the Board of
Directors regarding changes to the general investment policy of the Company
Pension Trust Fund.
Strategic Planning Committee
The role of the Strategic Planning Committee is to ensure that a strategic
planning process is in place, to review and approve strategies and to monitor
management's success in implementing the strategies. In particular, the
Strategic Planning Committee acts in an advisory role to the Board of Directors
as well as to the President and Chief Executive Officer, and focuses on
financial and strategic issues, particularly the Company's business plan and
capital budget. This committee ensures that the Board of Directors is briefed
regularly on strategic planning and financial issues.
Composition of the Board of Directors and of its Committees
The Board of Directors is currently composed of 16 members, 15 of whom are
standing for re-election. Dr. Edward P. Neufeld, who has been a director since
1995, is not standing for re-election as a director. The Corporate Governance
Committee has reviewed and is satisfied with the current size, geographical
representation, business background and diversified experience of the Board of
Directors as a whole as well as the valuable contribution each brings to the
performance of the Board. The Corporate Governance Committee constantly
monitors Board membership to ensure the Board of Directors functions
effectively.
Of the 16 directors, only Mr. Tellier, the President and Chief Executive
Officer of the Company, and Mr. Harrison, the Executive Vice-President and
Chief Operating Officer of the Company, are officers or "inside directors" as
such expression is defined in the Guidelines. Of the remaining 14 directors, at
least 13 are "unrelated directors", as such expression is defined in the
Guidelines.
IV-5
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Chairman and Chief Executive Officer
The positions of Chairman, on the one hand, and President and Chief
Executive Officer, on the other, are separate. Mr. David G.A. McLean, who has
been a director of the Company since 1994, is the non-executive Chairman of the
Board. Mr. Paul M. Tellier is President and Chief Executive Officer; he has
served in this capacity and has been a director since 1992.
The Committees are composed as follows:
Audit and Finance Committee: Mr. Robert Pace, Chairman, Mr. Michael R.
Armellino, Mr. J.V. Raymond Cyr, Ms. V. Maureen Kempston Darkes, The Hon.
Richard H. Kroft, Mr. Denis Losier, Mr. Alexander P. Lynch and Mr. Cedric E.
Ritchie.
Corporate Governance Committee: Mr. David G.A. McLean, Chairman, Mr.
Purdy Crawford, Mr. James K. Gray, Mr. Gilbert H. Lamphere, Mr. Denis Losier,
The Hon. Edward C. Lumley and Mr. Cedric E. Ritchie.
Environment and Safety Committee: Mr. J.V. Raymond Cyr, Chairman, Mr.
James K. Gray, Ms. V. Maureen Kempston Darkes, Mr. Alexander P. Lynch, Dr.
Edward P. Neufeld and Mr. Robert Pace.
Human Resources Committee: Mr. Purdy Crawford, Chairman, Mr. James K.
Gray, The Hon. Richard H. Kroft, Mr. Gilbert H. Lamphere, Mr. Alexander P.
Lynch, Mr. David G.A. McLean and Mr. Robert Pace.
Investment Committee of the Pension Trust Fund:, The Hon. Richard H.
Kroft, Chairman, Mr. Michael R. Armellino, Mr. Purdy Crawford, Mr. Gilbert H.
Lamphere, Mr. Denis Losier, The Hon. Edward C. Lumley, Mr. David G.A. McLean
and Mr. Cedric E. Ritchie.
Strategic Planning Committee: Mr. Cedric E. Ritchie, Chairman, Mr.
Michael R. Armellino, Mr. Purdy Crawford, Mr. J.V. Raymond Cyr, Mr. James K.
Gray, Ms. V. Maureen Kempston Darkes, The Hon. Richard H. Kroft, Mr. E. Hunter
Harrison, Mr. Gilbert H. Lamphere, Mr. Denis Losier, The Hon. Edward C. Lumley,
Mr. Alexander P. Lynch, Mr. David G.A. McLean, Dr. Edward P. Neufeld, Mr.
Robert Pace and Mr. Paul M. Tellier.
All Directors are invited to attend committee meetings, should they so
wish. The President and Chief Executive Officer attends all committees as
necessary; senior officers attend where their area of responsibility is
required to assist the Committee in its deliberations.
Process
During the last half of any fiscal period, the Chairman of the Board, in
collaboration with the Corporate Secretary, establishes a schedule for the
meetings of the Board of Directors and its committees for the following year.
Eleven such meetings were scheduled and held during the course of 1999. If
during the course of the year events or circumstances require Board action or
consideration, additional meetings are called. In 1999, six such additional
meetings were held to consider various matters which arose during the course of
the year.
It is the Company's policy that, generally, no decision requiring Board
consideration or approval be delegated to or made by a committee. Most issues
will be initially discussed and examined by the relevant committee which, if it
deems it appropriate, will bring a recommendation to the Board of Directors
which will make the decision after a report from the Committee.
When the schedule for Board of Directors and committee meetings is
established, the Corporate Secretary, in collaboration with the Chairmen of the
various committees and with the executive officers having responsibility for
the matters supervised by each committee, establishes agendas for the year.
This ensures that all those matters which are the more direct or "focused"
responsibility of each committee are scheduled for review in a timely and
orderly manner by the responsible committee during the course of the year.
IV-6
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
The Company believes that proceeding in this manner also helps in the
preparation of in-depth presentations conducive to meaningful information
sessions while allowing management to plan ahead. As the year progresses, the
regular agendas are complemented with items and presentations selected on the
basis of their relevance at the time, keeping in mind management's commitment
to keeping the Board of Directors well informed of all significant developments
in the business and prospects of the Company. As is the case for full Board
meetings, other meetings of the committees are called and held during the year
as circumstances warrant.
During the course of the year, constant communications will take place
between the Chairman and the President and Chief Executive Officer. Likewise,
through the Office of the Corporate Secretary, executive officers having
responsibilities for matters placed under the supervision of particular
committees will communicate with the chairmen of such committees. This open
line of communication ensures that all meaningful information concerning the
affairs and progress of the Company are transmitted to those members of the
Board of Directors having special supervisory responsibilities. It also allows
the Chairman of the Board, or the chairmen of the various committees, to
determine both the appropriateness of having special or additional meetings of
either the Board of Directors or a committee and to establish and complement
agendas for future meetings.
Expectation of Management
The Board of Directors relies on the information which management provides
to the Board of Directors and its committees, and thus the quality of such
information, both in terms of timeliness and completeness, is critical to the
effectiveness of Board decisions. The Board of Directors believes that the
process outlined above is essential to reaching this objective and to enable it
to properly discharge its mandate.
Shares Owned or Controlled by Senior Management
As at February 29, 2000, the directors and executive officers of the
Company, as a group, beneficially owned, directly or indirectly, or exercised
control or direction over, an aggregate of approximately 500,000 common shares,
representing less than 1% of the outstanding common shares.
Principal Holders
To the knowledge of the directors and officers of the Company, no person
beneficially owns or exercises control or direction over more than 10% of the
outstanding common shares.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for the Chief
Executive Officer and for each of the other five most highly compensated
executive officers (together, the "Named Executive Officers") for the year
ended December 31, 1999 and for each of the two preceding years (except for
Messrs. Harrison and Wylie).
<TABLE>
Summary Compensation Table
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
----------------------------------- -------------------------- ---------
Other Securities Restricted Long-Term
Annual Under Shares or Incentive
Compen- Options/ Restricted Plan All Other
Name and Principal Salary Bonus sation (4) SARs Granted Share Units Payouts Compensation
Position Year $ $ $ # $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul M. Tellier 1999 -- 200,000 N/A Nil (7)
President and Chief 1998 775,000 775,000 -- 200,000 N/A Nil - (7)
Executive Officer 1997 630,600 630,600 -- 63,000 N/A Nil 38,259
</TABLE>
IV-7
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
<TABLE>
Summary Compensation Table
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
----------------------------------- -------------------------- ---------
Other Securities Restricted Long-Term
Annual Under Shares or Incentive
Compen- Options/ Restricted Plan All Other
Name and Principal Salary Bonus sation (4) SARs Granted Share Units Payouts Compensation
Position Year $ $ $ # $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Hunter Harrison 1999 (5) 40,000 N/A Nil (8)
(1) 1998 556,163 667,395 178,422 (5) 400,000 40,000 (6) Nil 193,217 (8)
Executive Vice-
President and Chief
Operating Officer
Torrance Wylie (2) 1999 - 60,000 N/A Nil --
Senior Vice-
President,
Public Affairs
Jack T. McBain 1999 -- (5) 59,000 N/A Nil (7)
Executive Vice- 1998 335,000 263,800 -- 22,000 N/A Nil --
President, Operations 1997 315,000 244,535 -- 20,000 N/A Nil 24,133 (7)
Keith L. Heller 1999 -- 59,000 N/A Nil (7)
Senior Vice- 1998 300,000 256,500 -- 20,000 N/A Nil --
President, 1997 268,750 220,000 - 17,000 N/A Nil 22,220 (7)
Line Operations
Michael J. Sabia (3) 1999 -- N/A Nil (9)
1998 466,667 450,000 -- 27,000 N/A Nil -- (7)
1997 300,000 300,000 - 24,000 N/A Nil 21,042
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Harrison joined the Company as Executive Vice-President and Chief
Operating Officer on March 30, 1998. Prior thereto, he was the President
and Chief Executive Officer and a director of Illinois Central
Corporation. Mr. Harrison's annual compensation is paid in U.S. currency
and, for the purposes of the above table, has been converted to Canadian
currency at Revenue Canada's average rates of exchange of 1.4858 and
1.4831 for the years 1999 and 1998.
(2) Mr. Wylie joined the Company as Senior Vice-President, Public Affairs on
February 1, 1999. Prior thereto, he was Chairman of Government Policy
Consultants.
(3) Mr. Sabia left the Company and ceased to be Executive Vice-President and
Chief Financial Officer, effective on October 1, 1999.
(4) Perquisites and other personal benefits which do not exceed the lesser of
$50,000 or 10% of the total of the annual salary and bonus for any of the
Named Executive Officers, are not included in this column.
(5) Includes imputed interest on interest-free loans described under
"Indebtedness of Directors and Officers - Table of Indebtedness of
Directors, Executive Officers and Senior Officers other than under
Securities Purchase Programs" in the amounts of $160,442 for Mr. Harrison
in 1998 (using an interest rate of 4.75%) and $215,071 for Mr. Harrison in
1999 (using an interest rate of 5.44%) and a de minimis amount for Mr.
McBain in 1999.
(6) The 40,000 performance-based restricted shares of the Company common stock
were granted to Mr. Harrison on March 30, 1998 and, based on the market
value of the common shares on such date, had a value of $1,833,000. The
restricted shares are subject to vesting which shall lapse as to one-third
of such shares per year, subject to the Company's attainment, during the
Company's fiscal years 1999, 2000 and 2001, of performance objectives of
8.6, 9.3 and 10.0, respectively, relating to return on investment and of
73.4, 71.6 and 69.8, respectively, relating to operating ratio
improvements, measured on a year over year basis, and to Mr. Harrison's
continued employment during such period (U.S. GAAP; based on CN/IC
combined entity and excluding special charges).
(7) Represents the value of common shares issued in 1997 and 1999, pursuant to
the provisions of the 1995 Management Share Matching Plan. The 1997
amounts are based on a price per share of $73.575 on a pre-stock split
basis, being the average closing price of the common shares on November
28, 1997. The 1999 amounts are based in the closing price of the common
shares when transferred out of the Plan. Pursuant to the terms of the
Plan, a participant could apply for a two, three or four year loan and the
number of shares issued is prorated on the basis of the amount repaid
under such loan.
(8) Represents the combined Illinois Central Corporation contributions to a
defined contribution plan and to a 401(k) plan as well as the amounts
accrued under an executive account balance and under an excess benefit
plan.
(9) to come
IV-8
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Stock Options Granted to Named Executive Officers
During the Last Financial Year
The following table shows information regarding grants of stock options
made to Named Executive Officers under the Management Long-Term Incentive Plan
and, in the case of Mr. Wylie, an employment agreement during the financial
year ended December 31, 1999. See "Management Long-Term Incentive Plan" for a
description of the Plan.
<TABLE>
% of Total Market Value of
Options Granted Securities
# of Securities to Employees in Underlying Options
Year Granted Under Financial Year Exercise on Date of Grant
Name Granted Options (1) (%) Price ($) ($/Security) Expiry Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul M. Tellier(1) 1999 104,000 3.9 40.96 40.96 2009
1999 96,000 3.6 49.175 49.175 2009
E. Hunter Harrison(2) 1999 40,000 1.5 40.96 40.96 2009
Torrance Wylie (2) 1999 60,000 2.3 41.00 41.00 2005
Jack T. McBain(1) 1999 25,000 0.9 40.96 40.96 2009
1999 34,000 1.3 49.175 49.175 2009
Keith L. Heller(1) 1999 25,000 0.9 40.96 40.96 2009
1999 34,000 1.3 49.175 49.175 2009
Michael J. Sabia (1)(3) 1999 40,000 1.5 40.96 40.96 2009
1999 100,000 3.8 49.175 49.175 2009
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) These options are subject to vesting restrictions which lapse as to 25%
per year subject to the Company's attainment, during the Company's fiscal
years 1999, 2000, 2001 and 2002 of performance objectives of 8.6, 9.3 and
10.0, respectively, for the first three years relating to return on
investment and of 73.4, 71.6 and 69.8, respectively, for the first three
years relating to operating ratio improvements, measured on a year over
year basis, and to the optionee's continued employment throughout such
period (U.S. GAAP; 1999-2002 CN/IC combined entity and excluding special
charges). Performance objectives for fiscal year 2002 will be established
by the Board at a later date.
(2) These options are subject to vesting restrictions which lapse as to 25%
per year, not subject to Company's performance, as per the employment
agreement with the individual employee.
(3) The options granted to Mr. Sabia in 1999 were cancelled when he left the
Company effective on October 1, 1999, in accordance with the provisions of
the Plan.
IV-9
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Aggregated Option Exercises During the Last
Financial Year and Financial Year-End Option Value
The following table shows information regarding exercises of stock options
granted to Named Executive Officers under the Management Stock Option Plan and
the Management Long-Term Incentive Plan (except for Messrs. Harrison's and
Wylie's grants under their employment agreements) during the financial year
ended December 31, 1999. See "Management Stock Option Plan" and "Management
Long-Term Incentive Plan" for a description of such plans.
<TABLE>
Value of Unexercised in
Securities Aggregate Unexercised Options the Money Options at
Acquired Value at FY-End FY-End
on Exercise Realized (#) ($) (1)
- -----------------------------------------------------------------------------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul M. Nil Nil 212,750 414,850 3,326,178 1,210,811
Tellier
E. Hunter Nil Nil 100,000 340,000 Nil Nil
Harrison
Torrance Nil Nil Nil 60,000 Nil Nil
Wylie
Jack T. 31,200 1,084,200 58,800 103,400 1,064,434 543,742
McBain
Keith L. 31,200 1,045,200 56,800 100,400 1,047,224 524,302
Heller
Michael J. (2) Nil (2) Nil
Sabia
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) Value of unexercised options at financial year-end is the difference
between the average closing price of the common shares on December 31,
1999 on the New York and Toronto stock exchanges ($37.93) and the exercise
price. This value has not been, and may never be, realized. The actual
gains, if any, on exercise will depend on the value of the common shares
on the date of exercise.
(2) Exercisable until March 1, 2000 after which time they are cancelled; Mr.
Sabia exercised all remaining options prior to such date.
Composition of the Human Resources Committee
The Human Resources Committee evaluates and approves executive
compensation for the Company. This committee is comprised of seven independent
directors, namely Messrs. Purdy Crawford, Chairman of the Committee, James K.
Gray, Gilbert H. Lamphere, Alexander P. Lynch, David G.A. McLean and Robert
Pace and The Hon. Richard H. Kroft. The President and Chief Executive Officer,
the Senior Vice-President, Corporate Services and the Senior Vice-President,
Chief Legal Officer and Corporate Secretary attend meetings as non-voting
members of this committee. The President and Chief Executive Officer, the
Senior Vice-President, Corporate Services and the Senior Vice-President, Chief
Legal Officer and Corporate Secretary of the Company do not participate in
discussions concerning their own compensation; the Senior Vice-President, Chief
Legal Officer and Corporate Secretary in addition does not participate in
discussions dealing with performance evaluation.
Report on Executive Compensation by the Human Resources Committee
The Human Resources Committee meets as required. This committee evaluates
executive performance, including that of the President and Chief Executive
Officer, against established objectives and recommends compensation for the
President and Chief Executive Officer and the other executive officers of the
Company. The Human Resources Committee also makes recommendations with respect
to the terms and conditions of executive management appointment and
termination/retirement, and reviews performance reports submitted for other
executive officers. Executive compensation is approved by the Board of
Directors.
IV-10
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
The Compensation Policy of the Company
The pivotal and continuing theme of Canadian National's compensation
policy has been to tie pay to the financial performance of the Company and the
enhancement of shareholder value. This underlies the need to attract, retain
and motivate vital executive talent in an increasingly visible and competitive
environment.
Since privatization in 1995, the compensation strategy has significantly
evolved, with compensation increasingly weighted towards annual and long-term
incentives and encouraging broad share ownership by employees through the
introduction of a variety of management and employee stock programs. Incentive
based compensation has been linked to performance levels more comparable to US
railroads, predominately focused on Operating Ratio results and more recently
linked to more sophisticated measures to increase asset utilization and align
pay with Return on Investment targets.
Current and future business initiatives reinforce the Company's commitment
to its compensation policy supported by the following components:
1. In determining cash compensation for its executives, the Company
considers the compensation practices of Canadian and US based
companies that are comparable in size and with whom the Company
competes for executive talent. This competitive information is
provided by external consultants retained by the Company. For most
executives, compensation is based primarily on the practices in the
country where they are located. The compensation of selected key
senior executives who have significant North American-wide
responsibilities is dealt with on a case by case basis taking into
account all relevant factors, including retention.
2. The pay mix for management continues to include a significant
variable component with an increasing emphasis on the long term,
particularly for executives.
3. The long-term incentive opportunities recognize individual
performance through conventional grants (not linked to the
achievement of financial targets). However, extraordinary events
might, in the future, warrant grants linked to the achievement of key
financial (or other) targets. One recent situation where such grants
were required is the integration of Illinois Central Corporation.
4. Stock ownership by executives has been further encouraged through the
introduction of share ownership guidelines which will require a
minimum level of ownership to be achieved over a five-year period.
Chief Executive Officer Compensation
The Summary Compensation Table under the caption "Executive Compensation"
summarizes the compensation data for the President and Chief Executive Officer
and other executives.
The performance of the President and Chief Executive Officer is measured
against the goals, objectives and standards set annually between the President
and Chief Executive Officer and the Human Resources Committee. The goals
include both financial and non-financial dimensions, covering performance in
the following areas: financial performance; marketing; operations; human
resources management; technology and information infrastructure management;
strategic planning; and corporate governance.
Based on a review of the foregoing, the Human Resources Committee, in
conjunction with the Board of Directors, rates the performance of the President
and Chief Executive Officer and recommend his compensation based on his own
performance and the Company's performance.
IV-11
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Submitted by the Human Resources Committee of the Board of Directors:
Purdy Crawford (Chairman) Alexander P. Lynch
James K. Gray David G.A. McLean
Richard H. Kroft Robert Pace
Gilbert H. Lamphere
Performance Graph
[GRAPHIC OMITTED]
The following Performance Graph illustrates the yearly cumulative total
shareholder return on the Company's common shares (assuming reinvestment of
dividends) compared with the cumulative total return of the TSE 300, S&P 500,
and S&P Rail Indices from the period beginning November 17, 1995, when Canadian
National became a publicly traded company to the period ending December 31,
1999.
The dollar amounts indicated in the graph above and in the chart below are
as of November 17, 1995 (except for the S&P indices which are as of month-end
November 1995), and December 31 in each year indicated.
Nov-95 Dec-95 Dec-96 Dec-97 Dec-98 Dec. 99
------ -------- -------- -------- -------- --------
CN (1) $ 100 $ 115.74 $195.93 $252.67 $299.30 $287.41
TSE 300 $ 100 $ 102.89 $132.05 $170.80 $149.48 $196.81
S&P 500 $ 100 $ 102.60 $126.16 $155.13 $208.52 $248.76
S&P Rail $ 100 $ 99.75 $118.46 $140.69 $118.59 $ 98.30
- -------------------
(1) Total return for CN assumes fully paid common shares.
Management Stock Option Plan
At the time of the initial public offering in 1995, eligible managers of
the Company were granted options under the Management Stock Option Plan (the
"IPO Plan") to acquire common shares at $27.00 per share (on a pre stock- split
basis). One-third of the options vest over four years if the manager remains
with the Company (the
IV-12
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
"Conventional Options"), and two-thirds vest only if additional conditions in
the form of the attainment by the Company of Operating Ratio targets in the
period from 1996 to 2000 are met (the "Performance Options"). If the Operating
Ratio for any particular year is within 0.5% of the target established in the
IPO Plan for that year, then the manager may exercise up to 75% of the
Performance Options which could otherwise be exercised. Options are
non-transferable except, in certain circumstances, upon the death of the holder
of such options. Conventional Options have a maximum term of 10 years from the
date of the grant and any Performance Options which become exercisable expire
in 2001. Under the IPO Plan, options will be canceled upon the termination of a
participant's employment for cause or, if the participant voluntarily
terminates employment. In the event of the death of a participant, all options
held by such participant will be canceled 180 days after the participant's
death. In the event that the participant's employment is terminated by the
Company other than for cause, all options held by such participant will be
canceled 30 days after termination of the participant's employment. A manager
may exercise Conventional Options for up to three years after retirement, but
Performance Options expire on retirement. No further options may be granted
under the IPO Plan. All options under the IPO Plan have vested, effective on
January 26, 2000.
Management Long-Term Incentive Plan
The Company has adopted a Management Long-Term Incentive Plan (the "Plan")
approved by the Company shareholders on May 7, 1996 and amended on April 28,
1998. Participants may receive stock options, stock appreciation rights,
restricted stock units, stock bonuses, and/or stock subscription rights under
the Plan.
The maximum number of common shares which may be issued under the Plan is
15,000,000. The maximum number of shares which may be issued and/or be the
subject of a grant in any one year is such number of shares as is equivalent to
1.25% of the issued and outstanding shares at the beginning of that year. The
maximum number of shares which may be issued and/or the subject of a grant to
any one participant in a particular year is 20% of the awards in that year.
Stock options have a maximum exercise period of 10 years. The exercise
price, payable in cash, must be at least equal to the shares' fair market value
on the date of grant. Vesting criteria, including the date or dates upon which
all or a portion of the options become exercisable and Company performance
targets which might have to be met for options to become exercisable, are
established with respect to each grant.
Stock appreciation rights consist of rights awarded to a participant to
receive the equivalent of any increase in the value of a particular number of
Company shares between the date of grant and the date of reception. Payments
are in cash, treasury shares, and/or shares purchased on the open market, at
the discretion of the Human Resources Committee. Rights generally expire within
five years from the date of grant. Vesting criteria, including Company
performance targets which might have to be met for rights to become
exercisable, are established with respect to each grant.
Restricted stock units consist of rights awarded to a participant to
receive the equivalent of the value of a particular number of Company shares at
the end of a particular restricted period. Payments are in cash, treasury
shares, and/or shares purchased on the open market, at the discretion of the
Human Resources Committee. The restricted period is generally three years. Any
performance criteria which might have to be met for units to become payable are
established with respect to each award.
Stock bonuses consist of awards of Company shares to participants.
Payments are in treasury shares and/or shares purchased on the open market, at
the discretion of the Human Resources Committee.
Stock subscription rights consist of rights to acquire Company shares from
treasury, with cash, for a price equal to the fair market value of such shares
on the date of acquisition.
All options and other rights under the Plan may be canceled upon the
termination of a participant's employment for cause or if the participant
voluntarily terminates employment. In the event that a participant's employment
is terminated by the Company other than for cause, all options and stock
appreciation rights held by such participant
IV-13
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
will be canceled 30 days or 3 months after termination of the participant's
employment depending on the date of grant, and all restricted stock units would
be forfeited.
In the event of certain material transactions (as defined in the Plan),
any unvested non-performance-related options or other rights will vest
immediately.
During the financial year ended December 31, 1999, pursuant to the
provisions of the Plan, the Company granted a total of approximately 1,337,000
options to purchase common shares at the market price on the date of grant to
36 executive officers. As at December 31, 1999, options for a total of
4,881,862 common shares had been granted and were outstanding under the Plan.
Employment Contracts
Mr. Harrison was prior to March 30, 1998, the President and Chief
Executive Officer of Illinois Central Corporation ("IC"). He agreed to join the
Company as Executive Vice-President and Chief Operating Officer as provided in
the Agreement and Plan of Merger entered into between the Company and IC on
February 10, 1998 in connection with the acquisition of IC by the Company. Mr.
Harrison was engaged on the basis of a written employment agreement (the
"Agreement"), effective as of March 30, 1998, which provides for a four-year
term of employment, subject to earlier termination. Upon the termination of Mr.
Harrison's employment prior to March 31, 2000 for any reason other than death,
disability or a termination by the Company for a "Good Cause" (defined by
reference to Mr. Harrison's pre-existing Employment Security Agreement with
IC), in addition to receiving his accrued base salary and a pro rata portion of
his annual target bonus, Mr. Harrison will receive an amount equal to two times
his annual base salary, plus one time his full annual target bonus. If Mr.
Harrison's employment is terminated at any time during the term of the
Agreement by the Company without "Cause" or by Mr. Harrison for "Good Reason"
(as those terms are defined in the Agreement), in addition to receiving his
accrued base salary and a pro rata portion of his annual target bonus, Mr.
Harrison will receive an amount equal to three times the sum of his annual base
salary and annual target bonus, reduced by any amounts payable to Mr. Harrison
as described in the previous sentence. Mr. Harrison will also be entitled to
continuation of his employee benefits and additional pension credits for three
years and he will be entitled to exercise all of his vested stock options for
the full term of such options. Mr. Harrison may voluntarily terminate his
employment with the Company on the happening of certain specified events which
include a material breach of the Agreement by the Company and events which
would have a direct and significant adverse effect on Mr. Harrison's role and
responsibilities as Executive Vice-President and Chief Operating Officer. Mr.
Harrison's compensation under the Agreement provides for participation in the
Company's Annual Cash Incentive Plan with respect to each fiscal year during
the term of the Agreement, a special grant of options as described hereinabove
under "Stock Options Granted to Named Executive Officers During the Last
Financial Year", participation in the Company's Management Long-Term Incentive
Plan during each of 1999, 2000 and 2001 and a Long-Term Cash Incentive Program
as described hereinabove under "Long-Term Incentive Plan--Awards in Last
Financial Year". The Agreement also includes special provisions relating to tax
equalization payments in respect of Mr. Harrison's salary to compensate for
higher tax liabilities in Canada compared to those applicable to his previous
residence as well as a US$1,500,000 interest-free loan (the "Loan"). Under the
Agreement, the Company agrees that the Loan will be forgiven in whole on March
30, 2001, if Mr. Harrison is still employed by the Company at that time. In the
event that Mr. Harrison ceases to be employed by the Company prior to March 30,
2001 for reasons other than a termination by the Company without Cause or a
resignation by Mr. Harrison for Good Reason then the Loan shall be forgiven pro
rata for the period of employment over three years. If Mr. Harrison is
terminated without Cause or if he resigns for Good Reason, disability or death
then the Loan shall be forgiven in whole.
See "Pension Plan" below for information concerning Mr. Harrison's pension
arrangements.
Mr. Torrance Wylie was engaged on the basis of a written agreement, dated
January 20, 1999 which provides for a three-year term beginning on February 1,
1999, subject to earlier termination. Upon termination by the Company of the
agreement prior to February 1, 2002 for any reason other than Mr. Wylie's death
and disability, the Company's liabilities towards Mr. Wylie shall be limited to
(i) a severance payment of $180,000 and (ii) all options granted in the year
prior to termination would vest immediately and options granted in the year of
IV-14
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
termination would vest immediately on a pro-rata basis. Mr. Wylie would have
three years from the date of termination to exercise vested options. Upon
voluntary termination by Mr. Wylie of the agreement prior to February 1, 2002,
the Company's obligations under the agreement would cease immediately subject to
mutual agreement whereby the options granted would become vested on terms and
conditions no less favorable than those which would apply if the Company had
terminated the agreement. Upon termination of the agreement by reason of Mr.
Wylie's disability or death, options granted would vest under the same terms and
conditions as if the Company had terminated the agreement. Mr. Wylie's
compensation under the agreement provides for participation in the Company's
Annual Cash Incentive Plan and a grant of options with respect to each fiscal
year during the term of the agreement.
Pension Plan
Executive officers participate in the Company's principal pension plan,
which is a defined benefit plan providing pensions based on pensionable years
of service and highest average earnings.
The following table reflects an estimate of total annual benefits under
the Company's principal pension plan, expressed as a percentage of highest
average earnings, payable upon retirement (age 65) to persons in specified
earnings and service classifications:
Principal Pension Plan
Pensionable Service (years)
Highest Average Earnings 20 25 30 35
(%) (%) (%) (%)
$100,000 34.3 42.9 51.5 60.0
$350,000 9.8 12.3 14.7 17.2
$600,000 5.7 7.1 8.6 10.0
$850,000 4.0 5.0 6.1 7.1
$1,100,000 3.1 3.9 4.7 5.5
The following table reflects an estimate of total annual benefits under any
special agreement generating additional retirement income, expressed as a
percentage of highest average earnings, payable upon retirement (age 65) to
senior executives in specified earnings and service classifications:
Principal Pension Plan
Pensionable Service (years)
Highest Average Earnings 20 25 30 35
(%) (%) (%) (%)
$200,000 21.0 26.3 31.6 36.9
$600,000 33.7 42.1 50.5 59.0
$1,000,000 36.2 45.3 54.3 63.4
$1,400,000 37.3 46.6 55.9 65.3
$1,800,000 37.9 47.4 56.8 66.3
Highest average earnings are the average annual pensionable earnings
during the last 60 months of compensated service or the best five consecutive
calendar years, whichever is larger. Pensionable earnings consist of salary.
However, benefits payable under the Company's principal pension plan are
subject to a maximum annual pension benefit of $1,715 per year of pensionable
service. Senior executives who have at least two years of pensionable service
and who execute an agreement, including a non-competition clause, are eligible
for additional retirement income, charged to operating funds. Accrued
additional retirement income benefits are guaranteed through a letter of
credit. The annual amount of an individual's additional retirement income is a
set percentage of that individual's portion of actual average earnings greater
than the maximum average earnings recognized by the Company's principal pension
plan, multiplied by the number of years of service (maximum 35 years) of that
individual.
In June 1999, the Board of Directors approved that the Special Retirement
Stipend program be extended to senior management employees (Level IV), not
already covered under such plan, with the following caveat:
IV-15
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
o Service recognized to calculate the pension will be equal to:
(a) the service with the Company as senior manager in 1999; plus
(b) twice the service with the Company as senior manager after 1999.
The sum of (a) and (b) shall not exceed the lower of the (i) total CN
service or (ii) 35 years.
The recognized maximum average earnings under the Company's pension plan
was approximately $94,800 for 1999. In January 1996, the definition of "salary"
under the Special Retirement Stipend program was extended to include the
bonuses paid by the Company under the Annual Incentive Plan after 1995, up to
the target bonuses relating to the year for which such bonuses were paid. If
the aggregate of any given individual's age and years of service is at least
85, and such individual is age 55 or over, both the pension benefits and
additional retirement income become payable to such senior executive who
retires prior to age 65.
Prior to joining the Company, Mr. Tellier was a member of the pension plan
for Canadian federal civil servants established under the Public Service
Superannuation Act (the "PSSA Plan"). When he joined the Company, the Treasury
Board of Canada agreed that he would continue as a member of the PSSA Plan. On
December 15, 1994, membership of Mr. Tellier in the PSSA Plan was transferred
to a retirement compensation arrangement ("RCA") set up under the Special
Retirement Arrangement Act. This transfer was necessary in order to accumulate
and pay the pension benefits that cannot be paid under the PSSA Plan because of
the limitations contained in the Income Tax Act. Contributions of $8,930,
$27,812 and $24,308 were made by the Company for January 1 to May 31, 1999, and
the years 1998 and 1997 respectively to the PSSA Plan or RCA and in lieu of
participation in the Company's principal pension plan. Mr. Tellier's pension
credits in the PSSA Plan and RCA are based on earnings he would have received
had he continued in the Public Service of Canada. These earnings were
established at $202,177 per annum starting on April 1, 1998. Mr. Tellier had
30.27 years of service recognized under such plans when he retired under them
in May 1999. Pension benefits under the PSSA Plan and RCA are based on the
average earnings during the best six consecutive years of earnings under such
plans. Mr. Tellier received a monthly pension under such plans of $8,849
between June and December 1999, inclusively, $8,201 of that monthly pension
corresponds to the lifetime pension, the balance of $649, is only payable until
age 65.
Mr. Tellier joined the Company's principal pension plan on June 1, 1999.
Mr. Tellier is also covered by a special pension arrangement which recognizes
all of his services with the Government of Canada prior to joining the Company
on October 1, 1992 (25 years and four and a half months), and all of his
service with the Company since then. Mr. Tellier's pension benefits, which are
totally vested to him, are equal to the pension benefits he would have been
entitled to if he had been participating in the Company's principal pension
plan and the Special Retirement Stipend program for all those years, less the
sum of the total lifetime pension payable to him at age 60 under the PSSA Plan
and RCA ($8,201) and the pension payable under the Company's principal pension
plan. These pension benefits are payable from the Company's operating funds.
Mr. Harrison does not participate in the Company's principal pension plan
and Special Retirement Stipend but the Company has guaranteed Mr. Harrison that
upon his termination of employment with the Company, his total supplemental
retirement benefits would not be less than the benefits that would have been
provided under the Illinois Central Railroad Company ("ICR") Supplemental
Executive Retirement Plan in effect prior to March 30, 1998 had he continued
his service with ICR and continued participation in such plan.
Mr. Harrison's pension and retirement plans with ICR prior to March 30,
1998 were the following:
Executive Account Balance Plan. ICR's Executive Account Balance Plan
provides for a sum equivalent to 10% of Mr. Harrison'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 ICR or
termination of employment. The wage offset factor is adjusted annually by the
percentage increase in the U.S. social security wage base. For 1999, the wage
offset factor was $121,000 (U.S.). Accrued amounts earn interest in accordance
with the plan.
IV-16
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Defined Contribution Plan. Mr. Harrison is eligible to participate in a
defined contribution plan to which the ICR 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 Mr.
Harrison. Contributions are designated as Employer Contributions in the Savings
Plan.
Supplemental Retirement and Savings Plans. Mr. Harrison is eligible to
participate in the Supplemental Retirement and Savings Plan (the "Savings
Plan"), which is a qualified salary reduction 401 (k) plan. Mr. Harrison may
make "pre-tax" contributions to the Savings Plan of up to 15% of his salary
subject to limitations imposed by the U.S. Internal Revenue Code. Those
contributions are partially matched by the ICR. The matching contribution is
limited to 50% of the first 6% of Mr. Harrison's pre-tax salary (i.e., the
matching contribution is limited to 3% of his salary). All contributions are
fully vested upon contribution and are invested in various investment funds as
selected by Mr. Harrison.
Excess Benefit Plan. Under the ICR's Excess Benefit Plan, amounts are
accrued for Mr. Harrison on an unfunded basis to offset the limitations imposed
by the U.S. Internal Revenue Code with respect to certain benefit plans as a
result of the level of Mr. Harrison'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 U.S. 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.
Supplemental Executive Retirement Plan. ICR has no tax-qualified defined
benefit retirement plan for employees. However, ICR established the Illinois
Central Corporation Supplemental Executive Retirement Plan effective as of
January 1, 1994 (the "SERP"). Mr. Harrison is covered by the SERP. The monthly
benefit payable pursuant to the SERP is equal to a maximum of 35% of Mr.
Harrison'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 Mr. Harrison's account in the
Savings Plan which is attributable solely to ICR contributions and the earnings
thereon; (ii) Mr. Harrison's account in the Excess Benefit Plan; and (iii) Mr.
Harrison's account balance in the Executive Account Balance Plan. Mr. Harrison
is fully vested in the SERP. The following table shows benefits payable 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
The above table sets forth the estimated annual benefits payable on a
single-life annuity basis if Mr. Harrison does not have a spouse at the time
payment is to commence and a joint and 50% survivor annuity basis in the event
Mr. Harrison has a spouse at the time of commencement.
Mr. Harrison had 6 years of recognized credited service as of December 31,
1999.
Mr. Torrance Wylie does not participate in neither the Company's principal
pension plan nor the Special Retirement Stipend.
IV-17
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Directors' Compensation
In consideration for serving on the Board of Directors of the Company in
1999, each director, except Mr. David G.A. McLean, Mr. Paul M. Tellier and Mr.
E. Hunter Harrison, was paid a fee of $26,580 (including a retainer fee of
$10,000 and either 400 common shares of the Company purchased by it on the open
market or 400 deferred stock units). In addition, each such director received
an amount of $1,000 per day for each meeting of the Board of Directors attended
and an additional $1,000 when he or she traveled over two time zones or more in
order to attend a meeting of the Board of Directors or a committee thereof.
Such directors also received a fee of $3,500 for being a member of a committee
of the Board of Directors and an additional $950 for each meeting of a
committee attended. The chairman of each standing committee of the Board of
Directors (except the Chairman of the Board) is entitled to an additional fee
of $3,000.
Mr. McLean, in his capacity of Chairman of the Board in 1999, was paid a
fee of $219,600, including a retainer fee of $140,000 and 2,000 common shares
purchased by the Company on the open market. Messrs. Tellier and Harrison, as
they are officers of the Company, do not receive any compensation from the
Company to serve as a director thereof.
At its meetings held on April 26, 1999 and January 25, 2000, the Board of
Directors approved grants of options on 4,000 common shares of the Company to
each non-employee director, except the Chairman of the Board, whose grants were
on 7,000 common shares of the Company, the whole pursuant to the Management
Long-Term Incentive Plan. At the January 25, 2000 meeting, the Board also
approved an increase in attendance fees for 2000 Board and Committee meetings
to $1,200 and $1,000, respectively.
At its meeting held on November 24, 1998, the Board of Directors adopted a
Directors Share Purchase Plan providing for the purchase of common shares by
the Company on the open market or the grant of deferred stock units, at the
option of each non-employee director, as part of directors' compensation, once
a year.
Indebtedness of Directors and Officers
As at December 31, 1999, the aggregate indebtedness of all officers and
employees of the Company and its subsidiaries, not entered into in connection
with the purchase of common shares of the Company, was approximately $3.2
million.
IV-18
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Table of Indebtedness of Directors, Executive Officers and Senior Officers
other than under Securities Purchase Programs
<TABLE>
Involvement of Issuer or Largest Amount Outstanding Amount Outstanding as at
Name and Principal Position Subsidiary during 1999 February 29, 2000
- ---------------------------------- ------------------------------ --------------------------------------------------------
<S> <C> <C> <C>
Dave P. Edison Loan by Company $ 274,000 (1) $ 274,000
Vice-President
Pacific Division Guarantee by Company $ 22,272 (2) $ 22,272
James M. Foote (2) Guarantee by Company $ 45,537 $ 45,537
Senior Vice-President,
Sales and Marketing
E. Hunter Harrison (3) Loan granted by Company US $1,500,000 US $1,500,000
Executive Vice-President
and Chief Operating Officer
Jack T. McBain (2) Guarantee by Company $ 49,050 $ 49,050
Senior Vice-President,
Operations
Terry McManaman (2) Guarantee by Company $ 31,775 $ 31,775
Vice-President,
Gulf Division
J.P. Ouellet (4) Loan granted by Company $ 475,000 $ 475,000
Senior Vice-President,
Chief Legal Officer and
Corporate Secretary
J. Paul Mathieson (2) Guarantee by Company $ 39,255 $ 39,255
Vice-President,
Network Transportation
David E. Todd (2) Guarantee $ 42,174 $ 42,174
Vice-President, by Company
Government Affairs
- -------------------
</TABLE>
(1) Interest-free loan secured against Mr. Edison's residence with an initial
term of July 2004.
(2) Guarantee of an interest-free loan by a financial institution in
connection with shares purchased under the Company's 1995 Management Share
Matching Plan.
(3) See "Employment Contracts" hereinabove.
(4) Interest-free loan secured against Mr. Ouellet's residence with an initial
term of November 2001.
As at December 31, 1999, there was no outstanding indebtedness of officers
and employees of the Company and its subsidiaries, entered into in connection
with the purchase of common shares of the Company.
The following table sets forth information concerning any such
indebtedness incurred by the executive officers and senior officers who are, or
at any time during 1999 were, in the employ of the Company:
IV-19
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Table of Indebtedness of Executive Officers and Senior Officers
under Securities Purchase Programs(1)
<TABLE>
Largest Amount Financially Assisted
Involvement of Outstanding Amount Outstanding as Securities Purchases Security for
Name and Principal Position the Company during 1999($) at February 29, 2000($) During 1999 Indebtedness
- --------------------------- --------------- --------------- ----------------------- -------------------- ------------
<S> <C> <C> <C>
Paul M. Tellier, Loan granted 97,016 -- -- Shares held in
President and Chief by Company escrow
Executive Officer
Cliff L. Carson Loan granted 27,678 -- -- Shares held in
Vice-President, by Company escrow
Commercial
Development-Eastern
Canada Division
Dave P. Edison Loan granted 27,679 -- -- Shares held in
Vice-President, by Company escrow
Pacific Division
Sean Finn Loan granted 33,546 -- -- Shares held in
Vice President, Treasurer by Company escrow
and Principal Tax Counsel
James M. Foote Loan granted 56,921 -- -- Shares held in
Senior Vice-President, by Company escrow
Sales and Marketing
Keith L. Heller Loan granted 56,238 -- Shares held in
Senior Vice-President, by Company -- escrow
Eastern Canada Division
Wes T. Kelley Loan granted 7,866 -- -- Shares held in
by Company escrow
J. Paul Mathieson Loan granted 39,255 -- -- Shares held in
Vice-President, by Company escrow
Network Transportation
Jack T. McBain Loan granted 61,312 -- -- Shares held in
Senior Vice-President, by Company escrow
Operations
Terry McManaman Loan granted 35,993 -- -- Shares held in
Vice-President, by Company escrow
Gulf Division
Sandi J. Mielitz Loan granted 16,873 -- -- Shares held in
Vice-President, by Company escrow
Commercial
Development-Prairie
Division
</TABLE>
IV-20
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
<TABLE>
Largest Amount Financially Assisted
Involvement of Outstanding Amount Outstanding as Securities Purchases Security for
Name and Principal Position the Company during 1999($) at February 29, 2000($) During 1999 Indebtedness
- --------------------------- --------------- --------------- ----------------------- -------------------- ------------
<S> <C> <C> <C>
Claude Mongeau Loan granted 33,746 -- -- Shares held in
Senior Vice-President by Company escrow
and Chief Financial Officer
Serge Pharand Loan granted 34,763 -- -- Shares held in
Vice-President and by Company escrow
Corporate Comptroller
Rick W. Richardson Loan granted 43,738 -- -- Shares held in
by Company escrow
Anthony Rossi Loan granted 16,994 -- -- Shares held in
by Company escrow
Michael J. Sabia Loan granted 54,552 -- -- Shares held in
by Company escrow
David E. Todd Loan granted 42,174 -- -- Shares held
Vice-President, by Company in escrow
Government Affairs
- -------------------
</TABLE>
(1) No indebtedness has been incurred by the directors other than Mr. Tellier.
Aggregate Compensation
The aggregate compensation paid or to be paid by the Company and its
subsidiaries to the Company's 36 full-time executive officers for services
rendered during the financial year ended December 31, 1999 was approximately
$16.5 million. The value of the benefits received in respect of the financial
year ended December 31, 1999 by these executive officers of the Company does
not exceed 10% of the above-mentioned cash remuneration.
Interest of Management and Others in Material Transactions
The management of the Company is not aware of any material interest of any
director or officer of the Company or any of their associates or affiliates in
any transaction since the date of the last completed financial year of the
Company, or in any proposed transaction, that has materially affected or will
materially affect the Company or any of its affiliates and that has not been
previously disclosed.
Directors' and Officers' Insurance
The Company has purchased at its expense group liability insurance in the
amount of $175,000,000, with a deductible to the Company of $1,000,000 for the
protection of directors and officers of the Company and its subsidiaries
against liability incurred by them in such capacity. The premium for 1999 was
$477,000.
Appointment and Remuneration of Auditors
Management is recommending that KPMG LLP be appointed as the sole auditors
of the Company for a term commencing at the close of the Meeting. Unless
contrary instructions are indicated on the proxy form or the voting instruction
card, each proxy received by management or voting instruction card returned to
The Trust Company of Bank of Montreal will be voted in favor of the appointment
of KPMG LLP as auditors of the Company to hold office until the next annual
meeting of shareholders.
IV-21
<PAGE>
Chapter Four - Other Canadian National Annual Meeting Matters
Normal Course Issuer Bid
The Company announced on January 26, 2000 that its Board of Directors had
authorized a normal course issuer bid. The Toronto Stock Exchange has approved
the Company's application to purchase on the open market, between January 31,
2000 and January 30, 2001, up to a maximum of 13 million of its outstanding
common shares, representing approximately 6.4% of its outstanding common shares
not held by insiders. These purchases are made through the facilities of the
Toronto and New York stock exchanges in accordance with their respective rules
or policies on normal course issuer bids. The price which the Company pays for
any common shares is the market price at the time of acquisition plus brokerage
fees. Shareholders may obtain without charge a copy of the documents filed with
the regulatory authorities concerning the purchases by writing to the Corporate
Secretary of the Company.
Availability of Documents
Copies of the Company's latest annual information form and audited
financial statements filed with various provincial securities commissions may
be obtained, without charge, on request from the Corporate Secretary of the
Company.
APPROVAL OF CIRCULAR BY DIRECTORS OF CANADIAN NATIONAL
The Board of Directors of Canadian National has approved the contents of
this management proxy circular and its sending to securityholders of Canadian
National.
Jean Pierre Ouellet
Senior Vice-President, Chief Legal Officer and Corporate Secretary
February 29, 2000
IV-22
<PAGE>
CHAPTER FIVE
ADDITIONAL INFORMATION FOR SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS
Canadian National
The deadline for receipt of proposals to be considered for inclusion in
Canadian National's circular relating to its next annual meeting has passed.
Proposals other than those to be included in Canadian National's circular
relating to its next annual meeting may be made at any time up to the meeting.
Burlington Northern Santa Fe
The deadline for receipt of proposals to be considered for inclusion in
Burlington Northern Santa Fe's proxy statement relating to its next annual
meeting has passed. The deadline for proposals other than those to be included
in Burlington Northern Santa Fe's proxy statement relating to its next annual
meeting has also passed.
WHERE YOU CAN FIND MORE INFORMATION
In addition to its continuous disclosure obligations under the securities
laws of the provinces of Canada, Canadian National is subject to the
information requirements of the U.S. Securities Exchange Act of 1934 and, in
accordance with the U.S. Securities Exchange Act of 1934, files reports and
other information with the U.S. Securities and Exchange Commission. Under the
multi-jurisdictional disclosure system adopted by the U.S. Securities and
Exchange Commission, such reports and other information may be prepared in
accordance with the disclosure requirements of Canada, which requirements are
different from those of the United States. Burlington Northern Santa Fe is also
subject to the informational requirements of the U.S. Securities Exchange Act
of 1934 and, in accordance with the U.S. Securities Exchange Act of 1934, files
reports and other information with the U.S. Securities and Exchange Commission.
North American Railways will be subject to the informational reporting
requirements following the combination and will file reports and other
information with the U.S. Securities and Exchange Commission as well as with
the various securities commissions and other securities regulatory authorities
of the Canadian provinces. The reports and other information of Canadian
National and Burlington Northern Santa Fe may be inspected and copied at the
public reference facilities maintained by the U.S. Securities and Exchange
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the U.S. Securities and Exchange Commission's regional
offices in New York at Seven World Trade Center, 13th Floor, New York, New York
10048, and in Chicago at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained by mail from the Public
Reference Section of the U.S. Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
U.S. Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains reports, information statements and other
information regarding registrants who file electronically with the U.S.
Securities and Exchange Commission, including Burlington Northern Santa Fe. In
the case of Canadian National, the Canadian Securities Administrators maintain
a web site at http://www.sedar.com. Certain securities of Canadian National and
Burlington Northern Santa Fe are listed on the New York Stock Exchange, and
reports and other information concerning each company may be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
Canadian National filed a registration statement on Form F-4 to register
with the U.S. Securities and Exchange Commission the Canadian National voting
shares that form a part of the stapled securities to be issued to Burlington
Northern Santa Fe shareholders in the combination. This document is a part of
that registration statement and constitutes a prospectus of Canadian National
in addition to being a circular of Canadian National and proxy statement of
Burlington Northern Santa Fe for the meetings. At the same time, North American
Railways filed a registration statement on Form S-4 to register with the U.S.
Securities and Exchange Commission the North American Railways common stock
that forms a part of the stapled securities to be issued to Burlington Northern
Santa Fe shareholders in the combination. This document is a part of that
registration statement and constitutes a
V-1
<PAGE>
Chapter Five - Additional Information for Shareholders
prospectus of North American Railways in addition to being a circular of
Canadian National and a proxy statement of Burlington Northern Santa Fe for the
meetings. As allowed by U.S. Securities and Exchange Commission rules, this
document does not contain all the information you can find in the registration
statements or the exhibits to the registration statements.
The U.S. Securities and Exchange Commission allows us to "incorporate by
reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the U.S. Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in, or incorporated by reference in, this
document. This document incorporates by reference the documents set forth below
that we have previously filed with the U.S. Securities and Exchange Commission.
These documents contain important information about our companies and their
finances.
<TABLE>
Canadian National U.S. Securities and Exchange
Commission Filings
(File No. 001-02413) Filing Date
............................................................................................................
<S> <C>
Reports of Foreign Issuer on Form 6-K January 20, 1999; January 21, 1999; January
27, 1999; February 19, 1999; March 29, 1999; April 22, 1999;
April 29, 1999; July 2, 1999; July 26, 1999; August 13,
1999; October 21, 1999; October 25, 1999; November 26, 1999;
December 22, 1999; December 23, 1999; January 27, 2000
Registration Statement on Form 8-A June 14, 1999
Audited Financial Statements of Illinois June 17, 1999
Central Corporation included in
Amendment No. 2 to Registration Statement on
Form F-10
Burlington Northern Santa Fe U.S. Securities
and Exchange Commission Filings
(File No. 1-11535) Filing Date
............................................................................................................
Current Reports on Form 8-K February 8, 1999; March 5, 1999; May 7, 1999; August
18, 1999; December 21, 1999; December 23, 1999; February 8,
2000
Amendment to Current Report on Form 8-K March 9, 1999
Registration Statement on Form 8-A December 23, 1999
Quarterly Reports on Form 10-Q May 17, 1999; August 11, 1999;
November 15, 1999
Annual Report on Form 10-K March 31, 1999
Amendment to Annual Report on Form 10-K April 13, 1999
</TABLE>
The following Canadian National documents, which have been filed with the
various securities commissions or similar authorities in the provinces of
Canada, are specifically incorporated by reference into and form an integral
part of this document:
(1) Annual Information Form dated April 20, 1999, including management's
discussion and analysis incorporated therein;
(2) the following material change reports:
V-2
<PAGE>
Additional Information for Shareholders - Chapter Five
(a) material change report filed May 31, 1999 in connection with the
receipt of final, written approval of the U.S. Surface
Transportation Board on May 25, 1999 of the merger between Canadian
National and Illinois Central Corporation;
(b) material change report filed July 23, 1999 in connection with a
two-for-one stock split of Canadian National's outstanding common
shares to be effected by way of a stock dividend;
(c) material change report filed August 12, 1999 in connection with the
appointment of a new executive vice-president, strategic planning
and a senior vice-president and chief financial officer;
(d) material change report filed December 20, 1999 announcing the
approval of the Combination Agreement; and
(e) a supplemented material change report filed December 22, 1999 in
connection with the Combination Agreement; and
(3) Management Proxy Circular dated March 17, 1999.
We are also incorporating by reference additional documents that we file
with the U.S. Securities and Exchange Commission between the date of this
document and the date of the meetings. In addition, any document of the type
referred to above, and any material change reports (excluding confidential
reports), interim financial statements and information circulars all as filed
by Canadian National with the various securities commissions or any similar
authorities in the provinces of Canada between the date of this document and
the date of the meetings shall be deemed to be incorporated by reference
herein. Any statement contained in a document incorporated or deemed to be
incorporated by reference shall be deemed to be modified or superseded for
purposes of this document to the extent that a statement contained in this
document, or in any other subsequently filed document that is also incorporated
or deemed to be incorporated by reference, modifies or supersedes such
statement.
Information has been incorporated by reference in this document from
documents filed with securities commissions or similar authorities of Canada.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
U.S. Securities and Exchange Commission or, in the case of Canadian National,
through the Canadian Securities Administrators. Documents filed by Canadian
National with the various securities commissions or any similar authorities in
the provinces of Canada can be requested from Micromedia, 20 Victoria Street,
Toronto, Ontario M5C 2N3. Generally, such information is also available on the
web site maintained by the Canadian Securities Administrators at
http://www.sedar.com. Canadian National is also subject to the informational
requirements of The Toronto Stock Exchange, which information may be inspected
at the offices of The Toronto Stock Exchange, 3rd Floor, 2 First Canadian
Place, 130 King Street West, Toronto, Ontario M5X 1J2. Documents incorporated
by reference are available from us without charge, excluding all exhibits
unless we have specifically incorporated by reference an exhibit filed with the
U.S. Securities and Exchange Commission in this document. Shareholders may
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from the appropriate party at the following address:
Corporate Secretary Corporate Secretary
Canadian National Railway Company Burlington Northern Santa Fe Corporation
935 de La Gauchetiere Street West 2650 Lou Menk Drive
16th Floor Fort Worth, Texas 76131
Montreal, Quebec H3B 2M9 USA
CANADA Phone: (817) 352-6856
Phone: (514) 399-6569
If you would like to request documents from us, please do so by April 14,
2000 to receive them before the meetings. For purposes of the Province of
Quebec, this document contains information to be completed by consulting the
permanent information record. A copy of the permanent information record may be
obtained from
V-3
<PAGE>
Chapter Five - Additional Information for Shareholders
the Corporate Secretary of Canadian National at the above-mentioned address
and telephone number.
You can also get more information by visiting Canadian National's web site
at www.cn.ca and Burlington Northern Santa Fe's web site at www.bnsf.com. Web
site materials are not part of this document.
You should rely only on the information contained or incorporated by
reference in this document to vote on the Canadian National proposals and the
Burlington Northern Santa Fe proposals. We have not authorized anyone to
provide you with information that is different from what is contained in this
document. This document is dated _____, 2000. You should not assume that the
information contained in the document is accurate as of any date other than
such date, and neither the mailing of this document to shareholders nor the
issuance of any securities in the combination shall create any implication to
the contrary.
V-4
<PAGE>
EXECUTION COPY
ANNEX A
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
COMBINATION AGREEMENT
by and among
CANADIAN NATIONAL RAILWAY COMPANY
BURLINGTON NORTHERN SANTA FE CORPORATION
NORTH AMERICAN RAILWAYS, INC.
and
WESTERN MERGER SUB, INC.
Dated as of December 18, 1999
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
(not a part of this Agreement)
ARTICLE I
DEFINITIONS AND TERMS
1.1 Certain Definitions........................................2
1.2 Other Definitional Provisions..............................8
ARTICLE II
THE BUSINESS COMBINATION
2.1 Implementation Steps by CN.................................9
2.2 Implementation Steps by BNSF..............................10
2.3 Implementation Steps by Newco and Merger Sub..............11
2.4 Merger of BNSF............................................11
2.5 Surrender of BNSF Common Shares...........................13
2.6 Interim Order.............................................14
2.7 The Arrangement...........................................14
2.8 CN Convertible Preferred Securities.......................16
2.9 Board of Directors; Management............................17
2.10 Head Office...............................................17
2.11 Withholding Rights........................................17
2.12 The Closing...............................................18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CN
3.1 Corporate Existence and Power.............................18
3.2 Corporate Authorization...................................18
3.3 Governmental Authorization................................19
3.4 Non-Contravention.........................................19
3.5 Capitalization............................................19
3.6 Material Subsidiaries.....................................20
3.7 Canadian Securities Filings and SEC Filings...............21
3.8 Financial Statements......................................21
3.9 No Material Adverse Changes...............................21
3.10 Undisclosed Material Liabilities..........................21
3.11 Litigation................................................22
3.12 Taxes.....................................................22
3.13 Employee Matters..........................................22
3.14 Finders' Fees.............................................25
3.15 Environmental Matters.....................................25
3.16 Compliance with Laws......................................25
3.17 Year 2000 Compliance......................................26
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNSF
4.1 Corporate Existence and Power.............................26
4.2 Corporate Authorization...................................26
4.3 Governmental Authorization................................26
4.4 Non-Contravention.........................................27
4.5 Capitalization............................................27
4.6 Material Subsidiaries.....................................28
4.7 SEC Filings...............................................28
4.8 Financial Statements......................................29
4.9 No Material Adverse Changes...............................29
4.10 Undisclosed Material Liabilities..........................29
4.11 Litigation................................................29
4.12 Taxes.....................................................30
4.13 Employee Matters..........................................30
4.14 Finders' Fees.............................................33
4.15 Environmental Matters.....................................33
4.16 Takeover Statutes; Rights Plan............................33
4.17 Compliance with Laws......................................33
4.18 Year 2000 Compliance......................................33
ARTICLE V
COVENANTS OF EACH PARTY
5.1 Reasonable Best Efforts...................................34
5.2 Regulatory Approvals......................................34
5.3 Certain Filings; Securities Compliance....................35
5.4 Access to Information.....................................36
5.5 Notices of Certain Events.................................37
5.6 Stock Exchange Listing....................................37
5.7 Public Announcements......................................37
5.8 Further Assurances........................................37
5.9 Cooperation...............................................38
5.10 Closing Matters...........................................38
5.11 Obligations of Newco......................................38
5.12 Implementation Committee..................................39
5.13 Interline Coordinations...................................40
5.14 Dividends.................................................40
5.15 Shareholder Rights Plans and Similar Matters..............41
ii
<PAGE>
ARTICLE VI
COVENANTS OF CN
6.1 Conduct of CN.............................................41
6.2 Tax Matters...............................................43
6.3 No Solicitations; Other Offers............................44
ARTICLE VII
COVENANTS OF BNSF
7.1 Conduct of BNSF...........................................45
7.2 Tax Matters...............................................48
7.3 No Solicitations; Other Offers............................48
7.4 Takeover Statutes; Rights Plan............................50
ARTICLE VIII
CONDITIONS TO THE BUSINESS COMBINATION
8.1 Conditions to the Obligations of Each Party...............50
8.2 Additional Conditions to the Obligations of BNSF..........52
8.3 Additional Conditions to the Obligations of CN............52
ARTICLE IX
TERMINATION
9.1 Termination...............................................53
9.2 Effect of Termination.....................................54
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1 Modification, Amendment and Assignment....................55
10.2 Waiver of Conditions......................................55
10.3 Counterparts..............................................55
10.4 Expenses; Certain Payments................................55
10.5 Governing Law and Venue; Waiver of Jury Trial.............59
10.6 Notices...................................................60
10.7 Entire Agreement..........................................62
10.8 No Third Party Beneficiaries..............................62
10.9 Severability..............................................62
10.10 Interpretation............................................63
10.11 Fair Construction.........................................63
10.12 Limitation on Liability for Misrepresentations............63
10.13 Survival..................................................63
iii
<PAGE>
Exhibits
Exhibit A...........................................CN Stock Option Agreement
Exhibit B.........................................BNSF Stock Option Agreement
Exhibit C......................................Form of Arrangement Resolution
Exhibit D......................................Form of Co-Operation Agreement
Exhibit E.........................................Form of Plan of Arrangement
Exhibit F.........................Form of Voting and Exchange Trust Agreement
Exhibit G.....................................Form of Shareholder Rights Plan
Exhibit H..............Form of Restated Certificate of Incorporation of Newco
Exhibit I.......Form of Certificate of Incorporation of Surviving Corporation
Exhibit J............................Form of By-Laws of Surviving Corporation
Exhibit K............................Form of Opinion of Davis Polk & Wardwell
Exhibit L.............................Form of Opinion of Mayer, Brown & Platt
iv
<PAGE>
Index of Defined Terms
1933 Act.......................................................................2
1934 Act.......................................................................2
Adverse STB Decision..........................................................54
affiliates.....................................................................2
Agreement......................................................................1
Alternative Proposal...........................................................2
Arrangement....................................................................2
Arrangement Effective Date.....................................................2
Arrangement Effective Time.....................................................2
Arrangement Resolution.........................................................2
Articles of Arrangement........................................................3
BNSF...........................................................................1
BNSF Class A Preferred Stock..................................................27
BNSF Common Shares.............................................................3
BNSF Common Stock..............................................................3
BNSF Disclosure Letter........................................................26
BNSF Employee Plans ..........................................................30
BNSF Five Business Day Window.................................................10
BNSF Options...................................................................3
BNSF Pension Plans............................................................31
BNSF Post-Signing Returns.....................................................48
BNSF Preferred Stock..........................................................27
BNSF Reports..................................................................28
BNSF Representatives..........................................................48
BNSF Returns..................................................................30
BNSF Securities...............................................................28
BNSF Shareholder Rights Plan..................................................10
BNSF STB Notice...............................................................56
BNSF STB Termination Fee......................................................56
BNSF Stock Option Agreement....................................................1
BNSF Stockholder Meeting......................................................10
BNSF Subsidiary Securities....................................................28
BNSF Termination Fee..........................................................55
BNSF Voting Debt..............................................................28
business day...................................................................3
Canadian GAAP..................................................................3
Canadian Securities Regulators.................................................3
CBCA...........................................................................3
Circular.......................................................................3
Closing.......................................................................18
v
<PAGE>
Closing Date..................................................................18
CN.............................................................................1
CN Canadian Employee Plans....................................................23
CN Canadian Pension Plans.....................................................23
CN Class A Preferred Shares...................................................19
CN Class B Preferred Shares...................................................19
CN Common Shares...............................................................3
CN Disclosure Letter..........................................................18
CN Employee Plans.............................................................23
CN Exchangeable Shares.........................................................3
CN Five Business Day Window....................................................9
CN Non-voting Equity Shares....................................................4
CN Options.....................................................................4
CN Pension Plans..............................................................23
CN Post-Signing Returns.......................................................43
CN Preferred Securities.......................................................16
CN Replacement Option.........................................................16
CN Reports....................................................................21
CN Representatives ..........................................................44
CN Returns....................................................................22
CN Securities.................................................................20
CN Special Limited Voting Shares...............................................4
CN Stapled Unit................................................................4
CN STB Notice.................................................................58
CN STB Termination Fee........................................................58
CN Stock Option Agreement......................................................1
CN Stockholder Meeting.........................................................9
CN Subsidiary Securities......................................................20
CN Termination Fee............................................................56
CN U.S. Employee Plans........................................................23
CN Voting Debt................................................................20
CN Voting Shares...............................................................4
Code...........................................................................4
Commissioner..................................................................34
Competition Act................................................................4
Confidentiality Agreement......................................................4
constitutive documents.........................................................4
Cooperation Agreement..........................................................4
Court..........................................................................4
Customary Action...............................................................4
Delaware Courts...............................................................59
DGCL...........................................................................4
vi
<PAGE>
Director.......................................................................4
Dissent Rights.................................................................5
Dissenting Shareholder.........................................................5
Environmental Laws ...........................................................5
Environmental Liabilities......................................................5
ERISA..........................................................................5
ERISA Affiliate................................................................5
Exchange Agent................................................................13
Exchange Ratio.................................................................5
Final Order....................................................................5
Form F-4......................................................................35
Form S-3......................................................................35
Form S-4......................................................................35
Form S-8......................................................................35
GAAP...........................................................................5
Governmental Entity............................................................5
Hazardous Substances...........................................................6
Highly Confidential Information...............................................37
HSR Act........................................................................6
Implementation Committee......................................................39
Interim Order..................................................................6
IRS............................................................................6
Law............................................................................6
Lien...........................................................................6
material.......................................................................6
Material Adverse Effect........................................................6
Material Subsidiary ...........................................................6
Merger........................................................................11
Merger Effective Time.........................................................11
Merger Sub.....................................................................1
NAR Subco......................................................................6
Newco..........................................................................1
Newco Common Shares............................................................6
Newco Common Stock.............................................................7
Newco Elected Exchangeable Share..............................................15
Newco Replacement Option......................................................12
Newco Stapled Unit.............................................................7
Outside Date..................................................................53
PBGC...........................................................................7
Person.........................................................................7
Plan of Arrangement............................................................7
SEC............................................................................7
vii
<PAGE>
Securities Act.................................................................7
Special Voting Share...........................................................7
STB...........................................................................19
Stock Option Agreements........................................................7
Subsidiary.....................................................................7
Surviving Corporation.........................................................11
Tax............................................................................7
Tax Return.....................................................................8
Trustee........................................................................8
Voting and Exchange Trust Agreement............................................8
Year 2000 Compliant............................................................8
viii
<PAGE>
AMENDED AND RESTATED COMBINATION AGREEMENT
This AMENDED AND RESTATED COMBINATION AGREEMENT (this "Agreement"),
dated as of December 18, 1999, is by and among CANADIAN NATIONAL RAILWAY
COMPANY, a Canadian corporation ("CN"), BURLINGTON NORTHERN SANTA FE
CORPORATION, a Delaware corporation ("BNSF"), NORTH AMERICAN RAILWAYS, INC., a
Delaware corporation owned 50% by CN and 50% by BNSF ("Newco"), and WESTERN
MERGER SUB, INC., a Delaware corporation and a wholly owned subsidiary of Newco
("Merger Sub").
RECITALS
WHEREAS, this Agreement amends and restates in its entirety the
Combination Agreement, dated as of December 18, 1999 (which shall be deemed to
be the date of this Agreement), by and among BNSF, CN, Newco and Merger Sub;
WHEREAS, the respective boards of directors of each of BNSF, CN, Newco
and Merger Sub have approved and declared advisable this Agreement and the
consummation of the transactions contemplated by this Agreement upon the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, BNSF's board of directors has received an opinion from
Goldman, Sachs & Co. that the Exchange Ratio (as defined in this Agreement) is
fair to BNSF stockholders from a financial point of view, and CN's board of
directors has received an opinion from Salomon Smith Barney Inc. and Nesbitt
Burns Inc. that the Exchange Ratio is fair to the CN shareholders from a
financial point of view;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to each party's willingness to enter
into this Agreement, (i) CN is entering into a stock option agreement with BNSF
substantially in the form and content of Exhibit A (the "CN Stock Option
Agreement"), pursuant to which CN has granted to BNSF an option to purchase CN
Common Shares (as defined in this Agreement) under the terms and conditions set
forth in the CN Stock Option Agreement, and (ii) BNSF is entering into a stock
option agreement with CN substantially in the form and content of Exhibit B (the
"BNSF Stock Option Agreement"), pursuant to which BNSF has granted to CN an
option to purchase BNSF Common Shares (as defined in this Agreement) under the
terms and conditions set forth in the BNSF Stock Option Agreement; and
WHEREAS, CN, BNSF, Newco and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.1 Certain Definitions. Terms defined elsewhere in this Agreement
shall have the meanings set forth therein for all purposes of this Agreement,
unless otherwise specified to the contrary. The following terms shall have the
following meanings:
"1933 Act" means the United States Securities Act of 1933, as amended.
"1934 Act" means the United States Securities Exchange Act of 1934, as
amended.
"affiliates" has the meaning ascribed to such term in Rule 12b-2 under
the 1934 Act.
"Alternative Proposal" means, with respect to any Person, any proposal
or offer with respect to a merger, organization, amalgamation, arrangement,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving such Person, or any
purchase or sale of the consolidated assets (including stock of such Person's
Subsidiaries) of such Person or any of its Subsidiaries, taken as a whole,
having an aggregate value equal to 15% or more of its market capitalization, or
any purchase or sale of, or tender or exchange offer for, 15% or more of such
Person's or any of such Person's Subsidiaries' equity securities.
"Arrangement" means an arrangement under Section 192 of the CBCA on the
terms and subject to the conditions set forth in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with Article
6 of the Plan of Arrangement or Section 10.1 of this Agreement or made at the
direction of the Court in the Final Order.
"Arrangement Effective Date" means the date shown on the certificate of
arrangement to be issued by the Director under the CBCA giving effect to the
Arrangement.
"Arrangement Effective Time" has the meaning ascribed to such term in
the Plan of Arrangement and, as contemplated by Section 2.12, will take place at
the Closing immediately following the Merger Effective Time and after all
conditions set forth in Article VIII (other than those conditions that by their
nature are to be satisfied at the Closing) have been satisfied or waived in
accordance with this Agreement.
"Arrangement Resolution" means the special resolution of the holders of
CN Common Shares, to be substantially in the form and content of Exhibit C.
2
<PAGE>
"Articles of Arrangement" means the articles of arrangement of CN in
respect of the Arrangement that are required by the CBCA to be sent to the
Director after the Final Order is entered.
"BNSF Common Shares" means shares of BNSF Common Stock.
"BNSF Common Stock" means BNSF's common stock, par value $0.01 per
share.
"BNSF Options" means all options issued by BNSF under its stock plans.
"business day" means any day on which commercial banks are generally
open for business in both New York, New York and Montreal, Quebec, other than a
Saturday, a Sunday or a day observed as a holiday in New York, New York under
the Laws of the State of New York or the federal Laws of the United States or in
Montreal, Quebec under the Laws of the Province of Quebec or the federal Laws of
Canada.
"Canadian GAAP" means the principles stated in the Handbook of the
Canadian Institute of Chartered Accountants.
"Canadian Securities Regulators" means the securities commissions or
other securities regulatory authorities of the provinces and territories of
Canada.
"CBCA" means the Canada Business Corporations Act as now in effect and
as it may be amended from time to time.
"Circular" means the notice of the CN Stockholder Meeting and
accompanying management information circular, including all schedules and
exhibits thereto, to be sent to holders of CN Common Shares in connection with
the CN Stockholder Meeting.
"CN Common Shares" means common shares in the capital of CN.
"CN Exchangeable Shares" means CN's non-voting exchangeable preferred
shares having the rights, privileges, restrictions and conditions set forth in
Appendix II to the Plan of Arrangement, the holders of which are the
beneficiaries of certain voting rights in respect of the Special Voting Share
and certain other rights, all as set forth in the Voting and Exchange Trust
Agreement.
"CN Indenture" means the Indenture, dated as of June 23, 1999, as
amended and supplemented by a First Supplement Indenture, dated as of June 23,
1999, as further amended and supplemented by a Second Supplemental Indenture,
dated February 8, 2000, by and between CN and The Trust Company of Bank of
Montreal, as trustee.
3
<PAGE>
"CN Non-voting Equity Shares" means shares of CN's stock having the
rights, privileges, restrictions and conditions set forth in Appendix IV to the
Plan of Arrangement.
"CN Options" means all options issued by CN under its stock plans.
"CN Special Limited Voting Shares" means shares of CN's stock having
the rights, privileges, restrictions and conditions set forth in Appendix III to
the Plan of Arrangement.
"CN Stapled Unit" means a unit comprised of one CN Voting Share and one
CN Exchangeable Share, which unit does not constitute a security independent of
the shares it represents.
"CN Voting Shares" means CN's voting shares having the rights,
privileges, restrictions and conditions set forth in Appendix I to the Plan of
Arrangement.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Competition Act" means the Competition Act (Canada) as now in effect
and as it may be amended from time to time.
"Confidentiality Agreement" means the Confidentiality Agreement, dated
November 4, 1999, between BNSF and CN.
"constitutive documents" means, with respect to any Person, such
Person's articles of incorporation, certificate of incorporation or certificate
of continuance and by-laws, limited liability company agreement or operating
agreement, partnership agreement or other constitutive documents.
"Co-Operation Agreement" means an agreement to be made among Newco and
CN and, if applicable, NAR Subco, substantially in the form and content of
Exhibit D, with such changes thereto as the parties to this Agreement, acting
reasonably, may agree.
"Court" means the Quebec Superior Court.
"Customary Action" means an action that occurs in the ordinary course
of the relevant Person's business, where the taking of such action is generally
recognized as being customary and prudent for other major enterprises in such
Person's line of business.
"DGCL" means the Delaware General Corporation Law as now in effect and
as it may be amended from time to time.
"Director" means the Director appointed pursuant to Section 260 of the
CBCA.
4
<PAGE>
"Dissent Rights" has the meaning ascribed to such term in the Plan of
Arrangement.
"Dissenting Shareholder" has the meaning ascribed to such term in the
Plan of Arrangement.
"Environmental Laws" means any and all multinational, federal,
provincial, state, regional, local and foreign Laws, whether now or hereafter in
effect, relating to human health, the environment or emissions, discharges or
releases of pollutants, contaminants, Hazardous Substances or wastes into the
environment, including ambient air, surface water, groundwater or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof.
"Environmental Liabilities" means, with respect to any Person, any and
all liabilities of or relating to such Person or any of its Subsidiaries
(including any entity that is, in whole or in part, a predecessor of such Person
or any of its Subsidiaries), whether vested or unvested, contingent or fixed,
actual or potential, known or unknown, that (i) arise under or relate to matters
covered by Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Closing Date.
"ERISA" means the United States Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person, would be treated as a single employer under Section 414 of the
Code.
"Exchange Ratio" means 1.05.
"Final Order" means the final order of the Court approving the
Arrangement, as such order may be amended by the Court at any time prior to the
Arrangement Effective Date or, if appealed, then, unless such appeal is
withdrawn or denied, as affirmed.
"Form F-4" has the meaning set forth in Section 5.3(b).
"Form S-4" has the meaning set forth in Section 5.3(b).
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any (i) multinational, federal, provincial,
state, regional, municipal, local or other government, governmental or public
department, central bank, court, tribunal, arbitral body, commission, board,
bureau or agency, domestic or foreign; (ii) any subdivision, agent, commission,
board, or authority of any of the foregoing; or (iii) any quasi-
5
<PAGE>
governmental or private body exercising any regulatory, expropriation or taxing
authority under or for the account of any of the foregoing.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any consistent elements
displaying any of the foregoing characteristics, including any substance
regulated under Environmental Laws.
"HSR Act" means the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Interim Order" means the interim order of the Court, as the same may
be amended, in respect of the Arrangement.
"IRS" means the United States Internal Revenue Service.
"Law" means any law, statute, ordinance, regulation, judgment, order,
decree, injunction, arbitration award, license, authorization, opinion, agency
requirement or permit of any Governmental Entity or common law.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"material" means, except as expressly provided otherwise in this
Agreement, in reference to any event, change, effect, agreement, plan or
arrangement with respect to a Person, an event, change, effect, agreement, plan
or arrangement, whether existing or prospective, that is material in relation to
the financial condition, business or properties of such Person and its
Subsidiaries, taken as a whole, or on the ability of such Person to perform its
obligations under this Agreement.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect, whether existing or prospective, on the financial condition,
business or properties of such Person and its Subsidiaries, taken as a whole, or
on the ability of such Person to perform its obligations under this Agreement.
"Material Subsidiary" means any Subsidiary of CN or BNSF, as the case
may be, with at least $100 million of net assets.
"NAR Subco" means an unlimited liability company to be formed under the
laws of the Province of Nova Scotia, Canada, and a wholly owned Subsidiary of
Newco.
"Newco Common Shares" means shares of Newco Common Stock.
6
<PAGE>
"Newco Common Stock" means Newco's common stock, par value $0.01 per
share.
"Newco Stapled Unit" means an inseparable unit consisting of one Newco
Common Share and one CN Voting Share, which unit does not constitute a security
independent of the shares it represents.
"PBGC" means the United States Pension Benefit Guaranty Corporation.
"Person" means any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, Governmental Entity or other entity of
any kind or nature.
"Plan of Arrangement" means the plan of arrangement substantially in
the form and content of Exhibit E and any amendments or variations thereto made
in accordance with Article 6 of the Plan of Arrangement or Section 10.1 of this
Agreement or made at the direction of the Court in the Final Order.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act (Ontario) and the rules,
regulations and policies made thereunder, as now in effect and as they may be
amended from time to time.
"Special Voting Share" means the single share of Newco special voting
stock having substantially the rights, privileges, restrictions and conditions
described in the Voting and Exchange Trust Agreement.
"Stock Option Agreements" means the CN Stock Option Agreement and the
BNSF Stock Option Agreement.
"Subsidiary" means, with respect to any Person, any entity, whether
incorporated or unincorporated, of which more than 50% of the stock, securities
or other ownership interests having by their terms ordinary voting power to
elect more than 50% of the board of directors or other persons performing
similar functions is directly or indirectly owned by such Person.
"Tax" means all income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severance, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value-added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions.
7
<PAGE>
"Tax Return" means all returns and reports (including elections,
declarations, disclosures, schedules, estimated returns and information returns)
required to be supplied to a taxing authority relating to Taxes.
"Trustee" means the trustee to be chosen jointly by BNSF and CN, acting
reasonably, to act as trustee under the Voting and Exchange Trust Agreement,
being a corporation organized and existing under the Laws of Canada and
authorized to carry on the business of a trust company in all of the provinces
of Canada, and any successor trustee appointed under the Voting and Exchange
Trust Agreement.
"Voting and Exchange Trust Agreement" means an agreement to be made
among Newco, CN and the Trustee in connection with the Plan of Arrangement,
substantially in the form and content of Exhibit F, with such changes thereto as
the parties to this Agreement, acting reasonably, may agree.
"Year 2000 Compliant" means, with respect to any Person, except for any
noncompliance that, individually or in the aggregate, would not be reasonably
likely to cause a Material Adverse Effect on such Person, that the hardware or
software used by such Person or any of its Subsidiaries, including microcode,
firmware, system and application programs, files, databases, computer services
and microcontrollers, including those embedded in computer and non-computer
equipment, will (i) process date data from, before and after January 1, 2000
without error or interruption; (ii) maintain functionality with respect to the
introduction processing or output of records containing dates falling on or
after January 1, 2000; and (iii) be interoperable with other Year 2000 Compliant
hardware or software that may deliver records to, receive records from or
interact with such hardware or software.
1.2 Other Definitional Provisions. (a) Unless otherwise specified to
the contrary, all references to Articles and Sections are references to Articles
and Sections of this Agreement. All references to Exhibits are references to
Exhibits to this Agreement.
(b) Terms defined in the singular have a comparable meaning when used
in the plural, and vice versa.
(c) The words "include," "includes" and "including" mean include,
includes and including without limitation.
(d) The terms "dollars" and "$" mean United States dollars.
8
<PAGE>
ARTICLE II
THE BUSINESS COMBINATION
2.1 Implementation Steps by CN. (a) Subject to Section 2.7, as soon as
reasonably practicable after the date of this Agreement, CN shall apply under
Section 192 of the CBCA for an order approving the Arrangement and for the
Interim Order and, thereafter, proceed with and diligently seek the Interim
Order.
(b) CN shall cause a special meeting of its stockholders (the "CN
Stockholder Meeting") to be duly called and held as promptly as reasonably
practicable after the date of this Agreement for the purpose of voting on the
approval and adoption of the Arrangement Resolution and for any other proper
purpose as may be set forth in the notice for such meeting. Without limiting the
generality of the foregoing, CN and BNSF agree that the CN Stockholder Meeting
shall be held as promptly as reasonably practicable after the Form S-4 and the
Form F-4 are declared effective and the Circular is legally permitted to be
disseminated to CN stockholders. The board of directors of CN shall recommend
approval and adoption of the Arrangement Resolution by its stockholders and take
all lawful action (including the solicitation of proxies) to solicit such
adoption; provided, however, that, prior to the CN Stockholder Meeting, such
recommendation may be withdrawn, modified or changed to the extent that the
board of directors of CN, after consulting with its counsel, deems it necessary
to do so in the exercise of its fiduciary obligations to CN or its shareholders;
provided further, that CN shall give BNSF at least five business days' written
notice prior to making any public announcement or other dissemination of any
withdrawal, modification or change of the recommendation of CN's board of
directors (the "CN Five Business Day Window"). Regardless of whether CN's board
of directors has withdrawn, modified or changed its recommendation to CN
stockholders regarding the approval of the Arrangement Resolution, CN shall as
promptly as practicable after the Form S-4 and the Form F-4 are declared
effective and the Circular is disseminated to CN stockholders duly convene and
complete the CN Stockholder Meeting and cause a vote of the CN stockholders to
be taken at such CN Stockholder Meeting regarding the approval of the
Arrangement Resolution. Notwithstanding anything to the contrary in this
Agreement, CN may schedule the CN Stockholder Meeting so that it is on the same
day as the BNSF Stockholder Meeting.
(c) Subject to obtaining such approvals as are required by the Interim
Order, CN shall proceed with and diligently pursue the application to the Court
for the Final Order.
(d) Subject to obtaining the Final Order and the satisfaction or waiver
of the other conditions contained in this Agreement, CN shall send to the
Director, for endorsement and filing by the Director, the Articles of
Arrangement and such other documents as may be required in connection therewith
under the CBCA to give effect to the Arrangement.
9
<PAGE>
(e) At the Closing, CN shall execute and deliver the Co-Operation
Agreement and the Voting and Exchange Trust Agreement.
(f) At the Closing and pursuant to and in accordance with the
Arrangement, CN shall issue the appropriate number and classes of CN securities
to be issued in the Arrangement.
(g) At the Closing and pursuant to and in accordance with the terms of
this Agreement, CN shall issue the appropriate number of CN Voting Shares to be
delivered to the Persons entitled to receive Newco Common Shares pursuant to the
Merger.
2.2 Implementation Steps by BNSF. (a) Promptly following the execution
of this Agreement, BNSF shall adopt a shareholder rights plan substantially in
the form and content of Exhibit G (the "BNSF Shareholder Rights Plan").
(b) BNSF shall cause a special meeting of its stockholders (the "BNSF
Stockholder Meeting") to be duly called and held as promptly as reasonably
practicable after the date of this Agreement for the purpose of voting on the
approval and adoption of this Agreement and the transactions contemplated by
this Agreement, including the Merger, and for any other proper purpose as may be
set forth in the notice for such meeting. Without limiting the generality of the
foregoing, CN and BNSF agree that the BNSF Stockholder Meeting shall be held as
promptly as reasonably practicable after the Form S-4 and the Form F-4 are
declared effective and the BNSF proxy statement is legally permitted to be
disseminated to BNSF stockholders. The board of directors of BNSF shall
recommend approval and adoption of this Agreement and the transactions
contemplated by this Agreement by its stockholders and take all lawful action
(including the solicitation of proxies) to solicit such adoption; provided,
however, that, prior to the BNSF Stockholder Meeting, such recommendation may be
withdrawn, modified or changed to the extent that the board of directors of
BNSF, after consulting with its counsel, deems it necessary to do so in the
exercise of its fiduciary obligations to BNSF or its stockholders; provided
further, that BNSF shall give CN at least five business days' written notice
prior to making any public announcement or other dissemination of any
withdrawal, modification or change of the recommendation of BNSF's board of
directors (the "BNSF Five Business Day Window"). Regardless of whether BNSF's
board of directors has withdrawn, modified or changed its recommendation to BNSF
stockholders regarding the adoption of this Agreement or the approval of the
transactions contemplated by this Agreement, BNSF shall as promptly as
practicable after the Form S-4 and Form F-4 are declared effective and the BNSF
proxy statement is disseminated to BNSF stockholders duly convene and complete
the BNSF Stockholder Meeting and cause a vote of the BNSF stockholders to be
taken at such BNSF Stockholder Meeting regarding the adoption of this Agreement
and the approval of the transactions contemplated by this Agreement.
Notwithstanding anything to the contrary in this Agreement, BNSF may schedule
the BNSF Stockholder Meeting so that it is on the same day as the CN Stockholder
Meeting.
10
<PAGE>
(c) At the Closing, BNSF and Merger Sub shall effect the Merger
contemplated by Section 2.4.
2.3 Implementation Steps by Newco and Merger Sub. (a) At the Closing
and immediately prior to the Merger Effective Time, BNSF and CN shall cause (i)
the certificate of incorporation of Newco to be restated in its entirety,
substantially in the form and content of the restated certificate of
incorporation attached as Exhibit H, and (ii) the by-laws of Newco to be amended
and restated in their entirety in such form as CN and BNSF shall mutually and
reasonably agree (it being understood that, subject to clause (y) of this
parenthetical, the by-laws of Newco (x) shall be in customary form for a
Delaware corporation and (y) shall in all respects be consistent with the terms
of the restated certificate of incorporation of Newco referred to in this
Section 2.3(a) and the other terms of this Agreement and all exhibits to this
Agreement).
(b) At the Closing, Newco shall execute and deliver the Co-Operation
Agreement and the Voting and Exchange Trust Agreement.
(c) At the Closing, Newco shall issue to the Trustee the Special Voting
Share.
(d) At the Closing, Newco shall issue the appropriate number of Newco
Common Shares to be issued in the Arrangement and the Merger.
(e) At the Closing, BNSF and Merger Sub shall effect the Merger
contemplated by Section 2.4.
2.4 Merger of BNSF. (a) At the Closing, Merger Sub shall merge (the
"Merger") with and into BNSF and the separate corporate existence of Merger Sub
shall thereupon cease. BNSF shall be the surviving corporation in the Merger
(sometimes referred to as the "Surviving Corporation"), shall be a wholly owned
Subsidiary of Newco and shall continue to be governed by the Laws of the State
of Delaware, and the separate corporate existence of BNSF with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger, except as set forth in Section 2.4(d). The Merger shall have the effects
specified in Section 259 of the DGCL.
(b) The Merger shall become effective upon the filing, in the office of
the Secretary of State of the State of Delaware, of a certificate of merger in
accordance with the DGCL or at such later date and time as may be set forth in
such certificate of merger (the "Merger Effective Time").
(c) At the Merger Effective Time, automatically by virtue of the Merger
and without any action on the part of any party or other Person:
11
<PAGE>
(i) Each BNSF Common Share that is not owned by BNSF or any
Subsidiary of BNSF outstanding immediately prior to the Merger
Effective Time shall automatically be converted into the right to
receive one Newco Common Share, and the holder of each such BNSF Common
Share shall cease to have any rights as a stockholder of BNSF. Each
certificate formerly representing any of such BNSF Common Shares
thereafter shall constitute a certificate representing the right to
receive an equivalent number of Newco Common Shares.
(ii) Each BNSF Common Share that is owned by BNSF or any
Subsidiary of BNSF immediately prior to the Merger Effective Time and,
in each case, not held as a custodian on behalf of third parties under
the terms of any BNSF Employee Plan (such custodial shares to be
converted pursuant to clause (i) above), shall no longer be
outstanding, shall be canceled and retired without payment of any
consideration therefor, and shall cease to exist.
(iii) Each BNSF Option outstanding immediately prior to the
Merger Effective Time shall automatically be converted into an option
(a "Newco Replacement Option") to purchase that number of Newco Stapled
Units equal to the number of BNSF Common Shares subject to such BNSF
Option immediately prior to the Merger Effective Time. Each Newco
Replacement Option shall provide for an exercise price per Newco
Stapled Unit equal to the exercise price per BNSF Common Share of the
BNSF Option from which it was converted. The expiration date, manner of
exercising, and all other terms and conditions of such Newco
Replacement Option shall otherwise be unchanged from those of the BNSF
Option from which it was converted, and any document or agreement
previously evidencing such BNSF Option shall thereafter evidence and be
deemed to evidence such Newco Replacement Option.
(iv) Each share of capital stock of Merger Sub issued and
outstanding immediately prior to the Merger Effective Time shall be
converted into one share of common stock of the Surviving Corporation,
and the Surviving Corporation shall thereby become a wholly owned
Subsidiary of Newco.
(v) Each share of capital stock of Newco issued and
outstanding immediately prior to the Merger Effective Time shall no
longer be outstanding, shall be canceled and retired without payment of
any consideration therefor, and shall cease to exist.
(d) The certificate of incorporation of BNSF shall be amended in the
Merger to read in its entirety as set forth on Exhibit I and, as so amended,
shall be the certificate of incorporation of the Surviving Corporation until
amended in accordance with applicable Law. The by-laws of BNSF shall be amended
in the Merger to read in their entirety as set forth on Exhibit J and, as so
amended, shall be the by-laws of the Surviving Corporation until amended in
accordance with applicable Law.
12
<PAGE>
(e) The initial directors and officers of the Surviving Corporation
shall consist of the directors and officers of Merger Sub immediately prior to
the Merger Effective Time.
2.5 Surrender of BNSF Common Shares. (a) Prior to the Merger Effective
Time, CN and BNSF shall jointly appoint an agent (the "Exchange Agent") for the
purpose of exchanging certificates formerly representing BNSF Common Shares as
provided in Section 2.4(c). At the Arrangement Effective Time and in a manner
consistent with applicable Law, Newco and CN shall jointly cause to be deposited
with the Exchange Agent Newco Stapled Unit certificates representing the
aggregate number of Newco Common Shares and the aggregate number of CN Voting
Shares to be delivered to holders of BNSF Common Shares. Promptly after the
Arrangement Effective Time, BNSF and CN shall cause the Exchange Agent to send
to each holder of BNSF Common Shares at the Merger 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 BNSF Common Shares to the Exchange
Agent.
(b) Each holder of BNSF Common Shares that have been converted into the
right to receive Newco Common Shares, upon surrender to the Exchange Agent of a
certificate or certificates representing such BNSF Common Shares, together with
a properly completed letter of transmittal covering such BNSF Common Shares,
shall be entitled, after the Arrangement Effective Time, to receive that number
of Newco Stapled Units equal to the number of BNSF Common Shares formerly
represented by such surrendered certificate or certificates. Until so
surrendered, each such certificate shall, after the Arrangement Effective Time,
represent for all purposes only the right to receive such Newco Stapled Units.
Newco shall not be obligated to issue Newco Common Shares except in connection
with the issuance of Newco Stapled Units.
(c) If any portion of the Newco Stapled Units is to be delivered to a
Person other than the registered holder of the BNSF Common Shares represented by
the certificate or certificates surrendered in respect thereto, it shall be a
condition to such delivery 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 delivery shall pay to the Exchange Agent any transfer
or other Taxes required as a result of such delivery to a Person other than the
registered holder of such BNSF Common Shares or establish to the satisfaction of
the Exchange Agent that such Tax has been paid or is not payable.
(d) After the Merger Effective Time, there shall be no further
registration of transfers of BNSF Common Shares. If, after the Arrangement
Effective Time, certificates representing BNSF Common Shares are presented to
the Surviving Corporation, they shall be canceled and Newco Stapled Units shall
be delivered in accordance with the procedures set forth in this Section 2.5.
13
<PAGE>
(e) Any Newco Stapled Units deposited with the Exchange Agent pursuant
to this Section 2.5 that remain unclaimed by the holders of BNSF Common Shares
twelve months after the Merger Effective Time shall be returned to Newco (with
respect to the Newco Common Shares comprising a part of the Newco Stapled Units)
and to CN (with respect to the CN Voting Shares comprising a part of the Newco
Stapled Units) upon demand, and any such holder who has not exchanged his BNSF
Common Shares for Newco Stapled Units in accordance with this Section 2.5 prior
to that time shall thereafter look only to Newco and CN for his claim for Newco
Stapled Units and only to Newco for his claim for any dividends or distributions
with respect to Newco Common Shares. Notwithstanding the foregoing, Newco and CN
shall not be liable to any holder of BNSF Common Shares for any amount paid to a
public official pursuant to applicable abandoned property Laws.
(f) No dividends or other distributions with respect to Newco Common
Shares shall be paid to the holder of any unsurrendered certificates formerly
representing BNSF Common Shares until such certificates are surrendered as
provided in this Section 2.5. Upon such surrender, there shall be paid, without
interest, to the Person in whose name the Newco Stapled Unit certificates in
respect of which such BNSF Common Shares were surrendered are registered (i) all
dividends and other distributions in respect of Newco Common Shares that are
payable on a date subsequent to, and the record date for which occurs at or
after, the Merger Effective Time and (ii) all dividends or other distributions
in respect of BNSF Common Shares that are payable on a date subsequent to, and
the record date for which occurs before, the Merger Effective Time.
2.6 Interim Order. The notice of motion for the application referred to
in Section 2.1(a) shall request that the Interim Order provide (i) for the class
of Persons to whom notice is to be provided in respect of the Arrangement and
the CN Stockholder Meeting and for the manner in which such notice is to be
provided; (ii) that the requisite approval for the Arrangement Resolution shall
be two-thirds of the votes cast on the Arrangement Resolution by holders of CN
Common Stock and holders of CN Options voting together as a single class present
in person or by proxy at the CN Stockholder Meeting; and (iii) for the grant of
the Dissent Rights.
2.7 The Arrangement. The Arrangement shall provide that, and the
parties covenant to take such steps as are necessary to ensure that, commencing
at the Arrangement Effective Time, the following shall occur and shall be deemed
to occur in the following order:
(a) The authorized share capital of CN shall be reorganized by the
creation of the following four classes of shares in the capital of CN;
(i) a class of shares, designated as CN Voting Shares, the
authorized number of which shall be unlimited;
14
<PAGE>
(ii) a class of shares, designated as CN Exchangeable
Shares, the authorized number of which shall be unlimited;
(iii) a class of shares, designated as CN Special Limited
Voting Shares, the authorized number of which shall be unlimited; and
(iv) a class of shares, designated as CN Non-voting Equity
Shares, the authorized number of which shall be unlimited.
(b) Each outstanding CN Common Share shall be changed into a number of
CN Voting Shares equal to the Exchange Ratio and a number of CN Exchangeable
Shares equal to the Exchange Ratio.
(c) Simultaneously with the change in share capital under Section
2.7(b), each CN Exchangeable Share to which the holder of a CN Common Share is
entitled and with respect to which such holder has elected, in a duly completed
and timely submitted letter of transmittal and election form, to transfer to NAR
Subco for a Newco Common Share (the CN Exchangeable Share with respect to which
such election was made, a "Newco Elected Exchangeable Share") shall be
transferred by the holder thereof, without any further act or formality on such
holder's part, to NAR Subco in exchange for one Newco Common Share issued by
Newco. Notwithstanding the foregoing, each holder of CN Common Shares who is not
a resident of Canada for purposes of the Income Tax Act (Canada) at the Election
Deadline (as defined in the Plan of Arrangement) shall be deemed to have elected
to exchange all of the CN Exchangeable Shares issuable to such holder pursuant
to the Arrangement for Newco Common Shares and the CN Exchangeable Shares to
which such holder is entitled shall be deemed for all purposes to be Newco
Elected Exchangeable Shares, except where and to the extent that such holder
specifically elects in a duly completed and timely submitted letter of
transmittal and election form not to have such exchange occur.
(d) Simultaneously with the change in share capital under Section
2.7(b) and the transfer to Newco and exchange under Section 2.7(c) of the Newco
Elected Exchangeable Shares, each Newco Elected Exchangeable Share shall be
converted into one CN Special Limited Voting Share and one CN Non-voting Equity
Share.
(e) Simultaneously with the change in share capital under Section
2.7(b), the transfer to NAR Subco and exchange under Section 2.7(c) of the Newco
Elected Exchangeable Shares and the conversion under Section 2.7(d) of the Newco
Elected Exchangeable Shares, NAR Subco shall and shall be deemed to have
subscribed for and agreed to purchase and CN shall issue and sell to NAR Subco
one (1) CN Special Limited Voting Share and one (1) CN Non-voting Equity Share
upon payment by NAR Subco to CN of a sum equal to the closing trading price, per
share, of the CN Common Shares on The Toronto Stock Exchange on the
15
<PAGE>
trading day which is two days prior to the Arrangement Effective Date divided by
the Exchange Ratio.
(f) The Persons entitled to receive Newco Common Shares pursuant to the
Merger at the Merger Effective Time, which for greater certainty shall exclude
Newco Common Shares issued pursuant to the exchange provided for in Section
2.7(c), shall be deemed to have subscribed for and agreed to purchase at a
purchase price of $0.05 per share, or such other amount as to which the parties
may agree, and CN shall issue to each such Person, one (1) CN Voting Share for
each such Newco Common Share upon payment by Newco to CN of the aggregate
subscription price therefor.
(g) Newco shall issue to and deposit with the Trustee the Special
Voting Share, in consideration of the payment to Newco of $0.01 by CN, to be
thereafter held of record by the Trustee as trustee for and on behalf of, and
for the use and benefit of, the holders of the CN Exchangeable Shares in
accordance with the Voting and Exchange Trust Agreement.
(h) Each CN Option shall be exchanged for an option (a "CN Replacement
Option") to purchase that number of Newco Stapled Units equal to the product of
the Exchange Ratio multiplied by the number of CN Common Shares subject to such
CN Option immediately prior to the Arrangement Effective Time. Each CN
Replacement Option shall provide for an exercise price per Newco Stapled Unit
equal to the exercise price per CN Common Share of such CN Option immediately
prior to the Arrangement Effective Time divided by the Exchange Ratio. If the
foregoing calculation results in a CN Replacement Option being exercisable for a
fraction of a Newco Stapled Unit, then the number of Newco Stapled Units subject
to such CN Replacement Option shall be rounded up to the next whole number of
Newco Stapled Units. The term to expiry, conditions to and manner of exercising,
vesting schedule, and all other terms and conditions of such CN Replacement
Option shall otherwise be unchanged from those of the CN Option for which it was
exchanged, and any document or agreement previously evidencing such CN Option
shall thereafter evidence and be deemed to evidence such CN Replacement Option.
(i) The authorized share capital of CN shall be amended by the
elimination of the CN Common Shares as a class of authorized shares.
2.8 CN Convertible Preferred Securities. At the Closing, Newco shall
enter into a supplemental indenture to the CN Indenture pursuant to which Newco
shall agree to become a co-obligor with respect to CN's 5.25% Convertible
Preferred Securities due June 30, 2029 (the "CN Preferred Securities"). CN, BNSF
and Newco agree and acknowledge that, under the terms of the CN Indenture, from
and after the Arrangement Effective Time, (1) each CN Preferred Security shall
be convertible into, at the option of the holder of such CN Preferred Security,
either Newco Stapled Units or CN Stapled Units and shall no longer be
convertible into CN Common Shares and (2) the number of shares of Newco Stapled
Units or CN Stapled Units, as
16
<PAGE>
the case may be, into which each CN Preferred Security shall be convertible
shall be determined pursuant to the provisions of the CN Indenture.
2.9 Board of Directors; Management. (a) Immediately prior to the Merger
Effective Time, the parties shall cause the board of directors of CN and the
board of directors of Newco, respectively, to be identical and composed of
fifteen members, six of whom shall be designated by BNSF, six of whom shall be
designated by CN and three of whom shall be jointly designated by agreement
between BNSF and CN. Unless BNSF agrees otherwise, all of CN's designees to the
board of directors of CN and the board of directors of Newco shall be resident
Canadians, as defined in the CBCA. The six BNSF designees are: John J. Burns,
Jr.; Robert D. Krebs; Roy S. Roberts; J. Steven Whisler; Edward E. Whitacre,
Jr.; and Michael B. Yanney. The six CN designees are: Purdy Crawford; J.V.
Raymond Cyr; The Honorable Edward C. Lumley; David G.A. McLean; Robert Pace; and
Paul M. Tellier. The three jointly designated directors are: Laurent Beaudoin;
Steve Burd; and Jean C. Monty. To the extent any of the foregoing are unable or
unwilling to serve as directors at the time of Closing, replacements shall be
selected in accordance with the first two sentences of this Section 2.9(a).
(b) At the Closing, the parties shall cause the following officers of
CN and Newco to be identical: (i) Paul M. Tellier, the President and Chief
Executive Officer of CN, to be the President and Chief Executive Officer of CN
and Newco if he is willing and able to serve in that capacity; (ii) Robert D.
Krebs, the Chairman and Chief Executive Officer of BNSF, to be the Chairman of
CN and Newco if he is willing and able to serve in that capacity; (iii) E.
Hunter Harrison, the Executive Vice President and Chief Operating Officer of CN,
to be the Chief Operating Officer of Newco and CN if he is willing and able to
serve in that capacity; and (iv) Thomas N. Hund, the Senior Vice President and
Chief Financial Officer of BNSF, to be the Chief Financial Officer of Newco and
CN if he is willing and able to serve in that capacity. In addition, Matthew K.
Rose, the President and Chief Operating Officer of BNSF, will be the President
and Chief Executive Officer of BNSF if he is willing and able to serve in that
capacity. The remaining officers of CN and Newco to be appointed to office at
the Closing shall include representatives of both CN and BNSF and shall be
agreed on by the boards of directors of Newco and CN to take offices at the
Closing after receiving advice from the Chief Executive Officer of Newco and CN
to take offices at the Closing, after consultation with the Chairman of Newco
and CN to take offices at the Closing.
2.10 Head Office. The head office of each of CN and Newco following the
Closing shall be situated in the Montreal Urban Community, Quebec, Canada.
2.11 Withholding Rights. Each of CN, BNSF, Newco and the Surviving
Corporation shall be entitled to deduct and withhold from the consideration
otherwise payable to any Person pursuant to this Article II such amounts as it
is required to deduct and withhold with respect to the making of such payment
under any provision of applicable Law. Any amounts so withheld shall be treated
for all purposes of this Agreement as having been paid to the holder of CN
17
<PAGE>
Common Shares or BNSF Common Shares, as the case may be, in respect of which
such deduction and withholding was made.
2.12 The Closing. Unless otherwise mutually agreed in writing, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at 9:00 a.m., Chicago time, at the offices of Mayer, Brown & Platt,
190 South LaSalle Street, Chicago, Illinois and, for Canadian matters, at the
offices of Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto, Ontario
M5L 1B9, on the date (the "Closing Date") as promptly as practicable (but not
later than two business days) after the date on which the last to be fulfilled
or waived of the conditions set forth in Article VIII (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) shall be satisfied or waived
in accordance with this Agreement or such other date, time and place as the
parties may agree. The parties shall cause the Merger Effective Time to occur
immediately prior to the Arrangement Effective Time, the Arrangement Effective
Time to occur immediately following the Merger Effective Time, and both the
Merger Effective Time and the Arrangement Effective Time to occur during the
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CN
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated the date of this Agreement, delivered by CN to BNSF
(the "CN Disclosure Letter"), CN represents and warrants to BNSF as follows:
3.1 Corporate Existence and Power. CN is a corporation duly
incorporated, validly existing and in good standing under the Laws of Canada,
and has all corporate power and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. CN 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,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect on CN. Prior to the date of this Agreement, CN has made
available to BNSF true and complete copies of CN's constitutive documents, each
as amended to date, and such constitutive documents are in full force and
effect.
3.2 Corporate Authorization. The execution, delivery and performance of
this Agreement and the Stock Option Agreements by CN and the consummation by CN
of the transactions contemplated hereby and thereby are within CN's corporate
powers and, except as set forth in the next sentence, have been duly authorized
by all necessary corporate action. The affirmative vote of two-thirds of the
votes cast on the Arrangement Resolution by holders of CN Common Shares and the
holders of CN Options voting together as a single class is the only vote of any
class or series of CN capital stock necessary to consummate the Arrangement.
This
18
<PAGE>
Agreement has been duly executed and delivered by CN and constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency and other applicable Laws affecting
creditors' rights generally and general principles of equity.
3.3 Governmental Authorization. The execution, delivery and performance
by CN of this Agreement and the Stock Option Agreements and the consummation by
CN of the transactions contemplated hereby and thereby require no action by or
in respect of, or filing with, any Governmental Entity other than (i) any
approvals required by the Interim Order; (ii) the Final Order; (iii) filings
with the Director under the CBCA; (iv) compliance with any applicable
requirements of the HSR Act and the Competition Act; (v) compliance with any
applicable requirements relating to approval of the transactions contemplated by
this Agreement by the Surface Transportation Board (the "STB"); (vi) compliance
with any applicable requirements of the 1933 Act, the 1934 Act and the
Securities Act; (vii) compliance with any applicable United States "blue sky" or
Canadian provincial securities Laws; (viii) immaterial actions or filings
relating to ordinary operational matters; (ix) approval by The Toronto Stock
Exchange of the grant of the option by CN to BNSF under the CN Stock Option
Agreement and the issuance of CN Common Shares thereunder and (x) compliance
with any applicable requirements of the Defense Production Act of 1950, as
amended (commonly known as Exon-Florio).
3.4 Non-Contravention. The execution, delivery and performance by CN of
this Agreement and the Stock Option Agreements and the consummation by CN of the
transactions contemplated hereby and thereby do not and will not (except in the
case of clauses (ii), (iii) and (iv) of this Section 3.4, for any such matters
that individually or in the aggregate would not be reasonably likely to have a
Material Adverse Effect on CN) (i) contravene or conflict with CN's constitutive
documents; (ii) assuming compliance with the matters referred to in Section 3.3,
contravene or conflict with, or constitute a violation of, any provision of any
Law binding upon or applicable to CN or any of its Subsidiaries; (iii)
constitute a default under, or give rise to a right of termination, cancellation
or acceleration of, any right or obligation of CN or any of its Subsidiaries or
to a loss of any benefit to which CN or any of its Subsidiaries is entitled
under any provision of any agreement, contract or other instrument binding upon
CN or any of its Subsidiaries, or any license, franchise, permit or other
similar authorization held by CN or any of its Subsidiaries; or (iv) result in
the creation or imposition of any Lien on any asset of CN or any of its
Subsidiaries.
3.5 Capitalization. (a) The authorized capital stock of CN consists of
(i) an unlimited number of CN Common Shares, (ii) an unlimited number of Class A
Preferred Shares ("CN Class A Preferred Shares"), and (iii) an unlimited number
of Class B Preferred Shares, no par value ("CN Class B Preferred Shares"). As of
December 15, 1999, there were outstanding (i) 202,270,686 CN Common Shares, (ii)
no CN Class A Preferred Shares, (iii) no CN Class B Preferred Shares, and (iv)
CN Options to purchase an aggregate of 8,473,402 CN Common Shares (of which CN
Options to purchase an aggregate of approximately 4,072,616 CN Common
19
<PAGE>
Shares were exercisable). All outstanding shares of CN's capital stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section 3.5 and except for the 5.25% Convertible Preferred
Securities due June 30, 2029 of CN or as contemplated by Section 6.1, and except
for the exercise of CN Options outstanding on December 15, 1999, or issued since
that date in accordance with Section 6.1, there are outstanding (x) no shares of
capital stock or other voting securities of CN, (y) no securities of CN or any
of its Subsidiaries convertible into or exchangeable for shares of capital stock
or voting securities of CN and (z) no options or other rights to acquire from CN
or any of its Subsidiaries, and no obligation of CN or any of its Subsidiaries
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of CN (the items in clauses
(x), (y) and (z) being referred to collectively as the "CN Securities"). There
are no outstanding obligations of CN or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any CN Securities, except for the transactions
contemplated by this Agreement.
(b) As of the date of this Agreement, there are no outstanding bonds,
debentures, notes or other indebtedness of CN having the right to vote (or
convertible into or exercisable for CN Securities having the right to vote) on
any matters upon which holders of CN Common Stock may vote (collectively, the
"CN Voting Debt").
3.6 Material Subsidiaries. Each of CN's Material Subsidiaries has been
duly incorporated or formed under all applicable Laws, is validly existing and
in good standing under the Laws of its jurisdiction and has full corporate or
legal power and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted. Each of CN's
Material Subsidiaries is duly qualified to do business 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, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect on
CN. All of the outstanding shares and other ownership interests of CN's Material
Subsidiaries that are held directly or indirectly by CN are validly issued,
fully paid and nonassessable; all such shares and other ownership interests are
owned directly or indirectly by CN, free and clear of all material Liens 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). Other than those obligations identified in Section 3.6 of
the CN Disclosure Letter, there are no outstanding (i) securities of CN or any
of its Subsidiaries convertible into or exchangeable for shares of capital stock
or other voting securities or ownership interests in any Subsidiary of CN or
(ii) options or other rights to acquire from CN or any of its Subsidiaries, and
no other obligation of CN or any of its Subsidiaries to issue, any capital stock
or 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 of CN (the capital stock of each
Subsidiary of CN, together with the items in clauses (i) and (ii), being
referred to collectively as the "CN Subsidiary Securities"). There are no
outstanding
20
<PAGE>
obligations of CN or any Subsidiary of CN to repurchase, redeem or otherwise
acquire any outstanding CN Subsidiary Securities.
3.7 Canadian Securities Filings and SEC Filings. CN has filed with the
Canadian Securities Regulators and the SEC true and complete copies of all
forms, reports, schedules, statements and other documents required to be filed
by it since January 1, 1997 (such forms, reports, schedules, statements and
other documents, including any financial statements or other documents,
including any schedules included therein, are referred to as the "CN Reports").
Each such CN Report filed pursuant to the 1934 Act at the time filed (i) did not
contain any untrue statement of a material fact necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading and (ii) complied in all material respects with all other
requirements of applicable securities Laws. Each such CN Report filed pursuant
to the 1933 Act at the time declared effective (i) 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 and
(ii) complied in all material respects with all other requirements of applicable
securities Laws. CN has not filed any confidential material change report with
any Canadian Securities Regulator or any other securities authority or regulator
or any securities exchange or other self-regulatory authority that, as of the
date of this Agreement, remains confidential.
3.8 Financial Statements. The audited consolidated financial statements
and unaudited consolidated interim financial statements of CN included in the CN
Reports fairly present, in conformity with Canadian GAAP or GAAP, as applicable,
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 cash flows
for the periods then ended (subject to normal year-end adjustments in the case
of the unaudited consolidated interim financial statements).
3.9 No Material Adverse Changes. Except as contemplated by this
Agreement or as publicly disclosed prior to the date of this Agreement, since
December 31, 1998, CN and the CN Material Subsidiaries have conducted their
business in the ordinary course consistent with past practice and there has not
been (i) any event, occurrence or development of a state of circumstances or
facts that has had or reasonably could be expected to have a Material Adverse
Effect on CN (other than as a result of changes in conditions, including
economic or political developments, applicable to the railroad industry in
general or any changes in the economy or securities markets in general) or (ii)
any declaration, setting aside or payment of any dividend or other distribution
with respect to any shares of CN capital stock.
3.10 Undisclosed Material Liabilities. Except for (i) liabilities
reflected in the CN Reports and (ii) liabilities incurred in the ordinary course
of business of CN and its Subsidiaries consistent with past practice subsequent
to December 31, 1998, CN and its Subsidiaries have no liabilities that would
reasonably be expected to have a Material Adverse Effect on CN and there
21
<PAGE>
is no existing condition or set of circumstances that would be reasonably likely
to result in such a liability; provided, however, that this representation does
not cover, and shall not be deemed to be breached as a result of, any such
liability that results primarily from a Customary Action.
3.11 Litigation. Except as set forth in the CN Reports, (i) 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 of
its Subsidiaries or any of their respective properties before any court or
arbitrator or any Governmental Entity where there is a reasonable probability of
a determination adverse to CN or any of its Subsidiaries that would be
reasonably likely to have a Material Adverse Effect on CN, and (ii) as of the
date of this Agreement, there is no such action, suit, investigation or
proceeding that in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the Arrangement or any of the other transactions contemplated
by this Agreement.
3.12 Taxes. Except as set forth in the CN Reports or as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on CN, (i) all Tax Returns, statements, reports and forms
(collectively, the "CN Returns") required to be filed with any taxing authority
or provided to any other Person as of the date of this Agreement by, or with
respect to, CN and its Subsidiaries have been filed or provided in accordance
with all applicable Laws; (ii) CN and its Subsidiaries have timely paid or
withheld all Taxes shown as due and payable on the CN Returns that have been so
filed or required to be withheld by CN or any of its Subsidiaries as of the date
of this Agreement and, as of the time of filing, the CN Returns were true,
complete and correct; (iii) CN and its Subsidiaries have made provision for all
Taxes payable by CN and its Subsidiaries for which no CN Return has yet been
filed or resulting from the final resolution of any controversy with any taxing
authority; (iv) the charges, accruals and reserves for Taxes with respect to CN
and its Subsidiaries reflected in the CN Reports are adequate under Canadian
GAAP or GAAP, as applicable, to cover the Tax liabilities accruing through the
date thereof; and (v) as of the date of this Agreement, there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to CN or any of its Subsidiaries in respect of any Tax where a
determination or decision against CN or any of its Subsidiaries is more probable
than not.
3.13 Employee Matters. (a) Except as contemplated by this Agreement,
Section 3.13 of the CN Disclosure Letter identifies (i) each "employee benefit
plan," as defined in Section 3(3) of ERISA (other than multiemployer plans, as
defined in Section 3(37) of ERISA), and (ii) each employment, severance or other
similar contract, arrangement or policy and each retirement or deferred
compensation plan, stock plan, incentive compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance (including self-insured
arrangements) or hospitalization program, workers' compensation program,
disability program, supplemental unemployment program or fringe benefit
arrangement, whether maintained pursuant to contract or informal understanding,
that does not constitute an "employee benefit plan" (as defined in Section 3(3)
of ERISA), which, in the case of items described in both clauses (i) and (ii),
is
22
<PAGE>
maintained, administered or contributed to by CN or any of its ERISA Affiliates
or with respect to which CN or any of its ERISA Affiliates has any liability
(collectively, the "CN U.S. Employee Plans"). Except as contemplated by this
Agreement, Section 3.13 of the CN Disclosure Letter identifies each bonus,
deferred compensation, incentive compensation, share purchase, share
appreciation, share option, severance and termination pay, hospitalization, drug
and other medical benefits, life and other insurance, dental, disability, sick
leave, salary continuation, vacation, supplemental unemployment benefits,
profit-sharing, mortgage assistance, pension, retirement and supplemental
retirement plans, programs and agreements sponsored, maintained, contributed to
or required to be contributed to by CN for the benefit of any of the Canadian
Employees, whether or not insured (collectively, the "CN Canadian Employee
Plans" and, together with the CN U.S. Employee Plans, the "CN Employee Plans").
True and correct copies of each of the CN Employee Plans, all amendments
thereto, any written interpretations thereof distributed to employees, and all
contracts relating thereto or the funding thereof, including all trust
agreements, insurance contracts, administration contracts, investment management
agreements, subscription and participation agreements, recordkeeping agreements
and summary plan descriptions, all as currently in effect, have been furnished
or made available to BNSF. CN has supplied or made available to BNSF an accurate
description of any CN Employee Plan that is not in written form. To the extent
applicable, true and correct copies of the three most recent annual reports
(Form 5500, including, if applicable, Schedule B thereto) prepared in connection
with any CN Employee Plan and the most recent actuarial valuation report
prepared in connection with any such plan have been furnished or made available
to BNSF.
(b) The only CN Employee Plans that are subject to Title IV of ERISA
(the "CN Pension Plans") are identified as such in Section 3.13 of the CN
Disclosure Letter. The only CN Canadian Employee Plans that are registered
pension plans (the "CN Canadian Pension Plans") are identified as such in
Section 3.13 of the CN Disclosure Letter. No "accumulated funding deficiency,"
as defined in Section 412 of the Code, has been incurred with respect to any CN
Pension Plan, whether or not waived. To CN's knowledge, no "reportable event,"
within the meaning of Section 4043 of ERISA and the regulations promulgated
thereunder has occurred with respect to any CN Pension Plan, and no event
described in Section 4041 (other than a standard termination), 4042, 4062 or
4063 of ERISA has occurred in connection with any CN Pension Plan, other than a
reportable event for which the PBGC notice requirements have been waived or a
reportable event that would not be reasonably likely to have a Material Adverse
Effect on CN. No condition exists and no event has occurred that could
constitute grounds for termination of or the appointment of a trustee to
administer any CN Pension Plan under Section 4042 of ERISA and, to CN's
knowledge, neither CN nor any of its ERISA Affiliates has engaged in, or is a
successor or parent corporation to an entity that has engaged in, a transaction
for which CN or any of its ERISA Affiliates would have liability under Section
4069 or 4212(c) of ERISA. To CN's knowledge, nothing done or omitted to be done
and no transaction or holding of any asset under or in connection with any CN
Employee Plan has or will make CN or any of its ERISA Affiliates or any officer
or director of CN or any of its ERISA Affiliates subject to any
23
<PAGE>
liability under Title I or Section 4071 of ERISA or liable for any Tax pursuant
to Section 4975 or Chapter 43, 47, 68 or 100 of the Code that would be
reasonably likely to have a Material Adverse Effect on CN.
(c) Each CN Employee Plan that is intended to be qualified under
Section 401(a) of the Code is the subject of a favorable determination letter
issued by the IRS covering all changes in Law and changes to the form of the CN
Employee Plan for which the remedial amendment period (as described in
regulations issued under Section 401(b) of the Code) has not expired. Each CN
Employee Plan has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all Laws, including ERISA and the
Code, that are applicable to such CN Employee Plan.
(d) None of the payments contemplated by the CN Employee Plans or any
other contract, plan or arrangement covering any employee or former employee of
CN or any of its ERISA Affiliates and arising solely as a result of the
transactions contemplated by this Agreement would, in the aggregate, constitute
excess parachute payments as defined in Section 280G of the Code (without regard
to subsection (b)(4) thereof) or provide for payments that exceed the
deductibility limitations of Section 162(m) of the Code.
(e) Except for obligations arising pursuant to any collective
bargaining agreements, to the knowledge of CN and its Subsidiaries, no condition
exists that would prevent CN or any of its Subsidiaries from amending or
terminating any CN Employee Plan providing health or medical benefits in respect
of any active or former employees of CN or any of its Subsidiaries.
(f) There has been no amendment or interpretation by CN or any of its
ERISA Affiliates relating to, or change in employee participation or coverage
under any CN Employee Plan that would increase materially the expense of
maintaining such CN Employee Plan above the level of expense incurred in respect
thereof for the fiscal year ended December 31, 1998.
(g) To the extent applicable, each CN Employee Plan that constitutes a
"group health plan" (as defined in Section 6071(1) of ERISA or Section
4980B(g)(2) of the Code), including any plans of current or former affiliates
that must be taken into account under Sections 4980B and 414(t) of the Code or
Section 601 of ERISA, has been operated in substantial compliance with
applicable Law, including the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA and the
requirements of Chapter 100 of the Code.
(h) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to CN's knowledge, threatened involving any CN
Employee Plan or the assets thereof, and no facts exist that could give rise to
any such actions, suits or claims (other than routine claims for benefits).
24
<PAGE>
(i) With respect to each employee pension benefit plan (as defined in
Section 3(2) of ERISA) that is a multiemployer plan with respect to which CN or
any of its ERISA Affiliates may have any liability (including any liability
attributable to a current or former member of CN's or any of its ERISA
Affiliates' "controlled group" (as defined in Section 4001(a)(14) of ERISA)),
(i) all contributions have been made as required by the terms of the plans, the
terms of any collective bargaining agreements and applicable Law, (ii) neither
CN nor any of its ERISA Affiliates has withdrawn, partially withdrawn or
received any notice of any claim or demand for withdrawal liability or partial
withdrawal liability that would be reasonably likely to have a Material Adverse
Effect on CN and (iii) neither CN nor any of its ERISA Affiliates has received
any notice that any such plan is in reorganization, that increased contributions
may be required to avoid a reduction in plan benefits or the imposition of any
excise Tax, that any such plan is or has been funded at a rate less than that
required under Section 412 of the Code or that any plan is or may become
insolvent.
(j) As of December 31, 1998, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement health and medical benefits for current and former
employees of CN or any of its Subsidiaries calculated by CN's actuary using
reasonable actuarial assumptions was $65,000,000.
(k) Neither CN's board of directors nor any committee thereof has
adopted a resolution or taken any other action to determine or declare that any
of the transactions contemplated by this Agreement will constitute a change of
control for purposes of any CN Employee Plan.
(l) The transactions contemplated by this Agreement will not trigger
any obligation to fund the benefits under any CN Employee Plan.
3.14 Finders' Fees. Except for Salomon Smith Barney Inc.; The Beacon
Group Capital Services Group, LLC, and Nesbitt Burns Inc. copies of whose
engagement agreements have been provided to BNSF, there is no investment banker,
broker, finder or other intermediary that has been retained by or is authorized
to act on behalf of CN or any of its Subsidiaries who might be entitled to any
fee or commission from BNSF or any of its affiliates in connection with the
transactions contemplated by this Agreement.
3.15 Environmental Matters. Except as set forth in the CN Reports or
otherwise previously disclosed in writing by CN to BNSF, there are no
Environmental Liabilities of CN that, individually or in the aggregate, have had
or would be reasonably likely to have a Material Adverse Effect on CN.
3.16 Compliance with Laws. Except as publicly disclosed and except for
any matter that would not be reasonably likely to have a Material Adverse Effect
on CN, neither CN nor any of its Subsidiaries is in violation of, or has
violated, any applicable provision of any Law.
25
<PAGE>
3.17 Year 2000 Compliance. CN and its Subsidiaries are Year 2000
Compliant, and there are no foreseeable material expenses or other material
liabilities associated with the process of CN and its Subsidiaries becoming Year
2000 Compliant.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BNSF
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated the date of this Agreement, delivered by BNSF to CN
(the "BNSF Disclosure Letter"), BNSF represents and warrants to CN as follows:
4.1 Corporate Existence and Power. BNSF is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware, and has all corporate power and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. BNSF 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,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect on BNSF. Prior to the date of this Agreement, BNSF has
made available to CN true and complete copies of its constitutive documents,
each as amended to date, and such constitutive documents are in full force and
effect.
4.2 Corporate Authorization. The execution, delivery and performance of
this Agreement and the Stock Option Agreements by BNSF and the consummation by
BNSF of the transactions contemplated hereby and thereby are within BNSF's
corporate powers and, except as set forth in the next sentence, have been duly
authorized by all necessary corporate action. The affirmative vote of the
holders of at least a majority of the outstanding BNSF Common Shares entitled to
vote on the approval and adoption of this Agreement is the only vote of any
class or series of BNSF capital stock necessary to consummate the Merger. This
Agreement has been duly executed and delivered by BNSF and constitutes its
legal, valid and binding obligation, enforceable against BNSF in accordance with
its terms, subject to bankruptcy, insolvency and other applicable Laws affecting
creditors' rights generally and general principles of equity.
4.3 Governmental Authorization. The execution, delivery and performance
by BNSF of this Agreement and the Stock Option Agreements and the consummation
by BNSF of the transactions contemplated hereby and thereby require no action by
or in respect of, or filing with, any Governmental Entity other than (i)
compliance with any applicable requirements of the HSR Act and the Competition
Act; (ii) compliance with any applicable requirements relating to approval of
the transactions contemplated by this Agreement by the STB; (iii) compliance
with any applicable requirements of the Securities Act, the 1933 Act and the
1934 Act; (iv)
26
<PAGE>
compliance with any applicable United States "blue sky" or Canadian provincial
securities Laws; and (v) immaterial actions or filings relating to ordinary
operational matters and filings with the United States Federal Communications
Commission with respect to radio licenses held by BNSF and its Subsidiaries.
4.4 Non-Contravention. The execution, delivery and performance by BNSF
of this Agreement and the Stock Option Agreements and the consummation by BNSF
of the transactions contemplated hereby and thereby do not and will not (except
in the case of clauses (ii), (iii) and (iv) of this Section 4.4, for any such
matters that individually or in the aggregate would not be reasonably likely to
have a Material Adverse Effect on BNSF) (i) contravene or conflict with its
constitutive documents; (ii) assuming compliance with the matters referred to in
Section 4.3, contravene or conflict with, or constitute a violation of, any
provision of any Law binding upon or applicable to BNSF or any of its
Subsidiaries; (iii) constitute a default under, or give rise to a right of
termination, cancellation or acceleration of, any right or obligation of BNSF or
any of its Subsidiaries or to a loss of any benefit to which BNSF or any of its
Subsidiaries is entitled under any provision of any agreement, contract or other
instrument binding upon BNSF or any of its Subsidiaries, or any license,
franchise, permit or other similar authorization held by BNSF or any of its
Subsidiaries; or (iv) result in the creation or imposition of any Lien on any
asset of BNSF or any of its Subsidiaries.
4.5 Capitalization. (a) The authorized capital stock of BNSF consists
of (i) six hundred million (600,000,000) BNSF Common Shares, (ii) twenty-five
million (25,000,000) shares of Preferred Stock, par value $0.01 per share ("BNSF
Preferred Stock") of which 6,900,000 shares were designated as 6 1/4% Cumulative
Convertible Preferred Stock, Series A, and 6,000,000 shares are being designated
Junior Participating Preferred Stock, Series B, in connection with the BNSF
Shareholder Rights Plan, and (iii) fifty million (50,000,000) shares of Class A
Preferred Stock, par value $0.01 per share ("BNSF Class A Preferred Stock"). As
of December 15, 1999, there were outstanding (i) 454,945,828 BNSF Common Shares
and 29,970,990 BNSF Common Shares were held in treasury, (ii) no shares of BNSF
Preferred Stock, (iii) no shares of BNSF Class A Preferred Stock, and (iv) BNSF
Options to purchase an aggregate of 30,048,057 BNSF Common Shares (of which,
BNSF Options to purchase an aggregate of 20,602,140 BNSF Common Shares were
exercisable). All outstanding shares of BNSF's capital stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in this Section 4.5 or as contemplated by Section 7.1, and except for
the exercise of BNSF Options outstanding on December 15, 1999, or issued since
that date in accordance with Section 7.1, there are outstanding (x) no shares of
capital stock or other voting securities of BNSF, (y) no securities of BNSF or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or voting securities of BNSF and (z) no options or other rights to acquire
from BNSF or any of its Subsidiaries, and no obligation of BNSF or any of its
Subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of BNSF
(the items in clauses (x), (y) and (z) being referred to collectively as the
"BNSF Securities"). There are no outstanding obligations of
27
<PAGE>
BNSF or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
BNSF Securities, except for the transactions contemplated by this Agreement.
(b) As of the date of this Agreement, there are no outstanding bonds,
debentures, notes or other indebtedness of BNSF having the right to vote (or
convertible into or exercisable for BNSF Securities having the right to vote) on
any matters upon which holders of BNSF Common Stock may vote (collectively, the
"BNSF Voting Debt").
4.6 Material Subsidiaries. Each of BNSF's Material Subsidiaries has
been duly incorporated or formed under all applicable Laws, is validly existing
and in good standing under the Laws of its jurisdiction and has full corporate
or legal power and all material governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted. Each of BNSF's
Material Subsidiaries is duly qualified to do business 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, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect on
BNSF. All of the outstanding shares and other ownership interests of BNSF's
Material Subsidiaries that are held directly or indirectly by BNSF are validly
issued, fully paid and nonassessable; all such shares and other ownership
interests are owned directly or indirectly by BNSF, free and clear of all
material Liens 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). Other than those obligations identified in
Section 4.6 of the BNSF Disclosure Letter, there are no outstanding (i)
securities of BNSF or any of its Subsidiaries convertible into or exchangeable
for shares of capital stock or other voting securities or ownership interests in
any Subsidiary of BNSF or (ii) options or other rights to acquire from BNSF or
any of its Subsidiaries, and no other obligation of BNSF or any of its
Subsidiaries 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 of BNSF (the
capital stock of each Subsidiary of BNSF, together with the items in clauses (i)
and (ii), being referred to collectively as the "BNSF Subsidiary Securities").
There are no outstanding obligations of BNSF or any Subsidiary of BNSF to
repurchase, redeem or otherwise acquire any outstanding BNSF Subsidiary
Securities.
4.7 SEC Filings. BNSF has filed with the SEC true and complete copies
of all forms, reports, schedules, statements and other documents required to be
filed by it since January 1, 1997 (such forms, reports, schedules, statements
and other documents, including any financial statements or other documents,
including any schedules included therein, are referred to as the "BNSF
Reports"). Each such BNSF Report filed pursuant to the 1934 Act at the time
filed (i) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading and (ii) complied in all material respects with all other
requirements of applicable securities Laws. Each such BNSF Report filed pursuant
28
<PAGE>
to the 1933 Act at the time declared effective (i) 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 and
(ii) complied in all material respects with all other requirements of applicable
securities Laws. BNSF has not filed any confidential report with the SEC or any
other securities authority or regulator or any securities exchange or other
self-regulatory authority that, as of the date of this Agreement, remains
confidential.
4.8 Financial Statements. The audited consolidated financial statements
and unaudited consolidated interim financial statements of BNSF included in the
BNSF Reports fairly present, in conformity with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of BNSF and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of the
unaudited consolidated interim financial statements).
4.9 No Material Adverse Changes. Except as contemplated by this
Agreement or as publicly disclosed prior to the date of this Agreement, since
December 31, 1998, BNSF and the BNSF Material Subsidiaries have conducted their
business in the ordinary course consistent with past practice and there has not
been (i) any event, occurrence or development of a state of circumstances or
facts that has had or reasonably could be expected to have a Material Adverse
Effect on BNSF (other than as a result of changes in conditions, including
economic or political developments, applicable to the railroad industry
generally or any changes in the economy or securities markets in general) or
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of BNSF capital stock.
4.10 Undisclosed Material Liabilities. Except for (i) liabilities
reflected in the BNSF Reports and (ii) liabilities incurred in the ordinary
course of business of BNSF and its Subsidiaries consistent with past practice
subsequent to December 31, 1998, BNSF and its Subsidiaries have no liabilities
that would reasonably be expected to have a Material Adverse Effect on BNSF and
there is no existing condition or set of circumstances that would be reasonably
likely to result in such a liability; provided, however, that this
representation does not cover, and shall not be deemed to be breached as a
result of, any such liability that results primarily from a Customary Action.
4.11 Litigation. Except as set forth in the BNSF Reports, (i) there is
no action, suit, investigation or proceeding (or any basis therefor) pending
against or, to the knowledge of BNSF, threatened against or affecting BNSF or
any of its Subsidiaries or any of their respective properties before any court
or arbitrator or any Governmental Entity where there is a reasonable probability
of a determination adverse to BNSF or any of its Subsidiaries that would be
reasonably likely to have a Material Adverse Effect on BNSF, and (ii) as of the
date of this Agreement, there is no such action, suit, investigation or
proceeding that in any manner
29
<PAGE>
challenges or seeks to prevent, enjoin, alter or materially delay the
Arrangement or any of the other transactions contemplated by this Agreement.
4.12 Taxes. Except as set forth in the BNSF Reports or as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on BNSF, (i) all Tax Returns, statements, reports and forms
(collectively, the "BNSF Returns") required to be filed with any taxing
authority or provided to any other Person as of the date of this Agreement by,
or with respect to, BNSF and its Subsidiaries have been filed or provided in
accordance with all applicable Laws; (ii) BNSF and its Subsidiaries have timely
paid or withheld all Taxes shown as due and payable on the BNSF Returns that
have been so filed or required to be withheld by BNSF or any of its Subsidiaries
as of the date of this Agreement and, as of the time of filing, the BNSF Returns
were true, complete and correct; (iii) BNSF and its Subsidiaries have made
provision for all Taxes payable by BNSF and its Subsidiaries for which no BNSF
Return has yet been filed or resulting from the final resolution of any
controversy with any taxing authority; (iv) the charges, accruals and reserves
for Taxes with respect to BNSF and its Subsidiaries reflected in the BNSF
Reports are adequate under GAAP to cover the Tax liabilities accruing through
the date thereof; and (v) as of the date of this Agreement, there is no action,
suit, proceeding, investigation, audit or claim now proposed or pending against
or with respect to BNSF or any of its Subsidiaries in respect of any Tax where a
determination or decision against BNSF or any of its Subsidiaries is more
probable than not.
4.13 Employee Matters. (a) Except as contemplated by this Agreement,
Section 4.13 of the BNSF Disclosure Letter identifies (i) each "employee benefit
plan," as defined in Section 3(3) of ERISA (other than multiemployer plans, as
defined in Section 3(37) of ERISA), and (ii) each employment, severance or other
similar contract, arrangement or policy and each retirement or deferred
compensation plan, stock plan, incentive compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance (including self-insured
arrangements) or hospitalization program, workers' compensation program,
disability program, supplemental unemployment program or fringe benefit
arrangement, whether maintained pursuant to contract or informal understanding,
that does not constitute an "employee benefit plan" (as defined in Section 3(3)
of ERISA), which, in the case of items described in both clauses (i) and (ii),
is maintained, administered or contributed to by BNSF or any of its ERISA
Affiliates or with respect to which BNSF or any of its ERISA Affiliates has any
liability (collectively, the "BNSF Employee Plans"). True and correct copies of
each of the BNSF Employee Plans, all amendments thereto, any written
interpretations thereof distributed to employees, and all contracts relating
thereto or the funding thereof, including all trust agreements, insurance
contracts, administration contracts, investment management agreements,
subscription and participation agreements, recordkeeping agreements and summary
plan descriptions, all as currently in effect, have been furnished or made
available to CN, or were available upon request from BNSF. Any BNSF Employee
Plan that was not provided to CN (as designated in Section 4.13 of the BNSF
Disclosure Letter by an asterisk) is not material (using the definition of
"material" set forth in Section 1.1). BNSF has supplied or made available to CN
an accurate
30
<PAGE>
description of any BNSF Employee Plan that is not in written form. To the extent
applicable, true and correct copies of the three most recent annual reports
(Form 5500, including, if applicable, Schedule B thereto) prepared in connection
with any BNSF Employee Plan and the most recent actuarial valuation report
prepared in connection with any such plan have been furnished or made available
to CN.
(b) The only BNSF Employee Plans that are subject to Title IV of ERISA
(the "BNSF Pension Plans") are identified as such in Section 4.13 of the BNSF
Disclosure Letter. No "accumulated funding deficiency," as defined in Section
412 of the Code, has been incurred with respect to any BNSF Pension Plan,
whether or not waived. To BNSF's knowledge, no "reportable event," within the
meaning of Section 4043 of ERISA and the regulations promulgated thereunder has
occurred with respect to any BNSF Pension Plan, and no event described in
Section 4041 (other than a standard termination), 4042, 4062 or 4063 of ERISA
has occurred in connection with any BNSF Pension Plan, other than a reportable
event for which the PBGC notice requirements have been waived or a reportable
event that would not be reasonably likely to have a Material Adverse Effect on
BNSF. No condition exists and no event has occurred that could constitute
grounds for termination of or the appointment of a trustee to administer any
BNSF Pension Plan under Section 4042 of ERISA and, to BNSF's knowledge, neither
BNSF nor any of its ERISA Affiliates has engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction for which BNSF or
any of its ERISA Affiliates would have liability under Section 4069 or 4212(c)
of ERISA. To BNSF's knowledge, nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any BNSF
Employee Plan has or will make BNSF or any of its ERISA Affiliates or any
officer or director of BNSF or any of its ERISA Affiliates subject to any
liability under Title I or Section 4071 of ERISA or liable for any Tax pursuant
to Section 4975 or Chapter 43, 47 or 68 of the Code that would be reasonably
likely to have a Material Adverse Effect on BNSF.
(c) Each BNSF Employee Plan that is intended to be qualified under
Section 401(a) of the Code is the subject of a favorable determination letter
issued by the IRS covering all changes in Law and changes to the form of the
BNSF Employee Plan for which the remedial amendment period (as described in
regulations issued under Section 401(b) of the Code) has not expired. Each BNSF
Employee Plan has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all Laws, including ERISA and the
Code, that are applicable to such BNSF Employee Plan.
(d) None of the payments contemplated by the BNSF Employee Plans or any
other contract, plan or arrangement covering any employee or former employee of
BNSF or any of its ERISA Affiliates and arising solely as a result of the
transactions contemplated by this Agreement would, in the aggregate, constitute
excess parachute payments as defined in Section 280G of the Code (without regard
to subsection (b)(4) thereof) or provide for payments that exceed the
deductibility limitations of Section 162(m) of the Code.
31
<PAGE>
(e) Except for obligations arising pursuant to any collective
bargaining agreements, to the knowledge of BNSF and its Subsidiaries, no
condition exists that would prevent BNSF or any of its Subsidiaries from
amending or terminating any BNSF Employee Plan providing health or medical
benefits in respect of any active or former employees of BNSF or any of its
Subsidiaries.
(f) There has been no amendment or interpretation by BNSF or any of its
ERISA Affiliates relating to, or change in employee participation or coverage
under any BNSF Employee Plan that would increase materially the expense of
maintaining such BNSF Employee Plan above the level of expense incurred in
respect thereof for the fiscal year ended December 31, 1998.
(g) To the extent applicable, each BNSF Employee Plan that constitutes
a "group health plan" (as defined in Section 6071(1) of ERISA or Section
4980B(g)(2) of the Code), including any plans of current or former affiliates
that must be taken into account under Sections 4980B and 414(t) of the Code or
Section 601 of ERISA, has been operated in substantial compliance with
applicable Law, including the group health plan continuation coverage
requirements of Section 4980B of the Code and Section 601 of ERISA and the
requirements of Chapter 100 of the Code.
(h) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to BNSF's knowledge, threatened involving any BNSF
Employee Plan or the assets thereof, and no facts exist that could give rise to
any such actions, suits or claims (other than routine claims for benefits).
(i) With respect to each employee pension benefit plan (as defined in
Section 3(2) of ERISA) that is a multiemployer plan with respect to which BNSF
or any of its ERISA Affiliates may have any liability (including any liability
attributable to a current or former member of BNSF's or any of its ERISA
Affiliates' "controlled group" (as defined in Section 4001(a)(14) of ERISA)),
(i) all contributions have been made as required by the terms of the plans, the
terms of any collective bargaining agreements and applicable Law, (ii) neither
BNSF nor any of its ERISA Affiliates has withdrawn, partially withdrawn or
received any notice of any claim or demand for withdrawal liability or partial
withdrawal liability that would be reasonably likely to have a Material Adverse
Effect on BNSF and (iii) neither BNSF nor any of its ERISA Affiliates has
received any notice that any such plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of any excise Tax, that any such plan is or has been funded at a rate
less than that required under Section 412 of the Code or that any plan is or may
become insolvent.
(j) As of December 31, 1998, the Expected Postretirement Benefit
Obligation (as defined in Statement of Financial Accounting Standards No. 106)
in respect of postretirement health and medical benefits for current and former
employees of BNSF or any of its Subsidiaries
32
<PAGE>
calculated by BNSF's actuary using reasonable actuarial assumptions was
approximately $232,000,000.
(k) Neither BNSF's board of directors nor any committee thereof has
adopted a resolution or taken any other action to declare or determine that any
of the transactions contemplated by this Agreement will constitute a change in
control for the purposes of any BNSF Employee Plan.
(l) The transactions contemplated by this Agreement will not trigger
any obligation to fund the benefits under any BNSF Employee Plan.
4.14 Finders' Fees. Except for Goldman, Sachs & Co., a copy of whose
engagement agreement has been provided to CN, there is no investment banker,
broker, finder or other intermediary that has been retained by or is authorized
to act on behalf of BNSF or any of its Subsidiaries who might be entitled to any
fee or commission from BNSF or any of its affiliates in connection with the
transactions contemplated by this Agreement.
4.15 Environmental Matters. Except as set forth in the BNSF Reports or
otherwise previously disclosed in writing by BNSF to CN, there are no
Environmental Liabilities of BNSF that, individually or in the aggregate, have
had or would be reasonably likely to have a Material Adverse Effect on BNSF.
4.16 Takeover Statutes; Rights Plan. (a) BNSF's board of directors has
taken all necessary action to make Section 203 of the DGCL inapplicable to this
Agreement and the BNSF Stock Option Agreement and the transactions contemplated
hereby and thereby.
(b) BNSF's board of directors has taken all necessary action to render
the rights issued pursuant to the terms of the BNSF Shareholder Rights Plan
inapplicable to the Merger, this Agreement and the transactions contemplated
hereby and thereby.
4.17 Compliance with Laws. Except as publicly disclosed and except for
any matter that would not be reasonably likely to have a Material Adverse Effect
on BNSF, neither BNSF nor any of its Subsidiaries is in violation of, or has
violated, any applicable provision of any Law.
4.18 Year 2000 Compliance. BNSF and its Subsidiaries are Year 2000
Compliant, and there are no foreseeable material expenses or other material
liabilities associated with the process of BNSF and its Subsidiaries becoming
Year 2000 Compliant.
33
<PAGE>
ARTICLE V
COVENANTS OF EACH PARTY
5.1 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party shall 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 to consummate the
transactions contemplated by this Agreement.
5.2 Regulatory Approvals. Each party shall, and shall cause each of its
Subsidiaries to:
(i)(A) cooperate with one another to prepare and present to
the STB as soon as practicable after the date of this Agreement 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 the matters
contemplated by Section 5.4); (B) prosecute such filings and other
presentations with diligence; (C) 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 (D) take all such further
action as reasonably may be necessary to obtain a final order of the
STB approving the transactions contemplated by this Agreement
consistent with the terms and conditions set forth in this Agreement;
provided, however, that (without limiting the parties' rights under
Article VIII or Article IX) the Implementation Committee shall have
final authority over the development, presentation and conduct of the
STB case, including discussions with third parties.
(ii)(A) cooperate with one another to prepare and file as
soon as practicable after the date of this Agreement all notices and
information required under Part IX of the Competition Act (Canada), if
any, and any additional information requested by the Canadian
Competition Bureau thereunder; (B) cooperate with one another to
prepare and file as soon as practicable after the date of this
Agreement with the Commissioner of Competition appointed under the
Competition Act (the "Commissioner") a competitive impact statement in
connection with the transactions contemplated by this Agreement; and
(C) use reasonable best efforts to obtain from the Commissioner
assurances that the Commissioner shall not take any action to enforce
any relevant provision of the Competition Act in respect of any
transactions contemplated by this Agreement.
(iii)(A) cooperate with one another to prepare an
application for the Interim Order and the Final Order as soon as
practicable after the date of this Agreement; (B) prosecute such
applications with diligence; (C) diligently oppose any objections to,
and diligently pursue any appeals from, such applications; and (D) take
all such further action as reasonably may be necessary to obtain the
Interim Order and Final Order approving the Arrangement consistent with
the terms and conditions set forth in this Agreement.
34
<PAGE>
5.3 Certain Filings; Securities Compliance. (a) Each party shall
cooperate in the preparation of any application for the orders and the
preparation of any required registration statements and any other documents
reasonably deemed by BNSF or CN to be necessary to discharge their respective
obligations under United States and Canadian federal, provincial, territorial or
state securities Laws in connection with the Arrangement and the other
transactions contemplated by this Agreement; provided, however, that, with
respect to the United States "blue sky" and Canadian provincial qualifications,
neither BNSF nor CN shall be required to register or qualify as a foreign
corporation or to take any action that would subject it to service of process in
any jurisdiction where such entity is not now so subject.
(b) As promptly as practicable after the date of this Agreement, the
parties shall (i) jointly prepare and file with the SEC one or more registration
statements on Form S-4 (or other applicable form) (the "Form S-4") (in which the
BNSF proxy statement shall be included as a prospectus) and Form F-4 (or other
applicable form) (the "Form F-4"); (ii) use reasonable best efforts to have the
Form S-4 and Form F-4 declared effective by the SEC and, thereafter, mail to
stockholders of BNSF as promptly as practicable the BNSF proxy statement
included in the Form S-4 and all other proxy materials for the BNSF Stockholder
Meeting; and (iii) otherwise comply with all legal requirements applicable to
the BNSF Stockholder Meeting and the issuance of securities contemplated by this
Agreement.
(c) As promptly as practicable after the date of this Agreement, the
parties shall (i) jointly prepare the Circular; (ii) use reasonable best efforts
to cause the Circular and other documentation required in connection with the CN
Stockholder Meeting to be mailed to stockholders of CN and filed as required by
the Interim Order and applicable Laws; and (iii) otherwise comply with all legal
requirements applicable to the CN Stockholder Meeting and the issuance of
securities contemplated by this Agreement.
(d) Newco and CN shall jointly prepare and file a registration
statement on Form S-3 (and/or other applicable forms, including a registration
statement on Form F-3) (the "Form S-3") in order to register under the 1933 Act
the Newco Stapled Units to be issued from time to time after the Closing upon
exchange of the CN Exchangeable Shares and shall use reasonable best efforts to
cause the Form S-3 to become effective and to maintain the effectiveness of such
registration for the period that such CN Exchangeable Shares remain outstanding.
(e) Newco and CN shall jointly prepare and file a registration
statement on Form S-8 (and/or other applicable forms) (the "Form S-8") in order
to register under the 1933 Act those Newco Stapled Units to be issued from time
to time after the Closing upon the exercise of the CN Replacement Options or
Newco Replacement Options, and shall use reasonable commercial efforts to cause
the Form S-8 to become effective at or prior to the Arrangement Effective Time
and to maintain the effectiveness of such registration for the period of time
that the CN Replacement Options and Newco Replacement Options remain outstanding
and may be exercised.
35
<PAGE>
(f) Each party shall furnish to the other party all such information
concerning it and its stockholders as may be required (and, in the case of its
stockholders, available to it) for the effectuation of the actions described in
this Section 5.3. Each covenants that no such information furnished by it (to
its knowledge in the case of information concerning its stockholders) (i) for
inclusion in the BNSF or CN proxy statements or any other filing under the 1934
Act or filed with Canadian Securities Regulators prepared in connection with
transactions contemplated by this Agreement shall contain any untrue statement
of a material fact or omit to state a material fact required to be stated in any
such document or necessary in order to make any information so furnished for use
in any such document not misleading in light of the circumstances in which it is
furnished and (ii) for inclusion in any registration statement or other filing
under the 1933 Act or filed with Canadian Securities Regulators prepared in
connection with the transactions contemplated by this Agreement shall contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in any such document or necessary in order to make any
information so furnished for use in any such document not misleading. Each party
shall promptly notify the other if at any time before or after the Closing it
becomes aware that any such information contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in the case of such 1934 Act
filings, not misleading in light of the circumstances in which they are made
and, in the case of such 1933 Act filings, not misleading.
(g) Within two business days after the date of this Agreement, CN shall
prepare and file with The Toronto Stock Exchange a notice of the option granted
by CN to BNSF under the CN Stock Option Agreement and the proposed issuance of
CN Common Shares issuable upon the exercise of such option and shall use
reasonable best efforts to cause The Toronto Stock Exchange to accept such
notice, without conditions, as soon as practicable.
5.4 Access to Information. (a) Subject to any confidentiality
agreements or other confidentiality obligations binding upon any party or any of
such party's Subsidiaries, from the date of this Agreement until the Arrangement
Effective Time and except as prohibited by applicable Law, each party shall give
the other party, its counsel, financial advisors, auditors and other authorized
representatives full, reasonable access to the offices, properties, books and
records of such party and its Subsidiaries, shall furnish to the other party,
its counsel, financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such Persons may
reasonably request and shall instruct such party's employees, counsel and
financial advisors to cooperate with the other party in its investigation of the
business of such party and its Subsidiaries; provided, however, that no
investigation pursuant to this Section 5.4 shall affect any representation or
warranty given by the parties under this Agreement; and provided further, that
access to certain information may require the entry of a protective order by the
STB, after which date access shall be granted to such information consistent
with this Section 5.4 and subject to the terms of such order.
36
<PAGE>
(b) The parties acknowledge that certain information may be
competitively sensitive ("Highly Confidential Information"). The parties agree
that, prior to any disclosure of any such Highly Confidential Information,
appropriate arrangements shall be made to ensure compliance with all
requirements of applicable Law.
5.5 Notices of Certain Events. Each party shall promptly notify the
other party to this Agreement of:
(i) any notice or other communication such party receives
from any Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) any notice or other communication such party receives
from any Governmental Entity in connection with the transactions
contemplated by this Agreement, including the Arrangement; and
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to the best of such party's knowledge,
threatened against, relating to or involving or otherwise affecting
such party or any Subsidiary of such party that, if pending on the date
of this Agreement, would have been required to have been disclosed
pursuant to Section 3.11 or Section 4.11, as the case may be, that
relate to the consummation of the transactions contemplated by this
Agreement.
5.6 Stock Exchange Listing. Each party shall use its reasonable best
efforts to have the Newco Common Shares and CN Voting Shares constituting the
Newco Stapled Units approved for listing on all securities exchanges on which
BNSF Common Shares were listed immediately prior to the Merger Effective Time
and to have the CN Exchangeable Shares and CN Voting Shares constituting the CN
Stapled Units approved for listing on The Toronto Stock Exchange.
5.7 Public Announcements. The initial press release with respect to the
transactions contemplated by this Agreement shall be a joint press release.
Thereafter, the parties shall consult with each other before issuing any press
release with respect to this Agreement and the transactions contemplated by this
Agreement and, except as may be required by applicable Law or the requirements
of any securities exchange on which a party's securities are traded, will not
issue any such press release prior to such consultation.
5.8 Further Assurances. At and after the Arrangement Effective Time,
the officers and directors of each party shall be authorized to execute and
deliver, in the name and on behalf of such party, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of such
party, any other actions and things necessary or desirable with respect to the
consummation of the transactions contemplated by this Agreement.
37
<PAGE>
5.9 Cooperation. Without limiting any party's obligation under any
other provision of this Agreement, each party shall together, or pursuant to an
allocation of responsibility to be agreed among the parties, coordinate and
cooperate (i) with respect to the timing of the BNSF Stockholder Meeting and the
CN Stockholder Meeting and shall use reasonable best efforts to hold such
meetings on the same day; (ii) in connection with the preparation of the
Circular, the Form S-4, the Form F-4, the Form S-3 and the Form S-8; (iii) in
determining whether any action by or in respect of, or filing with, any
Governmental Entity 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; (iv)
in seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Circular, the Form S-4, the Form F-4, the Form S-3 and the Form S-8 and timely
seeking to obtain any such actions, consents, approvals or waivers; (v) to cause
the Merger to qualify as a "reorganization" within the meaning of Section 368(a)
of the Code or to comply with the requirements of Section 351(a) of the Code;
and (vi) to cause the exchange of CN Exchangeable Shares for Newco Common Shares
pursuant to the Arrangement to comply with the requirements of Section 351(a) of
the Code. Subject to the terms and conditions of this Agreement, the parties
shall, subject to applicable Law, confer on a regular and frequent basis with
one or more representatives of one another to report operational matters of
significance to the transactions contemplated by this Agreement and the general
status of ongoing operations insofar as relevant to the transactions
contemplated by this Agreement; provided, however, that the parties shall not
confer on any matter to the extent inconsistent with applicable Law.
5.10 Closing Matters. Each party shall deliver at the Closing such
customary certificates, resolutions and other closing documents as may be
reasonably required by the other parties to this Agreement.
5.11 Obligations of Newco. Each of CN and BNSF will take all actions
necessary to cause Newco to perform its obligations under this Agreement.
Without limiting the generality of the foregoing, CN, BNSF and Newco agree that:
(a) immediately prior to the Merger Effective Time, Newco shall be a
corporation duly incorporated, validly existing and in good standing under the
Laws of Delaware and shall have all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on the businesses of BNSF as such businesses are now conducted;
(b) at the Merger Effective Time, the performance by Newco of this
Agreement and the consummation by Newco of the transactions contemplated by this
Agreement shall be within the corporate powers of Newco and shall have been duly
authorized by all necessary corporate action on the part of Newco;
38
<PAGE>
(c) at the Merger Effective Time, the performance by Newco of this
Agreement and the consummation by Newco of the transactions contemplated by this
Agreement shall require no action by or in respect of, or filing with, any
Governmental Entity other than (i) compliance with any applicable requirements
of the Competition Act; (ii) compliance with any applicable requirements
relating to approval of the transactions contemplated by this Agreement by the
STB; (iii) compliance with any applicable requirements of the 1933 Act and the
1934 Act; (iv) compliance with any applicable United States "blue sky" or
Canadian provincial securities Laws; and (v) immaterial actions or filings
relating to ordinary operational matters;
(d) at the Merger Effective Time, the performance by Newco of this
Agreement and the consummation by Newco of the transactions contemplated by this
Agreement will not (except in the case of clauses (ii), (iii) and (iv) of this
subsection (d), for any such matters that individually or in the aggregate would
not be reasonably likely to have a Material Adverse Effect on Newco) (i)
contravene or conflict with the certificate of incorporation or by-laws of
Newco, (ii) assuming compliance with the matters set forth in subsection (c)
above, contravene or conflict with or constitute a violation of any provisions
of any Law binding upon or applicable to Newco, (iii) constitute a default under
or give rise to any right of termination, cancellation or acceleration of any
right or obligation of Newco or any of its Subsidiaries or to a loss of any
benefit to which Newco or any of its Subsidiaries is entitled under any
agreement, contract or other instrument binding upon Newco or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by Newco or any of its Subsidiaries or (iv) result in the creation of or
imposition of any material Lien on any asset of Newco or any Subsidiary of
Newco;
(e) at the Merger Effective Time, Newco shall issue the Newco Common
Stock and the Newco Replacement Options in accordance with Section 2.3, and such
securities shall be duly authorized, validly issued and fully paid and
nonassessable;
(f) from and after the Merger Effective Time, Newco shall, or shall
cause BNSF to, perform the obligations of BNSF under each agreement between BNSF
and any employee of BNSF providing for protections or benefits to such employee
in the event of a change of control, and Newco and CN together shall ensure that
the obligations of CN under each agreement between CN and any employee of CN
providing for protections or benefits to such employee in the event comparable
circumstances are satisfied; and
(g) from the date hereof until the Arrangement Effective Time, Newco
shall not engage in any activities other than in connection with or as
contemplated by this Agreement.
5.12 Implementation Committee. Immediately after the date of this
Agreement, BNSF and CN will establish a committee (the "Implementation
Committee") consisting of three representatives of BNSF and two representatives
of CN. The initial BNSF representatives shall be Robert D. Krebs, Thomas N. Hund
and Matthew K. Rose and the initial CN representatives
39
<PAGE>
shall be Paul M. Tellier and E. Hunter Harrison. The successor to any
representative on the Implementation Committee shall be designated by the party
that designated such representative. Without in any way limiting their rights
under Article VIII or Article IX, BNSF and CN agree that the Implementation
Committee shall be responsible, on behalf of both parties, for directing the
preparation and presentation to the STB of 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, the
prosecution of such filings and other presentation and negotiation (with the STB
or any third party) of any matters in connection with seeking such approval. In
addition to the foregoing, to the extent permitted by applicable Law, the
Implementation Committee shall work actively to develop plans for the
integration of the operations of CN and BNSF after the Arrangement Effective
Time. BNSF and CN agree that the principal objectives of the Implementation
Committee are to ensure that the STB approval of the transactions contemplated
by this Agreement is obtained as expeditiously and on terms as favorable to
Newco, BNSF, CN and their respective Subsidiaries as is reasonably possible, and
to develop plans for the integration of the operations of BNSF and CN that will
permit the most expeditious and favorable integration of such operations as is
reasonably possible. The Implementation Committee shall act by consensus and not
by majority vote of its members. The composition of the Implementation Committee
reflects the nature of the issues to be addressed by the Implementation
Committee with respect to CN and BNSF, and the fact that the STB process will
relate to issues in the United States rather than to the relative influence of
CN and BNSF on the Implementation Committee.
5.13 Interline Coordinations. As soon as practicable after the date of
this Agreement, BNSF and CN shall, to the extent consistent with applicable Law,
work in good faith to develop and implement a range of mutually beneficial
interline coordinations. Without limiting the generality of the foregoing, it is
currently contemplated that such interline coordinations will include, among
other things, to the extent consistent with applicable Law, matters relating to
information technology (intended to develop a common information technology
platform), procurement and marketing.
5.14 Dividends. CN and BNSF shall coordinate the declaration, setting
of record dates and payment dates of dividends on CN and BNSF common stock so
that (i) holders of CN common stock do not receive dividends on both CN Common
Shares, on the one hand, and Newco Common Shares or CN Exchangeable Shares
received in the Arrangement, on the other hand, in respect of any calendar
quarter or fail to receive a dividend on either CN Common Shares, on the one
hand, or Newco Common Shares or CN Exchangeable Shares received in the
Arrangement, on the other hand, in respect of any calendar quarter and (ii)
holders of BNSF common stock do not receive dividends on both BNSF Common
Shares, on the one hand, and Newco Common Shares received in the Merger, on the
other hand, in respect of any calendar quarter or fail to receive a dividend on
either BNSF Common Shares, on the one hand, or Newco Common Shares received in
the Merger, on the other hand, in respect of any calendar quarter.
40
<PAGE>
5.15 Shareholder Rights Plans and Similar Matters. BNSF shall not
reduce or cause to be reduced the percentage threshold in the definition of
"Acquiring Person" set forth in the BNSF Shareholder Rights Plan or take any
other action that would impact the ability of CN to exercise the option granted
to CN under the BNSF Stock Option Agreement or CN's ability to own, vote and
exercise all rights of ownership of the BNSF Common Shares purchased by CN upon
exercise of the option granted to CN under the BNSF Stock Option Agreement. CN
shall not adopt or cause to be adopted a shareholder rights plan or similar
arrangement that would impact the ability of BNSF to exercise the option granted
to BNSF under the CN Stock Option Agreement or BNSF's ability to own, vote and
exercise all rights of ownership of the CN Common Shares purchased by BNSF upon
exercise of the option granted to BNSF under the CN Stock Option Agreement.
ARTICLE VI
COVENANTS OF CN
6.1 Conduct of CN. From the date of this Agreement until the
Arrangement Effective Time, except as provided in Section 6.1 of the CN
Disclosure Letter, CN and CN's Subsidiaries shall conduct their business in the
ordinary course of business consistent with past practice and shall use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties; provided, however, that nothing in this
Section 6.1 shall be deemed to prevent CN and its Subsidiaries from taking any
action referred to in clauses (b)(ii), (c), (f) or (g) of this Section 6.1 where
the taking of such action is not consistent with the past practices of CN and
its Subsidiaries if, but only if, such action is a Customary Action.
Notwithstanding anything to the contrary in this Agreement, CN shall be
permitted to repurchase CN Common Shares from time to time prior to the Closing
in open market purchases, at the prevailing market price; provided, however,
that such repurchases shall not, in the aggregate, have the effect of decreasing
the number of issued and outstanding CN Common Shares by more than 8.0% during
any calendar year, as compared to the number of issued and outstanding CN Common
Shares at the beginning of such calendar year. Without limiting the generality
of the foregoing, from the date of this Agreement until the Closing, without the
written consent of BNSF, which shall not be unreasonably withheld:
(a) Except for the Arrangement, CN shall not adopt or
propose any change in its constitutive documents;
(b) Except for the Arrangement and the other transactions
contemplated by this Agreement, CN shall not, and shall not permit any
CN Subsidiary, to (i) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (ii) make any acquisition of any business or
other assets, whether by means of merger, consolidation or otherwise,
other than in the ordinary course of business consistent with past
practices and other than acquisitions that are Customary Actions;
provided, however, that any wholly owned subsidiary of CN may
41
<PAGE>
merge or consolidate with CN or any other wholly owned subsidiary of CN
and any wholly owned subsidiary of CN that is not a Material Subsidiary
may be liquidated or dissolved;
(c) CN shall not, and shall not permit any CN Subsidiary to,
sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments, (ii)
in the ordinary course of business consistent with past practice and
(iii) any such sale, lease, license or other disposition that is a
Customary Action or that is to any wholly owned Subsidiary of CN;
(d) CN shall not, and shall not permit any of its
Subsidiaries to, declare, set aside or pay any dividend or make any
other distribution with respect to any shares of CN capital stock other
than cash dividends on CN Common Shares not in excess of Canadian $0.70
per share, per year;
(e) Except (i) as expressly permitted by Article II or
Section 6.1(h), (ii) pursuant to existing contracts or commitments or
(iii) pursuant to CN Options and other awards outstanding on the date
of this Agreement, CN shall not, and shall not permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any CN Securities, any CN Voting Debt,
any securities or ownership interests in any Material Subsidiary of CN
or any securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any CN Securities, CN Voting Debt or
securities or ownership interests in any Material Subsidiary of CN;
(f) Except for (i) borrowings under existing credit
facilities, replacements therefor and refinancings thereof, (ii)
borrowings in the ordinary course of business consistent with past
practice or (iii) borrowings that are Customary Actions, CN shall not,
and shall not permit any of its Subsidiaries to, incur any indebtedness
for borrowed money or guarantee any such indebtedness;
(g) Except for loans, advances, capital contributions or
investments made in the ordinary course of business consistent with
past practice and except for loans, advances, capital contributions or
investments that are Customary Actions, CN shall not, and shall not
permit any of its Subsidiaries to, make any loans, advances or capital
contributions to, or investments in, any other Person (other than to CN
or any Subsidiary of CN);
(h) (i) Except for any of the actions referred to in this
clause (h)(i) that is taken in the ordinary course of business
consistent in magnitude and character with past practice and with the
terms of severance or termination arrangements in effect or pending on
the date of this Agreement with respect to individuals with comparable
positions or responsibilities, and except for any of such actions that,
in the aggregate, are not material,
42
<PAGE>
CN shall not, and shall not permit any of its Subsidiaries to, grant
any severance or termination pay to, or enter into any termination or
severance arrangement with, any of its directors, executive officers or
employees and (ii) except for any of the actions referred to in this
clause (h)(ii) that is taken in the ordinary course of business
consistent in magnitude and character with past practice, and except
for any of such actions that in the aggregate are not material, CN
shall not, and shall not permit any of its Subsidiaries to, establish,
adopt, enter into, amend or take action to accelerate any rights or
benefits under, or grant awards under, (A) any plan or arrangement
providing for options, stock, performance awards or other forms of
incentive or deferred compensation or (B) any collective bargaining,
bonus, profit sharing, thrift, compensation, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any of its directors, executive officers or employees.
Notwithstanding anything to the contrary in this Agreement, (i) CN may
offer any of its directors, officers or employees retention and
incentive arrangements comparable to those that BNSF has made available
to its directors, officers and employees prior to the date of this
Agreement or could offer to such directors, officers and employees
under the terms of Section 7.1(h) and (ii) CN may take such action as
it deems appropriate to compensate current or future holders of CN
Options for any adverse Tax consequences resulting directly or
indirectly from the Arrangement. For purposes of this Section 6.1(h)
only, "material" shall mean material in relation to the overall
compensation costs of CN and its Subsidiaries;
(i) CN shall not, and shall not permit any of its
Subsidiaries to, make any cash capital expenditures in any calendar
year in an aggregate amount in excess of $825 million;
(j) Neither CN's board of directors nor any committee
thereof shall adopt any resolution or take any other action to
determine or declare that any of the transactions contemplated by this
Agreement will constitute a change in control for purposes of any CN
Employee Plan; and
(k) CN shall not, and shall not permit any of its
Subsidiaries to, agree or commit to do any of the actions prohibited by
Sections 6.1(a) through 6.1(j).
6.2 Tax Matters. From the date of this Agreement until the Arrangement
Effective Time, except as would not be reasonably likely to have a Material
Adverse Effect on CN, CN shall, and shall cause its Subsidiaries to, (i) file
all tax returns, statements, reports and forms (collectively, the "CN
Post-Signing Returns") required to be filed with any taxing authority in
accordance with all applicable Laws; (ii) timely withhold or pay all Taxes
required to be withheld or shown as due and payable on the CN Post-Signing
Returns that are so filed and, as of the time of filing, the CN Post-Signing
Returns shall be true, complete and correct; (iii) make provision for all Taxes
payable by CN and its Subsidiaries for which no CN Post-Signing Return is due
43
<PAGE>
prior to the Arrangement Effective Time; and (iv) promptly notify BNSF of any
action, suit, proceeding, investigation, audit or claim pending against or with
respect to CN or any of its Subsidiaries in respect of any Tax where a
determination or decision against CN is more probable than not.
6.3 No Solicitations; Other Offers. (a) CN agrees that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) (CN, its Subsidiaries and their officers, directors, employees,
agents and representatives being referred to as the "CN Representatives") not
to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to an
Alternative Proposal. CN further agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or any of its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
the CN Representatives not to, directly or indirectly, have any discussion with
or provide any confidential information or data relating to or in contemplation
of an Alternative Proposal or engage in any negotiations or discussions
concerning an Alternative Proposal, or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal; provided, however, that
nothing contained in this Agreement shall prevent either CN or its directors
from: (A) complying with Rule 14d-9 and Rule 14e-2 promulgated under the 1934
Act with regard to an Alternative Proposal or complying with the requirements of
the CBCA and applicable Canadian securities Laws in relation to the preparation
and dissemination of directors' circulars in response to take-over bids and the
calling and holding of requisitioned stockholders meetings; (B) prior to the
taking of the vote to be taken at the CN Stockholder Meeting, engaging in any
discussions or negotiations with, or providing any information to, any Person in
response to an unsolicited bona fide written Alternative Proposal; or (C) prior
to the taking of the vote to be taken at the CN Stockholder Meeting, subject to
the obligation of CN pursuant to Section 2.1(b) to duly convene the CN
Stockholder Meeting at which a vote of the stockholders of CN shall be taken
regarding the approval and adoption of the Arrangement Resolutions, recommending
such an unsolicited bona fide written Alternative Proposal to the stockholders
of CN if, and only to the extent that, with respect to the actions referred to
in clauses (B) or (C), (i) CN has complied with the terms of this Section 6.3,
(ii) the board of directors of CN concludes in good faith (after consultation
with its outside legal counsel and its financial advisors) that such Alternative
Proposal is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal, and would, if consummated, result in a transaction more
favorable to CN's stockholders from a financial point of view than the
transactions contemplated by this Agreement, (iii) the board of directors of CN
determines in good faith after consultation with outside legal counsel that the
failure to take such action would result in the reasonable likelihood that the
board of directors would breach its fiduciary duties under applicable Law, and
(iv) prior to entering into negotiations or discussions with, or providing any
information or data to, any Person in connection with an Alternative Proposal by
any such Person, the board of
44
<PAGE>
directors of CN shall receive from such Person an executed confidentiality
agreement on terms substantially similar to those contained in the
Confidentiality Agreement; provided, however, that such confidentiality
agreement shall contain terms that allow CN to comply with its obligations under
this Section 6.3.
(b) CN agrees 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 Alternative Proposal. CN agrees that it will take
the necessary steps to promptly inform each CN Representative of the obligations
undertaken in Section 6.3(a). CN agrees that it will notify BNSF promptly, but
in any event within twenty-four (24) hours, if any such inquiries, proposals or
offers are received by, any such information is requested from, or any such
discussions or negotiations are sought to be initiated or continued with, any CN
Representative indicating, in connection with such notice, the name of such
Person making such inquiry, proposal, offer or request and the substance of any
such inquiries, proposals or offers. CN thereafter shall keep BNSF informed, on
a timely basis, of the status and terms of any such inquiries, proposals or
offers and the status of any such discussions or negotiations. Without limiting
the generality of the foregoing, the notice delivered by CN commencing the CN
Five Business Day Window shall set forth all material terms of the Alternative
Proposal or other matter forming the basis for the withdrawal, modification or
change by CN's board of directors of its recommendation that the CN stockholders
approve and adopt the Arrangement Resolution and such notice shall be updated in
writing on a current basis in the event that any such material terms are
modified or changed. Without limiting BNSF's right to make proposals in general,
BNSF shall be permitted to make one or more proposals to CN during the CN Five
Business Day Window and such proposals shall be considered by CN. CN also agrees
that it will promptly request each Person that has heretofore executed a
confidentiality agreement in connection with its consideration of any
Alternative Proposal to return all confidential information heretofore furnished
to such Person by or on behalf of CN or any of its Subsidiaries.
ARTICLE VII
COVENANTS OF BNSF
7.1 Conduct of BNSF. From the date of this Agreement until the Merger
Effective Time, except as provided in Section 7.1 of the BNSF Disclosure Letter,
BNSF and BNSF's Subsidiaries shall conduct their business in the ordinary course
of business consistent with past practice and shall use their reasonable best
efforts to preserve intact their business organizations and relationships with
third parties; provided, however, that nothing in this Section 7.1 shall be
deemed to prevent BNSF and its Subsidiaries from taking any action referred to
in clauses (b)(ii), (c), (f) or (g) of this Section 7.1 where the taking of such
action is not consistent with the past practices of BNSF and its Subsidiaries
if, but only if, such action is a Customary Action. Notwithstanding anything to
the contrary in this Agreement, BNSF shall be permitted to repurchase BNSF
Common Shares from time to time prior to the Closing in open market purchases,
at the prevailing market price; provided, however, that such repurchases shall
not, in
45
<PAGE>
the aggregate, have the effect of decreasing the number of issued and
outstanding BNSF Common Shares by more than 8.0% during any calendar year, as
compared to the number of issued and outstanding BNSF Common Shares at the
beginning of such calendar year. Without limiting the generality of the
foregoing, from the date of this Agreement until the Closing, without the
written consent of CN, which shall not be unreasonably withheld:
(a) BNSF shall not adopt or propose any change in their
respective constitutive documents;
(b) Except for the transactions contemplated by this
Agreement, BNSF shall not, and shall not permit any BNSF Subsidiary, to
(i) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization or (ii) make any acquisition of any business or other
assets, whether by means of merger, consolidation or otherwise, other
than in the ordinary course of business consistent with past practices
and other than acquisitions that are Customary Actions; provided,
however, that any wholly owned subsidiary of BNSF may merge or
consolidate with BNSF or any other wholly owned subsidiary of BNSF and
any wholly owned subsidiary of BNSF that is not a Material Subsidiary
may be liquidated or dissolved;
(c) BNSF shall not, and shall not permit any BNSF Subsidiary
to, sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments, (ii)
in the ordinary course of business consistent with past practice and
(iii) any such sale, lease, license or other disposition that is a
Customary Action;
(d) BNSF shall not, and shall not permit any of its
Subsidiaries to, declare, set aside or pay any dividend or make any
other distribution with respect to any shares of BNSF capital stock,
other than (i) in connection with the adoption of the BNSF Shareholder
Rights Plan or (ii) cash dividends on BNSF Common Shares not in excess
of $0.48 per share, per year;
(e) Except (i) as expressly permitted by Article II or
Section 7.1(h), (ii) pursuant to existing contracts or commitments or
(iii) pursuant to BNSF Options and other awards outstanding on the date
of this Agreement, BNSF shall not, and shall not permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any BNSF Securities, any BNSF Voting
Debt, any securities or ownership interests in any Material Subsidiary
of BNSF or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any BNSF Securities, BNSF
Voting Debt or securities or ownership interests in any Material
Subsidiary of BNSF;
46
<PAGE>
(f) Except for (i) borrowings under existing credit
facilities, replacements therefor and refinancings thereof, (ii)
borrowings in the ordinary course of business consistent with past
practice or (iii) borrowings that are Customary Actions, BNSF shall
not, and shall not permit any of its Subsidiaries to, incur any
indebtedness for borrowed money or guarantee any such indebtedness;
(g) Except for loans, advances, capital contributions or
investments made in the ordinary course of business consistent with
past practice and except for loans, advances, capital contributions or
investments that are Customary Actions, BNSF shall not, and shall not
permit any of its Subsidiaries to, make any loans, advances or capital
contributions to, or investments in, any other Person (other than to
BNSF or any Subsidiary of BNSF);
(h) (i) Except for any of the actions referred to in this
clause (h)(i) that is taken in the ordinary course of business
consistent in magnitude and character with past practice and with the
terms of severance or termination arrangements in effect or pending on
the date of this Agreement with respect to individuals with comparable
positions or responsibilities, and except for any of such actions that,
in the aggregate, are not material, BNSF shall not, and shall not
permit any of its Subsidiaries to, grant any severance or termination
pay to, or enter into any termination or severance arrangement with,
any of its directors, executive officers or employees, and (ii) except
for any of the actions referred to in this clause (h)(ii) that is taken
in the ordinary course of business consistent in magnitude and
character with past practice (which shall include normal period
performance reviews and related compensation and benefits increases and
the provision of compensation and benefits consistent with past
practice for promoted or newly hired employees), and except for any of
such actions that in the aggregate are not material or that are
required by Law or the terms of an existing collective bargaining
agreement, BNSF shall not, and shall not permit any of its Subsidiaries
to, (A) establish, adopt, enter into, amend or take action to
accelerate any rights or benefits under, or grant awards under, (y) any
plan or arrangement providing for options, stock, performance awards or
other forms of incentive or deferred compensation or (z) any collective
bargaining, bonus, profit sharing, thrift, compensation, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any of its directors, executive officers
or employees; or (B) increase the salary, wage, bonus or other
compensation of any of its directors, executive officers or employees.
For purposes of this Section 7.1(h) only, "material" shall mean
material in relation to the overall compensation costs of BNSF and its
Subsidiaries;
(i) BNSF shall not, and shall not permit any of its
Subsidiaries to, make any cash capital expenditures in any calendar
year in an aggregate amount in excess of $1.7 billion;
47
<PAGE>
(j) Neither BNSF's board of directors nor any committee
thereof shall adopt any resolution or take any other action to
determine or declare that any of the transactions contemplated by this
Agreement will constitute a change in control for purposes of any BNSF
Employee Plan; and
(k) BNSF shall not, and shall not permit any of its
Subsidiaries to, agree or commit to do any of the actions prohibited by
Sections 7.1(a) through 7.1(j).
7.2 Tax Matters. From the date of this Agreement until the Arrangement
Effective Time, except as would not be reasonably likely to have a Material
Adverse Effect on BNSF, BNSF shall, and shall cause its Subsidiaries to (i) file
all tax returns, statements, reports and forms (collectively, the "BNSF
Post-Signing Returns") required to be filed with any taxing authority in
accordance with all applicable Laws; (ii) timely withhold or pay all Taxes
required to be withheld or shown as due and payable on the BNSF Post-Signing
Returns that are so filed and, as of the time of filing, the BNSF Post-Signing
Returns shall be true, complete and correct; (iii) make provision for all Taxes
payable by BNSF and its Subsidiaries for which no BNSF Post-Signing Return is
due prior to the Arrangement Effective Time; and (iv) promptly notify CN of any
action, suit, proceeding, investigation, audit or claim pending against or with
respect to BNSF or any of its Subsidiaries in respect of any Tax where a
determination or decision against BNSF is more probable than not.
7.3 No Solicitations; Other Offers. (a) BNSF agrees that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) (BNSF, its Subsidiaries and their officers, directors, employees,
agents and representatives being referred to as the "BNSF Representatives") not
to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to an
Alternative Proposal. BNSF further agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or any of its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
the BNSF Representatives not to, directly or indirectly, have any discussion
with or provide any confidential information or data to any Person relating to
or in contemplation of an Alternative Proposal or engage in any negotiations or
discussions concerning an Alternative Proposal, or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; provided,
however, that nothing contained in this Agreement shall prevent either BNSF or
its directors from: (A) complying with Rule 14d-9 and Rule 14e-2 promulgated
under the 1934 Act with regard to an Alternative Proposal; (B) prior to the
taking of the vote to be taken at the BNSF Stockholder Meeting, engaging in any
discussions or negotiations with, or providing any information to, any Person in
response to an unsolicited bona fide written Alternative Proposal by any such
Person; or (C) prior to the taking of the vote to be taken at the BNSF
Stockholder Meeting, subject to the obligation of BNSF pursuant to Section
2.2(b) to duly convene the BNSF Stockholder Meeting at which a vote of the
48
<PAGE>
stockholders of BNSF shall be taken regarding the approval and adoption of this
Agreement and the transactions contemplated by this Agreement, recommending such
an unsolicited bona fide written Alternative Proposal to the stockholders of
BNSF if, and only to the extent that, with respect to the actions referred to in
clauses (B) or (C), (i) BNSF has complied with the terms of this Section 7.3,
(ii) the board of directors of BNSF concludes in good faith (after consultation
with its outside legal counsel and its financial advisors) that such Alternative
Proposal is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal, and would, if consummated, result in a transaction more
favorable to BNSF's stockholders from a financial point of view than the
transactions contemplated by this Agreement, (iii) the board of directors of
BNSF determines in good faith after consultation with outside legal counsel that
the failure to take such action would result in the reasonable likelihood that
the board of directors would breach its fiduciary duties to BNSF or its
stockholders under applicable Law and (iv) prior to entering into negotiations
or discussions with, or providing any information or data to, any Person in
connection with an Alternative Proposal by any such Person, the board of
directors of BNSF shall receive from such Person an executed confidentiality
agreement on terms substantially similar to those contained in the
Confidentiality Agreement; provided, however, that such confidentiality
agreement shall contain terms that allow BNSF to comply with its obligations
under this Section 7.3.
(b) BNSF agrees 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 Alternative Proposal. BNSF agrees that
it will take the necessary steps to promptly inform each BNSF Representative of
the obligations undertaken in Section 7.3(a). BNSF agrees that it will notify CN
promptly, but in any event within twenty-four (24) hours, if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such discussions or negotiations are sought to be initiated or continued
with, any BNSF Representative indicating, in connection with such notice, the
name of such Person making such inquiry, proposal, offer or request and the
substance of any such inquiries, proposals or offers. BNSF thereafter shall keep
CN informed, on a timely basis, of the status and terms of any such inquires,
proposals or offers and the status of any such discussions or negotiations.
Without limiting the generality of the foregoing, the notice delivered by BNSF
commencing the BNSF Five Business Day Window shall set forth all material terms
of the Alternative Proposal or other matter forming the basis for the
withdrawal, modification or change by BNSF's board of directors of its
recommendation that the BNSF stockholders approve and adopt this Agreement and
such notice shall be updated in writing on a current basis in the event that any
such material terms are modified or changed. Without limiting CN's right to make
proposals in general, CN shall be permitted to make one or more proposals to
BNSF during the BNSF Five Business Day Window and such proposals shall be
considered by BNSF. BNSF also agrees that it will promptly request each Person
that has heretofore executed a confidentiality agreement in connection with its
consideration of any Alternative Proposal to return all confidential
49
<PAGE>
information heretofore furnished to such Person by or on behalf of BNSF or any
of its Subsidiaries.
7.4 Takeover Statutes; Rights Plan. BNSF shall take all actions
necessary to ensure that the representations and warranties set forth in Section
4.16 remain true and correct at all times.
ARTICLE VIII
CONDITIONS TO THE BUSINESS COMBINATION
8.1 Conditions to the Obligations of Each Party. The obligations of
BNSF, Merger Sub and CN to consummate the transactions contemplated by this
Agreement, including the Arrangement and the Merger, are subject to the
satisfaction (or waiver by each of BNSF and CN) of each of the following
conditions:
(i) this Agreement and the transactions contemplated by this
Agreement shall have been approved and adopted by the stockholders of
BNSF in accordance with applicable Law;
(ii) the Arrangement Resolution shall have been approved and
adopted by the stockholders of CN in accordance with applicable Law
and, subject to clause (iii) below, in accordance with any conditions
that may be imposed by the Interim Order;
(iii) the Interim Order and Final Order shall each have been
obtained (and shall not have been set aside or modified) in form and
terms that do not (A) change the Exchange Ratio or (B) impose on BNSF,
Newco, CN or any of their respective Subsidiaries any other terms or
conditions that would significantly and adversely affect the economic
benefits of the transactions contemplated by this Agreement to BNSF, CN
and their stockholders, taken as a whole;
(iv) the STB shall have issued a decision (which decision
shall not have been stayed or enjoined) that (A) constitutes a final
order approving, exempting or otherwise authorizing consummation of the
transactions contemplated by this Agreement (or subsequently presented
to the STB by agreement of BNSF and CN), including the Arrangement and
the Merger, as may require such authorization and (B) does not (1)
change the Exchange Ratio or (2) impose on BNSF, Newco, CN or any of
their respective Subsidiaries any other terms or conditions (including
labor protective provisions, but excluding conditions heretofore
imposed by the United States Interstate Commerce Commission in New York
Dock Railway-Control-Brooklyn Eastern District, 360 I.C.C. 60 (1979))
that would significantly and adversely affect the economic benefits of
the transactions contemplated by this Agreement to BNSF, CN and their
stockholders, taken as a whole;
50
<PAGE>
(v) any applicable waiting period and any extensions thereof
under the Competition Act shall have expired and the Commission shall
have provided the parties with assurances that the Commissioner shall
not take any action to enforce any relevant
provision of the Competition Act in respect of any of the transactions
contemplated by this Agreement on terms that would significantly and
adversely affect the economic benefits of the transactions contemplated
by this Agreement to BNSF, CN and their stockholders, taken as a whole;
(vi) all actions by or in respect of or filings with any
Governmental Entity required to permit the consummation of the
transactions contemplated by this Agreement (other than the Interim
Order and Final Order, the STB approval, and the expiration of the
applicable waiting periods under the Competition Act, which are
addressed in clauses (ii) through (v) above) shall have been obtained,
but excluding any consent, approval, clearance or confirmation the
failure to obtain which would not significantly and adversely affect
the economic benefits of the transactions contemplated by this
Agreement to BNSF, CN and their stockholders, taken as a whole;
(vii) no court, arbitrator or Governmental Entity shall have
issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting (A) the operation of the
business of Newco and CN and their respective Subsidiaries after the
Arrangement Effective Time in a manner that would significantly and
adversely affect the economic benefits of the transactions contemplated
by this Agreement to BNSF, CN and their stockholders, taken as a whole,
or (B) the consummation of the transactions contemplated by this
Agreement;
(viii) CN shall have received an opinion from Davis Polk &
Wardwell substantially in the form and content of Exhibit K;
(ix) BNSF shall have received an opinion from Mayer, Brown &
Platt substantially in the form and content of Exhibit L;
(x) the Form S-4, Form F-4, Form S-3 and Form S-8
registration statements shall have become effective under the 1933 Act;
no stop order suspending the effectiveness of the Form S-4, Form F-4,
Form S-3 and Form S-8 registration statements shall have been issued;
and no proceedings for that purpose shall have been initiated or be
threatened by the SEC; and
(xi) the Newco Common Shares and CN Voting Shares
constituting Newco Stapled Units issuable pursuant to the Merger and
the Arrangement shall have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, and the CN
Exchangeable Shares and CN Voting Shares constituting the CN Stapled
Units issuable pursuant to the Arrangement shall have been
conditionally
51
<PAGE>
approved for listing on The Toronto Stock Exchange, subject to filing
of required documentation.
8.2 Additional Conditions to the Obligations of BNSF. The obligations
of BNSF to consummate the transactions contemplated by this Agreement are
further subject to the satisfaction (or waiver by BNSF) of each of the following
conditions:
(i) CN shall have performed in all material respects all of
its obligations under this Agreement required to be performed by it at
or prior to the Merger Effective Time;
(ii) the representations and warranties of CN shall have
been accurate both when made and at and as of the Merger Effective Time
as if made at and as of that time (except to the extent such
representations and warranties speak as of an earlier time, in which
event such representations and warranties shall be true and correct as
of such earlier time), except where the failure of such representations
and warranties (other than those in Section 3.5) to be true and
correct, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect on CN (it being understood
that the representations and warranties of CN made in Section 3.5 must
be accurate in all significant respects when made and, except as
contemplated by this Agreement, at and as of the Merger Effective Time
as if made at and as of that time); and
(iii) since the date of this Agreement, there shall not have
been any event, occurrence, development or state of circumstances that,
individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect on CN (other than as a
result of changes in the conditions, including economic and political
developments, applicable to the railroad industry in general or any
changes in the economy or securities markets in general).
8.3 Additional Conditions to the Obligations of CN. The obligations of
CN to consummate the transactions contemplated by this Agreement are further
subject to the satisfaction (or waiver by CN) of each of the following
conditions:
(i) BNSF shall have performed in all material respects all
of its respective obligations under this Agreement required to be
performed by it at or prior to the Arrangement Effective Time; and
(ii) the representations and warranties of BNSF shall have
been accurate both when made and at and as of the Arrangement Effective
Time as if made at and as of that time (except to the extent such
representations and warranties speak as of an earlier time, in which
event such representations and warranties shall be true and correct as
of such earlier time), except where the failure of such representations
and warranties (other than
52
<PAGE>
those in Sections 4.5 and 4.16) to be true and correct, individually or
in the aggregate, would not be reasonably likely to have a Material
Adverse Effect on BNSF (it being understood that the representations
and warranties of BNSF made in Section 4.5 and 4.16 must be accurate in
all significant respects when made and, except as contemplated by this
Agreement, at and as of the Arrangement Effective Time as if made at
and as of that time); and
(iii) since the date of this Agreement, there shall not have
been any event, occurrence, development or state of circumstances that,
individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect on BNSF (other than as a
result of changes in the conditions, including economic and political
developments, applicable to the railroad industry in general or any
changes in the economy or securities markets in general).
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Closing
(notwithstanding any approval of this Agreement by the stockholders of BNSF or
CN):
(i) by mutual written consent of BNSF and CN;
(ii) by either BNSF or CN, if the Closing has not
occurred by December 31, 2002 (the "Outside Date");
(iii) by either BNSF or CN, if (a) any judgment, injunction,
order or decree enjoining BNSF or CN from consummating the Merger or
Arrangement is entered and such judgment, injunction, order or decree
shall become final and nonappealable or (b) the Court elects not to
issue the Final Order and the Court's decision on the matter has been
fully appealed (and not reversed) or has become final and
nonappealable;
(iv) by either BNSF or CN, if the approvals of the
stockholders of BNSF or CN contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required vote
at a duly held meeting of stockholders or of any adjournment thereof;
(v) by BNSF, if the board of directors of CN shall have
withdrawn, adversely modified or changed its approval or recommendation
of this Agreement, the transactions contemplated by this Agreement or
the Arrangement Resolution;
53
<PAGE>
(vi) by CN, if the board of directors of BNSF shall have
withdrawn, adversely modified or changed its approval or recommendation
of this Agreement or the transactions contemplated by this Agreement;
(vii) by BNSF, upon a breach of any representation,
warranty, covenant or agreement of CN, or if any representation or
warranty of CN shall become untrue, in either case such that the
conditions set forth in Section 8.2 would be incapable of being
satisfied by the Outside Date (or as otherwise extended), provided that
a wilful breach shall be deemed to cause such conditions to be
incapable of being satisfied by such date;
(viii) by CN, upon a breach of any representation, warranty,
covenant or agreement of BNSF, or if any representation or warranty of
BNSF shall become untrue, in either case such that the conditions set
forth in Section 8.3 would be incapable of being satisfied by the
Outside Date (or as otherwise extended), provided that a wilful breach
shall be deemed to cause such conditions to be incapable of being
satisfied by such date; or
(ix) by either BNSF or CN at any time prior to December 31,
2002, if the STB shall have issued a decision (which decision shall not
have been stayed or enjoined) that (A) constitutes a final order
approving, exempting or otherwise authorizing consummation of the
transactions contemplated by this Agreement (or subsequently presented
to the STB by agreement of BNSF and CN), including the Arrangement and
the Merger, as may require such authorization and (B)(1) changes the
Exchange Ratio or (2) imposes on BNSF, Newco, CN or any of their
respective Subsidiaries any other terms or conditions (including labor
protective provisions, but excluding conditions heretofore imposed by
the United States Interstate Commerce Commission in New York Dock
Railway-Control-Brooklyn Eastern District, 360 I.C.C. 60 (1979)) that
would significantly and adversely affect the economic benefits of the
transactions contemplated by this Agreement to BNSF, CN and their
stockholders, taken as a whole (such decision, an "Adverse STB
Decision").
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, this Agreement shall become void and of no effect with no liability
on the part of any party to this Agreement, except that (i) the agreements
contained in Sections 3.14, 4.14, 4.16, 5.15, 7.4, 10.4, 10.5, 10.6, 10.7, 10.8,
10.10, 10.11, and 10.12 shall survive such termination and (ii) no such
termination shall relieve any party of any liability or damages resulting from
any breach by that party of this Agreement.
54
<PAGE>
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1 Modification, Amendment and Assignment. Subject to the provisions
of applicable Law, at any time prior to the Closing, the parties to this
Agreement may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties. This Agreement
may not be assigned by any party without the consent of the other parties to
this Agreement.
10.2 Waiver of Conditions. (a) Any party to this Agreement may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties to this Agreement, (ii) waive any inaccuracies in the
representations and warranties of the other parties to this Agreement contained
in this Agreement or in any document delivered by the other pursuant to this
Agreement or (iii) waive compliance with any of the agreements, or satisfaction
of any of the conditions, contained in this Agreement by the other parties to
this Agreement. Any agreement on the part of a party to this Agreement to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by such party.
(b) No failure or delay by any party in exercising any right, power or
privilege under this Agreement 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. Except as
otherwise provided in this Agreement, the rights and remedies provided in this
Agreement shall be cumulative and not exclusive of any rights or remedies
provided by Law.
10.3 Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
10.4 Expenses; Certain Payments. (a) Except as otherwise provided in
this Section 10.4 or agreed in writing by the parties, each party shall bear its
own expenses (including the fees and expenses of any attorneys, accountants,
investment bankers, brokers, finders or other intermediaries or other Persons
engaged by it) incurred in connection with this Agreement and the transactions
contemplated by this Agreement. CN and BNSF shall share equally all expenses
incurred by either party in connection with any action approved or authorized by
the Implementation Committee.
(b) BNSF shall pay CN a fee equal to $450 million (the "BNSF
Termination Fee"), which amount shall be payable by wire transfer of same day
funds, in the event that (i) an Alternative Proposal shall have been made to
BNSF or shall have been made directly to BNSF's stockholders generally or any
Person shall have publicly announced an intention (whether or not conditional)
to make an Alternative Proposal with respect to BNSF and thereafter (A) BNSF's
stockholders do not adopt this Agreement at the BNSF Stockholder Meeting and (B)
this
55
<PAGE>
Agreement is terminated by either CN or BNSF; or (ii) this Agreement is
terminated by CN pursuant to Section 9.1(vi) or (viii) (but, with respect to
Section 9.1(viii), solely with respect to a breach of Section 7.3). Such payment
shall be due and payable no later than the business day after the date that
notice of termination of this Agreement is first given. BNSF acknowledges that
the agreements contained in this Section 10.4(b) are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
CN would not enter into this Agreement. Accordingly, if BNSF fails to pay when
due the amount due pursuant to this Section 10.4(b) and, in order to obtain such
payment, CN commences a suit which results in a judgment against BNSF for the
fee set forth in this Section 10.4(b), BNSF shall pay to CN its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
(c) CN shall pay BNSF a fee equal to $200 million (the "CN Termination
Fee"), which amount shall be payable by wire transfer of same day funds, in the
event that (i) an Alternative Proposal shall have been made to CN or shall have
been made directly to CN's stockholders generally or any Person shall have
publicly announced an intention (whether or not conditional) to make an
Alternative Proposal with respect to CN and thereafter (A) CN's stockholders do
not adopt the Arrangement Resolution at the CN Stockholder Meeting and (B) this
Agreement is terminated by either BNSF or CN; or (ii) this Agreement is
terminated by BNSF pursuant to Section 9.1(v) or (vii) (but, with respect to
9.1(vii), solely with respect to a breach of Section 6.3). Such payment shall be
due and payable no later than the business day after the date that notice of
termination of this Agreement is first given. CN acknowledges that the
agreements contained in this Section 10.4(c) are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
BNSF would not enter into this Agreement. Accordingly, if CN fails to pay
promptly the amount due pursuant to this Section 10(c), and, in order to obtain
such payment, BNSF commences a suit which results in a judgment against CN for
the fee set forth in this Section 10.4(c), CN shall pay to BNSF its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
(d) BNSF shall pay CN a fee equal to $300 million (the "BNSF STB
Termination Fee"), which amount shall be payable by wire transfer of same day
funds, in the event that (i) BNSF sends CN a written notice (the "BNSF STB
Notice") stating either that BNSF intends to terminate this Agreement pursuant
to Section 9.1(ix) or does not intend to consummate the transactions
contemplated by this Agreement in reliance on Section 8.1(iv); (ii) within five
business days after the date that CN receives BNSF's notice referred to in
clause (i) of this sentence, CN sends BNSF a written notice that,
notwithstanding the alleged Adverse STB
56
<PAGE>
Decision, CN is willing to consummate the transactions contemplated by this
Agreement; (iii) within three business days after receiving the notice referred
to in clause (ii) of this sentence, BNSF does not send CN a written notice that,
notwithstanding the alleged Adverse STB Decision, BNSF is willing to consummate
the transactions contemplated by this Agreement and is revoking the BNSF STB
Notice ; and (iv) the conditions to Closing for CN and BNSF other than the
condition in Section 8.1(iv) (and any other condition to Closing to the extent
relating to any matter referred to in Section 8.1(iv)) have been or promptly
could be satisfied or, if appropriate, waived. If CN sends the notice referred
to in clause (ii) above, CN shall be deemed to have waived its right to
terminate this Agreement pursuant to Section 9.1(ix) (or pursuant to any other
provision of this Agreement for reasons relating to any matter referred to in
Section 9.1(ix)) and to have taken the position that the condition in Section
8.1(iv) has been satisfied and that all of the other conditions to Closing for
CN have been or promptly could be satisfied or waived. Upon the revocation
referred to in clause (iii) above, BNSF shall be deemed to have waived its right
to terminate this Agreement pursuant to Section 9.1(ix) (or pursuant to any
other provision of this Agreement for reasons relating to any matter referred to
in Section 9.1(ix)) and to have taken the position that the condition in Section
8.1(iv) has been satisfied and that all of the other conditions to closing for
BNSF have been or promptly could be satisfied or waived. If
BNSF fails to deliver the written notice contemplated by clause (i) of the first
sentence in this Section 10.4(d) within five business days of the issuance by
the STB of a decision (which decision has not been stayed or enjoined)
constituting a final order approving, exempting or otherwise authorizing the
consummation of the transactions contemplated by this Agreement, BNSF shall be
deemed to have waived the condition to Closing set forth in Section 8.1(iv) (as
well as any other condition to Closing for reasons relating to any matter
referred to in Section 8.1(iv)) as well as its right to terminate this Agreement
pursuant to Section 9.1(ix) (or pursuant to any other provision of this
Agreement for reasons relating to any matter referred to in Section 9.1(ix)).
Assuming that clauses (i), (ii), (iii) and (iv) above have been satisfied, the
BNSF STB Termination Fee shall be due and payable no later than the second
business day after the notice referred to in clause (iii) above has not been and
can no longer be given. If CN does not send the notice referred to in clause
(ii) above within five business days after the date on which CN receives BNSF's
notice delivered pursuant to clause (i) of the first sentence of this Section
10.4(d), CN shall be deemed to have waived its right to send the notice referred
to in clause (ii) above, BNSF shall not owe the BNSF STB Termination Fee and the
BNSF STB Notice shall be deemed final. The BNSF STB Notice shall also be deemed
to be final if the BNSF STB Termination Fee becomes due and payable. This
Agreement shall terminate at such time the BNSF STB Notice shall be deemed final
in accordance with either of the two immediately preceding sentences. BNSF
acknowledges that the agreements contained in this Section 10.4(d) are an
integral part of the transactions contemplated by this Agreement and that,
without these agreements, CN would not enter into this Agreement. Accordingly,
if BNSF fails to pay the amount when due pursuant to this Section 10.4(d) and,
in order to obtain such payment, CN commences a suit which results in a judgment
against BNSF for the fee set forth in this Section 10.4(d), BNSF shall pay to CN
its costs and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of the fee at the prime rate of Citibank,
N.A. in effect on the date such payment was required to be made. Nothing in this
Section 10.4(d) shall prevent CN from asserting that no Adverse STB Decision has
been issued and that the condition to Closing in Section 8.1(iv) has been
satisfied, in either case, despite
57
<PAGE>
BNSF's claim to the contrary and that no termination right arose under Section
9.1(ix); provided, however, that CN shall be deemed to have waived the right to
make such an assertion if it sends the notice referred to in clause (ii) above.
BNSF may not terminate this Agreement pursuant to Section 9.1(ix) or elect not
to consummate the transactions contemplated by this Agreement on the basis of
the condition set forth in Section 8.1(iv) unless BNSF has complied with the
provisions of this Section 10.4(d).
(e) CN shall pay BNSF a fee equal to $150 million (the "CN STB
Termination Fee"), which amount shall be payable by wire transfer of same day
funds, in the event that (i) CN sends BNSF a written notice (the "CN STB
Notice") stating either that CN intends to terminate this Agreement pursuant to
Section 9.1(ix) or does not intend to consummate the transactions contemplated
by this Agreement in reliance on Section 8.1(iv); (ii) within five business days
after the date that BNSF receives CN's notice referred to in clause (i) of this
sentence, BNSF sends CN a written notice that, notwithstanding the alleged
Adverse STB Decision, BNSF is willing to consummate the transactions
contemplated by this Agreement; (iii) within three business days after receiving
the notice referred to in clause (ii) of this sentence, CN does not send BNSF a
written notice that, notwithstanding the alleged Adverse STB Decision, CN is
willing to consummate the transactions contemplated by this Agreement and is
revoking the CN STB Notice; and (iv) the conditions to Closing for BNSF and CN
other than the condition in Section 8.1(iv) (and any other condition to Closing
to the extent relating to any matter referred to in Section 8.1(iv)) have been
or promptly could be satisfied or, if appropriate, waived. If BNSF sends the
notice referred to in clause (ii) above, BNSF shall be deemed to have waived its
right to terminate this Agreement pursuant to Section 9.1(ix) (or pursuant to
any other provision of this Agreement for reasons relating to any matter
referred to in Section 9.1 (ix)) and to have taken the position that the
condition in Section 8.1(iv) has been satisfied and that all of the other
conditions to Closing for BNSF have been or promptly could be satisfied or
waived. Upon the revocation referred to in clause (iii) above, CN shall be
deemed to have waived its right to terminate this Agreement pursuant to Section
9.1(ix) (or pursuant to any other provision of this Agreement for reasons
relating to any matter referred to in Section 9.1 (ix)) and to have taken the
position that the condition in Section 8.1(iv) has been satisfied and that all
of the other conditions to closing for CN have been or promptly could be
satisfied or waived. If CN fails to deliver the written notice contemplated by
clause (i) of the first sentence in this Section 10.4(e) within five business
days of the issuance by the STB of a decision (which decision has not been
stayed or enjoined) constituting a final order approving, exempting or otherwise
authorizing the consummation of the transactions contemplated by this Agreement,
CN shall be deemed to have waived the condition to Closing set forth in Section
8.1(iv) (as well as any other condition to Closing for reasons relating to any
matter referred to in Section 8.1(iv)) as well as its right to terminate this
Agreement pursuant to Section 9.1(ix) (or pursuant to any other provision of
this Agreement for reasons relating to any matter referred to in Section
9.1(ix)). Assuming that clauses (i), (ii), (iii) and (iv) above have been
satisfied, the CN STB Termination Fee shall be due and payable no later than the
second business day after the notice referred to in clause (iii) above has not
been and can no longer be given. If BNSF does not send the notice referred to in
clause (ii) above
58
<PAGE>
within five business days after the date on which BNSF receives CN's notice
delivered pursuant to clause (i) of the first sentence of this Section 10.4(e),
BNSF shall be deemed to have waived its right to send the notice referred to in
clause (ii) above, CN shall not owe the CN STB Termination Fee and the CN STB
Notice shall be deemed final. The CN Notice shall also be deemed to be final if
the CN STB Termination Fee becomes due and payable. This Agreement shall
terminate at such time the CN Notice shall be deemed final in accordance with
either of the two immediately preceding sentences. CN acknowledges that the
agreements contained in this Section 10.4(e) are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
BNSF would not enter into this Agreement. Accordingly, if CN fails to pay the
amount when due pursuant to this Section 10.4(e) and, in order to obtain such
payment, BNSF commences a suit which results in a judgment against CN for the
fee set forth in this Section 10.4(e), CN shall pay to BNSF its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank, N.A. in effect
on the date such payment was required to be made. Nothing in this Section
10.4(e) shall prevent BNSF from asserting that no Adverse STB Decision has been
issued and that the condition to Closing in Section 8.1(iv) has been satisfied,
in either case, despite CN's claim to the contrary and that no termination right
arose under Section 9.1(ix); provided, however, that BNSF shall be deemed to
have waived the right to make such an assertion if it sends the notice referred
to in clause (ii) above. CN may not terminate this Agreement pursuant to Section
9.1(ix) or elect not to consummate the transactions contemplated by this
Agreement on the basis of the condition set forth in Section 8.1(iv) unless CN
has complied with the provisions of this Section 10.4(e).
10.5 Governing Law and Venue; Waiver of Jury Trial. (a) This Agreement
shall be deemed to be made in and in all respects shall be interpreted,
construed and governed by and in accordance with the Laws of the State of New
York without regard to the conflict of law principles thereof; provided,
however, that matters relating to CN's corporate affairs and the Arrangement
shall be governed by the Laws of Canada without regard to conflict of laws
principles thereof and matters relating to BNSF's corporate affairs and the
Merger shall be governed by the Laws of Delaware without regard to conflict of
laws principles thereof. The parties hereby irrevocably and unconditionally
consent to submit to the exclusive jurisdiction of both the courts of the State
of Delaware and of the United States of America located in Wilmington, Delaware
(the "Delaware Courts") and the Quebec Superior Court located in Montreal,
Quebec (the "Quebec Court") for any litigation arising out of or relating to
this Agreement and the transactions contemplated by this Agreement, waive any
objection to the laying of venue of any such litigation in the Delaware Courts
or the Quebec Court and agree not to plead or claim in any Delaware Court or the
Quebec Court that such litigation brought therein has been brought in an
inconvenient forum; provided, however, that the parties agree that any
proceedings in the Quebec Court arising out of or relating to this Agreement and
the transactions contemplated by this Agreement shall be conducted in English
and all written documents relating to any such proceedings shall be written in
English.
59
<PAGE>
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.5.
10.6 Notices. Notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given (i)
when sent if sent by facsimile, provided that a copy of the facsimile is
promptly sent by U.S. mail and confirmation of receipt has been delivered, (ii)
when delivered, if delivered personally to the intended recipient and (iii) one
business day later, if sent by overnight delivery via an international courier
service and, in each case, addressed to a party at the following address for
such party:
If to BNSF or Newco:
Burlington Northern Santa Fe Corporation
2650 Lou Menk Drive
Fort Worth, Texas 76131
Attention: Chief Executive Officer
Fax: (817) 352-7100
and
Burlington Northern Santa Fe Corporation
2650 Lou Menk Drive
Fort Worth, Texas 76131
Attention: General Counsel
Fax: (817) 352-7111
60
<PAGE>
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Scott J. Davis
James T. Lidbury
Fax: (312) 701-7711
and
Tory Haythe
Suite 3000, Aetna Tower
P.O. Box 270, TD Centre
79 Wellington Street West
Toronto, Canada M5K 1N2
Attention: James C. Baillie
Peter D. Ballantyne
Fax: (416) 865-7380
and if to CN:
Canadian National Railway Company
935 de la Gauchetiere Street West
Montreal, Quebec H3B 2M9
Attention: Chief Executive Officer
Fax: (514) 875-8703
and
Canadian National Railway Company
935 de la Gauchetiere Street West
Montreal, Quebec H3B 2M9
Attention: General Counsel
Fax: (514) 399-7627
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Winthrop B. Conrad, Jr.
61
<PAGE>
David L. Caplan
Fax: (212) 450-4800
and
Stikeman, Elliott
Suite 5300
Commerce Court West
Toronto, Ontario M5L 1B9
Attention: John M. Stransman
Robert W.A. Nicholls
Fax: (416) 947-0866
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
10.7 Entire Agreement. This Agreement (including any exhibits to this
Agreement and the ancillary agreements contemplated by this Agreement), the
Confidentiality Agreement, the BNSF Disclosure Letter and the CN Disclosure
Letter constitute the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties both written and
oral, among the parties with respect to the subject matter of this Agreement.
EACH PARTY TO THIS AGREEMENT AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER CN NOR BNSF MAKES ANY
REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH
RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO
THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER
INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
10.8 No Third Party Beneficiaries. This Agreement is not intended to
confer upon any Person other than the parties to this Agreement any rights or
remedies under this Agreement.
10.9 Severability. The provisions of this Agreement and any other
agreement contemplated by this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision of this Agreement or any other
agreement contemplated by this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement or any provisions of
such other agreements. Without limiting the generality of the foregoing, the
invalidity or unenforceability of any provision of any such other agreement
shall not affect the validity or enforceability of any provision of this
Agreement. If any provision of this Agreement
62
<PAGE>
or any other agreement contemplated by this Agreement or the application thereof
to any Person or any circumstance, is invalid or unenforceable, (i) a suitable
and equitable provision shall be substituted therefor in order to carry out, so
far as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (ii) the remainder of this Agreement or any
provisions of such other agreements and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
10.10 Interpretation. The table of contents and headings in this
Agreement are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement.
10.11 Fair Construction. This Agreement shall be deemed to be the joint
work product of the parties without regard to the identity of the draftsperson,
and any rule of construction that a document shall be interpreted or construed
against the drafting party shall not be applicable.
10.12 Limitation on Liability for Misrepresentations. Neither BNSF nor
CN shall have any liability for any breach of a representation or warranty
contained in this Agreement in respect of which the other party has notified
BNSF or CN, as the case may be, in writing that it has performed satisfactory
due diligence (a "Notified Matter"). Neither BNSF nor CN shall be permitted to
assert that any condition to such party's obligation to consummate the
transactions contemplated by this Agreement has not been satisfied as a result
of any Notified Matter.
10.13 Survival. The representations and warranties and agreements
contained in this Agreement and in any certificate or other writing delivered
pursuant to this Agreement shall terminate at the Merger Effective Time, except
for the agreements contained in Sections 5.11(f), 10.4(a), 10.5, 10.6, 10.7,
10.8, 10.10, 10.11 and 10.13; provided, however, that nothing in this Agreement
shall be deemed to affect the terms of the Confidentiality Agreement, including
the survival periods for the terms of the Confidentiality Agreement.
* * * * * * * *
63
<PAGE>
Each of the parties to this Agreement has caused this Agreement to be
executed on its behalf by a duly authorized officer, all as of the day and year
first above written.
CANADIAN NATIONAL RAILWAY COMPANY
By: /s/ Paul M. Tellier
-------------------------------------------------
Name: Paul M. Tellier
Title: President and Chief Executive Officer
BURLINGTON NORTHERN SANTA FE
CORPORATION
By: /s/ Robert D. Krebs
-------------------------------------------------
Name: Robert D. Krebs
Title: Chairman and Chief Executive Officer
NORTH AMERICAN RAILWAYS, INC.
By: /s/ Jean Pierre Ouellet
-------------------------------------------------
Name: Jean Pierre Ouellet
Title: Treasurer and Secretary
WESTERN MERGER SUB, INC.
By: /s/ Jeffrey R. Moreland
-------------------------------------------------
Name: Jeffrey R. Moreland
Title: President
<PAGE>
ANNEX B
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
Section 1.1 Definitions.
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
respective meanings set out below and grammatical variations of such terms
shall have corresponding meanings:
"Arrangement" means the arrangement under section 192 of the CBCA on the terms
and subject to the conditions set out in this Plan of Arrangement, subject to
any amendments or variations thereto made in accordance with Article 6 or
section 10.1 of the Combination Agreement or made at the direction of the Court
in the Final Order.
"Arrangement Effective Date" means the date shown on the Certificate.
"Arrangement Effective Time" means [9:01 a.m.] on the Arrangement Effective
Date [NTD: to be immediately following the Merger Effective Time as provided
for in the Combination Agreement].
"Arrangement Resolution" means the special resolution passed by the holders of
the CN Common Shares and the holders of the CN Options, voting together as a
single class at the CN Shareholders Meeting.
"Articles of Arrangement" means the articles of arrangement of CN in respect of
the Arrangement, required by the CBCA to be sent to the Director after the
Final Order is entered.
"Automatic Exchange Rights" has the meaning ascribed thereto in the Voting and
Exchange Trust Agreement.
"BNSF" means Burlington Northern Santa Fe Corporation, a corporation existing
under the laws of the State of Delaware.
"Business Day" means any day on which commercial banks are generally open for
business in New York, New York and Montreal, Quebec, other than a Saturday, a
Sunday or a day observed as a holiday in Montreal, Quebec under the laws of the
<PAGE>
-2-
Province of Quebec or the federal laws of Canada or in New York, New York under
the laws of the State of New York or the federal laws of the United States of
America.
"CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44.
"CN" means Canadian National Railway Company, a corporation existing under the
laws of Canada.
"CN Common Shares" means the outstanding common shares in the capital of CN.
"CN Exchangeable Share" means a share in the class of non-voting exchangeable
preferred shares in the capital of CN, the holders of which are the
beneficiaries of certain voting rights in respect of the Special Voting Share
and certain other rights, all as set forth in the Voting and Exchange Trust
Agreement.
"CN Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the CN Exchangeable Shares, which rights,
privileges, restrictions and conditions shall be substantially as set forth in
Appendix II hereto.
"CN Non-voting Equity Share" means a share in the class of non-voting equity
shares in the capital of CN.
"CN Non-voting Equity Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the CN Non-voting Equity Shares, which
rights, privileges, restrictions and conditions shall be substantially as set
forth in Appendix IV hereto.
"CN Option" means a CN Common Share purchase option granted under one of the CN
Stock Option Plans, as amended, and being outstanding and unexercised on the
Arrangement Effective Date.
"CN Shareholders Meeting" means the special meeting of the holders of CN Common
Shares and the CN Options (including any adjournment thereof) that is to be
convened as provided by the Interim Order to consider, and if deemed advisable,
approve the Arrangement.
"CN Special Limited Voting Share" means a share in the class of limited voting
special shares in the capital of CN.
"CN Special Limited Voting Share Provisions" means the rights, privileges,
restrictions and conditions attaching to the CN Special Limited Voting Shares,
which rights, privileges, restrictions and conditions shall be substantially as
set forth in Appendix III hereto.
<PAGE>
-3-
"CN Stapled Unit" means a unit comprised of one CN Voting Share and one CN
Exchangeable Share, which unit does not constitute a security independent of
the shares it represents.
"CN Stock Option Plans" means CN's Management Stock Option Plan Effective as of
November 28, 1995, the Management Long-Term Incentive Plan Adopted May 7, 1996,
as amended and [NTD: specify individual employment contracts involving options
outside these plans].
"CN Voting Share" means a share in the class of voting shares in the capital of
CN.
"CN Voting Share Provisions" means the rights, privileges, restrictions and
conditions attaching to the CN Voting Shares, which rights, privileges,
restrictions and conditions shall be substantially as set forth in Appendix I
hereto.
"Certificate" means the certificate of arrangement giving effect to the
Arrangement, issued pursuant to subsection 192(7) of the CBCA after the
Articles of Arrangement have been filed.
"Circular" means the notice of the CN Shareholders Meeting and accompanying
management information circular, including all schedules and exhibits thereto,
to be sent to holders of CN Common Shares in connection with the CN
Shareholders Meeting.
"Combination Agreement" means the agreement made as of December 18, 1999 among
CN, BNSF, Newco and Merger Sub (as defined therein), as amended, supplemented
and/or restated in accordance therewith prior to the Arrangement Effective
Date, providing for, among other things, the Arrangement.
"Commercialization Act" means the CN Commercialization Act, S.C. 1995, c.24.
"Court" means the Quebec Superior Court.
"Current Market Price" has the meaning ascribed thereto in the CN Exchangeable
Share Provisions.
"Depositary" means The Trust Company of the Bank of Montreal at its offices set
out in the Letter of Transmittal and Election Form.
"Director" means the Director appointed under section 260 of the CBCA.
"Dissent Procedures" has the meaning set out in section 3.1.
"Dissent Rights" has the meaning set out in section 3.1.
<PAGE>
-4-
"Dissenting Shareholder" means a holder of CN Common Shares who dissents in
respect of the Arrangement in strict compliance with the Dissent Procedures.
"Dividend Amount" has the meaning ascribed thereto in section 5.1(a).
"Election Deadline" means the election deadline for the submission of letters
of transmittal and election forms specified in the Letter of Transmittal and
Election Form.
"Exchange Ratio" means 1.05.
"Exchange Right" has the meaning ascribed thereto in the Voting and Exchange
Trust Agreement.
"Final Order" means the final order of the Court approving the Arrangement, as
such order may be amended by the Court at any time prior to the Arrangement
Effective Date or, if appealed, then unless such appeal is withdrawn or denied,
as affirmed.
"ITA" means the Income Tax Act (Canada).
"Interim Order" means the interim order of the Court, as the same may be
amended, made in connection with the process for obtaining shareholder approval
of the Arrangement and related matters.
"Letter of Transmittal and Election Form" means the Letter of Transmittal and
Election Form for use by holders of CN Common Shares to be sent to the holders
of CN Common Shares, other than Dissenting Shareholders, as described in the
Circular.
"Liquidation Call Purchase Price" has the meaning ascribed thereto in section
5.1(a).
"Liquidation Call Right" has the meaning ascribed thereto in section 5.1(a).
"Liquidation Date" has the meaning ascribed thereto in the CN Exchangeable
Share Provisions.
"Meeting Date" means the date of the CN Shareholders Meeting.
"Merger" means the merger of BNSF and a wholly-owned subsidiary of Newco
provided for in the Combination Agreement.
"NAR Subco" means [NAR Holdings Company], an unlimited liability company
existing under the laws of the Province of Nova Scotia and a wholly-owned
subsidiary of Newco.
<PAGE>
-5-
"Newco" means North American Railways, Inc., a corporation existing under the
laws of the State of Delaware.
"Newco Common Share" means a share in the class of common stock, par value
U.S.$0.01 per share, of Newco.
"Newco Elected Exchangeable Share" means any CN Exchangeable Share that the
holder of the CN Common Share entitled to same under the Arrangement shall have
elected, in a duly completed Letter of Transmittal and Election Form deposited
with the Depositary no later than the Election Deadline, to transfer to NAR
Subco under the Arrangement for a Newco Common Share or that is deemed to be a
Newco Elected Exchangeable Share pursuant to section 2.3.
"Newco Stapled Unit" means a unit comprised of one CN Voting Share and one
Newco Common Share, which unit does not constitute a security independent of
the shares it represents.
"NYSE" means the New York Stock Exchange.
"Person" includes any individual, firm, partnership, joint venture, venture
capital fund, association, trust, trustee, executor, administrator, legal
personal representative, estate, group, body corporate, corporation,
unincorporated association or organization, government body, syndicate or other
entity, whether or not having legal status.
"Replacement Option" has the meaning ascribed thereto in section 2.2(h).
"Retraction Request" has the meaning ascribed thereto in the CN Exchangeable
Share Provisions.
"Special Voting Share" means the share of special voting stock of Newco having
substantially the rights, privileges, restrictions and conditions described in
the Voting and Exchange Trust Agreement.
"Transfer Agent" has the meaning ascribed thereto in section 5.1(b).
"Trustee" means The Trust Company of the Bank of Montreal.
"TSE" means The Toronto Stock Exchange.
"Voting and Exchange Trust Agreement" means the voting and exchange trust
agreement among Newco, NAR Subco, CN and the Trustee.
<PAGE>
-6-
Section 1.2 Sections and Headings.
The division of this Plan of Arrangement into sections and the
insertion of headings are for reference purposes only and shall not affect the
interpretation of this Plan of Arrangement. Unless otherwise indicated, any
reference in this Plan of Arrangement to a section, paragraph, appendix or an
exhibit refers to the specified section or paragraph of or appendix or exhibit
to this Plan of Arrangement.
Section 1.3 Number, Gender and Persons.
In this Plan of Arrangement, unless the context otherwise requires,
words importing the singular number include the plural and vice versa and words
importing any gender include all genders.
ARTICLE 2
ARRANGEMENT
Section 2.1 Binding Effect.
This Plan of Arrangement will become effective at, and be binding at
and after, the Arrangement Effective Time. In particular, and without limiting
the generality of the foregoing, the Plan of Arrangement will be binding upon:
(i) CN, (ii) BNSF, (iii) Newco, (iv) NAR Subco, (v) all holders of CN Common
Shares, (vi) all holders of CN Stapled Units, CN Voting Shares and CN
Exchangeable Shares, and (vii) all holders of securities exchangeable for or
convertible into CN Common Shares, including without limitation CN Options.
Section 2.2 Arrangement.
Commencing at the Arrangement Effective Time, the following shall
occur and shall be deemed to occur in the following order without any further
act or formality:
(a) The authorized share capital of CN shall be reorganized by
the creation of the following four (4) additional classes of
shares in the capital of CN:
(i) a class of shares, designated as CN Voting Shares,
the authorized number of which shall be unlimited
and which shall reflect the CN Voting Share
Provisions as set forth in Appendix I;
(ii) a class of shares, designated as CN Exchangeable
Shares, the authorized number of which shall be
unlimited and which shall reflect the CN
Exchangeable Share Provisions as set forth in
Appendix II;
<PAGE>
-7-
(iii) a class of shares, designated as CN Special Limited
Voting Shares, the authorized number of which shall
be unlimited and which shall reflect the CN Special
Limited Voting Share Provisions set forth in
Appendix III; and
(iv) a class of shares, designated as CN Non-voting
Equity Shares, the authorized number of which shall
be unlimited and which shall reflect the CN
Non-voting Equity Share Provisions set forth in
Appendix IV.
(b) Each outstanding CN Common Share shall be changed into a
number of CN Voting Shares and a number of CN Exchangeable
Shares in each case equal to the Exchange Ratio.
(c) Simultaneously with the change in share capital under
paragraph 2.2(b) above, each Newco Elected Exchangeable Share
will be transferred by the holder thereof, without any
further act or formality on his or her part, to NAR Subco, in
exchange for one Newco Common Share issued by Newco.
(d) Simultaneously with the change in share capital under
paragraph 2.2(b) above and the transfer to and acquisition by
NAR Subco under paragraph 2.2(c) above of the Newco Elected
Exchangeable Shares, each Newco Elected Exchangeable Share
acquired by NAR Subco shall be converted into one (1) CN
Special Limited Voting Share and one (1) CN Non-voting Equity
Share.
(e) Simultaneously with the change in share capital under
paragraph 2.2(b) above, the transfer to and acquisition by NAR
Subco under paragraph 2.2(c) above of the Newco Elected
Exchangeable Shares and the conversion under paragraph 2.2(d)
above of the Newco Elected Exchangeable Shares, NAR Subco shall
and shall be deemed to have subscribed for and agreed to purchase
and CN shall issue and sell to NAR Subco one (1) CN Special
Limited Voting Share and one (1) CN Non-voting Equity Share upon
payment by NAR Subco to CN of a sum equal to the closing trading
price, per share, of the CN Common Shares on the TSE on the
trading day which is two days prior to the Arrangement Effective
Date divided by the Exchange Ratio.
(f) The Persons entitled to receive Newco Common Shares pursuant
to the Merger at the Merger Effective Time (as defined in the
Combination Agreement), which for greater certainty shall
exclude holders of Newco Common Shares issued pursuant to the
exchange provided for in paragraph 2.2(c) above, shall be
deemed to have subscribed for and
<PAGE>
-8-
agreed to purchase at a purchase price of U.S.$0.05 per share and
CN shall issue to each such Person, one (1) CN Voting Share for
each such Newco Common Share upon payment by Newco to CN of the
aggregate subscription price therefor.
(g) Newco shall issue to and deposit with the Trustee the Special
Voting Share, in consideration of the payment to Newco of
U.S.$0.01 by CN, to be thereafter held of record by the Trustee
as trustee for and on behalf of, and for the use and benefit of,
the holders of the CN Exchangeable Shares in accordance with the
Voting and Exchange Trust Agreement.
(h) Each CN Option shall be exchanged for an option (a "Replacement
Option ") to purchase a number of Newco Stapled Units equal to
the product of the Exchange Ratio multiplied by the number of CN
Common Shares subject to such CN Option. Such Replacement Option
shall provide for an exercise price per Newco Stapled Unit equal
to the exercise price per CN Common Share of such CN Option
immediately prior to the Arrangement Effective Time divided by
the Exchange Ratio. If the foregoing calculation results in a
Replacement Option being exerciseable for a fraction of a Newco
Stapled Unit, then the number of Newco Stapled Units subject to
such Replacement Option shall be rounded up to the next whole
number of Newco Stapled Units and the total exercise price for
the Replacement Option will be increased by the exercise price of
the fractional Newco Stapled Unit. The term to expiry, conditions
to and manner of exercising, vesting schedule, and all other
terms and conditions of such Replacement Option will otherwise be
unchanged from those which prevailed prior to the implementation
of the Merger and the Arrangement, and any document or agreement
previously evidencing a CN Option shall thereafter evidence and
be deemed to evidence such Replacement Option.
(i) The authorized share capital of CN shall be amended by the
elimination of the CN Common Shares as a class of authorized
shares.
(j) The By-laws of CN shall be amended as set forth in Appendix V.
Section 2.3 Exchange Elections and Deemed Elections.
Each Person who, immediately prior to the Election Deadline, is a
holder of record of CN Common Shares, will be entitled, with respect to all or
a portion of such shares, to make an election at or prior to the Election
Deadline to exchange all or any CN Exchangeable Shares issuable to such holder
pursuant to the Arrangement for Newco Common Shares, on the basis provided for
in this Plan of
<PAGE>
-9-
Arrangement and in the Letter of Transmittal and Election Form. Notwithstanding
the foregoing, each holder of CN Common Shares who is not a resident of Canada
for purposes of the ITA at the Election Deadline will be deemed to have elected
to exchange all of the CN Exchangeable Shares issuable to such holder pursuant
to the Arrangement for Newco Common Shares on the basis provided for in this
Plan of Arrangement, and such holders' CN Exchangeable Shares shall be deemed
for all purposes to be Newco Elected Exchangeable Shares, except where and to
the extent that such non-resident holder specifically elects in a Letter of
Transmittal and Election Form received prior to the Election Deadline not to
have such exchange occur.
Section 2.4 Stated Capital.
The stated capital accounts of CN shall be dealt with as follows:
(a) The amount of the stated capital account attributable to the
CN Voting Shares following the Arrangement shall be equal to
the sum of: (i) the aggregate subscription price for the CN
Voting Shares issued pursuant to paragraph 2.2(f), and (ii)
the product of U.S.$0.05 multiplied by the number of CN
Voting Shares issued upon the change of the CN Common Shares
pursuant to paragraph 2.2(b).
(b) The amount of the stated capital account attributable to the CN
Exchangeable Shares initially shall be equal to the amount of the
stated capital account attributable to the CN Common Shares
immediately prior to the Arrangement Effective Time less the
amount added to the stated capital account attributable to the CN
Voting Shares under paragraph 2.4(a)(ii).
(c) Coincident with the conversion of Newco Elected Exchangeable
Shares into CN Special Limited Voting Shares and CN Non-voting
Equity Shares pursuant to paragraph 2.2(d), the stated capital
account attributable to the CN Exchangeable Shares shall be
reduced by an amount (the "CN Converted Stated Capital Amount")
equal to the amount provided for in paragraph 2.4(b) (being the
amount of the stated capital account initially attributable to
the CN Exchangeable Shares) multiplied by a fraction, the
numerator of which is the number of Newco Elected Exchangeable
Shares and the denominator of which is the number of CN Common
Shares outstanding immediately prior to the Arrangement Effective
Time multiplied by the Exchange Ratio.
(d) The amount of the stated capital account attributable to the
CN Non-voting Equity Shares following the Arrangement shall be
the CN Converted Stated Capital Amount plus the amount of the
subscription price of the one (1) CN
<PAGE>
-10-
Non-voting Equity Share and the one (1) CN Special Limited Voting
Share issued pursuant to paragraph 2.2(e) above minus the product
of (i) U.S.$0.05 multiplied by (ii) the number of Newco Elected
Exchangeable Shares plus one (1).
(e) The amount of the stated capital account attributable to the CN
Special Limited Voting Shares following the Arrangement shall be
equal to the product of (i) U.S.$0.05 multiplied by (ii) the
number of Newco Elected Exchangeable Shares plus one (1).
Section 2.5 Consideration.
For greater certainty, the consideration receivable by the former
holders of CN Common Shares pursuant to the change in share capital pursuant to
paragraph 2.2(b) shall, and shall for all purposes be deemed to, consist of the
CN Voting Shares and the CN Exchangeable Shares into which the CN Common Shares
are changed together with all of the rights attached to the CN Voting Shares,
the CN Exchangeable Shares and the CN Stapled Units representing same pursuant
to the Voting and Exchange Trust Agreement, this Plan of Arrangement, the CN
Voting Share Provisions and the CN Exchangeable Share Provisions.
Section 2.6 Restated Articles.
After giving effect to the Arrangement the Corporation is authorized
to file restated articles of incorporation under the CBCA. For greater
certainty but without limiting the generality of the foregoing, the outstanding
voting shares in the capital of CN shall at all times continue to be subject to
the share constraints contained in CN's articles of continuance as required
pursuant to the Commercialization Act as set forth in Exhibit "I".
ARTICLE 3
RIGHTS OF DISSENT
Section 3.1 Rights of Dissent.
Holders of CN Common Shares may exercise rights of dissent ("Dissent
Rights") with respect to such shares pursuant to and in the manner set forth in
section 190 of the CBCA, the Interim Order and this section 3.1 (the "Dissent
Procedures") in connection with the Arrangement; provided that, notwithstanding
subsection 190(5) of the CBCA, the written objection to the Arrangement
Resolution referred to in subsection 190(5) of the CBCA must be received by CN
not later than 5:00 p.m. (Montreal time) on the Business Day preceding the CN
Shareholders Meeting. Holders of CN Common Shares who duly exercise such rights
of dissent and who:
(a) are ultimately entitled to be paid fair value for their CN Common
Shares shall be deemed to have transferred such CN Common Shares
<PAGE>
-11-
to CN immediately prior to the Arrangement Effective Time to the
extent the fair value thereof is paid by CN, and such shares
shall be cancelled on the Arrangement Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid fair value
for their CN Common Shares shall be deemed to have participated
in the Arrangement on the same basis as a non-dissenting holder
of CN Common Shares and shall receive CN Voting Shares and CN
Exchangeable Shares, which may be deemed to be Newco Elected
Exchangeable Shares and to have been exchanged for Newco Common
Shares, all in accordance with sections 2.2 and 2.3,
but in no case shall CN or any other Person be required to recognize such
holders, or any other person, as holders of CN Common Shares after the
Arrangement Effective Time and the names of such holders of CN Common Shares
shall be deleted from the share register of CN in respect of the CN Common
Shares at the Arrangement Effective Time.
ARTICLE 4
CERTIFICATES, FRACTIONAL ENTITLEMENTS
AND SETTLEMENT PROCEDURES
Section 4.1 Issuance of Unit Certificates Representing CN Exchangeable Shares
and CN Voting Shares.
At or promptly after the Arrangement Effective Time, CN shall deposit
with the Depositary, as custodian for the benefit of the holders of CN Common
Shares who will receive CN Exchangeable Shares and CN Voting Shares pursuant to
the Arrangement, other than holders of Newco Elected Exchangeable Shares, CN
Stapled Unit certificates representing the CN Exchangeable Shares and CN Voting
Shares issued pursuant to paragraph 2.2(b) upon the change of the CN Common
Shares. Upon surrender to the Depositary for cancellation of a certificate
which immediately prior to the Arrangement Effective Time represented one or
more CN Common Shares that were so changed into CN Voting Shares and CN
Exchangeable Shares under the Arrangement (and were not Newco Elected
Exchangeable Shares), together with such other documents and instruments as
would have been required to effect the transfer of the shares formerly
represented by such certificate under the CBCA and the By-laws of CN and such
additional documents and instruments as the Depositary may reasonably require,
the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Depositary shall deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of CN Stapled Units representing the number (rounded down to the nearest whole
number) of CN Exchangeable Shares and CN Voting Shares which such holder has
the right to receive (together with any dividends or distributions
<PAGE>
-12-
with respect thereto pursuant to section 4.3 and any cash representing that
holder's pro rata entitlement to the proceeds of the sale of fractional CN
Stapled Units pursuant to section 4.7), and the certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of CN
Common Shares (except CN Common Shares that were changed into Newco Elected
Exchangeable Shares and CN Voting Shares) that is not registered in the
transfer records of CN, a certificate representing the proper number of CN
Stapled Units may be issued to the transferee if the certificate representing
such CN Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this section 4.1, each certificate which immediately prior to
the Arrangement Effective Time represented CN Common Shares (except CN Common
Shares that were changed into Newco Elected Exchangeable Shares and CN Voting
Shares) shall be deemed at all times after the Arrangement Effective Time to
represent only the right to receive upon such surrender (i) the CN Stapled Unit
certificate representing CN Exchangeable Shares and CN Voting Shares as
contemplated by this section 4.1, (ii) a cash payment representing that
holder's pro rata entitlement to the proceeds of the sale of fractional CN
Stapled Units pursuant to section 4.7, and (iii) any dividends or distributions
with a record date after the Arrangement Effective Time theretofore paid or
payable with respect to CN Exchangeable Shares as contemplated by section 4.3.
Section 4.2 Issue of Unit Certificates Representing Newco Common Shares and
CN Voting Shares.
At or promptly after the Arrangement Effective Time, Newco, NAR Subco
and CN shall jointly cause to be deposited Newco Stapled Unit certificates
(representing the Newco Common Shares and the CN Voting Shares issued pursuant
to the Merger and the Plan of Arrangement) with the Depositary, as custodian
for the benefit of the: (i) former holders of BNSF Common Shares entitled to
receive Newco Common Shares pursuant to the Merger and CN Voting Shares under
the Arrangement pursuant to paragraph 2.2(f) of this Plan of Arrangement, and
(ii) former holders of CN Common Shares who received Newco Elected Exchangeable
Shares and CN Voting Shares pursuant to the Plan of Arrangement. Upon surrender
to the Depositary for cancellation of a certificate which immediately prior to
the Arrangement Effective Time represented outstanding CN Common Shares that
were changed into CN Voting Shares and Newco Elected Exchangeable Shares,
together with such other documents and instruments as would have been required
under the CBCA and CN's By-laws, to effect the transfer of the shares formerly
represented by such certificates and such additional documents and instruments
as the Depositary may reasonably require, the holder of such a surrendered
certificate shall be entitled to receive in exchange therefor, and the
Depositary shall deliver to such holder, a certificate representing that number
(rounded down to the nearest whole number) of Newco Stapled Units representing
<PAGE>
-13-
the number (rounded down to the nearest whole number) of Newco Common Shares
and CN Voting Shares which such holder has the right to receive (together with
any dividends or distributions with respect thereto pursuant to section 4.3 and
any cash representing that holder's pro rata entitlement to the proceeds of the
sale of fractional Newco Stapled Units pursuant to section 4.7), and the
certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of CN Common Shares which is not registered in the
transfer records of CN, a Newco Stapled Unit certificate representing the
proper number of Newco Common Shares and CN Voting Shares may be issued to the
transferee if the certificate representing such CN Common Shares is presented
to the Depositary, accompanied by all documents required to evidence and effect
such transfer. Until surrendered as contemplated by this section 4.2, each
certificate which immediately prior to the Arrangement Effective Time
represented one or more outstanding CN Common Shares that were changed into CN
Voting Shares and Newco Elected Exchangeable Shares shall be deemed at all
times after the Arrangement Effective Time to represent only the right to
receive upon such surrender (i) the Newco Stapled Unit certificate representing
Newco Common Shares and CN Voting Shares as contemplated by this section 4.2,
(ii) a cash payment representing that holder's pro rata entitlement to the
proceeds of the sale of fractional Newco Stapled Units pursuant to section 4.7,
and (iii) any dividends or distributions with a record date after the
Arrangement Effective Time theretofore paid or payable with respect to Newco
Common Shares as contemplated by section 4.3.
Section 4.3 Distributions with Respect to Unsurrendered Certificates.
No dividends or other distributions declared or made after the
Arrangement Effective Time with respect to CN Exchangeable Shares or Newco
Common Shares, as applicable, with a record date after the Arrangement
Effective Time shall be paid to the holder of any unsurrendered certificate
which immediately prior to the Arrangement Effective Time represented
outstanding CN Common Shares that were changed or changed and exchanged, as
applicable, pursuant to section 2.2, unless and until the holder of record of
such certificate shall surrender such certificate in accordance with section
4.1 or 4.2, as applicable. Subject to applicable law, at the time of such
surrender of any such certificate, there shall be paid to the holder of record
of the certificates formerly representing CN Common Shares, without interest,
(i) the amount of dividends or other distributions with a record date after the
Arrangement Effective Time theretofore paid with respect to such CN
Exchangeable Share or Newco Common Share, as the case may be, and (ii) on the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Arrangement Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such CN
Exchangeable Share or Newco Common Share, as the case may be.
<PAGE>
-14-
Section 4.4 Stapling of CN Voting Shares.
The Articles of Arrangement of CN shall provide as follows. Except as
expressly provided in this Plan of Arrangement and in this section 4.4, no CN
Voting Share shall be or shall be capable of being issued, transferred,
transmitted or otherwise alienated or disposed of separately from and otherwise
than as part of either: (i) a CN Stapled Unit comprised of an equal number of
CN Voting Shares and CN Exchangeable Shares, or (ii) a Newco Stapled Unit
comprised of an equal number of CN Voting Shares and Newco Common Shares.
Except as expressly provided in this Plan of Arrangement and in this section
4.4, no CN Exchangeable Share shall be or shall be capable of being issued,
transferred, transmitted or otherwise alienated or disposed of separately from
and otherwise than as part of a CN Stapled Unit comprised of an equal number of
CN Voting Shares and CN Exchangeable Shares. Notwithstanding the foregoing, the
following issuances and transfers of CN Voting Shares otherwise than as part of
a CN Stapled Unit or Newco Stapled Unit are hereby expressly permitted:
(i) the issuances of CN Voting Shares provided in Section 2.2.
Notwithstanding the foregoing, the following issuances and transfers of CN
Exchangeable Shares otherwise than as part of a CN Stapled Unit are hereby
expressly permitted:
(i) the issuances of CN Exchangeable Shares provided in
Section 2.2;
(ii) the transfers of CN Exchangeable Shares to NAR Subco
and the conversion thereof to CN Limited Voting
Shares and CN Non-voting Equity Shares provided in
Section 2.2;
(iii) the redemption of CN Exchangeable Shares by CN upon
a retraction of the CN Exchangeable Shares in
accordance with the CN Exchangeable Share
Provisions; and
(iv) the transfer of CN Exchangeable Shares to NAR Subco
and/or Newco, as applicable, pursuant to its
exercise or deemed exercise of a Retraction Call
Right, the Liquidation Call Right, the Exchange
Right or the Automatic Exchange Rights in accordance
with the CN Exchangeable Share Provisions, the Plan
of Arrangement and/or the Voting and Exchange Trust
Agreement, as applicable.
Without limiting the generality of the foregoing, CN shall be entitled to treat
the registered holder of CN Stapled Units (or, subject to such Person
furnishing such information as is described in subsection 77(4) of the CBCA or
any replacement or
<PAGE>
-15-
successor provision therefor, the executor, administrator, heir or legal
representative of the heirs, of the estate of a deceased holder, a guardian,
committee, trustee, curator or tutor representing a holder who is an infant, an
incompetent person or a missing person, or a liquidator of or a trustee in
bankruptcy for a holder) as the owner exclusively entitled to vote, to receive
notices, to receive dividends or other payments in respect of and otherwise to
exercise all the rights and powers of the owner of the CN Voting Shares and the
CN Exchangeable Shares represented by such CN Stapled Unit. For purposes of
establishing and maintaining the share register for the outstanding CN Voting
Shares, CN and its Transfer Agent shall and shall be entitled at all times
(subject only to the exercise of the Liquidation Call Right) to treat each
registered holder of CN Stapled Units and of Newco Stapled Units as the
registered holder of a number of CN Voting Shares equal to the aggregate number
of CN Stapled Units and Newco Stapled Units held by such Person. For purposes
of establishing and maintaining the share register for the outstanding CN
Exchangeable Shares, CN and its Transfer Agent shall and shall be entitled, at
all times (subject only to the Liquidation Call Right, the Exchange Right and
the Automatic Exchange Rights and except where a holder of CN Stapled Units
representing CN Exchangeable Shares has submitted a Retraction Request in
respect of CN Exchangeable Shares represented by such CN Stapled Unit
certificate) to treat each registered holder of CN Stapled Units as the
registered holder of a number of CN Exchangeable Shares equal to the number of
CN Stapled Units held by such Person. Without limiting the generality of the
foregoing, a CN Stapled Unit certificate shall be the security certificate, and
the only security certificate, that a holder of CN Voting Shares and CN
Exchangeable Shares comprising such CN Stapled Units shall be entitled to
receive in respect of his or her holding of CN Voting Shares and CN
Exchangeable Shares pursuant to the CBCA or otherwise and a Newco Stapled Unit
certificate shall be the security certificate, and the only security
certificate, that a holder of CN Voting Shares and Newco Common Shares
comprising such Newco Stapled Unit shall be entitled to receive in respect of
his or her holding of CN Voting Shares pursuant to the CBCA or otherwise.
Section 4.5 Lost Certificates.
In the event any certificate which immediately prior to the
Arrangement Effective Time represented one or more outstanding CN Common Shares
that were changed and, if applicable, exchanged pursuant to section 2.2 shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the Person claiming such certificate to be lost, stolen or destroyed,
the Depositary will issue in exchange for such lost, stolen or destroyed
certificate, one or more CN Stapled Unit certificates or Newco Stapled Unit
certificates representing one or more CN Exchangeable Shares and CN Voting
Shares or Newco Common Shares and CN Voting Shares (and any dividends or
distributions with respect thereto and any entitlements of the holder thereof
to the proceeds of sale of fractional CN Stapled Units or Newco Stapled Units
pursuant to section 4.7) issuable and deliverable in
<PAGE>
-16-
accordance with the Plan of Arrangement and such holder's Letter of Transmittal
and Election Form. When authorizing such payment in exchange for any lost,
stolen or destroyed certificate, the Person to whom such unit certificates are
to be issued shall, as a condition precedent to the issuance thereof, give a
bond satisfactory to CN and/or Newco, as applicable, and their respective
transfer agents in such sum as CN and/or Newco, as applicable, may direct or
otherwise indemnify CN and Newco in a manner satisfactory to CN and/or Newco,
as applicable, against any claim that may be made against CN and/or Newco, as
applicable, with respect to the certificate alleged to have been lost, stolen
or destroyed.
Section 4.6 Withholding Rights.
CN, Newco, NAR Subco and the Depositary shall be entitled to deduct
and withhold from any dividend or consideration otherwise payable to any holder
of CN Stapled Units representing CN Exchangeable Shares or Newco Stapled Units
representing Newco Common Shares such amounts as CN, Newco, NAR Subco or the
Depositary is required or permitted to deduct and withhold with respect to such
payment under the ITA, the United States Internal Revenue Code of 1986 or any
provision of provincial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts
shall be treated for all purposes hereof as having been paid to the holder of
the shares in respect of which such deduction and withholding was made,
provided that such withheld amounts are actually remitted to the appropriate
taxing authority. To the extent that the amount so required or permitted to be
deducted or withheld from any payment to a holder exceeds the cash portion of
the consideration otherwise payable to the holder, CN, Newco, NAR Subco and the
Depositary are hereby authorized to sell or otherwise dispose of such portion
of the consideration as is necessary to provide sufficient funds to CN, Newco,
NAR Subco or the Depositary, as the case may be, to enable it to comply with
such deduction or withholding requirement and CN, Newco, NAR Subco or the
Depositary shall notify the holder thereof and remit any unapplied balance of
the net proceeds of such sale.
Section 4.7 No Fractional Units.
No certificates or scrip representing fractional CN Stapled Units,
fractional Newco Stapled Units, fractional CN Exchangeable Shares, fractional
CN Voting Shares or fractional Newco Common Shares shall be issued or delivered
upon the surrender for exchange of certificates pursuant to section 4.1 or 4.2
and such fractional interests shall not entitle the owner thereof to exercise
any rights as a security holder of CN or Newco. In lieu of any such fractional
securities:
(a) each Person otherwise entitled to a fractional interest in a
CN Stapled Unit (comprising a fractional interest in a CN Voting
Share and a fractional interest in a CN Exchangeable Share) will
receive a cash payment equal to such Person's pro rata portion of
the net proceeds
<PAGE>
-17-
after expenses received by the Depositary upon the sale of whole
units representing an accumulation of all fractional interests in
CN Stapled Units to which all such Persons would otherwise be
entitled. The Depositary will sell such CN Stapled Units on the
TSE as soon as reasonably practicable following the Arrangement
Effective Date. The aggregate net proceeds after expenses of such
sale will be distributed by the Depositary, pro rata in relation
to the respective fractions, among the Persons otherwise entitled
to receive fractional interests in CN Stapled Units; and
(b) each Person otherwise entitled to a fractional interest in a Newco
Stapled Unit (comprising a fractional interest in a CN Voting
Share and a fractional interest in a Newco Common Share) will
receive a cash payment equal to such Person's pro rata portion of
the net proceeds after expenses received by the Depositary upon
the sale of whole units representing an accumulation of all
fractional interests in Newco Stapled Units to which all such
Persons would otherwise be entitled. The Depositary will sell
such Newco Stapled Units on the NYSE as soon as reasonably
practicable following the Arrangement Effective Date. The
aggregate net proceeds after expenses of such sale will be
distributed by the Depositary, pro rata in relation to the
respective fractions, among the Persons otherwise entitled to
receive fractional interests in Newco Stapled Units.
ARTICLE 5
CERTAIN RIGHTS OF NAR SUBCO TO ACQUIRE CN EXCHANGEABLE SHARES
Section 5.1 NAR Subco Liquidation Call Right.
(a) NAR Subco shall have the overriding right (the "Liquidation
Call Right "), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of CN pursuant to Article
5 of the CN Exchangeable Share Provisions, to purchase from all
but not less than all of the holders of CN Stapled Units
representing CN Exchangeable Shares (other than any holder which
is an Affiliate of Newco as defined in the CN Exchangeable Share
Provisions) on the Liquidation Date all but not less than all of
the CN Exchangeable Shares held by each such holder on payment by
NAR Subco of an amount per share (the "Liquidation Call Purchase
Price ") equal to the Current Market Price of a Newco Stapled
Unit on the last Business Day prior to the Liquidation Date,
which shall be satisfied in full by NAR Subco causing to be
issued to such holder one Newco Common Share, and, to the extent
not paid by CN, pay to such holder an additional amount
<PAGE>
-18-
equivalent to the full amount of all declared and unpaid
dividends on each such CN Exchangeable Share held by such holder
on any dividend record date which occurred prior to the date of
purchase by NAR Subco (the "Dividend Amount "). In the event of
the exercise of the Liquidation Call Right by NAR Subco, each
holder shall be obligated to sell all the CN Exchangeable Shares
represented by the CN Stapled Units held by such holder to NAR
Subco on the Liquidation Date on payment by NAR Subco to such
holder of the Liquidation Call Purchase Price for each such
share, and CN shall have no obligation to redeem such shares so
purchased by NAR Subco.
(b) To exercise the Liquidation Call Right, NAR Subco must notify
CN's transfer agent (the "Transfer Agent "), as agent for the
holders of CN Stapled Units representing CN Exchangeable Shares,
and CN of NAR Subco's intention to exercise such right at least
45 days before the Liquidation Date in the case of a voluntary
liquidation, dissolution or winding-up of CN and at least five
Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding-up of CN. The
Transfer Agent will notify the holders of CN Stapled Units
representing CN Exchangeable Shares as to whether or not NAR
Subco has exercised the Liquidation Call Right forthwith after
the expiry of the period during which the same may be exercised
by NAR Subco. If NAR Subco exercises the Liquidation Call Right,
then on the Liquidation Date NAR Subco will purchase and the
holders will sell all of the CN Exchangeable Shares then
outstanding for a price per share equal to the Liquidation Call
Purchase Price.
(c) For the purposes of completing the purchase of the CN
Exchangeable Shares pursuant to the Liquidation Call Right, Newco
and NAR Subco shall jointly cause to be deposited with the
Transfer Agent, on or before the Liquidation Date, certificates
representing the aggregate number of Newco Common Shares to which
holders of CN Exchangeable Shares are entitled upon such exchange
and a cheque or cheques of NAR Subco payable at par at any branch
of the bankers of NAR Subco representing the aggregate Dividend
Amount in payment of the total Liquidation Call Purchase Price,
less any amounts withheld pursuant to section 4.6 hereof.
Provided that NAR Subco has complied with the immediately
preceding sentence, on and after the Liquidation Date the rights
of each holder of CN Stapled Units representing CN Exchangeable
Shares will be limited to receiving such holder's proportionate
part of the total Liquidation Call Purchase Price payable by NAR
Subco, together with the liquidation entitlement in respect of
the CN Voting Shares represented thereby payable by CN, upon
<PAGE>
-19-
presentation and surrender by the holder of certificates for CN
Stapled Units representing the CN Exchangeable Shares and CN
Voting Shares held by such holder and the holder shall on and
after the Liquidation Date be considered and deemed for all
purposes to be the holder of the Newco Common Shares to which it
is entitled. Upon surrender to the Transfer Agent of a CN Stapled
Unit certificate, together with such other documents and
instruments as may be required to effect a transfer of CN Stapled
Units under the CBCA and the by-laws of CN and such additional
documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of NAR Subco shall deliver to
such holder, certificates representing the Newco Common Shares to
which the holder is entitled and a cheque or cheques of NAR Subco
payable at par at any branch of the bankers of NAR Subco in
payment of the remaining portion, if any, of the total
Liquidation Call Purchase Price, less any amounts withheld
pursuant to section 4.6 hereof. If NAR Subco does not exercise
the Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of the CN Stapled Units representing
the CN Exchangeable Shares will be entitled to receive in
exchange therefor the liquidation price otherwise payable in
respect of the CN Exchangeable Shares by CN in connection with
the liquidation, dissolution or winding-up of CN pursuant to
Article 5 of the CN Exchangeable Share Provisions.
ARTICLE 6
AMENDMENTS
Section 6.1 Amendments to Plan of Arrangement.
CN reserves the right to amend, modify and/or supplement this Plan of
Arrangement at any time and from time to time prior to the Arrangement
Effective Date, provided that each such amendment, modification and/or
supplement must be (i) set out in writing, (ii) approved by BNSF, (iii) filed
with the Court and, if made following the CN Shareholders Meeting, approved by
the Court, and (iv) communicated to holders of CN Common Shares if and as
required by the Court.
Any amendment, modification or supplement to this Plan of Arrangement
may be proposed by CN at any time prior to the CN Shareholders Meeting
(provided that BNSF shall have consented thereto) with or without any other
prior notice or communication (all as may be required under the Interim Order),
and if so proposed and accepted by the Persons voting at the CN Shareholders
Meeting shall become part of this Plan of Arrangement for all purposes.
<PAGE>
-20-
Any amendment, modification or supplement to this Plan of Arrangement
that is approved by the Court following the CN Shareholders Meeting shall be
effective only if it is consented to by each of CN and BNSF.
<PAGE>
APPENDIX I
PROVISIONS ATTACHING TO THE
CN VOTING SHARES
The CN Voting Shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
1. No Dividends
1.1 The holders of CN Voting Shares, as such, shall not be entitled to
receive any dividends.
2. Dissolution
2.1 In the event of the dissolution, liquidation or winding-up of the
Corporation, whether voluntary of involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Preference
Shares, the CN Exchangeable Shares and of any other shares ranking senior to
the CN Voting Shares with respect to priority in the distribution of assets
upon dissolution, liquidation or winding-up but before any amount shall be paid
to or any assets distributed among the holders of CN Special Limited Voting
Shares, CN Non-voting Equity Shares or the holders of any other class of shares
of the Corporation ranking subordinate to the CN Voting Shares, the holders of
the CN Voting Shares shall be entitled to receive the sum of U.S$0.05 per CN
Voting Share. After payment to the holders of the CN Voting Shares of such
amount, the holders of the CN Voting Shares shall not be entitled to share in
any further distribution of the assets of the Corporation.
3. Voting Rights
3.1 The holders of the CN Voting Shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Corporation and shall
have one vote for each CN Voting Share held at all meetings of the shareholders
of the Corporation and on all matters voted on by shareholders of the
Corporation, except for meetings at which and matters on which only holders of
another specified class or series of shares of the Corporation are entitled to
vote separately as a class or series.
4. Reciprocal Changes in respect of CN Exchangeable Shares
4.1 CN shall not:
(a) subdivide, redivide or change the then outstanding CN Voting
Shares into a greater number of CN Voting Shares; or
<PAGE>
-2-
(b) reduce, combine, consolidate or change the then outstanding
CN Voting Shares into a lesser number of CN Voting Shares;
unless the same change shall simultaneously be made to the CN Exchangeable
Shares.
5. Purchase for Cancellation
5.1 CN shall not purchase for cancellation any CN Voting Shares except in
accordance with section 7.1 of the CN Exchangeable Share Provisions.
6. Staple
6.1 Except as expressly provided in the Plan of Arrangement and in this section
6.1, no CN Voting Share shall be or shall be capable of being issued,
transferred, transmitted or otherwise alienated or disposed of separately from
and otherwise than as part of either: (i) a CN Stapled Unit comprised of an
equal number of CN Voting Shares and CN Exchangeable Shares, or (ii) a Newco
Stapled Unit comprised of an equal number of CN Voting Shares and Newco Common
Shares. Notwithstanding the foregoing, the following issuances and transfers of
CN Voting Shares otherwise than as part of a CN Stapled Unit or Newco Stapled
Unit are hereby expressly permitted:
(i) the issuances of CN Voting Shares provided in Section 2.2 of the
Plan of Arrangement.
Without limiting the generality of the foregoing, CN shall be entitled to treat
the registered holder of CN Stapled Units (or, subject to such Person
furnishing such information as is described in subsection 77(4) of the CBCA or
any replacement or successor provision therefor, the executor, administrator,
heir or legal representative of the heirs, of the estate of a deceased holder,
a guardian, committee, trustee, curator or tutor representing a holder who is
an infant, an incompetent person or a missing person, or a liquidator of or a
trustee in bankruptcy for a holder) as the owner exclusively entitled to vote,
to receive notices and otherwise to exercise all the rights and powers of the
owner of the CN Voting Shares represented by such CN Stapled Unit. For purposes
of establishing and maintaining the share register for the outstanding CN
Voting Shares, CN and its Transfer Agent shall and shall be entitled at all
times (subject only to the exercise of the Liquidation Call Right) to treat
each registered holder of CN Stapled Units and of Newco Stapled Units as the
registered holder of a number of CN Voting Shares equal to the aggregate number
of CN Stapled Units and Newco Stapled Units held by such Person. A CN Stapled
Unit certificate or a Newco Stapled Unit certificate, as applicable, shall be
the security certificate, and the only security certificate, that a holder of
CN Voting Shares shall
<PAGE>
-3-
be entitled to receive in respect of his or her holding of CN Voting Shares
pursuant to the CBCA or otherwise.
<PAGE>
APPENDIX II
PROVISIONS ATTACHING TO THE
CN EXCHANGEABLE SHARES
The CN Exchangeable Shares shall have the following rights,
privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
Section 1.1 For the purposes of these share provisions:
"Affiliate" means an affiliated body corporate within the meaning of the CBCA.
"associate" has the meaning ascribed thereto in Exhibit "I".
"Automatic Exchange Right" has the meaning ascribed thereto in the Voting and
Exchange Trust Agreement.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day on which commercial banks are generally open for
business in New York, New York and Montreal, Quebec other than a Saturday, a
Sunday or a day observed as a holiday in Montreal, Quebec under the laws of the
Province of Quebec or the federal laws of Canada or in New York, New York under
the laws of the State of New York or the federal laws of the United States of
America.
"CN Exchangeable Shares" mean the Non-voting exchangeable shares in the capital
of the Corporation having the rights, privileges, restrictions and conditions
set forth herein.
"CN Non-voting Equity Share" means a non-voting equity share in the capital of
the Corporation.
"CN Special Limited Voting Share" means a special limited voting share in the
capital of the Corporation.
"CN Stapled Unit" means a unit comprised of one CN Voting Share and one CN
Exchangeable Share, which unit does not constitute a security independent of
the shares it represents.
"CN Voting Share" means a voting share in the capital of the Corporation.
<PAGE>
-2-
"Canadian Dollar Equivalent" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying:
(a) the Foreign Currency Amount by,
(b) the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank of
Canada or, in the event such spot exchange rate is not available,
such spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as may be deemed by the Board of
Directors to be appropriate for such purpose.
"Co-operation Agreement" means that certain Co-operation Agreement between
Newco, NAR Subco and the Corporation, to be entered into in connection with the
Plan of Arrangement.
"Corporation" means Canadian National Railway Company.
"Current Market Price" means, in respect of a Newco Stapled Unit on any date,
the Canadian Dollar Equivalent of the average of the closing bid and asked
prices of Newco Stapled Units during a period of 20 consecutive trading days
ending not more than three trading days before such date on the New York Stock
Exchange, or, if the Newco Stapled Units are not then quoted on the New York
Stock Exchange, on such other stock exchange or automated quotation system on
which the Newco Stapled Units are listed or quoted, as the case may be, as may
be selected by the Board of Directors for such purpose; provided, however, that
if in the opinion of the Board of Directors the public distribution or trading
activity of Newco Stapled Units during such period does not create a market
which reflects the fair market value of a Newco Stapled Unit, then the Current
Market Price of a Newco Stapled Unit shall be determined by the Board of
Directors, in good faith and in its sole discretion, and provided further that
any such selection, opinion or determination by the Board of Directors shall be
conclusive and binding.
"Dividend Amount" has the meaning ascribed thereto in section 6.3 of these
share provisions.
"Exchange Right" has the meaning ascribed thereto in the Voting and Exchange
Trust Agreement.
"ITA" means the Income Tax Act (Canada).
"Liquidation Amount" has the meaning ascribed thereto in section 5.1 of these
share provisions.
<PAGE>
-3-
"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Liquidation Date" has the meaning ascribed thereto in section 5.1 of these
share provisions.
"Maximum Individual Holdings" has the meaning ascribed thereto in Exhibit "I".
"NAR Subco" means [NAR Holdings Company], an unlimited liability company
existing under the laws of the Province of Nova Scotia and a wholly-owned
subsidiary of Newco.
"NAR Subco Call Notice" has the meaning ascribed thereto in section 6.3 of
these share provisions.
"Newco" means North American Railways, Inc., a corporation existing under the
laws of the State of Delaware, and any successor corporation thereto.
"Newco Common Shares" mean the shares of common stock in the capital of Newco,
and any other securities into which such shares may be changed.
"Newco Dividend Declaration Date" means the date on which the Board of
Directors of Newco declares any dividend on the Newco Common Shares.
"Newco Stapled Unit" means a unit comprised of one CN Voting Share and one
Newco Common Share, which unit does not constitute a security independent of
the shares it represents.
"Person" includes any individual, firm, partnership, joint venture, venture
capital fund, association, trust, trustee, executor, administrator, legal
personal representative, estate, group, body corporate, corporation,
unincorporated association or organization, government body, syndicate or other
entity, whether or not having legal status; provided that for purposes of
section 3.7 and Article 14, "person" has the meaning ascribed thereto in
Exhibit "I".
"Plan of Arrangement" means the plan of arrangement relating to the arrangement
of CN under section 192 of the Canada Business Corporations Act, to which plan
these share provisions are attached as Appendix II.
"Preference Shares" means the Class A Preferred Shares and Class B Preferred
Shares in the capital of the Corporation.
"Purchase Price" has the meaning ascribed thereto in section 6.3 of these share
provisions.
<PAGE>
-4-
"Retracted Shares" has the meaning ascribed thereto in paragraph 6.1(a) of
these share provisions.
"Retraction Call Right" has the meaning ascribed thereto in paragraph 6.1(c) of
these share provisions.
"Retraction Date" has the meaning ascribed thereto in paragraph 6.1(b) of these
share provisions.
"Retraction Price" has the meaning ascribed thereto in section 6.1 of these
share provisions.
"Retraction Request" has the meaning ascribed thereto in section 6.1 of these
share provisions.
"Transfer Agent" means The Trust Company of the Bank of Montreal or such other
Person as may from time to time be appointed by the Corporation as the
registrar and transfer agent for the Exchangeable Shares.
"Trustee" means the trustee under the Voting and Exchange Trust Agreement,
being a corporation organized and existing under the laws of Canada and
authorized to carry on the business of a trust company in all the provinces of
Canada, and any successor trustee appointed under the Voting and Exchange Trust
Agreement.
"Voting and Exchange Trust Agreement" means that certain Voting and Exchange
Trust Agreement among Newco, NAR Subco, the Corporation and the Trustee, to be
entered into in connection with the Plan of Arrangement.
"voting shares" has the meaning ascribed thereto in Exhibit "I".
ARTICLE 2
RANKING OF CN EXCHANGEABLE SHARES
Section 2.1 Subject to the prior rights of the holders of the Preference
Shares, the CN Exchangeable Shares shall be entitled to a preference over and
shall rank in priority to the CN Special Limited Voting Shares, the CN Voting
Shares, the CN Non-voting Equity Shares and any other shares ranking junior to
the Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation, among its shareholders for the
purpose of winding up its affairs.
<PAGE>
-5-
ARTICLE 3
DIVIDENDS
Section 3.1 A holder of a CN Exchangeable Share shall be entitled to receive
and the Board of Directors shall, subject to applicable law, on each Newco
Dividend Declaration Date, declare a dividend or other distribution on each CN
Exchangeable Share:
(a) in the case of a cash dividend declared on the Newco Common
Shares, in an amount in cash for each CN Exchangeable Share in
U.S. dollars, or the Canadian Dollar Equivalent thereof on the
Newco Dividend Declaration Date, in each case, corresponding to
the cash dividend declared on each Newco Common Share;
(b) in the case of a stock dividend declared on the Newco Common
Shares to be paid in Newco Common Shares and CN Voting Shares
represented by Newco Stapled Units, in such number of CN
Exchangeable Shares and CN Voting Shares represented by CN
Stapled Units for each CN Exchangeable Share as is equal to the
number of Newco Common Shares and CN Voting Shares represented by
Newco Stapled Units to be paid on each Newco Common Share unless,
in lieu of such stock dividend, CN elects to effect a
corresponding and contemporaneous subdivision of the outstanding
CN Exchangeable Shares and CN Voting Shares;
(c) in the case of a dividend or other distribution of rights,
options or warrants to subscribe for or purchase Newco Common
Shares and CN Voting Shares represented by Newco Stapled Units (a
"Newco Right"), in such number of rights, options or warrants to
subscribe for or purchase CN Exchangeable Shares and CN Voting
Shares represented by CN Stapled Units (a "CN Right") for each CN
Exchangeable Share as is equal to the number of Newco Rights to
be paid or distributed on each Newco Common Share provided that
such CN Rights shall have the same subscription or exercise price
(or the Canadian Dollar Equivalent thereof) as the Newco Rights
and otherwise be on the same terms as the Newco Rights; or
(d) in the case of a dividend or other distribution declared on
the Newco Common Shares in property other than cash, Newco
Stapled Units or Newco Rights, in such type and amount of
property for each CN Exchangeable Share as is the same as or
corresponds to or, in the event that it is not reasonably
practicable in accordance with applicable legal requirements as
determined by the Board of Directors to declare and pay the same
or a corresponding dividend or other distribution, as is
economically equivalent to (to be determined by the Board of
Directors
<PAGE>
-6-
as contemplated by section 3.5 hereof) the type and amount of
property declared as a dividend on each Newco Common Share.
Such dividends shall be paid out of money, assets or property of the
Corporation properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Corporation, as applicable.
Section 3.2 Cheques of the Corporation payable at par at any branch of the
bankers of the Corporation shall be issued in respect of any cash dividends
contemplated by paragraph 3.1(a) hereof and the sending of such a cheque to the
holder of a CN Stapled Unit of which such CN Exchangeable Share forms part
shall satisfy the cash dividend represented thereby unless the cheque is not
paid on presentation. Certificates registered in the name of the registered
holder of CN Stapled Units of which the CN Exchangeable Share forms a part
shall be issued or transferred in respect of any stock dividends or
distributions of CN Rights contemplated by paragraph 3.1(b) or 3.1(c) hereof
and the sending of such a certificate to the holder of a CN Stapled Unit shall
satisfy the stock dividend or CN Rights distribution represented thereby. Such
other type and amount of property in respect of any dividends contemplated by
paragraph 3.1(d) hereof shall be issued, distributed or transferred by the
Corporation in such manner as it shall determine and the issuance, distribution
or transfer thereof by the Corporation to each holder of a CN Stapled Unit
shall satisfy the dividend represented thereby. No holder of a CN Exchangeable
Share shall be entitled to recover by action or other legal process against the
Corporation any dividend that is represented by a cheque that has not been duly
presented to the Corporation's bankers for payment or that otherwise remains
unclaimed for a period of six years from the date on which such dividend was
payable.
Section 3.3 The record date for the determination of the holders of CN Stapled
Units entitled to receive payment of, and the payment date for, any dividend
declared on the CN Exchangeable Shares under section 3.1 hereof shall be the
same dates as the record date and payment date, respectively, for the
corresponding dividend declared on the Newco Common Shares.
Section 3.4 If on any payment date for any dividends declared on the CN
Exchangeable Shares under section 3.1 hereof the dividends are not paid in full
on all of the CN Exchangeable Shares then outstanding, any such dividends that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board of Directors on which the Corporation shall have sufficient moneys,
assets or property properly applicable to the payment of such dividends.
Section 3.5 The Board of Directors shall determine, in good faith and in its
sole discretion, economic equivalence for the purposes of paragraphs 3.1(d),
10.1 and 10.2 hereof, and each such determination shall be conclusive and
binding on the
<PAGE>
-7-
Corporation and its shareholders. In making each such determination, the
following factors may, without excluding other factors determined by the Board
of Directors to be relevant, be considered by the Board of Directors:
(a) the relationship between the fair market value (as determined
by the Board of Directors in the manner above contemplated)
of such property to be issued or distributed with respect to
each outstanding Newco Common Share and the current market
value (as determined by the Board of Directors in the manner
above contemplated) of a Newco Stapled Unit; and
(b) the general taxation consequences of the relevant event to
holders of CN Stapled Units to the extent that such
consequences may differ from the taxation consequences to
holders of Newco Stapled Units as a result of differences
between taxation laws of Canada and the United States (except
for any differing consequences arising as a result of
differing marginal taxation rates and without regard to the
individual circumstances of holders of CN Stapled Units).
For purposes of the foregoing determinations, the current market value
of any security listed and traded or quoted on a securities exchange shall be
the average of the closing trading or bid and ask prices of such security
during a period of not less than 20 consecutive trading days ending not more
than three trading days before the date of determination on the principal
securities exchange on which such securities are listed and traded or quoted;
provided, however, that if in the opinion of the Board of Directors the public
distribution or trading activity of such securities during such period does not
create a market which reflects the fair market value of such securities, then
the current market value thereof shall be determined by the Board of Directors,
in good faith and in its sole discretion, and provided further that any such
determination by the Board of Directors shall be conclusive and binding on the
Corporation and its shareholders.
Section 3.6 CN and the Transfer Agent shall be entitled to deduct and withhold
from any dividend or consideration otherwise payable to any holder of CN
Stapled Units representing CN Exchangeable Shares such amounts as CN or the
Transfer Agent is required or permitted to deduct and withhold with respect to
such payment under the ITA, the United States Internal Revenue Code of 1986 or
any provision of provincial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts
shall be treated for all purposes hereof as having been paid to the holder of
the shares in respect of which such deduction and withholding was made,
provided that such withheld amounts are actually remitted to the appropriate
taxing authority. To the extent that the amount so required or permitted to be
deducted or withheld from any payment to a holder exceeds the cash portion of
the consideration otherwise payable to the
<PAGE>
-8-
holder, CN and the Transfer Agent are hereby authorized to sell or otherwise
dispose of such portion of the consideration as is necessary to provide
sufficient funds to CN or the Transfer Agent, as the case may be, to enable it
to comply with such deduction or withholding requirement and CN or the Transfer
Agent shall notify the holder thereof and remit any unapplied balance of the
net proceeds of such sale.
Section 3.7 Notwithstanding the foregoing provisions of this Article 3, where
the total number of voting shares held, beneficially owned or controlled,
directly or indirectly, by any one person holding CN Stapled Units together
with his or her associates exceeds the Maximum Individual Holdings, the
percentage of any and all dividends attributable to the CN Exchangeable Shares
comprising the CN Stapled Units resulting in such person exceeding the Maximum
Individual Holding shall be forfeited and the amount of the dividend so
forfeited shall not become payable thereafter to any person for any reason
whatsoever provided that notwithstanding any other provision of this Article 3:
(a) the directors of CN may determine to pay a dividend to or to
make any other distribution on CN Exchangeable Shares that
would otherwise be prohibited hereby where the contravention
of the Maximum Individual Holdings that gave rise to such
prohibition was inadvertent or of a technical nature or it
would otherwise be inequitable not to pay the dividend or
make the distribution; and
(b) where a dividend has not been paid or any other distribution
has not been made on CN Exchangeable Shares comprising CN
Stapled Units held by a person as a result of a directors'
determination of a contravention of the Maximum Individual
Holdings, the directors of CN shall declare and pay the
dividend or make the distribution to the relevant person if
they subsequently determine that no such contravention
occurred.
ARTICLE 4
CERTAIN RESTRICTIONS
Section 4.1 So long as any of the CN Exchangeable Shares are outstanding
unless all dividends on the outstanding CN Exchangeable Shares corresponding to
dividends declared and paid to date on the Newco Common Shares shall have been
declared and paid on the CN Exchangeable Shares as provided in Article 3, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the CN Exchangeable Shares given as specified in
section 9.2 of these share provisions:
<PAGE>
-9-
(a) pay any dividends on the CN Non-voting Equity Shares or any other
shares ranking junior to the CN Exchangeable Shares, other than
stock dividends payable in CN Non-voting Equity Shares or any
such other shares ranking junior to the CN Exchangeable Shares,
as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
CN Non-voting Equity Shares, CN Special Limited Voting Shares or
any other shares ranking junior to the CN Exchangeable Shares;
(c) redeem or purchase any other shares of the Corporation
ranking equally with the CN Exchangeable Shares with respect
to the payment of dividends or on dissolution, liquidation or
winding-up; or
(d) issue any CN Exchangeable Shares or any other shares of the
Corporation ranking equally with, or superior to, the CN
Exchangeable Shares other than by way of stock dividends of
CN Stapled Units to the holders of such CN Exchangeable
Shares.
Section 4.2 Except as expressly provided in the Plan of Arrangement and in
this section 4.2, no CN Exchangeable Share shall be or shall be capable of being
issued, transferred, transmitted or otherwise alienated or disposed of
separately from and otherwise than as part of a CN Stapled Unit comprised of an
equal number of CN Voting Shares and CN Exchangeable Shares. Notwithstanding
the foregoing, the following issuances and transfers of CN Exchangeable Shares
otherwise than as part of a CN Stapled Unit are hereby expressly permitted:
(i) the issuances of CN Exchangeable Shares provided in Section 2.2
of the Plan of Arrangement;
(ii) the transfers of CN Exchangeable Shares to NAR Subco and the
conversion thereof to CN Special Limited Voting Shares and CN
Non-voting Equity Shares provided in Section 2.2 of the Plan
of Arrangement;
(iii) the redemption of CN Exchangeable Shares by CN upon a
retraction of the CN Exchangeable Shares in accordance with
these share provisions; and
(iv) the transfer of CN Exchangeable Shares to NAR Subco and/or
Newco, as applicable, pursuant to the exercise or deemed
exercise of a Retraction Call Right, the Liquidation Call
Right, the Exchange Right or the Automatic Exchange Rights in
accordance with these share provisions, the Plan of
Arrangement and/or the Voting and Exchange Trust Agreement,
as applicable.
<PAGE>
-10-
Without limiting the generality of the foregoing, CN shall be entitled to treat
the registered holder of CN Stapled Units (or, subject to such Person
furnishing such information as is described in subsection 77(4) of the CBCA or
any replacement or successor provision therefor, the executor, administrator,
heir or legal representative of the heirs, of the estate of a deceased holder,
a guardian, committee, trustee, curator or tutor representing a holder who is
an infant, an incompetent person or a missing person, or a liquidator of or a
trustee in bankruptcy for a holder) as the owner exclusively entitled to vote,
to receive notices, to receive dividends or other payments in respect of and
otherwise to exercise all the rights and powers of the owner of the CN
Exchangeable Shares represented by such CN Stapled Unit. For purposes of
establishing and maintaining the share register for the outstanding CN
Exchangeable Shares, CN and its Transfer Agent shall and shall be entitled, at
all times (subject only to the Liquidation Call Right, the Exchange Right and
the Automatic Exchange Rights and except where a holder of CN Stapled Units
representing CN Exchangeable Shares has submitted a Retraction Request in
respect of CN Exchangeable Shares represented by such CN Stapled Unit
certificate) to treat each registered holder of CN Stapled Units as the
registered holder of a number of CN Exchangeable Shares equal to the number of
CN Stapled Units held by such Person. A CN Stapled Unit certificate shall be
the security certificate, and the only security certificate, that a holder of
CN Exchangeable Shares shall be entitled to receive in respect of his or her
holding of CN Exchangeable Shares pursuant to the CBCA or otherwise.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
Section 5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among
its shareholders for the purpose of winding up its affairs, subject to the
exercise by NAR Subco of the Liquidation Call Right, a holder of CN
Exchangeable Shares shall be entitled, subject to applicable law, to receive
from the assets of the Corporation in respect of each CN Exchangeable Share
held by such holder on the effective date (the "Liquidation Date") of such
liquidation, dissolution or winding-up, before any distribution of any part of
the assets of the Corporation among the holders of the CN Voting Shares, the CN
Special Limited Voting Shares, the CN Non-voting Equity Shares or any other
shares ranking junior to the CN Exchangeable Shares, an amount per share equal
to the Current Market Price of a Newco Stapled Unit on the last Business Day
prior to the Liquidation Date (the "Liquidation Amount"), which shall be
satisfied in full by the Corporation causing to be delivered to such holder one
Newco Common Share, together with all declared and unpaid dividends on each
such CN Exchangeable Share held by such holder on any dividend record date
which occurred prior to the Liquidation Date.
<PAGE>
-11-
Section 5.2 On or promptly after the Liquidation Date, and subject to the
exercise by NAR Subco of the Liquidation Call Right, the Corporation shall
cause to be delivered to the holders of the CN Exchangeable Shares the
Liquidation Amount for each such CN Exchangeable Share upon presentation and
surrender of the certificates representing the CN Stapled Units, together with
such other documents and instruments as may be required to effect a transfer of
CN Exchangeable Shares under the CBCA and the by-laws of the Corporation and
such additional documents and instruments as the Transfer Agent may reasonably
require, at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the CN Exchangeable Shares. Payment of the total Liquidation Amount for such
CN Exchangeable Shares shall be made by delivery to each holder, at the address
of the holder recorded in the securities register of the Corporation for the CN
Stapled Units or by holding for pick-up by the holder at the registered office
of the Corporation or at any office of the Transfer Agent as may be specified
by the Corporation by notice to the holders of the CN Stapled Units, on behalf
of the Corporation of certificates representing Newco Common Shares (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim or encumbrance) and a cheque of the Corporation
payable at par at any branch of the bankers of the Corporation in respect of
the remaining portion, if any, of the total Liquidation Amount (in each case
less any amounts withheld on account of tax required to be deducted and
withheld therefrom). On and after the Liquidation Date, the holders of the CN
Exchangeable Shares shall cease to be holders of such CN Exchangeable Shares
and shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive their proportionate part of the total
Liquidation Amount, unless payment of the total Liquidation Amount for such CN
Exchangeable Shares shall not be made upon presentation and surrender of share
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Liquidation
Amount has been paid in the manner hereinbefore provided. The Corporation shall
have the right at any time after the Liquidation Date to deposit or cause to be
deposited the total Liquidation Amount in respect of the CN Exchangeable Shares
represented by certificates that have not at the Liquidation Date been
surrendered by the holders thereof in a custodial account with any chartered
bank or trust company in Canada. Upon such deposit being made, the rights of
the holders of CN Exchangeable Shares after such deposit shall be limited to
receiving their proportionate part of the total Liquidation Amount (in each
case less any amounts withheld on account of tax required to be deducted and
withheld therefrom) for such CN Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of
the total Liquidation Amount, the holders of the CN Exchangeable Shares shall
thereafter be considered and deemed for all purposes to be holders of the Newco
Common Shares delivered to them or the custodian on their behalf.
<PAGE>
-12-
Section 5.3 After the Corporation has satisfied its obligations to pay the
holders of the CN Exchangeable Shares the Liquidation Amount per CN
Exchangeable Share pursuant to section 5.1 of these share provisions, such
holders shall not be entitled to share in any further distribution of the
assets of the Corporation.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
Section 6.1 A holder of CN Exchangeable Shares shall be entitled at any time,
subject to the exercise by NAR Subco of the Retraction Call Right and otherwise
upon compliance with the provisions of this Article 6, to require the
Corporation to redeem any or all of the CN Exchangeable Shares registered in
the name of such holder for an amount per share equal to the Current Market
Price of a Newco Stapled Unit on the last Business Day prior to the Retraction
Date (the "Retraction Price"), which shall be satisfied in full by the
Corporation causing to be issued to such holder one Newco Common Share for each
CN Exchangeable Share presented and surrendered by the holder, together with,
on the payment date therefor, the full amount of all declared and unpaid
dividends on any such CN Exchangeable Share held by such holder on any dividend
record date which occurred prior to the Retraction Date. To effect such
redemption, the holder shall present and surrender at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation by notice to the holders of CN Stapled Units the certificate or
certificates representing the CN Stapled Units in respect of which the holder
desires to have the Corporation redeem the CN Exchangeable Shares forming part
thereof, together with such other documents and instruments as may be required
to effect a transfer of CN Stapled Units under the CBCA and the by-laws of the
Corporation and such additional documents and instruments as the Transfer Agent
may reasonably require, and together with a duly executed statement (the
"Retraction Request") in the form of Schedule A hereto or in such other form as
may be acceptable to the Corporation:
(a) specifying that the holder desires to have all or any number
specified therein of the CN Exchangeable Shares represented by
such CN Stapled Unit certificate or certificates (the "Retracted
Shares") redeemed by the Corporation;
(b) stating the Business Day on which the holder desires to have
the Corporation redeem the Retracted Shares (the "Retraction
Date"), provided that the Retraction Date shall be not less
than 10 Business Days nor more than 15 Business Days after
the date on which the
<PAGE>
-13-
Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is
specified by the holder in the Retraction Request, the Retraction
Date shall be deemed to be the 15th Business Day after the date
on which the Retraction Request is received by the Corporation;
and
(c) acknowledging the overriding right (the "Retraction Call
Right") of NAR Subco to purchase all but not less than all
the Retracted Shares directly from the holder and that the
Retraction Request shall be deemed to be a revocable offer by
the holder to sell the Retracted Shares to NAR Subco in
accordance with the Retraction Call Right on the terms and
conditions set out in section 6.3 below.
Section 6.2 Subject to the exercise by NAR Subco of the Retraction Call Right,
upon receipt by the Corporation or the Transfer Agent in the manner specified
in section 6.1 hereof of a CN Stapled Unit certificate or certificates
representing the number of CN Exchangeable Shares which the holder desires to
have the Corporation redeem, together with a Retraction Request, and provided
that the Retraction Request is not revoked by the holder in the manner
specified in section 6.7, the Corporation shall redeem the Retracted Shares
effective at the close of business on the Retraction Date and shall cause to be
delivered to such holder the total Retraction Price with respect to such
shares, provided that all declared and unpaid dividends for which the record
date has occurred prior to the Retraction Date shall be paid on the payment
date for such dividends. If only a part of the CN Exchangeable Shares
represented by any CN Stapled Unit certificate is redeemed (or purchased by NAR
Subco pursuant to the Retraction Call Right), a new certificate for the balance
of such CN Stapled Units shall be issued to the holder at the expense of the
Corporation.
Section 6.3 Upon receipt by the Corporation of a Retraction Request, the
Corporation shall immediately notify Newco and NAR Subco thereof. In order to
exercise the Retraction Call Right, NAR Subco must notify the Corporation of
its determination to do so (the "NAR Subco Call Notice") within five Business
Days of notification to NAR Subco by the Corporation of the receipt by the
Corporation of the Retraction Request. If NAR Subco does not so notify the
Corporation within such five Business Day period, the Corporation will notify
the holder as soon as possible thereafter that NAR Subco will not exercise the
Retraction Call Right. If NAR Subco delivers the NAR Subco Call Notice within
such five Business Day period, and provided that the Retraction Request is not
revoked by the holder in the manner specified in section 6.7, the Retraction
Request shall thereupon be considered only to be an offer by the holder to sell
the Retracted Shares to NAR Subco in accordance with the Retraction Call Right.
In such event, the Corporation shall not redeem the Retracted Shares and NAR
Subco shall purchase from such holder and such holder shall sell to NAR Subco
on the Retraction Date the Retracted
<PAGE>
-14-
Shares for a purchase price (the "Purchase Price") per share equal to the
Retraction Price per share, plus, on the designated payment date therefor, to
the extent not paid by the Corporation on the designated payment date therefor,
an additional amount equivalent to the full amount of all declared and unpaid
dividends on those Retracted Shares held by such holder on any dividend record
date which occurred prior to the Retraction Date (the "Dividend Amount"). For
the purposes of completing a purchase pursuant to the Retraction Call Right,
Newco, NAR Subco and the Corporation shall jointly cause to be deposited with
the Transfer Agent, on or before the Retraction Date, certificates representing
the requisite number of Newco Stapled Units and a cheque or cheques of NAR
Subco payable at par at any branch of the bankers of NAR Subco representing the
aggregate Dividend Amount, less any amounts withheld on account of tax required
to be deducted and withheld therefrom. Provided that Newco and NAR Subco have
complied with the immediately preceding sentence, the closing of the purchase
and sale of the Retracted Shares pursuant to the Retraction Call Right shall be
deemed to have occurred as at the close of business on the Retraction Date and,
for greater certainty, no redemption by the Corporation of such Retracted
Shares shall take place on the Retraction Date. In the event that NAR Subco
does not deliver a NAR Subco Call Notice within such five Business Day period,
and provided that the Retraction Request is not revoked by the holder in the
manner specified in section 6.7, the Corporation shall redeem the Retracted
Shares on the Retraction Date and in the manner otherwise contemplated in this
Article 6.
Section 6.4 The Corporation, Newco or NAR Subco, as applicable, shall deliver
or cause the Transfer Agent to deliver to the relevant holder, at the address
of the holder recorded in the securities register of the Corporation for the CN
Stapled Units comprising such CN Exchangeable Shares or at the address
specified in the holder's Retraction Request or by holding for pick-up by the
holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of CN Stapled Units, certificates representing the requisite number of Newco
Stapled Units (the Newco Common Shares included in which shares shall be duly
issued as fully paid and non-assessable and shall be free and clear of any
lien, claim or encumbrance) registered in the name of the holder or in such
other name as the holder may request, and, if applicable and on or before the
payment date therefor, a cheque payable at par at any branch of the bankers of
the Corporation or NAR Subco, as applicable, representing the aggregate
Dividend Amount in payment of the total Retraction Price or the total Purchase
Price, as the case may be, in each case, less any amounts withheld on account
of tax required to be deducted and withheld therefrom, and such delivery of
such certificates and cheques on behalf of the Corporation or by NAR Subco, as
the case may be, or by the Transfer Agent shall be deemed to be payment of and
shall satisfy and discharge all liability for the total Retraction Price or
total Purchase Price, as the case may be, to the extent that the same is
represented
<PAGE>
-15-
by such share certificates and cheques (plus any tax deducted and withheld
therefrom and remitted to the proper tax authority).
Section 6.5 On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of such Retracted
Shares and shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive his proportionate part of the
total Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made as provided in section 6.4, in which case
the rights of such holder shall remain unaffected until the total Retraction
Price or the total Purchase Price, as the case may be, has been paid in the
manner hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of certificates and
payment of the total Retraction Price or the total Purchase Price, as the case
may be, has been made in accordance with the foregoing provisions, the holder
of the Retracted Shares so redeemed by the Corporation or purchased by NAR
Subco shall thereafter be considered and deemed for all purposes to be a holder
of the Newco Common Shares represented by the Newco Stapled Unit certificates
delivered to such holder.
Section 6.6 Notwithstanding any other provision of this Article 6, the
Corporation shall not be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent that such redemption of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it
would not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that NAR Subco shall not
have exercised the Retraction Call Right with respect to the Retracted Shares,
the Corporation shall only be obligated to redeem Retracted Shares specified by
a holder in a Retraction Request to the extent of the maximum number that may
be so redeemed (rounded down to a whole number of shares) as would not be
contrary to such provisions and shall notify the holder at least two Business
Days prior to the Retraction Date as to the number of Retracted Shares which
will not be redeemed by the Corporation. In any case in which the redemption by
the Corporation of Retracted Shares would be contrary to solvency requirements
or other provisions of applicable law, the Corporation shall redeem Retracted
Shares in accordance with section 6.2 of these share provisions on a pro rata
basis and shall issue to each holder of Retracted Shares a new CN Stapled Unit
certificate, at the expense of the Corporation, representing both the Retracted
Shares not redeemed by the Corporation pursuant to section 6.2 hereof and a
corresponding number of CN Voting Shares. Provided that the Retraction Request
is not revoked by the holder in the manner specified in section 6.7, the holder
of any such Retracted Shares not redeemed by the Corporation pursuant to
section 6.2 of
<PAGE>
-16-
these share provisions as a result of solvency requirements or other provisions
of applicable law shall be deemed by giving the Retraction Request to have
instructed the Trustee to require NAR Subco to purchase such Retracted Shares
from such holder on the Retraction Date or as soon as practicable thereafter on
payment by NAR Subco to such holder of the Purchase Price for each such
Retracted Share, all as more specifically provided in the Voting and Exchange
Trust Agreement.
Section 6.7 A holder of Retracted Shares may, by notice in writing given by
the holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request, in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell
the Retracted Shares to NAR Subco shall be deemed to have been revoked.
ARTICLE 7
PURCHASE FOR CANCELLATION
Section 7.1 Subject to applicable law and the articles of the Corporation, the
Corporation may at any time and from time to time purchase for cancellation all
or any part of the outstanding CN Exchangeable Shares together with a
corresponding number of CN Voting Shares at any price by tender to all the
holders of record of CN Exchangeable Shares and CN Voting Shares represented by
CN Stapled Units then outstanding or through the facilities of any stock
exchange on which the CN Exchangeable Shares and CN Voting Shares represented
by CN Stapled Units are listed or quoted at any price per share together with
an amount equal to all declared and unpaid dividends thereon for which the
record date has occurred prior to the date of purchase. If in response to an
invitation for tenders under the provisions of this section 7.1, more CN
Exchangeable Shares and CN Voting Shares represented by CN Stapled Units are
tendered at a price or prices acceptable to the Corporation than the
Corporation is prepared to purchase, the CN Exchangeable Shares and CN Voting
Shares represented by CN Stapled Units to be purchased by the Corporation shall
be purchased as nearly as may be pro rata according to the number of shares
tendered by each holder who submits a tender to the Corporation, provided that
when CN Exchangeable Shares and CN Voting Shares represented by CN Stapled
Units are tendered at different prices, the pro rating shall be effected
(disregarding fractions) only with respect to the CN Exchangeable Shares and CN
Voting Shares represented by CN Stapled Units tendered at the price at which
more CN Exchangeable Shares and CN Voting Shares represented by CN Stapled
Units were tendered than the Corporation is prepared to purchase after the
Corporation has purchased all the CN Exchangeable Shares and CN Voting Shares
represented by CN Stapled Units tendered at lower prices. If part only of the
CN Exchangeable Shares and CN Voting Shares represented by CN Stapled Units
represented by any certificate shall be purchased, a new certificate for CN
Stapled Units representing
<PAGE>
-17-
the balance of such CN Exchangeable Shares and CN Voting Shares not purchased
shall be issued at the expense of the Corporation.
ARTICLE 8
VOTING RIGHTS
Section 8.1 Except as required by applicable law and by Article 10 hereof, the
holders of the CN Exchangeable Shares, as such, shall not be entitled to
receive notice of or to attend any meeting of the shareholders of the
Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
Section 9.1 The rights, privileges, restrictions and conditions attaching to
the CN Exchangeable Shares may be added to, changed or removed but only with
the approval of the holders of the CN Exchangeable Shares given as hereinafter
specified.
Section 9.2 In addition to any other approval required by the CBCA or other
applicable law, any approval given by the holders of the CN Exchangeable Shares
to add to, change or remove any right, privilege, restriction or condition
attaching to the CN Exchangeable Shares or any other matter requiring the
approval or consent of the holders of the CN Exchangeable Shares shall be
deemed to have been sufficiently given if it shall have been given in
accordance with applicable law subject to a minimum requirement that such
approval be evidenced by resolution passed by not less than two-thirds of the
votes cast on such resolution (excluding any votes cast on such resolution in
respect of CN Exchangeable Shares held by or on behalf of CN, Newco, NAR Subco
or any of their respective Affiliates) at a meeting of holders of CN
Exchangeable Shares duly called and held in accordance with the By-laws of the
Corporation.
ARTICLE 10
RECIPROCAL CHANGES, ETC. IN RESPECT OF NEWCO COMMON SHARES
Section 10.1 Each holder of a CN Exchangeable Share acknowledges that the
Co-operation Agreement provides, in part, that Newco will not without the prior
approval of the Corporation and the prior approval of the holders of the
Exchangeable Shares given in accordance with section 9.2 of these share
provisions:
(a) issue or distribute Newco Common Shares (or securities
exchangeable for or convertible into or carrying rights to
acquire Newco Common Shares) to the holders of all or
substantially all of the then outstanding
<PAGE>
-18-
Newco Common Shares by way of stock dividend or other
distribution, other than an issue of Newco Common Shares to
holders of Newco Common Shares who exercise an option to receive
dividends in Newco Common Shares represented by Newco Stapled
Units in lieu of receiving cash dividends;
(b) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then outstanding
Newco Common Shares entitling them to subscribe for or to
purchase Newco Common Shares and CN Voting Shares represented
by Newco Stapled Units; or
(c) issue or distribute to the holders of all or substantially
all of the then outstanding Newco Common Shares:
(i) shares or securities of Newco of any class other than Newco
Common Shares;
(ii) rights, options or warrants other than those referred to in
section 10.1(b) above;
(iii) evidences of indebtedness of Newco; or
(iv) assets of Newco,
unless, in the case of paragraphs 10.1(a) and (b) above a corresponding issue
or distribution of CN Exchangeable Shares and CN Voting Shares comprising CN
Stapled Units or CN Rights complying with the requirements of paragraphs 3.1(b)
or (c), as applicable, is made or, in the case of paragraph 10.1(c), the
economic equivalent on a per share basis of such other shares or securities,
rights, options, warrants, evidences of indebtedness or other assets is issued
or distributed simultaneously to holders of the CN Exchangeable Shares or
unless, in the case of a stock dividend payable in Newco Common Shares
represented by Newco Stapled Units, in lieu of such a stock dividend the
Corporation effects a corresponding and contemporaneous subdivision of the
outstanding CN Exchangeable Shares and CN Voting Shares.
Section 10.2 Each holder of a CN Exchangeable Share acknowledges that the
Co-operation Agreement further provides, in part, that Newco will not without
the prior approval of the Corporation and the prior approval of the holders of
the CN Exchangeable Shares given in accordance with section 9.2 of these share
provisions:
(a) subdivide, redivide or change the then outstanding Newco Common
Shares into a greater number of Newco Common Shares;
<PAGE>
-19-
(b) reduce, combine, consolidate or change the then outstanding
Newco Common Shares into a lesser number of Newco Common
Shares; or
(c) reclassify or otherwise change the Newco Common Shares or
effect an amalgamation, merger, reorganization or other
transaction affecting the Newco Common Shares,
unless the same in the case of paragraph (a) and (b) above or, in the case of
paragraph (c) above, the same or an economically equivalent change shall
simultaneously be made to, or in the rights of the holders of, the CN
Exchangeable Shares and the CN Voting Shares. The Co-operation Agreement
further provides, in part, that the aforesaid provisions of the Co-operation
Agreement shall not be changed without the approval of the holders of the CN
Exchangeable Shares given in accordance with section 9.2 of these share
provisions.
Section 10.3 The Corporation shall not:
(a) subdivide, redivide or change the then outstanding CN
Exchangeable Shares into a greater number of CN Exchangeable
Shares; or
(b) reduce, combine, consolidate or change the then outstanding
CN Exchangeable Shares into a lesser number of CN
Exchangeable Shares;
unless the same change shall simultaneously be made to the CN Voting Shares.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER CO-OPERATION AGREEMENT
Section 11.1 The Corporation will take all such actions and do all such things
as shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Newco, NAR Subco and the Corporation with all
provisions of the Co-operation Agreement applicable to Newco, NAR Subco and the
Corporation, respectively, in accordance with the terms thereof including,
without limitation, taking all such actions and doing all such things as shall
be necessary or advisable to enforce to the fullest extent possible for the
direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
ARTICLE 12
LEGEND; CALL RIGHTS
Section 12.1 The certificates evidencing the CN Exchangeable Shares shall
contain or have affixed thereto a legend in form and on terms approved by the
Board of Directors, with respect to the Co-operation Agreement, the provisions
of
<PAGE>
-20-
the Plan of Arrangement relating to the Liquidation Call Right and the Voting
and Exchange Trust Agreement (including the provisions with respect to the
voting rights and exchange rights thereunder).
Section 12.2 Each holder of a CN Exchangeable Share, whether of record or
beneficial, by virtue of becoming and being such a holder shall be deemed to
acknowledge each of the Liquidation Call Right and the Retraction Call Right,
in each case, in favour of NAR Subco, and the overriding nature thereof in
connection with the liquidation, dissolution or winding-up of the Corporation
or the retraction of CN Exchangeable Shares, as the case may be, and to be
bound thereby in favour of NAR Subco as therein provided.
ARTICLE 13
AUTOMATIC CONVERSION
Section 13.1 Immediately upon the acquisition by NAR Subco or Newco of any CN
Exchangeable Shares pursuant to any exercise of the Liquidation Call Right, the
Exchange Right, the Retraction Call Right or the Automatic Exchange Rights,
each CN Exchangeable Share so acquired shall automatically convert into and
become, and shall be deemed for all purposes to have converted into and become,
without any further act or formality, one (1) CN Non-voting Equity Share and
any and all CN Stapled Unit certificates delivered in connection therewith
shall be surrendered to the Corporation and CN shall issue to NAR Subco or
Newco, as applicable, a certificate or certificates representing the CN
Non-voting Equity Shares to which NAR Subco or Newco, as applicable, is
entitled upon such conversion.
ARTICLE 14
REDEMPTION AND SALE
Section 14.1 The Corporation may for the purpose of enforcing the constraint
imposed upon any voting shares pursuant to section 2 of Exhibit "I", redeem any
CN Exchangeable Shares comprising CN Stapled Units which represent voting
shares that are owned, or that the directors determine may be owned, by any
person or persons contrary to such constraint, upon payment to the holder
thereof of the sum of $0.01 per share plus the net proceeds of sale, if any,
from the reissue and sale of an equal number of CN Stapled Units representing
CN Exchangeable Shares and CN Voting Shares. Such redemption, reissuance and
sale shall be conducted in accordance with the procedures set forth in Part VI
of the CBCA and Part VII of the CBCA Regulations, with necessary modifications,
as if such provisions applied to the redemption, reissuance and sale of such CN
Exchangeable Shares and the net proceeds of such reissuance and sale shall be
remitted to the person or persons entitled thereto in accordance with such
provisions.
<PAGE>
21
ARTICLE 15
NOTICES
Section 15.1 Any notice, request or other communication to be given to the
Corporation by a holder of CN Exchangeable Shares shall be in writing and shall
be valid and effective if given by mail (postage prepaid) or by telecopy or by
delivery to the registered office of the Corporation and addressed to the
attention of []. Any such notice, request or other communication, if given by
mail, telecopy or delivery, shall only be deemed to have been given and
received upon actual receipt thereof by the Corporation.
Section 15.2 Any presentation and surrender by a holder of Exchangeable Shares
to the Corporation or the Transfer Agent of certificates representing CN
Exchangeable Shares in connection with the liquidation, dissolution or
winding-up of the Corporation or the retraction of CN Exchangeable Shares shall
be made by registered mail (postage prepaid) or by delivery to the registered
office of the Corporation or to such office of the Transfer Agent as may be
specified by the Corporation, in each case, addressed to the attention of
[] of the Corporation. Any such presentation and surrender of certificates
shall only be deemed to have been made and to be effective upon actual receipt
thereof by the Corporation or the Transfer Agent, as the case may be. Any such
presentation and surrender of certificates made by registered mail shall be at
the sole risk of the holder mailing the same.
Section 15.3 Any notice, request or other communication to be given to a holder
of CN Exchangeable Shares by or on behalf of the Corporation shall be in
writing and shall be valid and effective if given by mail (postage prepaid) or
by delivery to the address of the holder of the corresponding CN Stapled Units
recorded in the securities register of the Corporation or, in the event of the
address of any such holder not being so recorded, then at the last known
address of such holder. Any such notice, request or other communication, if
given by mail, shall be deemed to have been given and received on the third
Business Day following the date of mailing and, if given by delivery, shall be
deemed to have been given and received on the date of delivery. Accidental
failure or omission to give any notice, request or other communication to one
or more holders of CN Exchangeable Shares shall not invalidate or otherwise
alter or affect any action or proceeding to be taken by the Corporation
pursuant thereto.
<PAGE>
SCHEDULE A
NOTICE OF RETRACTION
To Canadian National Railway Company ("CN")
North American Railways, Inc. ("Newco")
and
[NAR Holdings Company] ("NAR Subco")
This notice is given pursuant to Article 6 of the provisions (the
"Share Provisions") attaching to the CN Exchangeable Shares of CN represented
by this CN Stapled Unit certificate and all capitalized words and expressions
used in this notice that are defined in the Share Provisions have the meanings
ascribed to such words and expressions in such Share Provisions.
The undersigned hereby notifies CN that, subject to the Retraction
Call Right referred to below, the undersigned desires to have CN redeem in
accordance with Article 6 of the Share Provisions:
[ ] all CN Exchangeable Share(s) represented by this CN Stapled Unit
certificate; or
[ ] ___________________ CN Exchangeable Share(s) only.
The undersigned hereby notifies CN that the Retraction Date shall
be_______________ .
NOTE: The Retraction Date must be a Business Day and must not be less than
10 Business Days nor more than 15 Business Days after the date upon
which this notice is received by CN. If no such Business Day is
specified above, the Retraction Date shall be deemed to be the 15th
Business Day after the date on which this notice is received by CN.
The undersigned acknowledges the overriding Retraction Call Right of
NAR Subco to purchase all but not less than all the Retracted Shares from the
undersigned and that this notice is and shall be deemed to be a revocable offer
by the undersigned to sell the Retractable Shares to NAR Subco in accordance
with the Retraction Call Right on the Retraction Date for the Purchase Price
and on the other terms and conditions set out in section 6.3 of the Share
Provisions. This notice of retraction, and this offer to sell the Retracted
Shares to NAR Subco may be revoked and withdrawn by the undersigned only by
notice in writing given to CN at any time before the close of business on the
Business Day immediately preceding the Retraction Date.
<PAGE>
-2-
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, CN is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the Exchange Right (as defined in
the Voting and Exchange Trust Agreement) so as to require NAR Subco to purchase
the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to Newco, NAR Subco and
CN that the undersigned:
[ ] is
(select one)
[ ] is not
a non-resident of Canada for purposes of the Income Tax Act (Canada). The
undersigned acknowledges that in the absence of an indication that the
undersigned is not a non-resident of Canada, withholding on account of Canadian
tax may be made from amounts payable to the undersigned on the redemption or
purchase of the Retracted Shares.
The undersigned hereby represents and warrants to Newco, NAR Subco and
CN that the undersigned has good title to, and owns, the share(s) represented
by this CN Stapled Unit certificate to be acquired by NAR Subco or CN, as the
case may be, free and clear of all liens, claims and encumbrances.
- ------------------ ------------------------------ ----------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
[ ] Please check box if the securities and any cheque(s) resulting from
the retraction or purchase of the Retracted Shares are to be held for
pick-up by the shareholder from the Transfer Agent, failing which the
securities and any cheque(s) will be mailed to the last address of the
shareholder as it appears on the register.
NOTE: This panel must be completed and this certificate, together with
such additional documents as the Transfer Agent may require, must be
deposited with the Transfer Agent. The securities and any cheque(s)
resulting from the retraction or purchase of the Retracted Shares
will be issued and registered in, and made payable to, respectively,
the name of the shareholder as it appears on the register of CN and
the securities and any cheque(s) resulting from such retraction or
purchase will be delivered to such shareholder as indicated above,
unless the form appearing immediately below is duly completed.
<PAGE>
-3-
Date:___________________________
Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please print):_______________________
Street Address or P.O. Box:_____________________________________________________
Signature of Shareholder:_______________________________________________________
City, Province and Postal Code:_________________________________________________
Signature Guaranteed by:________________________________________________________
NOTE: If this notice of retraction is for less than all of the shares
represented by this certificate, a certificate representing the
remaining share(s) of CN represented by this certificate will be
issued and registered in the name of the shareholder as it appears
on the register of CN, unless the Share Transfer Power on the share
certificate is duly completed in respect of such share(s).
<PAGE>
APPENDIX III
PROVISIONS ATTACHING TO THE
CN SPECIAL LIMITED VOTING SHARES
The CN Special Limited Voting Shares shall have attached thereto the
following rights, privileges, restrictions and conditions:
1. No Dividends Rights
1.1 The holders of the CN Special Limited Voting Shares, as such, shall not be
entitled to receive any dividends.
2. Dissolution
2.1 In the event of the dissolution, liquidation or winding-up of the
Corporation, whether voluntary of involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Preference
Shares, the CN Exchangeable Shares, the CN Voting Shares and of any other
shares ranking senior to the CN Special Limited Voting Shares with respect to
priority in the distribution of assets upon dissolution, liquidation or
winding-up but before any amount shall be paid to or any assets distributed
among the holders of CN Non-voting Equity Shares, or the holders of any other
class of shares of the Corporation ranking subordinate to the CN Special
Limited Voting Shares, the holder of the CN Special Limited Voting Shares shall
be entitled to receive the sum of U.S.$0.05 per CN Special Limited Voting
Share. After payment to the holders of the CN Special Limited Voting Shares of
such amount, the holders of the CN Special Limited Voting Share shall not be
entitled to share in any further distribution of the assets of the Corporation.
3. Limited Voting Rights
3.1 The holders of the CN Special Limited Voting Shares shall be entitled to
receive notice of and to attend all meetings of the shareholders of the
Corporation and shall be entitled to a number of votes equal, in the aggregate,
to the Applicable Number (and equal, per CN Special Limited Voting Share, to
the Applicable Number divided by the number of then outstanding CN Special
Limited Voting Shares) at any such meeting and on any matter voted on at such
meeting, except for meetings at which and matters on which only holders of
another specified class or series of shares of the Corporation are entitled to
vote separately as a class or series. For these purposes, the Applicable Number
shall be a number of votes equal to ten and one-tenth per cent (10.1%) of the
total number of votes entitled to be cast by the holders of the outstanding CN
Voting Shares and the holders of the CN Special
<PAGE>
-2-
Limited Voting Shares at such meeting and on such matter calculated in
accordance with the following formula:
AN = Applicable Number
NVS = Number of votes attached to outstanding CN Voting Shares
AN = (0.101)
(-----) multiplied by NCS
(0.899)
<PAGE>
APPENDIX IV
PROVISIONS ATTACHING TO THE
CN NON-VOTING EQUITY SHARES
The CN Non-voting Equity Shares shall have attached thereto the
following rights, privileges, restrictions and conditions:
1. Dividends
1.1 Subject to the rights, privileges, restrictions and conditions attaching to
the CN Exchangeable Shares, the Preference Shares and to the shares of any
other class of the Corporation ranking prior to the CN Non-voting Equity
Shares, the holders of the CN Non-voting Equity Shares shall be entitled, in
the discretion of the directors, to receive, out of amounts applicable to the
payment of dividends, any dividends declared and payable by the Corporation on
the CN Non-voting Equity Shares.
2. Dissolution
2.1 In the event of the dissolution, liquidation or winding-up of the
Corporation, whether voluntary of involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding up
its affairs, subject to the prior rights of the holders of the Preference
Shares, the CN Exchangeable Shares, the CN Voting Shares, the CN Special
Limited Voting Shares and any other shares ranking senior to the CN Non-voting
Equity Shares with respect to priority in the distribution of assets upon
dissolution, liquidation or winding-up, the holders of the CN Non-voting Equity
Shares shall be entitled to receive the remaining assets of the Corporation and
shall be entitled to share equally, share for share, in all distributions of
such assets.
3. No Voting Rights
3.1 Except as required by applicable law, the holders of the CN Non-voting
Equity Shares, as such, shall not be entitled to receive notice of or to attend
any meeting of the shareholders of the Corporation or to vote at any such
meeting.
<PAGE>
APPENDIX V
AMENDMENTS TO THE BY-LAWS OF CN
The English language version of By-Law No.1 of CN shall be amended as
follows with a corresponding amendment to be made to the French language
version:
1. Additional Definitions
Section 1.1 of the By-Law is amended by inserting, in appropriate
alphabetical order, the following additional defined terms:
""annual meeting of shareholders" means an annual meeting of
shareholders entitled to vote to elect, and which is held to elect,
the directors of the Corporation;
"share certificate" includes a unit certificate representing voting
shares and non-voting exchangeable preferred shares which may not be
transferred, transmitted, alienated or otherwise disposed of
separately except as provided in the articles;
"voting shares" has the meaning ascribed to such term in the CN
Commercialization Act and "voting shareholders" has a correlative
meaning;"
2. Amendment to Definitions
The definition of the term "articles" in section 1.1 of the By-Law
shall be replaced with the following definition:
""articles" means the articles of arrangement attached to the
certificate of arrangement dated [] of the Corporation as from
time to time amended or restated;"
3. References to Voting Shares
Section 4.3 of the By-Law is amended by deleting the reference to
"shareholders" in the third to last sentence thereof and replacing it with the
term "voting shareholders". Section 4.4 of the By-Law is amended by deleting
the reference to "shareholders" in such section and replacing it with the term
"voting shareholders". Section 4.6 of the By-Law is amended by deleting the
reference to "shareholders" in the second sentence thereof and replacing it
with the term "voting shareholders".
<PAGE>
EXHIBIT "I"
1. Definitions
1.1 For the purpose of this Exhibit "I", the following terms have the
following meanings:
"Act" means An Act to provide for the continuance of the Canadian
National Railway Company under the Canada Business Corporations Act
and for the issuance and sale of shares of the Company to the public,
S.C. 1995, c.24 enacted on July 13, 1995;
"Aggregate Votes" means the aggregate of the votes attached to all
voting shares of the Corporation that may ordinarily be cast to elect
directors of the Corporation;
"associate" has the meaning set out in Section 6 of this Exhibit "I";
"CBCA Regulations" means the Canada Business Corporations Regulations;
"control" has the meaning set out in Section 7 of this Exhibit "I";
"corporation" includes a body corporate, partnership and unincorporated
organization;
"Maximum Individual Holdings" means voting shares to which are
attached fifteen percent (15%) of the Aggregate Votes;
"Minister" means the Minister of Transport or such other member of the
Queen's Privy Council for Canada as may be designated by the Governor
in Council as the Minister for the purposes of the Act;
"Ownership Rights" means, with respect to voting shares of the
Corporation, all rights attaching thereto, including the rights to
vote at any meeting of shareholders, to receive any dividends declared
thereon by the Corporation, and to receive the remaining property of
the Corporation upon liquidation, dissolution or winding-up of the
Corporation (but does not include the right to receive proceeds of
sale pursuant to Section 5 of this Exhibit "I");
"person" includes an individual, corporation, government, government
agency, trustee, executor, administrator and other legal
representative; and
"voting share" means a share of the Corporation carrying voting rights
under all circumstances or under some circumstances that have occurred
and are continuing, and includes a security currently convertible into
such a share and
<PAGE>
-2-
currently exercisable options and rights to acquire such a share or
such a convertible security.
1.2 All terms used in this Exhibit "I" which are not defined in these
Articles of Arrangement but are defined in the Act or the CBCA have the meaning
ascribed thereto in the Act or the CBCA respectively, provided that in the
event of any inconsistency between a definition contained in the Act and a
definition contained in the CBCA, the definition contained in the Act shall
prevail. Any provision of this Exhibit "I" which may be read in a manner that
is inconsistent with the Act shall be read so as to be consistent therewith.
2. Constraints on Issue and Transfer
The Corporation shall not:
(a) accept any subscription for its voting shares;
(b) issue any of its voting shares; or
(c) register or otherwise recognize the transfer of any of its voting
shares;
if, as a result of such subscription, issue, transfer, purchase or acquisition,
voting shares to which are attached more than fifteen percent (15%) of the
Aggregate Votes are or would be held, beneficially owned or controlled,
directly or indirectly, by any one person together with the associates of such
person.
3. Constraints on Ownership Rights
No person, together with his or her associates, shall hold,
beneficially own or control, directly or indirectly, voting shares to which are
attached more than fifteen (15%) of the Aggregate Votes. Subject to Subsections
4.1 and 4.2, the Corporation shall refuse to recognize all Ownership Rights
that would otherwise be attached to any voting shares held, beneficially owned
or controlled, directly or indirectly, in excess of the permitted Maximum
Individual Holdings by any person, together with such person's associates.
4. Limitation on Voting Rights and dividend forfeiture
4.1 Where the total number of voting shares held, beneficially owned or
controlled, directly or indirectly, by any one person together with his or her
associates exceeds the Maximum Individual Holdings, no person shall, in person
or by proxy, exercise the voting rights attached to the voting shares held,
beneficially owned or controlled, directly or indirectly, by such person or his
or her associates. If the Corporation redeems, purchases for cancellation or
otherwise acquires voting shares, and the result of such action is that any
person and the associates of that
<PAGE>
-3-
person who, prior to such action, were not in contravention of the Maximum
Individual Holdings are, after such action, in contravention, then,
notwithstanding any other provision of this Exhibit "I", the sole consequence
of such action to that person and the associates of that person, in respect of
the voting shares of that person and of the associates of that person held,
beneficially owned or controlled at the time of such action, shall be that the
number of votes attached to those voting shares shall be reduced to a number
that is the largest whole number of votes that may be attached to the voting
shares which that person and the associates of that person could hold,
beneficially own or control from time to time in accordance with the Maximum
Individual Holdings.
4.2 Where the total number of voting shares held, beneficially owned or
controlled, directly or indirectly, by any one person together with his or her
associates exceeds the Maximum Individual Holdings, the percentage of any and
all dividends attributable to the percentage of voting shares exceeding the
Maximum Individual Holding shall be forfeited including any cumulative dividend
and the amount of dividend so forfeited shall not become payable thereafter to
any person for any reason whatsoever provided that notwithstanding any other
provision of this Exhibit "I":
(a) the directors of the Corporation may determine to pay a
dividend or to make any other distribution on voting shares
that would otherwise be prohibited by any other provision of
this Exhibit "I" where the contravention of the Maximum
Individual Holdings that gave rise to the prohibition was
inadvertent or of a technical nature or it would otherwise be
inequitable not to pay the dividend or make the distribution;
and
(b) where a dividend has not been paid or any other distribution
has not been made on voting shares of a person as a result of
a directors' determination of a contravention of the Maximum
Individual Holdings, the directors of the Corporation shall
declare and pay the dividend or make the distribution to the
relevant person if they subsequently determine that no such
contravention occurred.
4.3 Notwithstanding any other provision of this Exhibit "I", a
contravention of the Maximum Individual Holdings shall have no consequences
except those that are expressly provided for in this Exhibit "I". For greater
certainty but without limiting the generally of the foregoing:
(a) no transfer, issue or ownership of, and no title to, voting
shares;
(b) no resolution of shareholders; and
<PAGE>
-4-
(c) no act of the Corporation, including any transfer of property to
or by the Corporation;
shall be invalid or otherwise affected by any contravention of the Maximum
Individual Holdings.
5. Sale of Constrained Shares
Without limiting any of the provisions of this Exhibit "I" the
Corporation (but subject to Subsection 4.1) may, for the purposes of enforcing
any constraint imposed pursuant to Section 2 above, sell, as if it were the
owner thereof, any voting shares that are owned, or that the directors
determine may be owned, by any person or persons, contrary to such constraint.
Such sale shall be conducted in accordance with the procedures set forth in
Part VI of the CBCA and Part VII of the CBCA Regulations with necessary
modifications, as if such provisions applied to the sale of such voting shares
and the net proceeds of sale thereof shall be remitted to the person or persons
entitled thereto in accordance with such provisions.
6. Associates
6.1 For the purposes of this Exhibit "I", a person is an associate of
another person if:
(a) one is a corporation of which the other is an officer or director;
(b) one is a corporation that is controlled by the other or by a
group of persons of which the other is a member;
(c) one is a partnership of which the other is a partner;
(d) one is a trust of which the other is a trustee;
(e) both are corporations controlled by the same person;
(f) both are members of a voting trust that relates to voting shares;
(g) both, in the reasonable opinion of the directors of the
Corporation, are parties to an agreement or arrangement, a
purpose of which is to require them to act in concert with
respect to their interests, direct or indirect, in the
Corporation or are otherwise acting in concert with respect
to those interests; or
(h) both are at the same time associates, within the meaning of
any of paragraphs (a) to (g), of the same person.
<PAGE>
-5-
6.2 Notwithstanding Subsection 6.1, for the purposes of this section,
(a) where a person who, but for this Subsection 6.2, would be an
associate of another person submits to the Corporation a
statutory declaration or such other declaration required by
the directors stating that:
(i) no voting shares held or to be held by the declarant
are or will be, to the declarant's knowledge, held
in the right of, for the use or benefit of or under
the control of, any other person of which, but for
this paragraph, the declarant would be an associate,
and
(ii) the declarant is not acting and will not act in
concert with any such other person with respect to
their interests, direct or indirect, in the
Corporation,
the declarant and that other person are not associates so
long as the directors of the Corporation are satisfied that
the statements in the declaration are being complied with and
that there are no other reasonable grounds for disregarding
the declaration;
(b) two corporations are not associates pursuant to Subsection
6.1 by reason only that under Subsection 6.1 each is an
associate of the same individual; and
(c) where it appears from the central securities register of the
Corporation that any person holds, beneficially owns or
controls voting shares to which are attached not more than
the lesser of two one-hundredths of one percent of the votes
that may ordinarily be cast to elect directors of the
Corporation and five thousand such votes, that person is not
an associate of anyone else and no one else is an associate
of that person.
6.3 For greater certainty, no person is presumed to be an associate of any
other person for purposes of paragraph 8(4)(g) of the Act solely by reason that
one of them has given the other the power to vote or direct the voting of
voting shares at a meeting of the holders of the voting shares pursuant to a
revocable proxy where the proxy is solicited solely by means of an information
circular issued in a public solicitation of proxies that is made in respect of
all voting shares and in accordance with applicable law.
7. Control
For purposes of this Exhibit "I", "control" and any derivative thereof
means control in any manner that results in control in fact, whether directly
through the ownership of securities or indirectly through a trust, an agreement
or arrangement,
<PAGE>
-6-
the ownership of any body corporate or otherwise, and, without limiting the
generality of the foregoing:
(a) a body corporate is controlled by a person if:
(i) securities of the body corporate to which are
attached more than fifty percent (50%) of the votes
that may be cast to elect directors of the body
corporate are held, otherwise than by way of
security only, by or for the benefit of that person;
and
(ii) the votes attached to those securities are
sufficient, if exercised, to elect a majority of the
directors of the body corporate; and
(b) a partnership or unincorporated organization is controlled by
a person if an ownership interest therein representing more
than fifty percent (50%) of the assets of the partnership or
organization is held, otherwise than by way of security only,
by or for the benefit of that person.
8. Joint Ownership
8.1 For the purposes of this Exhibit "I", where voting shares are held,
beneficially owned or controlled by several persons jointly, the number of
voting shares held, beneficially owned or controlled by any one such person
shall include the number of voting shares held, beneficially owned or
controlled jointly with such other persons.
9. Exceptions
9.1 Nothing in this Exhibit "I" shall be construed to apply in respect of
voting shares that:
(a) are held by the Minister in trust for Her Majesty in right of
Canada;
(b) are held by one or more underwriters solely for the purpose of
distributing the shares to the public or in connection therewith
which shall include, without limitation, any voting shares
acquired through the exercise of an over-allotment option or in
stabilization transactions and, for the purposes of calculating
the percentage of voting shares of the Corporation held,
beneficially owned or controlled by any underwriter during the
period of any distribution of share (such period not terminating
for the purposes of this provision while any over-allotment
option remains unexercised and unexpired), shall not include any
shares owned or subject to acquisition by such underwriter which
have at the time of such calculation been resold;
<PAGE>
-7-
(c) are held by any person that is acting in relation to the shares
solely in its capacity as an intermediary in the payment of funds
or the delivery of securities or both, in connection with trades
in securities and that provides centralized facilities for the
clearing of trades in securities, including, without limitation,
intermediaries such as The Canadian Depositary for Securities
Limited and the Depository Trust Company;
(d) are held by way of security only; or
(e) are held by any custodian, depositary or other agent appointed
under an instalment receipt agreement or other agreement pursuant
to which, among other things, voting shares are purchased on an
instalment basis.
10. By-Laws
10.1 Subject to the CBCA and the CBCA Regulations, the directors of the
Corporation may make, amend or repeal any by-laws required to administer the
constrained share provisions set out in these articles, including by-laws:
(a) to determine the circumstances in which any declarations are
required, their form and the times when they are to be furnished;
(b) without limitation to paragraph (a), to require any person in
whose name voting shares are registered to furnish a statutory
declaration under the Canada Evidence Act declaring
whether:
(i) the shareholder is the beneficial owner of the voting
shares or holds them for a beneficial owner; and
(ii) the shareholder is an associate of any other shareholder,
and declaring any further facts that the directors consider
relevant; and
(c) to require any person seeking to have a transfer of a voting
share registered in his or her name or to have a voting share
issued to him or her to furnish a declaration similar to the
declaration a shareholder may be required to furnish under
paragraph (a) or (b).
10.2 Where a person is required to furnish a declaration pursuant to a
by-law made under Subsection 10.1 the directors may refuse to register a
transfer of a voting share in his or her name or to issue a voting share to him
or her until that person has furnished the declaration.
<PAGE>
-8-
11. Powers of Directors
11.1 In the administration of this Exhibit "I", the directors of the
Corporation shall enjoy, in addition to the powers set forth herein, all of the
powers necessary or desirable, in their opinion, to carry out the intent and
purpose hereof, including but not limited to all powers contemplated by the
provisions relating to constrained share corporations in Part VI of the CBCA
and Part VII of the CBCA Regulations, with necessary modifications, as if such
provisions applied to the sale of voting shares.
11.2 If the board of directors, acting in good faith, determines that any
persons are parties to an agreement or arrangement, a purpose of which is to
require them to act in concert with respect to their interest, direct or
indirect, in voting shares, the board of directors shall be entitled to treat
such persons as associates for the purposes hereof.
11.3 In administering the provisions of this Exhibit "I" the directors of
the Corporation may rely upon:
(a) a statement made in a declaration referred to in Section 10;
(b) the knowledge of a director, officer, employee or agent of the
Corporation; and
(c) the opinion of counsel to the Corporation or of other qualified
advisors.
11.4 Wherever in this Exhibit "I" it is necessary to determine the opinion
of the directors of the Corporation, such opinion shall be expressed and
conclusively evidenced by a resolution of the directors of the Corporation duly
adopted, including a resolution in writing executed pursuant to Section 117 of
the CBCA.
12. No Claims
Neither any shareholder of the Corporation nor any other interested
person shall have any claim or action against any director or officer of the
Corporation nor shall the Corporation have any claim or action against any
director or officer of the Corporation arising out of any act (including any
omission to act) performed pursuant to or in intended pursuance of the
provisions of this Exhibit "I" or any breach or alleged breach of such
provisions provided that the directors shall have acted honestly and in good
faith.
<PAGE>
-9-
13. Disclosure Required
Each of the following documents issued or published by the Corporation
shall indicate conspicuously the general nature of the constraints on issue,
transfer and ownership of its voting shares contained herein:
(a) certificate representing a voting share;
(b) management proxy circular; and
(c) prospectus, statement of material facts, registration statement or
similar document.
<PAGE>
ANNEX C
CANADIAN NATIONAL RAILWAY COMPANY
RESOLUTION OF THE CN SECURITYHOLDERS
BE IT RESOLVED THAT:
1. The Arrangement (the "Arrangement") under section 192 of the Canada
Business Corporations Act (the "CBCA") involving Canadian National Railway
Company (the "Corporation"), as more particularly described and set forth
in the Management Information Circular (the "Circular") of the Corporation
accompanying the notice of this meeting (as the Arrangement may be
modified or amended) is hereby authorized, approved and adopted.
2. The Plan of Arrangement (the "Plan of Arrangement") involving the
Corporation, the full text of which is set forth in o of the Circular, (as
the same may be or may have been amended) is hereby approved and adopted.
3. Notwithstanding that this resolution has been passed (and the Arrangement
adopted) by the shareholders and optionholders of the Corporation, or that
the Arrangement has been approved by the Quebec Superior Court, the
directors of the Corporation are hereby authorized:
(a) to amend the combination agreement (the "Combination Agreement")
made as of December 18, 1999 between the Corporation, Burlington
Northern Santa Fe Corporation ("BNSF") and North American Railways,
Inc. ("Newco"), providing for a merger involving BNSF and Newco and
the Arrangement, to the extent permitted by the Combination
Agreement; and
(b) to amend the Plan of Arrangement to the extent permitted by the
Combination Agreement; and
(c) not to proceed with the Arrangement at any time prior to the issue
of a certificate of arrangement under the CBCA without the further
approval of the shareholders and optionholders of the Corporation,
but only if the Combination Agreement is terminated in accordance
with Article Nine thereof.
4. Any officer or director of the Corporation is hereby authorized and
directed for and on behalf of the Corporation to execute, under the seal
of the Corporation or otherwise, and to deliver articles of arrangement,
and such
<PAGE>
other documents as are necessary or desirable, to the Director under the
CBCA in accordance with the Combination Agreement for filing.
5. Any officer or director of the Corporation is hereby authorized and
directed for and on behalf of the Corporation to execute or cause to be
executed, under the seal of the Corporation or otherwise, and to deliver
or cause to be delivered, all such other documents, agreements and
instruments, and to perform or cause to be performed, all such other acts
and things as in such officer's or director's opinion may be necessary or
desirable to carry out the intent of the foregoing resolution and the
matters authorized thereby, such determination to be conclusively
evidenced by the execution and delivery of such document, agreement or
instrument, or the doing of any such act or thing.
<PAGE>
EXECUTION COPY
ANNEX D
BURLINGTON NORTHERN SANTA FE STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of December 18, 1999 (this
"Agreement"), is between BURLINGTON NORTHERN SANTA FE CORPORATION, a Delaware
corporation ("Issuer"), and CANADIAN NATIONAL RAILWAY COMPANY, a Canadian
corporation ("Grantee").
RECITALS
A. The Combination Agreement. Prior to the entry into this Agreement
and prior to the grant of the Option (as defined in Section 1(a)), Issuer,
Grantee, NORTH AMERICAN RAILWAYS, INC., a Delaware corporation owned 50% by
Issuer and 50% by Grantee ("Newco"), and Western Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Newco ("Merger Sub"), have
entered into a Combination Agreement, dated as of the date of this Agreement
(the "Combination Agreement"), pursuant to which Grantee and Issuer have
agreed to effect certain transactions upon the terms and subject to the
conditions set forth in the Combination Agreement.
B. The Stock Option Agreement. As an inducement and condition to
Grantee's willingness to enter into the Combination Agreement, and in
consideration thereof, the board of directors of Issuer has approved the grant
to Grantee of the Option pursuant to this Agreement and the acquisition of
Common Stock (as defined below) by Grantee pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Combination
Agreement, the parties agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an irrevocable
option (the "Option") to purchase, subject to the terms and conditions of this
Agreement, up to 64,992,261 fully paid and nonassessable shares of common
stock, par value $0.01 per share ("Common Stock"), of Issuer at a price per
share in cash equal to the average of the closing price of Issuer's Common
Stock on the New York Stock Exchange (as reported in The Wall Street Journal,
New York City edition) on the five trading days ending on the last trading day
preceding the Notice Date (as defined below) (the "Option Price"); provided,
however, that in no event shall the number of shares for which the Option is
exercisable exceed 12.5% of the shares of Common Stock issued and outstanding
at the time of exercise (giving effect to the shares of Common Stock issued or
issuable under the Option) (the "Maximum Applicable Percentage"). The number
of shares of Common Stock purchasable upon exercise of the Option are subject
to adjustment as set forth in this Agreement.
<PAGE>
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement), the aggregate number of shares of Common
Stock purchasable upon exercise of the Option (inclusive of shares, if any,
previously purchased upon exercise of the Option) shall automatically be
increased (without any further action on the part of Issuer or Grantee being
necessary) so that, after such issuance, it equals the Maximum Applicable
Percentage. No such increase shall affect the Option Price.
2. Exercise; Closing. (a) Manner of Exercise; Termination. Grantee or
any other person that shall become a holder of all or part of the Option in
accordance with the terms of this Agreement (each such person being sometimes
referred to in this Agreement as the "Holder") may exercise the Option, in
whole or in part, by delivering a written notice thereof as provided in
Section 2(d) within 18 months following the occurrence of a Triggering Event
(as defined in Section 2(b)) unless prior to such Triggering Event either the
Merger Effective Time or the Arrangement Effective Time (as such terms are
defined in the Combination Agreement) shall have occurred or the Option shall
have terminated in accordance with the following sentence. The Option shall
terminate upon any of (i) the occurrence of either the Merger Effective Time
or the Arrangement Effective Time, (ii) if no notice pursuant to the preceding
sentence has been delivered prior thereto, the close of business on the day 18
months after the date that Grantee becomes entitled to receive the BNSF
Termination Fee (as defined in the Combination Agreement) under Section
10.4(b) of the Combination Agreement, (iii) the performance of the CN Stock
Option Agreement (as defined in the Combination Agreement) by Grantee or the
right of Issuer to purchase shares of Grantee's common stock upon exercise of
the option granted thereunder shall have been finally enjoined or held invalid
by a court of competent jurisdiction or (iv) the execution of or the written
agreement to enter into an agreement or series of agreements relating to a
Business Combination Transaction (as defined below) with such Holder;
provided, however, that in the event that any portion of the Option is held by
any other person other than the Grantee in accordance with the terms of this
Agreement, any termination pursuant to clause (iv) above shall only apply to
such portion of the Option held by such Holder and shall not effect that
portion of the Option held by the Grantee or such other persons, as the case
may be. A "Business Combination Transaction" shall mean (i) a consolidation,
exchange of shares or merger of a Holder with any Person and, in the case of a
merger, in which the Holder shall not be the continuing or surviving
corporation, (ii) any transaction (including, without limitation, a
consolidation, exchange of shares or merger) in which the Holder shall be the
continuing or surviving corporation but the then outstanding shares of capital
stock of the Holder shall be changed into or exchanged for stock or other
securities of the Holder or any other Person or cash or any other property or
the capital stock of such Holder outstanding immediately before such
transaction shall after such transaction represent less than 50% of the common
shares and common share equivalents of such Holder outstanding immediately
after the transaction or (iii) a sale, lease or other transfer of all or
substantially all the assets of the Holder to any Person.
(b) Triggering Event. A "Triggering Event" shall have occurred if the
Combination Agreement is terminated and Grantee shall have become entitled to
receive the BNSF Termination Fee pursuant to Section 10.4(b) of the
Combination Agreement.
<PAGE>
(c) Notice of Triggering Event by Issuer. Issuer shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition
to the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If the Holder shall be entitled to
and wishes to exercise the Option, it shall send to Issuer a written notice
(the date of which is referred to in this Agreement as the "Notice Date")
specifying (i) the total number of shares that the Holder will purchase
pursuant to such exercise and (ii) a place and date (a "Closing Date") not
earlier than three business days nor later than 30 business days from the
Notice Date for the closing of such purchase (a "Closing"); provided, that if
the Closing cannot be effected by reason of the application of any law or
regulation, (x) the Holder or Issuer, as required, promptly after the giving
of such notice shall file the required notice, report, filing or application
for approval and shall expeditiously process the same and (y) the Closing Date
shall be extended to not later than the tenth business day following the
expiration or termination of the restriction imposed by such law. Each of the
Holder and the Issuer agrees to use its reasonable best efforts to cooperate
with and provide information to Issuer or Holder, as the case may be, for the
purpose of any required notice, report, filing or application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder shall pay
to Issuer the aggregate purchase price for the shares of Common Stock
purchased pursuant to the exercise of the Option in immediately available
funds by a wire transfer to a bank account designated by Issuer; provided,
that failure or refusal of Issuer to designate such a bank account shall not
preclude the Holder from exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously with
the payment of the purchase price by the Holder, Issuer shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option shall be exercised in
part only, a new Option evidencing the rights of the Holder to purchase the
balance (as adjusted pursuant to Section 1(b)) of the shares of Common Stock
then purchasable under this Agreement.
(g) Restrictive Legend. Certificates for Common Stock delivered at a
Closing shall be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to resale restrictions arising under the Securities Act of
1933, as amended."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if the Holder shall have
delivered to Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act of 1933, as amended (the
"Securities Act"). In addition, such certificates shall bear any other legend
as may be required by applicable law.
<PAGE>
(h) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by the Holder to Issuer of a written notice of exercise referred to in
Section 2(d) and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not have been delivered to the
Holder. Issuer shall pay all expenses, and any and all United States and
Canadian federal, provincial, territorial, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder
or its assignee, transferee or designee.
(i) Effect of Statutory or Regulatory Restraints on Exercise. To the
extent that, upon or following the giving by the Holder to Issuer of a written
notice of exercise referred to in Section 2(d), Issuer is prohibited under
applicable law or regulation from delivering to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased by
the Holder, Issuer shall immediately so notify the Holder in writing and
thereafter deliver or cause to be delivered, from time to time, to the Holder
the portion of the Option Shares that Issuer is no longer prohibited from
delivering, within two business days after the date on which it is no longer
so prohibited; provided, however, that upon notification by Issuer in writing
of such prohibition, the Holder may, at any time after receipt of such
notification from Issuer, revoke in writing its exercise notice, whether in
whole or to the extent of the prohibition, whereupon, in the latter case,
Issuer shall promptly (i) deliver to the Holder that portion of the Option
Shares that Issuer is not prohibited from delivering pursuant to the time
periods set forth in Section 2(d); and (ii) deliver to the Holder, as
appropriate, with respect to the Option, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock for which the surrendered Stock Option Agreement was exercisable at the
time of giving the written notice of exercise referred to in Section 2(d).
Notwithstanding anything to the contrary in this Agreement, the period for
exercise of rights related to the Option set forth in Section 2(a) shall be
extended, at the request of Holder, for a period not to exceed 180 days from
the date that the Option would have terminated pursuant to Section 2(a) hereof
or such shorter period necessary to permit the delivery of all the Option
Shares subject to the exercise notice.
(j) Conditions to Exercise. The obligation of the Issuer to effect
the Closing shall be subject to the condition that the issuance of the Option
Shares at the Closing shall not be prohibited by any law, regulation,
injunction or order of any Governmental Entity (as defined in the Combination
Agreement).
(k) Waiver of Voting Rights. The Grantee agrees that it shall have no
voting rights, and shall not exercise or permit to be exercised any voting
rights in any circumstance, in respect of the Option or the Common Stock
purchasable under the Option unless, until, and only to the extent that the
Option has been exercised and Common Stock has been actually purchased
thereunder.
3. Covenants of Issuer. In addition to its other agreements and
covenants in this Agreement, Issuer agrees:
<PAGE>
(a) Shares Reserved for Issuance. It will maintain, free
from preemptive rights, sufficient authorized but unissued shares of
Common Stock to issue the appropriate number of shares of Common
Stock pursuant to the terms of this Agreement so that the Option may
be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase shares of
Common Stock from Issuer.
(b) No Avoidance. It will not avoid or seek to avoid
(whether by amendment of its constitutive documents or through
reorganization, consolidation, merger, issuance of rights,
dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or
conditions to be observed or performed under this Agreement by
Issuer.
(c) Further Assurances. After the date of this Agreement, it
will promptly take all actions as may from time to time be required
(including (i) seeking any necessary governmental approval, exemption
or other authorization, (ii) complying with all applicable premerger
notification, reporting and waiting period requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and
(iii) in the event that prior notice, report, filing or approval with
respect to any Governmental Entity is necessary under any applicable
foreign, United States or Canadian federal, provincial, territorial,
state or local law before the Option may be exercised, cooperating
fully with the Holder in preparing and processing the required
applications or notices) in order to permit each Holder to exercise
the Option and purchase shares of Common Stock pursuant to such
exercise and to take all action necessary to protect the rights of
the Holder against dilution.
(d) Stock Exchange Listing. It will use its reasonable best
efforts to cause the shares of Common Stock to be issued pursuant to
the Option to be approved for listing (to the extent they are not
already listed) on all securities exchanges on which shares of Common
Stock of the Issuer are then listed, subject to official notice of
issuance.
4. Representations and Warranties of Issuer. Issuer represents and
warrants to Grantee as follows:
(a) Shares Reserved for Issuance; Capital Stock. Issuer has
taken all necessary corporate action to authorize and reserve, free
from preemptive rights, and permit it to issue, sufficient authorized
but unissued shares of Common Stock so that the Option may be fully
exercised without additional authorization of Common Stock after
giving effect to all other options, warrants, convertible securities
and other rights of third parties to purchase shares of Common Stock
from Issuer, and all such shares, upon issuance pursuant to the
Option, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all claims,
liens, encumbrances, and security interests (other than those created
by this Agreement) and not subject to any preemptive rights.
<PAGE>
5. Adjustments. In addition to the adjustment to the total number of
shares of Common Stock purchasable upon exercise of the Option pursuant to
Section 1(b), the total number of shares of Common Stock purchasable upon the
exercise of the Option shall be subject to adjustment from time to time as
follows:
(a) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise of the Option, shall be appropriately
adjusted, and proper provision shall be made in the agreements
governing any such transaction, so that (i) any Holder shall receive
upon exercise of the Option the number and class of shares, other
securities, property or cash that such Holder would have received in
respect of the shares of Common Stock purchasable upon exercise of
the Option if the Option had been exercised and such shares of Common
Stock had been issued to such Holder immediately prior to such event
or the record date therefor, as applicable and (ii) in the event any
additional shares of Common Stock are to be issued or otherwise
become outstanding as a result of any such change (other than
pursuant to an exercise of the Option), the number of shares of
Common Stock purchasable upon exercise of the Option shall be
increased so that, after such issuance and together with shares of
Common Stock previously issued pursuant to the exercise of the Option
(as adjusted on account of any of the foregoing changes in the Common
Stock), the number of shares so purchasable equals the Maximum
Applicable Percentage of the number of shares of Common Stock issued
and outstanding immediately after the consummation of such change. If
any such change in the outstanding shares of Common Stock occurs at
any time on or after the first trading day included in the
calculation of the Option Price and prior to the Closing, equitable
adjustment shall be made to the Option Price to reflect the effect of
such changes.
(b) Without limiting the parties' relative rights and
obligations under the Combination Agreement, in the event that Issuer
enters into an agreement or arrangement (i) to consolidate with or
merge into any person, other than Grantee or one of its subsidiaries,
and Issuer will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any person, other than
Grantee or one of its subsidiaries, to merge into Issuer and Issuer
will be the continuing or surviving corporation, but in connection
with such merger, the shares of Common Stock outstanding immediately
prior to the consummation of such merger will be changed into or
exchanged for stock or other securities of Issuer or any other person
or cash or any other property, or the shares of Common Stock
outstanding immediately prior to the consummation of such merger
will, after such merger, represent less than 50% of the outstanding
voting securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any
person, other than Grantee or one of its subsidiaries, then, and in
each such case, the agreement governing such transaction will make
proper provision so that the Option will, upon the consummation of
any such transaction and upon the terms and conditions set forth
herein, be converted into, or
<PAGE>
exchanged for, an option with identical terms appropriately adjusted
to acquire the number and class of shares or other securities or
property that Grantee would have received in respect of the Common
Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale or transfer or the record date therefor,
as applicable and make any other necessary adjustments.
6. Registration. (a) Upon the occurrence of a Triggering Event,
Issuer shall, at the request of a Holder, as promptly as practicable prepare,
file and keep current a shelf registration statement under the Securities Act
covering any or all shares issued and issuable pursuant to the Option and
shall use its best efforts to cause such registration statement to become and
remain effective for such period as may be reasonably necessary to permit the
sale or other disposition of any shares of Common Stock issued upon total or
partial exercise of the Option ("Option Shares") in accordance with any plan
of disposition requested by such Holder; provided, however, that Issuer may
suspend filing of or maintaining the effectiveness of a registration statement
relating to a registration request by a Holder under this Section 6 for a
period of time (not in excess of 60 days in the aggregate) if in its judgment
such filing of such registration statement or the maintenance of its
effectiveness would require the disclosure of nonpublic information that
Issuer has a good faith business purpose for preserving as confidential.
Subject to the foregoing, Issuer will use its reasonable best efforts to cause
such registration statement to become effective as soon as practicable. In
connection with any such registration, Issuer and the Holder requesting such
registration shall provide each other with representations, warranties,
indemnities and other agreements customarily given in connection with such
registrations. If requested by such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
Issuer in respect of representations, warranties, indemnities, contribution
and other agreements customarily made by issuers in such underwriting
agreements.
(b) In the event that such Holder so requests, the closing of the
sale or other disposition of the Common Stock or other securities pursuant to
a registration statement filed pursuant to Section 6(a) shall occur
substantially simultaneously with the exercise of the Option.
(c) Any registration statement prepared and filed under this Section
6 and any sale covered thereby, will be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of the Holder's counsel related thereto. In connection with any
registration pursuant to this Section 6, Issuer and such Holder will provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification, and contribution in connection with
such registration.
7. Extension of Exercise Periods. The periods for exercise of certain
rights under Section 2 shall be extended in each such case at the request of
the Holder to the extent necessary to avoid liability by the Holder under
Section 16(b) of the Securities Exchange Act of 1934, as amended ("Section
16(b)"), by reason of such exercise.
8. Assignment. Neither party may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other
<PAGE>
party. Any attempted assignment in contravention of the preceding sentence
shall be null and void.
9. Filings; Other Actions. The parties hereto will use their
reasonable best efforts to make all filings with, and to obtain consents of,
all third parties and governmental authorities necessary for the consummation
of the transactions contemplated by this Agreement.
10. Specific Performance. The parties acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party and
that the obligations of the parties shall be specifically enforceable through
injunctive or other equitable relief.
11. Severability. The provisions of this Agreement, the Combination
Agreement and any other agreement contemplated by the Combination Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision of this Agreement, the Combination Agreement or any other agreement
contemplated by the Combination Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement or any provisions of
such other agreement. Without limiting the generality of the foregoing, the
invalidity or unenforceability of any provision of any such other agreement
shall not affect the validity or enforceability of any provision of this
Agreement. If any provision of this Agreement or any such other agreement or
the application thereof to any Person or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (ii) the
remainder of this Agreement or any such other agreement and the application of
such provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction. If for any reason a Governmental Entity
determines that the Holder is not permitted to acquire the full number of
shares of Common Stock provided in Section 1(a) of this Agreement (as adjusted
pursuant to Sections 1(b) and 5 of this Agreement), it is the express
intention of Issuer to allow the Holder to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification of this Agreement or any other agreement executed or
to be executed in connection herewith.
12. Notices. Notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given, (i)
when sent, if sent by facsimile, provided that a copy of the facsimile is
promptly sent by U.S. mail and confirmation of receipt has been delivered (ii)
when delivered, if delivered personally to the intended recipient, and (iii)
one business day later, if sent by overnight delivery via an international
courier service and, in each case at the respective addresses of the parties
set forth in the Combination Agreement.
13. Expenses. Except as otherwise expressly provided in this
Agreement or in the Combination Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expense, including fees
and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
<PAGE>
14. Entire Agreement. This Agreement, the Confidentiality Agreement
(as defined in the Combination Agreement) and the Combination Agreement
(including any other exhibits thereto and the ancillary agreements
contemplated thereby) constitute the entire agreement, and supersede all other
prior agreements, understandings, representations and warranties, both written
and oral, between the parties, with respect to the subject matter of this
Agreement. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors and
permitted assigns. Nothing in this Agreement is intended to confer upon any
person or entity, other than the parties to this Agreement, and their
respective successors and permitted assigns, any rights or remedies under this
Agreement.
15. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in accordance with the
laws of the State of New York without regard to the conflict of law principles
thereof. The parties hereby irrevocably and unconditionally consent to submit
to the exclusive jurisdiction of both the courts of the State of Delaware and
of the United States of America located in Wilmington, Delaware (the "Delaware
Courts") and the Quebec Superior Court located in Montreal, Quebec (the
"Quebec Court") for any litigation arising out of or relating to this
Agreement and the transactions contemplated by this Agreement, waive any
objection to the laying of venue of any such litigation in the Delaware Courts
or the Quebec Court and agree not to plead or claim in any Delaware Court or
the Quebec Court that such litigation brought therein has been brought in an
inconvenient forum; provided, however, that the parties agree that any
proceedings in the Quebec Court arising out of or relating to this Agreement
and the transactions contemplated by this Agreement shall be conducted in
English and all written documents relating to any such proceedings shall be
written in English.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 15.
16. U.S. Dollars. All amounts paid or payable hereunder, and all
prices referenced hereunder, shall be in United States Dollars.
<PAGE>
17. Effectiveness. This Agreement shall not be effective until, but
shall become effective automatically immediately, without any action on the
part of Issuer, Grantee or any Holder, when, the Reciprocating Event (as
defined below) occurs. The "Reciprocating Event" shall mean the approval by
The Toronto Stock Exchange of both (i) the grant of the option granted to
Issuer by Grantee under the CN Stock Option Agreement and (ii) the issuance of
the shares of Grantee's common stock issuable thereunder.
18. Captions. The Section and paragraph captions in this Agreement
are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by duly authorized officers of the parties as of the day and year
first written above.
BURLINGTON NORTHERN SANTA FE
CORPORATION
By: /s/ Robert D. Krebs
---------------------------------
Name: Robert D. Krebs
Title: Chairman and Chief
Executive Officer
CANADIAN NATIONAL RAILWAY COMPANY
By: /s/ Paul M. Tellier
---------------------------------
Name: Paul M. Tellier
Title: President and Chief
Executive Officer
<PAGE>
EXECUTION COPY
ANNEX E
CANADIAN NATIONAL STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of December 18, 1999 (this
"Agreement"), is between CANADIAN NATIONAL RAILWAY COMPANY, a Canadian
corporation ("Issuer"), and BURLINGTON NORTHERN SANTA FE CORPORATION, a Delaware
corporation ("Grantee").
RECITALS
A. The Combination Agreement. Prior to the entry into this Agreement
and prior to the grant of the Option (as defined in Section 1(a)), Issuer,
Grantee, NORTH AMERICAN RAILWAYS, INC., a Delaware corporation owned 50% by
Issuer and 50% by Grantee ("Newco"), and Western Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Newco ("Merger Sub"), have entered
into a Combination Agreement, dated as of the date of this Agreement (the
"Combination Agreement"), pursuant to which Grantee and Issuer have agreed to
effect certain transactions upon the terms and subject to the conditions set
forth in the Combination Agreement.
B. The Stock Option Agreement. As an inducement and condition to
Grantee's willingness to enter into the Combination Agreement, and in
consideration thereof, the board of directors of Issuer has approved the grant
to Grantee of the Option pursuant to this Agreement and the acquisition of
Common Stock (as defined below) by Grantee pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Combination
Agreement, the parties agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an irrevocable
option (the "Option") to purchase, subject to the terms and conditions of this
Agreement, up to 28,895,812 fully paid and nonassessable common shares in the
capital of Issuer ("Common Stock"), of Issuer at a price per share in cash equal
to the average of the closing price of Issuer's Common Stock on the New York
Stock Exchange (as reported in The Wall Street Journal, New York City edition)
on the five trading days ending on the last trading day preceding the Notice
Date (as defined below) (the "Option Price"); provided, however, that in no
event shall the number of shares for which the Option is exercisable exceed
12.5% of the shares of Common Stock issued and outstanding at the time of
exercise (giving effect to the shares of Common Stock issued or issuable under
the Option) (the "Maximum Applicable Percentage"). The number of shares of
Common Stock purchasable upon exercise of the Option are subject to adjustment
as set forth in this Agreement.
<PAGE>
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the aggregate number of shares of Common Stock
purchasable upon exercise of the Option (inclusive of shares, if any, previously
purchased upon exercise of the Option) shall automatically be increased (without
any further action on the part of Issuer or Grantee being necessary) so that,
after such issuance, it equals the Maximum Applicable Percentage. No such
increase shall affect the Option Price.
2. Exercise; Closing. (a) Manner of Exercise; Termination. Grantee or
any other person that shall become a holder of all or part of the Option in
accordance with the terms of this Agreement (each such person being sometimes
referred to in this Agreement as the "Holder") may exercise the Option, in whole
or in part, by delivering a written notice thereof as provided in Section 2(d)
within 18 months following the occurrence of a Triggering Event (as defined in
Section 2(b)) unless prior to such Triggering Event either the Merger Effective
Time or the Arrangement Effective Time (as such terms are defined in the
Combination Agreement) shall have occurred or the Option shall have terminated
in accordance with the following sentence. The Option shall terminate upon any
of (i) the occurrence of either the Merger Effective Time or the Arrangement
Effective Time, (ii) if no notice pursuant to the preceding sentence has been
delivered prior thereto, the close of business on the day 18 months after the
date that Grantee becomes entitled to receive the CN Termination Fee (as defined
in the Combination Agreement) under Section 10.4(c) of the Combination
Agreement, (iii) the performance of the BNSF Stock Option Agreement (as defined
in the Combination Agreement) by Grantee or the right of Issuer to purchase
shares of Grantee's common stock upon exercise of the option granted thereunder
shall have been finally enjoined or held invalid by a court of competent
jurisdiction or (iv) the execution of or the written agreement to enter into an
agreement or series of agreements relating to a Business Combination Transaction
(as defined below) with such Holder; provided, however, that in the event that
any portion of the Option is held by any other person other than the Grantee in
accordance with the terms of this Agreement, any termination pursuant to clause
(iv) above shall only apply to such portion of the Option held by such Holder
and shall not effect that portion of the Option held by the Grantee or such
other persons, as the case may be. A "Business Combination Transaction" shall
mean (i) a consolidation, exchange of shares or merger of a Holder with any
Person and, in the case of a merger, in which the Holder shall not be the
continuing or surviving corporation, (ii) any transaction (including, without
limitation, a consolidation, exchange of shares or merger) in which the Holder
shall be the continuing or surviving corporation but the then outstanding shares
of capital stock of the Holder shall be changed into or exchanged for stock or
other securities of the Holder or any other Person or cash or any other property
or the capital stock of such Holder outstanding immediately before such
transaction shall after such transaction represent less than 50% of the common
shares and common share equivalents of such Holder outstanding immediately after
the transaction or (iii) a sale, lease or other transfer of all or substantially
all the assets of the Holder to any Person.
(b) Triggering Event. A "Triggering Event" shall have occurred if the
Combination Agreement is terminated and Grantee shall have become entitled to
receive the CN Termination Fee pursuant to Section 10.4(c) of the Combination
Agreement.
<PAGE>
(c) Notice of Triggering Event by Issuer. Issuer shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If the Holder shall be entitled to
and wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which is referred to in this Agreement as the "Notice Date") specifying
(i) the total number of shares that the Holder will purchase pursuant to such
exercise and (ii) a place and date (a "Closing Date") not earlier than three
business days nor later than 30 business days from the Notice Date for the
closing of such purchase (a "Closing"); provided, that if the Closing cannot be
effected by reason of the application of any law or regulation, (x) the Holder
or Issuer, as required, promptly after the giving of such notice shall file the
required notice, report, filing or application for approval and shall
expeditiously process the same and (y) the Closing Date shall be extended to not
later than the tenth business day following the expiration or termination of the
restriction imposed by such law. Each of the Holder and the Issuer agrees to use
its reasonable best efforts to cooperate with and provide information to Issuer
or Holder, as the case may be, for the purpose of any required notice, report,
filing or application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder shall pay to
Issuer the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank account designated by Issuer; provided, that failure or
refusal of Issuer to designate such a bank account shall not preclude the Holder
from exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Issuer shall deliver to the Holder
a certificate or certificates representing the number of shares of Common Stock
purchased by the Holder and, if the Option shall be exercised in part only, a
new Option evidencing the rights of the Holder to purchase the balance (as
adjusted pursuant to Section 1(b)) of the shares of Common Stock then
purchasable under this Agreement.
(g) Restrictive Legend. Certificates for Common Stock delivered at a
Closing shall be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to resale restrictions arising under the Securities Act of
1933, as amended, and the applicable Canadian securities laws."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if the Holder shall have
delivered to Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of either the Securities Act of 1933, as amended (the
"Securities Act") or the applicable Canadian securities laws. In addition, such
certificates shall bear any other legend as may be required by applicable law.
<PAGE>
(h) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by the Holder to Issuer of a written notice of exercise referred to in
Section 2(d) and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not have been delivered to the
Holder. Issuer shall pay all expenses, and any and all United States and
Canadian federal, provincial, territorial, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
(i) Effect of Statutory or Regulatory Restraints on Exercise. To the
extent that, upon or following the giving by the Holder to Issuer of a written
notice of exercise referred to in Section 2(d), Issuer is prohibited under
applicable law or regulation from delivering to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased by the
Holder, Issuer shall immediately so notify the Holder in writing and thereafter
deliver or cause to be delivered, from time to time, to the Holder the portion
of the Option Shares that Issuer is no longer prohibited from delivering, within
two business days after the date on which it is no longer so prohibited;
provided, however, that upon notification by Issuer in writing of such
prohibition, the Holder may, at any time after receipt of such notification from
Issuer, revoke in writing its exercise notice, whether in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder that portion of the Option Shares that Issuer is not
prohibited from delivering pursuant to the time periods set forth in Section
2(d); and (ii) deliver to the Holder, as appropriate, with respect to the
Option, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of giving the written notice of
exercise referred to in Section 2(d). Notwithstanding anything to the contrary
in this Agreement, the period for exercise of rights related to the Option set
forth in Section 2(a) shall be extended, at the request of Holder, for a period
not to exceed 180 days from the date that the Option would have terminated
pursuant to Section 2(a) hereof or such shorter period necessary to permit the
delivery of all the Option Shares subject to the exercise notice.
(j) Conditions to Exercise. The obligation of the Issuer to effect the
Closing shall be subject to the following conditions:
(a) all regulatory approvals required of the Issuer in
connection with the issuance of the Option Shares
hereunder shall have been obtained, including that
the grant of the Option and the issuance of the
Option Shares shall have been approved by The Toronto
Stock Exchange; and
(b) the issuance of the Option Shares at the Closing
shall not be prohibited by any law, regulation,
injunction or order of any Governmental Entity (as
defined in the Combination Agreement).
<PAGE>
(k) Waiver of Voting Rights. The Grantee agrees that it shall have no
voting rights, and shall not exercise or permit to be exercised any voting
rights in any circumstance, in respect of the Option or the Common Stock
purchasable under the Option unless, until, and only to the extent that the
Option has been exercised and Common Stock has actually been purchased
thereunder.
3. Covenants of Issuer. In addition to its other agreements and
covenants in this Agreement, Issuer agrees:
(a) Shares Reserved for Issuance. It will maintain, free from
preemptive rights, sufficient authorized but unissued shares of Common
Stock to issue the appropriate number of shares of Common Stock
pursuant to the terms of this Agreement so that the Option may be fully
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights of third parties to purchase shares of Common Stock from Issuer.
(b) No Avoidance. It will not avoid or seek to avoid (whether
by amendment of its constitutive documents or through reorganization,
consolidation, merger, issuance of rights, dissolution or sale of
assets, or by any other voluntary act) the observance or performance of
any of the covenants, agreements or conditions to be observed or
performed under this Agreement by Issuer.
(c) Further Assurances. After the date of this Agreement, it
will promptly take all actions as may from time to time be required
(including (i) seeking any necessary governmental approval, exemption
or other authorization, (ii) complying with all applicable premerger
notification, reporting and waiting period requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and
(iii) in the event that prior notice, report, filing or approval with
respect to any Governmental Entity is necessary under any applicable
foreign, United States or Canadian federal, provincial, territorial,
state or local law before the Option may be exercised, cooperating
fully with the Holder in preparing and processing the required
applications or notices) in order to permit each Holder to exercise the
Option and purchase shares of Common Stock pursuant to such exercise
and to take all action necessary to protect the rights of the Holder
against dilution.
(d) Stock Exchange Listing. It will use its reasonable best
efforts to cause the shares of Common Stock to be issued pursuant to
the Option to be approved for listing (to the extent they are not
already listed) on all securities exchanges on which shares of Common
Stock of the Issuer are then listed, subject to official notice of
issuance.
4. Representations and Warranties of Issuer. Issuer represents and
warrants to Grantee as follows:
(a) Shares Reserved for Issuance; Capital Stock. Issuer has
taken all necessary corporate action to authorize and reserve, free
from preemptive rights, and
<PAGE>
permit it to issue, sufficient authorized but unissued shares of
Common Stock so that the Option may be fully exercised without
additional authorization of Common Stock after giving effect to all
other options, warrants, convertible securities and other rights of
third parties to purchase shares of Common Stock from Issuer, and all
such shares, upon issuance pursuant to the Option, will be duly
authorized, validly issued, fully paid and nonassessable, and will be
delivered free and clear of all claims, liens, encumbrances, and
security interests (other than those created by this Agreement) and
not subject to any preemptive rights.
5. Adjustments. In addition to the adjustment to the total number of
shares of Common Stock purchasable upon exercise of the Option pursuant to
Section 1(b), the total number of shares of Common Stock purchasable upon the
exercise of the Option shall be subject to adjustment from time to time as
follows:
(a) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise of the Option, shall be appropriately
adjusted, and proper provision shall be made in the agreements
governing any such transaction, so that (i) any Holder shall receive
upon exercise of the Option the number and class of shares, other
securities, property or cash that such Holder would have received in
respect of the shares of Common Stock purchasable upon exercise of the
Option if the Option had been exercised and such shares of Common Stock
had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable and (ii) in the event any
additional shares of Common Stock are to be issued or otherwise become
outstanding as a result of any such change (other than pursuant to an
exercise of the Option), the number of shares of Common Stock
purchasable upon exercise of the Option shall be increased so that,
after such issuance and together with shares of Common Stock previously
issued pursuant to the exercise of the Option (as adjusted on account
of any of the foregoing changes in the Common Stock), the number of
shares so purchasable equals the Maximum Applicable Percentage of the
number of shares of Common Stock issued and outstanding immediately
after the consummation of such change. If any such change in the
outstanding shares of Common Stock occurs at any time on or after the
first trading day included in the calculation of the Option Price and
prior to the Closing, equitable adjustment shall be made to the Option
Price to reflect the effect of such change.
(b) Without limiting the parties' relative rights and
obligations under the Combination Agreement, in the event that Issuer
enters into an agreement or arrangement (i) to consolidate with or
merge into any person, other than Grantee or one of its subsidiaries,
and Issuer will not be the continuing or surviving corporation in such
consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such
merger, the shares of Common Stock outstanding immediately prior to the
consummation of such merger will be changed into
<PAGE>
or exchanged for stock or other securities of Issuer or any other
person or cash or any other property, or the shares of Common Stock
outstanding immediately prior to the consummation of such merger will,
after such merger, represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other
than Grantee or one of its subsidiaries, then, and in each such case,
the agreement governing such transaction will make proper provision so
that the Option will, upon the consummation of any such transaction
and upon the terms and conditions set forth herein, be converted into,
or exchanged for, an option with identical terms appropriately
adjusted to acquire the number and class of shares or other securities
or property that Grantee would have received in respect of the Common
Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale or transfer or the record date therefor,
as applicable and make any other necessary adjustments.
6. Registration. (a) Upon the occurrence of a Triggering Event, Issuer
shall, at the request of a Holder, as promptly as practicable prepare, file and
keep current a shelf registration statement under the Securities Act covering
any or all shares issued and issuable pursuant to the Option and shall use its
best efforts to cause such registration statement to become and remain effective
for such period as may be reasonably necessary to permit the sale or other
disposition of any shares of Common Stock issued upon total or partial exercise
of the Option ("Option Shares") in accordance with any plan of disposition
requested by such Holder; provided, however, that Issuer may suspend filing of
or maintaining the effectiveness of a registration statement relating to a
registration request by a Holder under this Section 6 for a period of time (not
in excess of 60 days in the aggregate) if in its judgment such filing of such
registration statement or the maintenance of its effectiveness would require the
disclosure of nonpublic information that Issuer has a good faith business
purpose for preserving as confidential. Subject to the foregoing, Issuer will
use its reasonable best efforts to cause such registration statement to become
effective as soon as practicable. In connection with any such registration,
Issuer and the Holder requesting such registration shall provide each other with
representations, warranties, indemnities and other agreements customarily given
in connection with such registrations. If requested by such Holder in connection
with such registration, Issuer shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating Issuer in respect of representations, warranties, indemnities,
contribution and other agreements customarily made by issuers in such
underwriting agreements.
(b) In the event that such Holder so requests, the closing of the sale
or other disposition of the Common Stock or other securities pursuant to a
registration statement filed pursuant to Section 6(a) shall occur substantially
simultaneously with the exercise of the Option.
(c) Any registration statement prepared and filed under this Section 6
and any sale covered thereby, will be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of the Holder's counsel related thereto. In connection with any
registration pursuant to this Section 6, Issuer and such Holder will provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification, and contribution in connection with such
registration.
<PAGE>
7. Extension of Exercise Periods. The periods for exercise of certain
rights under Section 2 shall be extended in each such case at the request of the
Holder to the extent necessary to avoid liability by the Holder under Section
16(b) of the Securities Exchange Act of 1934, as amended ("Section 16(b)"), by
reason of such exercise.
8. Assignment. Neither party may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party. Any attempted assignment in
contravention of the preceding sentence shall be null and void.
9. Filings; Other Actions. The parties hereto will use their reasonable
best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary for the consummation of the
transactions contemplated by this Agreement.
10. Specific Performance. The parties acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
11. Severability. The provisions of this Agreement, the Combination
Agreement and any other agreement contemplated by the Combination Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision of this Agreement, the Combination Agreement or any other agreement
contemplated by the Combination Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement or any provisions of
such other agreement. Without limiting the generality of the foregoing, the
invalidity or unenforceability of any provision of any such other agreement
shall not affect the validity or enforceability of any provision of this
Agreement. If any provision of this Agreement or any such other agreement or the
application thereof to any Person or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (ii) the
remainder of this Agreement or any such other agreement and the application of
such provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction. If for any reason a Governmental Entity
determines that the Holder is not permitted to acquire the full number of shares
of Common Stock provided in Section 1(a) of this Agreement (as adjusted pursuant
to Sections 1(b) and 5 of this Agreement), it is the express intention of Issuer
to allow the Holder to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible, without any amendment or modification of
this Agreement or any other agreement executed or to be executed in connection
herewith.
12. Notices. Notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given, (i)
when sent, if sent by facsimile, provided that a copy of the facsimile is
promptly sent by U.S. mail and confirmation of receipt has been delivered (ii)
when delivered, if delivered personally to the intended recipient, and (iii)
<PAGE>
one business day later, if sent by overnight delivery via an international
courier service and, in each case at the respective addresses of the parties set
forth in the Combination Agreement.
13. Expenses. Except as otherwise expressly provided in this Agreement
or in the Combination Agreement, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement shall be
paid by the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
14. Entire Agreement. This Agreement, the Confidentiality Agreement (as
defined in the Combination Agreement) and the Combination Agreement (including
any other exhibits thereto and the ancillary agreements contemplated thereby)
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, between
the parties, with respect to the subject matter of this Agreement. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and permitted assigns. Nothing in
this Agreement is intended to confer upon any person or entity, other than the
parties to this Agreement, and their respective successors and permitted
assigns, any rights or remedies under this Agreement.
15. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all respects
shall be interpreted, construed and governed by and in accordance with the laws
of the State of New York without regard to the conflict of law principles
thereof. The parties hereby irrevocably and unconditionally consent to submit to
the exclusive jurisdiction of both the courts of the State of Delaware and of
the United States of America located in Wilmington, Delaware (the "Delaware
Courts") and the Quebec Superior Court located in Montreal, Quebec (the "Quebec
Court") for any litigation arising out of or relating to this Agreement and the
transactions contemplated by this Agreement, waive any objection to the laying
of venue of any such litigation in the Delaware Courts or the Quebec Court and
agree not to plead or claim in any Delaware Court or the Quebec Court that such
litigation brought therein has been brought in an inconvenient forum; provided,
however, that the parties agree that any proceedings in the Quebec Court arising
out of or relating to this Agreement and the transactions contemplated by this
Agreement shall be conducted in English and all written documents relating to
any such proceedings shall be written in English.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE
EVENT OF
<PAGE>
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 15.
16. U.S. Dollars. All amounts paid or payable hereunder, and all prices
referenced hereunder, shall be in United States Dollars.
17. Captions. The Section and paragraph captions in this Agreement are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by duly authorized officers of the parties as of the day and year first written
above.
CANADIAN NATIONAL RAILWAY COMPANY
By: /s/ Paul M. Tellier
--------------------------------------------
Name: Paul M. Tellier
Title: President and Chief Executive Officer
BURLINGTON NORTHERN SANTA FE CORPORATION
By: /s/ Robert D. Krebs
--------------------------------------------
Name: Robert D. Krebs
Title: Chairman and Chief Executive Officer
<PAGE>
ANNEX F
December 18, 1999
Board of Directors
Canadian National Railway Company
935 de La Gauchetiere Street West
Montreal, Quebec, Canada H3B 2M9
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common shares (the "Northern Common Shares") in the
capital of Canadian National Railway Company ("Northern") of the Exchange Ratio
(as defined below) in the proposed transaction (the "Proposed Transaction")
between Burlington Northern Santa Fe Corporation ("Western") and Northern
contemplated by the Combination Agreement (the "Agreement") to be entered into
by and among Northern, Western, North American Railways, Inc. ("Newco") and
Western Merger Sub, Inc. ("Merger Sub") and the Plan of Arrangement for Northern
(including its appendices, the "Plan of Arrangement") attached as an exhibit to
the Agreement.
As more specifically set forth in the Agreement and the Plan of
Arrangement, in the Proposed Transaction (a) each issued and outstanding
Northern Common Share not owned by any holder who has exercised rights of
dissent will be exchanged for 1.05 (the "Exchange Ratio") units ("Northern
Units"), each consisting of one non-voting exchangeable preferred share of
Northern having the rights, privileges, restrictions and conditions set forth in
Appendix II to the Plan of Arrangement ("Northern Exchangeable Shares") and one
voting share of Northern having the rights, privileges, restrictions and
conditions set forth in Appendix I to the Plan of Arrangement ("Northern Voting
Shares") and (b) each issued and outstanding share of common stock, par value
$0.01 per share (the "Western Common Stock"), of Western not owned by Western or
any subsidiary of Western will be converted into one unit (a "Newco Stapled
Unit") consisting of one share of common stock, par value $0.01 per share (the
"Newco Common Stock"), of Newco and one Northern Voting Share. The shares
comprising each Newco Stapled Unit will be inseparable and will trade together
and, except as set forth in the Plan of Arrangement, the shares comprising each
Northern Unit will be inseparable and will trade together. In the Proposed
Transaction, holders of Northern Common Shares who are residents of Canada may
elect, and holders of Northern Common Shares who are not residents of Canada
shall be deemed to elect, unless they expressly elect otherwise, to exchange the
Northern Exchangeable Shares included in the Northern Units for a like number of
shares of Newco Common Stock, thereby resulting in the effective exchange of
their Northern Units for Newco Stapled Units on a one-for-one basis.
In arriving at our opinion, we reviewed a draft of the Agreement dated
December 16, 1999 and drafts of certain of the exhibits to the Agreement
(including a draft of the Plan of Arrangement dated December 9, 1999) and held
discussions with certain senior officers, directors and other representatives
and advisors of Northern and certain senior officers and other representatives
and advisors of Western concerning the businesses, operations and prospects of
Northern and Western. We examined certain publicly available business and
financial information relating to Northern and Western as well as certain
financial forecasts and other information and data for Northern and Western
which were provided to or otherwise discussed with us by the managements of
Northern and Western, including information relating to certain strategic
implications and operational benefits anticipated to result from the Proposed
Transaction. We reviewed the financial terms of the Proposed Transaction as set
forth in the Agreement and the Plan of Arrangement in relation to, among other
things: current and historical market prices and trading volumes of Northern
Common Shares and Western Common Stock; the historical and projected earnings
and other operating data of Northern and Western; and the capitalization and
financial condition of Northern and Western. We
<PAGE>
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected that we considered relevant in
evaluating the Proposed Transaction and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of
Northern and Western. We also evaluated the pro forma financial impact of the
Proposed Transaction on Northern and Western. In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
information and financial, economic and market criteria as we deemed appropriate
in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all of the financial and
other information and data publicly available or furnished to or otherwise
reviewed by or discussed with us and have further relied upon the assurances of
management of Northern that they are not aware of any facts that would make any
of such information inaccurate or misleading. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with us, we have been advised by the managements of Northern and
Western that such forecasts and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Northern and Western as to the future financial
performance of Northern and Western and the strategic implications and
operational benefits anticipated to result from the Proposed Transaction. We
express no view with respect to such forecasts and other information and data or
the assumptions on which they were based. We have assumed, with your consent,
that such operational benefits will be achieved. We have further assumed that no
restrictions imposed in the course of obtaining, and that no delay in obtaining,
the necessary regulatory and governmental approvals, including approval of the
United States Surface Transportation Board, for the Proposed Transaction will
have a material adverse effect on the strategic implications and operational
benefits expected to be achieved as a result of the Proposed Transaction. We
have assumed, with your consent, that the Proposed Transaction will have the tax
and accounting consequences described in discussions with, and materials
furnished to us by, representatives of Northern and Western. We have not made or
been provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Northern or Western nor have we made
any physical inspection of the properties or assets of Northern or Western.
Representatives of Northern have advised us, and we have assumed, that the final
terms of the Agreement and the Plan of Arrangement will not vary materially from
those set forth in the drafts reviewed by us. We have further assumed that the
Proposed Transaction will be consummated in accordance with the terms of the
Agreement, without waiver of any of the conditions precedent to the Proposed
Transaction contained in the Agreement.
Our opinion, as set forth herein, relates to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of Northern Common Shares.
We are not expressing any opinion as to what the value of the Newco Stapled
Units, the Northern Units, the Northern Voting Shares, the Northern Exchangeable
Shares or the Newco Common Stock will be when issued in connection with the
Proposed Transaction or the price at which any securities of any of the parties
will trade subsequent to the announcement or completion of the Proposed
Transaction. We were not requested to, and we did not, solicit third party
indications of interest in a possible business combination with Northern, nor
were we requested to consider, and our opinion does not address, the relative
merits of the Proposed Transaction as compared to any alternative business
strategies that might exist for Northern or the effect of any other transaction
in which Northern might engage. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. is acting as financial advisor to Northern in
connection with the Proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon consummation of the
Proposed Transaction. We have in the past provided, and are currently providing,
investment banking services to Northern and have in the past provided investment
banking services to Western unrelated to the Proposed Transaction, for which
services we have received and will receive compensation. In the ordinary course
of our business, we and our affiliates may actively trade or hold the securities
of Northern and Western for our own account or for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities. In addition, we and our affiliates (including Citigroup Inc. and its
affiliates) may maintain relationships with Northern, Western and their
respective affiliates.
<PAGE>
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Northern in its evaluation of the
Proposed Transaction, and our opinion is not intended to be and does not
constitute a recommendation of the Proposed Transaction to Northern or a
recommendation to any stockholder as to how such stockholder should vote on any
matters relating the Proposed Transaction or as to whether any stockholder
should elect to exchange Northern Exchangeable Shares for Newco Common Stock.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of Northern Common Shares.
Very truly yours,
SALOMON SMITH BARNEY INC.
<PAGE>
ANNEX G
December 18, 1999
Board of Directors
Canadian National Railway Company
935 de La Gauchetiere Street West
Montreal, Quebec H3B 2M9
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common shares (the "CNR Common Shares") of Canadian
National Railway Company ("CNR") of the Exchange Ratio (as defined below) in the
proposed transaction (the "Proposed Transaction") between Burlington Northern
Santa Fe Corporation ("BNSF") and CNR contemplated by the Combination Agreement
(the "Agreement") to be entered into by and among CNR, BNSF, North American
Railways, Inc. ("NARI") and a special purpose wholly-owned subsidiary of NARI,
and the Plan of Arrangement for CNR (including its appendices, the "Plan of
Arrangement") attached as an exhibit to the Agreement.
As more specifically set forth in the Agreement and the Plan of
Arrangement, in the Proposed Transaction (a) each issued and outstanding CNR
Common Share not owned by any holder who has exercised rights of dissent will be
exchanged for 1.05 (the "Exchange Ratio") units ("CNR Units"), each consisting
of one non-voting exchangeable preferred share of CNR having the rights,
privileges, restrictions and conditions set forth in Appendix II to the Plan of
Arrangement ("CNR Exchangeable Shares") and one voting share of CNR having the
rights, privileges, restrictions and conditions set forth in Appendix I to the
Plan of Arrangement ("CNR Voting Shares") and (b) each issued and outstanding
share of common stock, par value $0.01 per share (the "BNSF Common Stock"), of
BNSF not owned by BNSF or any subsidiary of BNSF will be converted into one unit
(a "NARI Unit") consisting of one share of common stock, par value $0.01 per
share (the "NARI Common Stock"), of NARI and one CNR Voting Share. The shares
comprising each NARI Unit will be inseparable and will trade together and,
except as set forth in the Plan of Arrangement, the shares comprising each CNR
Unit will be inseparable and will trade together. In the Proposed Transaction,
holders of CNR Common Shares who are residents of Canada may elect, and holders
of CNR Common Shares who are not residents of Canada shall, unless they
expressly elect otherwise, be deemed to elect, to exchange the CNR Exchangeable
Shares included in the CNR Units for a like number of shares of NARI Common
Stock, thereby resulting in the effective exchange of their CNR Units for NARI
Units on a one-for-one basis.
In arriving at our opinion, we reviewed a draft of the Agreement dated
December 16, 1999 and drafts of certain of the exhibits to the Agreement
(including a draft of the Plan of Arrangement dated December 9, 1999) and held
discussions with certain senior officers, directors and other representatives
and advisors of CNR and certain senior officers of BNSF concerning the
businesses, operations and prospects of CNR and BNSF. We examined certain
publicly available business and financial information relating to CNR and BNSF
as well as certain financial forecasts and other information and data for CNR
and BNSF which were provided to or otherwise discussed with us by the
managements of CNR and BNSF, including information relating to certain strategic
implications and operational benefits anticipated to result from the Proposed
Transaction. We reviewed the financial terms of the Proposed Transaction as set
forth in the Agreement and the Plan of Arrangement in relation to, among other
things: current and historical market prices and trading volumes of CNR Common
Shares and BNSF Common Stock; the historical and projected earnings and other
operating data of CNR and BNSF; and the capitalization and financial condition
of CNR and BNSF. We considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected that we considered
relevant in evaluating the Proposed Transaction and
<PAGE>
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of CNR and BNSF. We also evaluated the
pro forma financial impact of the Proposed Transaction on CNR. In addition to
the foregoing, we conducted such other analyses and examinations (including a
contribution analysis) and considered such other information and financial,
economic and market criteria as we deemed appropriate in arriving at our
opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all of the financial and
other information and data publicly available or furnished to or otherwise
reviewed by or discussed with us and have further relied upon the assurances of
management of CNR that they are not aware of any facts that would make any of
such information inaccurate or misleading. With respect to financial forecasts
and other information and data provided to or otherwise reviewed by or discussed
with us, we have been advised by the managements of CNR and BNSF that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of CNR and BNSF as to the future financial performance of CNR and
BNSF and the strategic implications and operational benefits anticipated to
result from the Proposed Transaction. We express no view with respect to such
forecasts and other information and data or the assumptions on which they were
based. We have assumed, with your consent, that such operational benefits will
be achieved. We have further assumed that no restrictions imposed in the course
of obtaining, and that no delay in obtaining, the necessary regulatory and
governmental approvals, including approval of the United States Surface
Transportation Board, for the Proposed Transaction will have a material adverse
effect on the strategic implications and operational benefits expected to be
achieved as a result of the Proposed Transaction. We have assumed, with your
consent, that the Proposed Transaction will have the tax and accounting
consequences described in discussions with, and materials furnished to us by,
representatives of CNR and BNSF. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of CNR or BNSF nor have we made any physical inspection of the
properties or assets of CNR or BNSF. Representatives of CNR have advised us, and
we have assumed, that the final terms of the Agreement (including the exhibits
thereto) and the Plan of Arrangement will not vary materially from those set
forth in the drafts reviewed by us. We have further assumed that the Proposed
Transaction will be consummated in accordance with the terms of the Agreement,
without waiver of any of the conditions precedent to the Proposed Transaction
contained in the Agreement.
Our opinion, as set forth herein, relates to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of CNR Common Shares. We are
not expressing any opinion as to what the value of the NARI Units, the CNR
Units, the CNR Voting Shares, the CNR Exchangeable Shares or the NARI Common
Stock will be when issued in connection with the Proposed Transaction or the
price at which any securities of any of the parties will trade subsequent to the
announcement or completion of the Proposed Transaction. We were not requested
to, and we did not, solicit third party indications of interest in a possible
business combination with CNR, nor were we requested to consider, and our
opinion does not address, the relative merits of the Proposed Transaction as
compared to any alternative business strategies that might exist for CNR or the
effect of any other transaction in which CNR might engage. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Nesbitt Burns Inc. is one of Canada=s largest investment banking firms,
with operations in all facets of corporate and government finance, mergers and
acquisitions, equity and fixed income sales and trading, investment research and
investment management. The opinion expressed herein represents the opinion of
Nesbitt Burns Inc. and has been approved for release by a committee of its
directors and officers, each of whom is experienced in merger, acquisition,
divestiture and valuation matters.
Nesbitt Burns Inc. is acting as financial advisor to CNR in connection with
the Proposed Transaction and will receive a fee for such services, a significant
portion of which is contingent upon consummation of the Proposed Transaction. We
have in the past provided investment banking services to CNR for which services
we have received compensation. In the ordinary course of our business, we and
our affiliates may actively trade or hold the securities of CNR and BNSF for our
own account or for the account of our customers and, accordingly, may at any
time hold a long or short position in such securities. In addition, we and our
affiliates may maintain relationships with CNR, BNSF and their respective
affiliates.
<PAGE>
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of CNR in its evaluation of the Proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation of the Proposed Transaction to CNR or a recommendation to any
stockholder as to how such stockholder should vote on any matters relating the
Proposed Transaction or as to whether any stockholder should elect to exchange
CNR Exchangeable Shares for NARI Common Stock.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of CNR Common Shares.
Very truly yours,
NESBITT BURNS INC.
<PAGE>
ANNEX H
December 18, 1999
PERSONAL AND CONFIDENTIAL
Board of Directors
Burlington Northern Santa Fe Corporation
2650 Lou Menk Drive
Ft. Worth, TX 76131
Ladies and 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 $0.01 per
share (the "Shares"), of Burlington Northern Santa Fe Corporation (the
"Company") of the Exchange Ratio (as defined below) pursuant to the Combination
Agreement, dated as of December 18, 1999 (the "Agreement"), by and among
Canadian National Railway Company ("Canadian National Railway"), the Company,
North American Railways, Inc., a corporation owned 50% by Canadian National
Railway and 50% by the Company ("Newco"), and Western Merger Sub. Inc., a wholly
owned subsidiary of Newco. As more fully described in the Agreement, (i) each
Share will be converted into one Newco Stapled Unit (as defined in the
Agreement) and (ii) each outstanding share of Common Stock, without par value
("Canadian National Railway Common Stock"), of Canadian National Railway will be
exchanged, at the holder's election, into either (a) that number of Newco
Stapled Units or (b) that number of CN Stapled Units (as defined in the
Agreement) resulting from multiplying each share of Canadian National Common
Stock by 1.05 (the "Exchange Ratio").
Goldman, Sachs & Co, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having provided certain investment banking services to it from time
to time, including having acted as financial adviser to Santa Fe Pacific
Corporation ("Santa Fe") in connection with its merger with Burlington Northern
Inc. in 1995, which resulted in the formation of the Company; having acted as
underwriter in various public offerings of debt securities by the Company,
including as lead managing underwriter of $200 million of 7.25% Debentures due
2097 in July 1997 and $200 million of floating rate bonds due 2029 in November
1998, and as co-managing underwriter of $171 million of 6.23% Pass-Through
Certificates due 2018 in November 1998, $200 million of 6.125% Notes due 2009
and $200 million of 6.750% Debentures due 2029 in March 1999, and $298 million
of
<PAGE>
7.57% Equipment Trust Certificates due 2011 in September 1999; and having
acted as the Company's financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
have provided certain investment banking services to Canadian National Railway
from time to time, including having acted as co-managing underwriter in the
public offering of $25.9 million of 6.719% Pass Through Certificates due 2013
and $103.7 million of 7.195% Pass Through Certificates due 2016 in November
1997, as joint lead managing underwriter in the public offering of 4,600,000
shares of Canadian National Railway Common Stock in June 1999, and as lead
managing underwriter in the public offering of 4,600,000 Convertible Preferred
shares in June 1999. In addition, we acted as the financial advisor to Canadian
National Railway in connection with its acquisition of Illinois Central
Corporation in February 1998. Goldman, Sachs & Co. provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company and of Canadian
National Railway for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company and its predecessors for the five years ended December 31, 1998; certain
interim reports to its stockholders and Quarterly Reports on Form 10-Q of the
Company; Annual Reports to Stockholders and Annual Information Forms for the
four years ended December 31, 1998 of Canadian National Railway; certain interim
reports of Canadian National Railway to its stockholders; certain other
communications from the Company and Canadian National Railway to their
respective stockholders; and certain internal financial analyses and forecasts
for the Company and Canadian National Railway prepared by the managements of the
Company and Canadian National Railway, including certain operating synergies and
purchase accounting adjustments projected by the managements of the Company and
Canadian National Railway to result from the transaction contemplated by the
Agreement (the "Synergies and Purchase Accounting Adjustments"). We also have
held discussions with members of the senior management of the Company and
Canadian National Railway regarding their assessment of the strategic rationale
for, and potential benefits of, the transaction contemplated by the Agreement
and the past and current business operations, financial condition and future
prospects of their respective companies and of the combined operations of the
Company and Canadian National Railway. In addition, we have reviewed the
reported price and trading activity for the Shares and Canadian National Railway
Common Stock, compared certain financial and stock market information for the
Company and Canadian National Railway 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
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
<PAGE>
We have relied upon the accuracy and completeness of the financial and other
information reviewed by us and have assumed such accuracy and completeness for
purposes of rendering this opinion. In that regard, we have assumed with the
Company's consent that the financial forecasts provided by the management of the
Company (for its Board of Directors meeting of December 16, 1999) and by the
management of Canadian National Railway, including the Synergies and Purchase
Accounting Adjustments, have been reasonably prepared on a basis reflecting the
best currently available judgments and estimates of the managements of the
Company and Canadian National Railway and will be realized in the amounts and at
the times contemplated in such forecasts. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Canadian National Railway or any of their subsidiaries and we have not been
furnished with any such evaluation or appraisal.
Our advisory services and the 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 transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
shareholder should vote in connection with such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of the Shares.
Very truly yours,
<PAGE>
ANNEX I
CANADA SUPERIOR COURT
=====================================================
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL
No.: 500-05- IN THE MATTER OF THE ARRANGEMENT OF
CANADIAN NATIONAL RAILWAY
COMPANY, having its head
office at 935 de La
Gauchetiere Street West,
16th Floor, Montreal,
Quebec;
APPLICANT
-and-
SHAREHOLDERS, and HOLDERS OF OPTIONS to acquire
shares, of Canadian National Railway;
-and-
THE DIRECTOR IN CHARGE OF
THE CANADA BUSINESS
CORPORATIONS ACT
("Director"), having her
head office at Complex
Jean-Edmonds South, 9th
Floor, 365 Laurier Avenue
West, Ottawa, Ontario;
MIS-EN-CAUSE
=====================================================
APPLICATION FOR INTERIM AND FINAL ORDERS
WITH RESPECT TO AN ARRANGEMENT
(Sections 192, 248 & 2(1) C.B.C.A., 33 C.C.P.)
STIKEMAN ELLIOTT
Attorneys for Canadian National Railway Company
<PAGE>
2.
Table of contents
Applicant......................................................................4
Summary of Combination Agreement/Arrangement...................................4
Nature of the Application......................................................5
Parties to the Combination Agreement...........................................6
-BNSF.....................................................................6
-NAR AND NAR SUBCO........................................................6
General Description of Arrangement.............................................7
Background Information.........................................................8
Nature of the Proposed Arrangement.............................................9
A) The Share Capital..................................................10
B) Replacement Options................................................11
C) Exchangeable Share Attributes......................................11
D) Final Structure....................................................12
E) Combination of Operations..........................................12
F) COMPLIANCE WITH THE CNA AND THE CBCA...............................14
Dissent Rights................................................................15
Fairness Opinion and Board Approval...........................................15
Impracticability of Effecting the Arrangement under other Provisions
of the Act...............................................................17
Solvency of CN................................................................18
Proposal to Obtain the Approval of CN Securityholders.........................18
Interim and Final Orders Binding on the CN Securityholders....................19
A) ON THE INTERIM APPLICATION:.....................................20
- AS TO THE MEETING:..............................................20
- AS TO THE RECORD DATE FOR NOTICE................................21
- AS TO THE NOTICE OF MEETING.....................................21
- AS TO DEEMED RECEIPT OF MEETING MATERIALS AND SERVICE OF
THE APPLICATION AND THE INTERIM ORDER...........................22
<PAGE>
3.
- AS TO PERMITTED ATTENDEES.......................................22
- AS TO QUORUM AND VOTING.........................................23
- AS TO ADJOURNMENT OF MEETING AND AMENDMENTS.....................23
- AS TO SCRUTINEERS...............................................23
- AS TO PROXIES...................................................24
- AS TO DISSENT RIGHTS............................................24
- AS TO SERVICE OF COURT PROCEEDINGS..............................25
- AS TO SANCTION HEARING..........................................25
- AS TO VARIANCE..................................................26
B) ON THE FINAL APPLICATION:.......................................26
<PAGE>
4.
The Applicant, Canadian National Railway Company, respectfully submits the
following in support of its application before this Honourable Court:
APPLICANT
1. Canadian National Railway Company ("CN") owns and operates the largest
railway system in Canada, with integrated operations in Canada and the
United States, the whole as it more fully appears from a copy of CN's last
annual report produced as exhibit CN-1 to avail as if herein at length
recited in support of the present Application;
2. CN's head office is in Montreal, Quebec;
3. CN was continued under the Canada Business Corporations Act ("CBCA") on
August 24, 1995, pursuant to the provisions of the CN Commercialization
Act (S.C. 1995, Chap. 24) ("CNA");
4. CN is a widely-held public corporation and its common shares are listed on
the New York and Toronto stock exchanges ("CN Common Shares");
5. CN is authorized to issue an unlimited number of CN Common Shares and an
unlimited number of without par value Class A and Class B Preferred Shares
issuable in series ("CN Preferred Shares");
6. As of January 31, 2000, there were 202,458,363 CN Common Shares,
10,404,699 options to purchase CN Common Shares, and no CN Preferred
Shares issued and outstanding, the whole as it more fully appears from the
list of registered CN shareholders and the list of holders of options,
produced respectively as exhibits CN-2 and CN-3 to avail as if herein at
length recited in support of the present Application;
SUMMARY OF COMBINATION AGREEMENT/ARRANGEMENT
7. On December 18, 1999, CN, Burlington Northern Santa Fe Corporation
("BNSF"), North American Railways, Inc. ("NAR") and Western Merger Sub
Inc. ("WMS") entered into a Combination Agreement ("Combination
Agreement"), which agreement was amended and restated on February 17,
2000, the whole as more fully appears from a copy of said Combination
Agreement (without exhibits) produced herewith as Exhibit CN-4 to avail as
if herein at length recited in support of the present application;
8. The implementation of the Combination Agreement contemplates an
arrangement to be approved under the provisions of Section 192 of the
C.B.C.A. ("Arrangement"), the whole as more fully appears, inter alia,
from the proposed plan of arrangement ("Plan of Arrangement"), a copy of
which is produced as
<PAGE>
5.
Exhibit CN-5 to avail as if herein at length recited in support of the
present application;
9. The Combination Agreement and the Plan of Arrangement are respectively
Annex A and Annex B to a draft joint proxy solicitation statement of CN
and BNSF ("Proxy Solicitation Statement"), filed on February 17, 2000
with, and pending approval by, the Securities and Exchange Commission of
the United States, a copy of which Proxy Solicitation Statement (without
its annexes except as otherwise provided herein) is produced as Exhibit
CN-6 to avail as if herein at length recited in support of the present
application;
10. Pursuant to the provisions of the Combination Agreement, CN and BNSF will
place their respective businesses, assets and enterprises under common
shareholder ownership and leadership with the same effect as if the two
companies had been amalgamated;
11. The business case for the integration of the two companies appeared
overwhelming to their respective boards early in the discussions. As can
be seen on the map produced herewith as Exhibit CN-7, the combined
entity's network will cover all of Canada as well as all of the United
States west of the Mississippi River and create new North-South corridors
better adapted to new and growing trade flows;
NATURE OF THE APPLICATION
12. CN is applying for:
a) An interim order as outlined in the conclusions of the present
application; and
b) A final order approving the Arrangement as outlined in the present
application and the conclusions thereof;
13. CN seeks an interim order ("Interim Order") for directions in connection
with the service of this Application to, and a special meeting ("Meeting")
of:
a) the registered holders of CN Common Shares ("CN Registered
Shareholders"); and
b) holders of options to purchase CN Common Shares (other than BNSF as
holder of the option granted pursuant to a stock option agreement
dated December 18, 1999) ("CN Options"),
(collectively referred to as "CN Securityholders"), to consider the
Arrangement proposed by CN.
<PAGE>
6.
14. If the CN Securityholders approve the Arrangement at the Meeting to be
held in accordance with the Interim Order, CN will seek this Court's
approval of the Arrangement by final order ("Final Order"), which approval
will be sought prior to the time when the combination will have been
approved by the U.S. Surface Transportation Board ("S.T.B."), but on
condition that the Arrangement will not be implemented until such approval
has been received;
PARTIES TO THE COMBINATION AGREEMENT
BNSF
15. BNSF owns and operates one of the largest railway systems in the United
States, the whole as more fully appears from the summary description of
its activities set forth on page I-90 of the Proxy Solicitation Statement,
exhibit CN-6;
16. BNSF was incorporated under, and is governed by, the Delaware General
Corporations Law;
17. BNSF is a widely-held public company and its common shares are listed on
the New York, Chicago and Pacific stock exchanges;
NAR AND NAR SUBCO
18. NAR was incorporated on December 17, 1999 under, and is governed by, the
Delaware General Corporations Law;
19. NAR's Common Shares are owned by CN and BNSF in equal proportions;
20. NAR was incorporated for the purpose of carrying out the proposed
transactions and has had no other activities since its inception;
21. NAR Holdings Company ("NAR Subco") has been incorporated under the Nova
Scotia Companies Act, as an unlimited liability company. It is a
wholly-owned subsidiary of NAR and has carried out no activities since its
inception;
22. When all the transactions contemplated by the Combination Agreement,
including the Arrangement, become effective:
a) NAR will be the sole shareholder of BNSF as a result of a triangular
or "Delaware" merger ("Merger") between NAR, a wholly-owned
subsidiary of NAR and BNSF pursuant to which BNSF will continue as
the surviving corporation and each shareholder of BNSF will receive
one share of NAR common stock ("NAR Common Share") for each share of
BNSF common stock held;
b) NAR will continue to be the sole shareholder of NAR Subco;
<PAGE>
7.
c) NAR Subco will own all of CN's common equity and 10.1% of CN's voting
rights;
d) All the shareholders of CN and BNSF will become holders of one of two
new classes of stapled securities which will represent the entire
equity of the combined CN and BNSF;
GENERAL DESCRIPTION OF ARRANGEMENT
23. In general terms, the Arrangement, which is described in detail in the
Proxy Solicitation Statement, if approved by CN Securityholders and this
Court, will provide for the combination of the operations of CN and BNSF
in a transaction in which each CN Registered Shareholder will be entitled
to receive, in exchange for each CN Common Share held, a stapled security
composed of:
a) 1.05 shares of a new class of CN voting shares ("CN Voting Shares");
and
b) at his, her or its option, either
i) 1.05 shares of a new class of CN security exchangeable at any
time on a one for one basis into one NAR Common Share ("CN
Exchangeable Shares"); or
ii) 1.05 NAR Common Shares;
24. CN Registered Shareholders who are Canadian residents will receive CN
Exchangeable Shares unless they expressly elect to receive NAR Common
Shares, and CN Registered Shareholders who are not Canadian residents will
receive NAR Common Shares unless they expressly elect to receive CN
Exchangeable Shares;
25. The deemed elections referred to in the preceding paragraph are proposed
to facilitate the implementation of the Arrangement because, given tax
considerations, it is likely that Canadian residents would elect to
receive CN Exchangeable Shares and that non-Canadian residents would elect
to receive NAR Common Shares, thereby, in each case, resulting in an
exchange which has no immediate tax consequence;
26. The CN Exchangeable Shares entitle their holders to dividend and all other
rights which are the same as or equivalent to NAR Common Shares, including
voting rights, through the mechanism of a special voting share ("Special
Voting Share") of NAR issued to and held by a trustee, at meetings of
holders of NAR Common Shares. The CN Exchangeable Shares are thus
economically equivalent to the NAR Common Shares;
<PAGE>
8.
27. Through this mechanism, the holders of CN Exchangeable Shares will
participate indirectly, but fully, in the common equity of both BNSF and
CN;
28. Each CN Exchangeable Share will be "stapled" to (i.e. not transferable
separately from) a CN Voting Share and will trade as a single security
("CN Stapled Securities") expected to be listed on The Toronto Stock
Exchange, a copy of the conditional listing approval letter of the Toronto
Stock Exchange dated February 24, 2000 being produced as Exhibit CN-8 to
avail as if herein at length recited in support of the present
application;
29. Each NAR Common Share will be "stapled" to (i.e. not transferable
separately from) a CN Voting Share and will trade as a single security
("NAR Stapled Securities") expected to be listed on the New York, Chicago,
Pacific and Toronto Stock exchanges;
30. When the Arrangement is complete (as more fully described under the
heading "Share Capital"), NAR will own directly or through NAR Subco:
a) all of the common shares of BNSF,
b) all of the common equity interest in CN; and
c) 10.1% of the voting rights in CN;
31. When the Arrangement is complete, public shareholders of each of CN and
BNSF will hold collectively:
a) 89.9% of the voting rights in CN;
b) 100% of the voting rights in NAR; and
c) 100% of the common equity interest in NAR (which, in the case of
holders of CN Exchangeable Shares, is participated in indirectly
through the terms of those shares);
32. Upon completion of the Arrangement and the Merger, there will be no
independent trading market for the shares of CN and BNSF;
BACKGROUND INFORMATION
33. The Combination Agreement entered into among CN, BNSF, NAR and WMS
reflects the extensive negotiations and review carried out by CN, BNSF and
their respective directors, officers and other representatives, including
financial advisors and U.S. and Canadian legal counsel as summarized in
the Proxy Solicitation Statement under the heading "Background of the
Combination";
<PAGE>
9.
34. On December 18, 1999, CN's board of directors met and:
a) considered the proposed combination transaction; and
b) received presentations from its management, and from its financial
and legal advisors; and
c) received from each of Salomon Smith Barney and Nesbitt Burns their
oral opinion (subsequently confirmed in writing), that, as of that
date, the exchange ratio of 1.05 was fair to CN shareholders from a
financial point of view; and
d) held deliberative discussions,
as a result of which all members of the board (other than Messrs. Lumley,
Lynch and Armellino, who abstained due to potential conflicts of interest
on their part) voted to approve the Combination Agreement, the stock
option agreements entered into in connection with the Combination
Agreement, and the transactions contemplated by those agreements, and
resolved to recommend that CN shareholders vote to approve the Plan of
Arrangement involving CN contemplated by the Combination Agreement;
35. On December 18, 1999, BNSF's board of directors unanimously voted to
approve and declare advisable the Combination Agreement, the stock option
agreements entered into in connection with the Combination Agreement and
the transactions contemplated by those agreements, and resolved to
recommend that BNSF shareholders vote to approve the Combination Agreement
and the Merger involving BNSF contemplated by the Combination Agreement;
36. On December 18, 1999, CN and BNSF executed the Combination Agreement and
the related stock option agreements;
37. On December 20, 1999, CN and BNSF publicly announced that they had entered
into the Combination Agreement;
38. On February 17, 2000, CN and BNSF entered into an amended and restated
Combination Agreement;
NATURE OF THE PROPOSED ARRANGEMENT
39. The ultimate combination of CN and BNSF, in a transaction which complies
with all applicable provisions of the CBCA and the CNA and which does not
generally give rise to immediate adverse tax consequences for the
shareholders of CN or BNSF, whether such shareholder is a Canadian or U.S.
resident, is impossible without the implementation of the Plan of
Arrangement and the Plan of Arrangement requires the approval of this
Court;
<PAGE>
10.
40. If approved by the CN Securityholders and this Court upon Final Order, the
following events will take place pursuant to the Arrangement on the
Arrangement Effective Date (being the date on which the Director issues a
certificate of arrangement giving effect to the Arrangement), without any
further act or formality;
A) THE SHARE CAPITAL
41. The authorized share capital of CN will be reorganized by the creation of
the following four (4) classes of shares in the capital of CN: CN Voting
Shares, CN Exchangeable Shares, CN special limited voting shares ("CN
Special Limited Voting Shares"), and CN non voting equity shares ("CN Non
Voting Equity Shares"), the authorized number of all of which shall be
unlimited;
42. Each outstanding CN Common Share will be changed into 1.05 CN Voting
Shares and 1.05 CN Exchangeable Shares;
43. Simultaneously with the change in share capital described in paragraph 41
above, each CN Exchangeable Share held by a person who has elected or is
deemed to have elected (as described in paragraph 25 above) to exchange
such share for an NAR Common Share ("NAR Elected Exchangeable Share"),
will automatically be transferred to NAR Subco, in exchange for one NAR
Common Share issued by NAR;
44. Simultaneously with the events described in paragraphs 41 to 43 above,
each NAR Elected Exchangeable Share acquired by NAR Subco shall be
converted into one (1) CN Special Limited Voting Share and one (1) CN Non
Voting Equity Share;
45. Simultaneously with the events described in paragraphs 41 to 44 above NAR
Subco will and will be deemed to have subscribed for, and agreed to
purchase, and CN will issue and sell to NAR Subco, one (1) CN Special
Limited Voting Share and one (1) CN NonVoting Equity Share, upon payment
by NAR Subco to CN of a sum equal to the closing trading price, per share,
of the CN Common Shares on The Toronto Stock Exchange on the trading day
which is two days prior to the Arrangement Effective Date, divided by
1.05. (The CN Special Limited Voting Shares will give NAR Subco 10.1% of
the voting interest in CN, regardless of the number of CN Special Limited
Voting Shares held by it);
46. The former holders of BNSF common shares who receive NAR Common Shares
pursuant to the Merger will be deemed to have subscribed for, and agreed
to purchase, at a purchase price of US$0.05 per share, and CN will issue
and sell to each such holder one (1) CN Voting Share for each such NAR
Common Share upon payment by NAR to CN of the aggregate subscription price
for them;
<PAGE>
11.
47. NAR will issue to and deposit with a trustee the Special Voting Share, in
consideration of the payment of $0.01 by CN to NAR, to be thereafter held
of record by such trustee as trustee for and on behalf of, and for the use
and benefit of, the holders of the CN Exchangeable Shares in accordance
with the terms of a voting and exchange trust agreement between NAR, NAR
Subco, CN and the trustee ("Voting and Exchange Trust Agreement"), the
terms of which are described in the Proxy Solicitation Statement and the
form of which appears as Annex K to the Proxy Solicitation Statement;
48. Each CN Option will be exchanged for a replacement option as described
below in paragraphs 50 and 51;
49. Certain conforming amendments to the By-laws of CN will be made as set
forth in Appendix IV of the Plan of Arrangement;
B) REPLACEMENT OPTIONS
50. The Arrangement provides that each of the outstanding CN Options will be
exchanged for a replacement option which constitutes an option to purchase
the number of NAR Stapled Securities (a unit comprised of one CN Voting
Share and one NAR Common Share) equal to the number of CN Common Shares
subject to the option multiplied by 1.05 ("Replacement Option");
51. The Replacement Option will have an exercise price per NAR Stapled
Security equal to the exercise price per share of such CN Option prior to
the date of exchange, divided by 1.05 (adjustments will be made with
respect to fractions) and the terms to expiry, conditions to and manner of
exercising, vesting schedule and all other terms and conditions of this
Replacement Option will otherwise be unchanged from those which prevailed
prior to the implementation of the Arrangement;
C) EXCHANGEABLE SHARE ATTRIBUTES
52. Holders of CN Exchangeable Shares will be entitled, at any time, to
retract (by requiring CN to redeem) any or all of their CN Exchangeable
Shares and to receive one NAR Common Share for each CN Exchangeable Share
held at the time (subject to a Retraction Call Right of NAR Subco);
53. Holders of CN Exchangeable Shares will be entitled to receive, subject to
applicable law, dividends which are identical or, in certain cases, are
economically equivalent, to dividends or other distributions on NAR Common
Shares;
54. Holders of CN Exchangeable Shares will have the ability to vote at
meetings of holders of the NAR Common Shares.
<PAGE>
12.
55. In order to provide holders of CN Exchangeable Shares with this ability,
CN will enter into the Voting and Exchange Trust Agreement with NAR, NAR
Subco and the trustee;
56. That agreement will govern the voting by the trustee of the Special Voting
Share issued to the trustee under the Arrangement for the benefit of the
holders of the CN Exchangeable Shares (other than CN, NAR and their
affiliates) as represented by the CN Stapled Securities;
57. The Special Voting Share will have attached to it, the number of votes
equal to the number of CN Exchangeable Shares represented by CN Stapled
Securities (other than shares held by CN, NAR and its affiliates)
outstanding from time to time;
58. Each holder of a CN Exchangeable Share represented by a CN Stapled
Security on the record date for any meeting at which holders of NAR Common
Shares are entitled to vote will be entitled to instruct the trustee to
exercise one of the votes attached to the Special Voting Share for such CN
Stapled Securities;
59. A holder may also, upon instructing the trustee, obtain a proxy from the
Trustee entitling the holder to vote directly at the relevant meeting;
60. All rights of a holder of CN Stapled Securities to exercise votes attached
to the Special Voting Share will cease upon the exchange of all such
holder's CN Exchangeable Shares for NAR Common Shares and be replaced by
the voting rights attached to the NAR Common Shares;
D) FINAL STRUCTURE
61. The various simultaneous and consecutive steps involved in the Arrangement
as well as the Merger and resulting shareholding structure of CN and NAR
are illustrated by the diagrams produced herewith en liasse as exhibit
CN-9 in support of the present application;
E) COMBINATION OF OPERATIONS
62. The structure of this proposed combination is unique in that it will
result in a structure which places CN and BNSF under common shareholder
ownership and common leadership allowing their respective shareholders to
fully participate in the equity and voting of both companies while
retaining two separate corporate entities;
63. After extensive consideration by Canadian and U.S. counsel, it was
determined and ascertained that no traditional transaction such as a
triangular merger or a take-over bid would meet the critical goals
established by the parties, namely:
<PAGE>
13.
a) complying with the CBCA, CNA and other applicable legislation;
b) effecting the transaction without immediate adverse tax consequences
for either CN shareholders or BNSF shareholders, whether Canadian or
U.S. residents; and
c) effecting the transaction without a premium being paid to either the
shareholders of CN or BNSF;
64. The effective combination of operations will be accomplished in part
through a cooperation agreement to be entered into between NAR and CN
("Cooperation Agreement");
65. Under this combination, although CN and BNSF will retain their distinct
identity, they will operate under common leadership since the entire
common equity of both companies will be owned by NAR whose charter
documents will require that all directors of NAR be directors of CN, thus
precluding the emergence of any conflict between CN and BNSF and ensuring
a unified conduct of business;
66. Also, given the share structure contemplated and effective combination of
operations, it was deemed appropriate that NAR should be subject to the
same constraints that CN is subject to as a result of the CNA;
67. Therefore, in addition to the requirement for identical boards of
directors, the Cooperation Agreement requires, among other things, that:
a) the charter of NAR contains provisions similar to those contained in
the CNA and in CN's articles:
i) preventing any single person, including affiliates, from
holding, beneficially owning or controlling shares representing
in the aggregate 15% or more of the votes that may be cast in
elections for directors,
ii) enforcing these constraints; and
iii) specifying that the headquarters of NAR be located in the
Montreal Urban Community, Quebec, Canada;
b) NAR and CN hold their shareholders meetings as close as possible in
time;
c) the nominating committees of NAR and CN propose a common slate of
directors for election;
<PAGE>
14.
d) the same person serve as chief executive officer of both NAR and CN
(initially this position will be assumed by Paul M. Tellier the
current President and CEO of CN);
e) the same person serve as chairman of the board of directors of both
NAR and CN (initially this position will be assumed by Robert D.
Krebs the current Chairman and CEO of BNSF);
f) NAR and CN have identical board committees, including without
limitation the nominating committee, audit committee and compensation
committee;
g) the membership of the board committees of NAR and CN be identical;
and
h) both NAR and CN have common senior management;
F) COMPLIANCE WITH THE CNA AND THE CBCA
68. There is currently no shareholder of BNSF that holds more than 15% of the
common shares of BNSF;
69. BNSF implemented a shareholder rights plan at the same time that it
entered into the Combination Agreement with CN to ensure that it would be
in compliance with the 15% voting ownership restriction during the interim
period prior to the completion of the Arrangement and the Merger;
70. The Arrangement and the Combination comply with the requirements of the
CNA for the following reasons:
71. The CNA requires CN to restrict, through its articles, the holding of its
voting shares such that no person, together with his or her associates,
holds, beneficially owns or controls, directly or indirectly, more than
15% of CN's voting shares;
72. The structure of the Arrangement and the combination adhere to this
requirement by:
a) continuing such restriction on CN's Voting Shares; and
b) imposing a corresponding transfer restriction on the voting shares of
NAR; and
c) "stapling" the CN Voting Shares to a security (either the NAR Common
Share or the CN Exchangeable Share) which represents, directly or
indirectly, the equity ownership interest in the combined enterprise;
73. The imposition of the transfer restrictions on the CN Voting Shares that
require, generally, the CN Voting Shares to be transferable only as a
single "stapled"
<PAGE>
15.
security with either the CN Exchangeable Share or the NAR Common Share and
the corresponding requirement that the CN Exchangeable Shares be
transferable only as a single "stapled" security with the CN Voting Shares
ensure that the voting rights in CN are irrevocably coupled with a
meaningful economic ownership interest in the combined enterprise;
74. These transfer restrictions are consistent with the provisions of the CBCA
governing transferability of shares and CN will ask this Court to ratify
these restrictions through the Final Order;
DISSENT RIGHTS
75. CN Registered Shareholders who object in writing to the resolution
approving the Arrangement by 5:00 p.m. (Montreal time) on the Business Day
prior to the Meeting, and who otherwise comply with the provisions of
Section 190 of the CBCA and the Arrangement as applied by the Interim
Order, are given the right to dissent and be paid the fair value of their
CN Common Shares;
76. Under section 190 of the CBCA, shareholders who dissent are entitled to be
paid the fair value of their shares as of the date the resolution
approving the arrangement was adopted or the date that the order of the
court approving the arrangement was made;
77. While typically arrangements become effective immediately or soon after
the final order is granted, the special provisions of the Interim Order
relating to dissent rights are justified by the significant delay expected
between the time the resolution is passed by the CN Securityholders and
the final order granted and the time when it is anticipated that the STB
will have reviewed and approved the combination, a process which, as CN
can best determine at this time, will likely take 12 to 15 months from the
date hereof;
78. The Interim Order proposed will permit the shareholders who dissent to be
paid the fair value of their shares as of the Arrangement Effective Date,
and will provide for the times within which the shareholder and the
corporation must give various notices associated with the dissent
procedure, some of which will be triggered as of the Arrangement Effective
Date;
FAIRNESS OPINION AND BOARD APPROVAL
79. On December 18, 1999, CN's board of directors met to consider the
Combination Agreement and, in approving the Arrangement, considered a
number of factors including the following:
a) the strategic and economic rationale, the customer service
improvements and the operational benefits and synergies expected to
be accomplished, as
<PAGE>
16.
described in the Proxy Solicitation Statement under the heading "Our
reasons for the Combination",
b) the risks and potential rewards associated with, as an alternative to
the combination, continuing to execute CN's business plan as an
independent entity,
c) the fact that CN Securityholders would hold approximately one-third
of the publicly traded securities of the combined companies after the
combination,
d) the terms and conditions of the Combination Agreement, including:
i) restrictions on CN's and BNSF's conduct of their businesses
pending completion of the combination;
ii) conditions to completing the combination;
iii) termination fees payable under certain circumstances;
iv) the grant by CN and BNSF of options to acquire stock of the
other in certain circumstances, pursuant to the stock option
agreements; and
v) the fact that the CN board of directors retains the right to
participate in discussions or negotiations with, and provide
information to, a party considering making an alternative
proposal for CN in certain circumstances;
e) the fact that the completion of the combination will be essentially
tax-free to CN shareholders, including:
i) that certain Canadian resident holders of CN Common Shares who
hold the CN Common Shares as capital property generally will be
able to exchange their CN Common Shares for CN Voting Shares and
CN Exchangeable Shares on a tax deferred basis under Canadian
federal income tax legislation; and
ii) that U.S. resident holders of CN Common Shares will be able to
exchange their CN Common Shares for NAR Stapled Securities at
the time of the combination generally on a tax-free basis under
the U.S. Internal Revenue Code;
f) the fact that the combination will be accounted for by NAR using the
purchase method of accounting;
<PAGE>
17.
g) the analysis and presentations of Salomon Smith Barney, Nesbitt Burns
and The Beacon Group, and the separate opinions of Salomon Smith
Barney and Nesbitt Burns to the effect that, as of December 18, 1999,
and based upon and subject to the various considerations set forth in
those opinions, the Exchange Ratio was fair, from a financial point
of view, to CN Shareholders;
h) the composition of the boards of directors of each of CN and NAR
after the combination is completed and the role that CN's current
management would play in the management of the combined companies;
i) the fact that the combination must be approved by a special
resolution passed by not less than 66 2/3% of the votes cast at a
meeting of CN Securityholders, and by this Court;
j) the fact that, under the Arrangement, holders of CN Common Shares
have the right to dissent;
k) information concerning the business, operations, property assets,
financial conditions, operating results and prospects of CN and BNSF;
l) the scope and results of the due diligence review conducted by CN's
management, financial and legal advisors with respect to BNSF's
business and operations;
80. The written opinions of Salomon Smith Barney and Nesbitt-Burns, acting as
financial advisors to CN, referred to in paragraph 79g) above, to the
effect that the exchange ratio was fair from a financial point of view to
the holders of CN Common Shares are produced respectively as exhibits
CN-10 and CN-11 to avail as if herein at length recited in support of the
present application;
IMPRACTICABILITY OF EFFECTING THE ARRANGEMENT UNDER OTHER PROVISIONS OF THE ACT
81. It is impracticable to effect the combination of CN and BNSF in any other
corporate structure but through an arrangement pursuant to Section 192 of
the CBCA for at least the following reasons:
a) the complexity of the Arrangement, the terms and conditions of which
cannot otherwise be achieved under any other provision of the CBCA;
b) the only way to effect a distribution of CN Voting Shares to the
holders of BNSF common stock is through a plan of arrangement because
the traditional means of providing these shares or voting rights are
not available in this structure for the following reasons:
<PAGE>
18.
i) CN cannot dividend or otherwise distribute the CN Voting Shares
because the holders of BNSF common stock are not shareholders of
CN;
ii) BNSF cannot subscribe for and hold the CN Voting Shares in order
to distribute them to its shareholders, even for a scintilla in
time, because of the 15% voting share holding restriction in the
CNA and, for the same reason, no person could hold a special
voting share for the benefit of these shareholders;
c) the need to provide for the dissent rights as described in paragraphs
75 to 78 above which cannot be accomplished in any way other than
through a plan of arrangement and an order of the Court;
d) The practicality of permitting the holders of CN Options to vote
together as a class with the holders of CN Common Shares, which might
not be permitted in the absence of the Interim Order of this Court;
e) Given the unique share structure and, in particular, the uniqueness
of the stapling of the CN Voting Shares to either the CN Exchangeable
Shares or the NAR Common Shares, the desirability of a judicial order
confirming compliance of the transactions with the CBCA and the CNA;
f) The order of this Court will constitute the basis for an exemption
from the registration requirements under section 3(a)(10) of the
United States Securities Act of 1933 ("Securities Act") with respect
to the issuance of shares and replacement options to be issued to CN
Securityholders under the Arrangement. The Arrangement provision of
the CBCA is the only provision that provides CN with this exemption
from the Securities Act requirements, thereby avoiding substantial
and duplicative costs to CN;
SOLVENCY OF CN
82. CN is not insolvent within the meaning of Section 192(2) of the CBCA or
otherwise;
PROPOSAL TO OBTAIN THE APPROVAL OF CN SECURITYHOLDERS
83. It is proposed that the CN Securityholders vote as a single class at the
Meeting as all of the CN Securityholders will, as of or after the
Arrangement Effective Date, have entitlements to receive CN Voting Shares
and either NAR Common Shares or CN Exchangeable Shares comprising stapled
securities described in paragraphs 28 and 29 above;
84. For the purpose of calling and holding the Meeting, it is proposed that:
<PAGE>
19.
a) notice of the Meeting called to consider the Arrangement, and any
adjournment or postponement of it where additional notice is required
by law, be given to the CN Securityholders, by pre-paid ordinary
mail, personal delivery or facsimile transmission to the addresses as
they appear on the books and records of CN at the close of business
(Montreal time) on March 13, 2000 ("Record Date");
b) the notice of Meeting be accompanied by a form of proxy substantially
in the form produced as exhibit CN-12 in support of the present
application; and
c) at least two persons present at the Meeting and holding or
representing by proxy not less than 10 per cent of the outstanding CN
Common Shares will constitute a quorum for the Meeting. The by-laws
of CN provide that the above constitutes a quorum for a meeting of
shareholders of CN;
d) the Meeting shall otherwise be called, held and conducted in
accordance with the notice of Meeting, the provisions of the CBCA,
the articles and by-laws of CN, the rulings and directions of the
Chair of the Meeting and the Interim Order sought herein;
85. As to the level of securityholder approval of the Arrangement, CN will
seek the approval of the Arrangement by resolution passed by the
affirmative vote of not less than 66-2/3 per cent of the total votes cast
on the resolution by the CN Securityholders present in person or by proxy
at the Meeting ("Arrangement Resolution");
INTERIM AND FINAL ORDERS BINDING ON THE CN SECURITYHOLDERS
86. Given the number of CN Securityholders as evidenced by exhibits CN-2 and
CN-3, CN requests this Court to be dispensed from describing at length the
names of the CN Securityholders in the description of the impleaded
parties and that all CN Securityholders, the names of which appear on the
list CN is required to prepare pursuant to Section 138 of the CBCA in the
case of CN Registered Shareholders (i.e. exhibit CN-2) and on exhibit CN-3
in the case of holders of CN Options, and any transferees thereof, be
deemed parties to the present proceedings as described as mis en cause in
the heading of the present application;
87. CN requests that CN Securityholders be validly served with the present
proceedings by delivery of the present Application, without the exhibits,
and the Interim Order, en liasse as Annex I to the Proxy Solicitation
Statement exhibit CN-6, by mail, delivery or facsimile transmission to CN
Securityholders as of the Record Date in accordance with 84 (a) above at
the address appearing in the lists of shareholders CN-2 and of holders of
CN options CN-3, updated as at the Record Date;
<PAGE>
20.
88. Any CN Securityholders wishing to appear on the application for Final
Order in the present proceedings shall file an appearance on or before May
1st, 2000, and if such appearance is with the view to contesting the
application, shall file a written contestation, supported as to the facts
by affidavit(s), and exhibit(s) if any, on or before May 11, 2000, without
which such contestation an appearing CN Securityholder shall not be
admitted to contest the application;
89. Subject to the foregoing, the Final Order of this Court shall be binding
on all CN Securityholders;
WHEREFORE THE APPLICANT PRAISES THIS HONOURABLE COURT:
A) ON THE INTERIM APPLICATION:
AS TO THE MEETING:
ORDER that CN is authorized and directed to call, hold and conduct a
special meeting ("Meeting") of:
(a) the registered holders of CN common shares ("CN Common Shares"); and
(b) the holders of options to purchase CN Common Shares, excluding the
option held by BNSF pursuant to the Stock Option Agreement dated
December 18, 1999 ("CN Options")
(these CN Common Shares and CN Options are collectively referred to as "CN
Securities" and these holders of CN Common Shares and CN Options are
collectively referred to as "CN Securityholders"), to be held in Montreal,
Quebec, on April 19, 2000, to consider and, if deemed advisable, to pass a
special resolution ("Arrangement Resolution") to approve an arrangement,
with or without variation, substantially as contemplated in the Plan of
Arrangement ("Plan of Arrangement"), attached as Annex B to the draft
joint proxy solicitation statement of CN and BNSF ("Proxy Solicitation
Statement") produced as exhibit CN-6. The Meeting may be called and held
as a special meeting or an annual and special meeting, as the board of
directors may determine.
ORDER that the Meeting shall be called, held and conducted in accordance
with the notice of special meeting of CN Securityholders included in the
Proxy Solicitation Statement ("Notice of Special Meeting"), the CBCA, the
articles and by-laws of CN, the terms of this Interim Order, any further
Order of this Court, and the rulings and directions of the Chair of the
Meeting, and, to the extent of any inconsistency or discrepancy between
this Interim Order and the articles and/or by-laws of CN or the terms of
any instrument creating or governing or collateral to the CN Options or to
which the CN Options are collateral, this Interim Order shall govern;
<PAGE>
21.
AS TO THE RECORD DATE FOR NOTICE
ORDER that the record date for determination of registered holders of CN
Securities entitled to receive the Notice of Special Meeting, Proxy
Solicitation Statement and form of proxy (collectively referred to as the
"Meeting Materials") shall be at the close of business on the March 13,
2000 ("Record Date");
AS TO THE NOTICE OF MEETING
ORDER that the Meeting Materials, with such amendments or additional
documents as counsel for CN may advise are necessary or desirable and as
are not inconsistent with the terms of this Interim Order, and a copy of
this Interim Order, shall be sent to:
(a) the registered holders of CN Securities of record at the close of
business on the Record Date, being at least twenty-one (21) days
prior to the date of the Meeting, excluding the date of mailing,
delivery or transmittal and the date of the Meeting, by one or more
of the following methods:
(i) by first class prepaid mail, addressed to each registered holder
of CN Common Shares at his, her or its address registered on the
common share register of CN and each holder of CN Options at
his, her or its address recorded on the records of CN;
(ii) by delivery in person or by recognized courier service to the
addresses specified in subparagraph (i) above; or
(iii) by facsimile transmission to any registered holder of CN Common
Shares or holder of CN Options identifying himself, herself or
itself to the satisfaction of CN and The Trust Company of the
Bank of Montreal, acting through its representatives, who
requests such facsimile transmission and, if required by CN, is
prepared to pay the charges for such facsimile transmission;
(b) the directors and auditors of CN, and the Director, by mailing the
Meeting Materials by first class prepaid mail addressed to such
persons, or by delivery, in person or by recognized courier service,
or by facsimile transmission at least twenty-one (21) days prior to
the date of the Meeting, excluding the date of mailing and the date
of the Meeting;
(c) BNSF by delivery in person to Jeffrey R. Moreland, Senior
Vice-President and General Counsel of BNSF at BNSF's principal
corporation office as set out in the Proxy Solicitation Statement;
and
(d) NAR by delivery in person to Jean Pierre Ouellet, Secretary of NAR at
CN's principal corporate office as set out in the Proxy Solicitation
Statement;
<PAGE>
22.
AS TO DEEMED RECEIPT OF MEETING MATERIALS AND SERVICE OF THE APPLICATION
AND THE INTERIM ORDER
ORDER that the Meeting Materials shall be deemed, for the purposes of this
Interim Order, to have been received by, and the application and this
Interim Order to have been served on CN Securityholders:
(a) in the case of mailing, three (3) days after delivery thereof to the
post office;
(b) in the case of delivery in person, upon receipt thereof at the
intended recipient's address or, in the case of delivery by courier,
one (1) business day after receipt by the courier; and
(c) in the case of facsimile transmission, upon the transmission thereof;
AS TO PERMITTED ATTENDEES
ORDER that the only persons entitled to attend the Meeting shall be:
(a) the registered CN Securityholders or their respective proxyholders in
each case entitled to vote at the meeting;
(b) CN officers, directors, auditors and advisors;
(c) representatives of BNSF and NAR;
(d) the Director; and
(e) other persons with the permission of the Chair of the Meeting;
and that the only persons entitled to vote at the Meeting on the
Arrangement Resolution shall be:
(a) the registered CN Securityholders as at the close of business on the
Record Date, or their respective proxyholders; and
(b) persons who become registered holders of CN Common Shares after the
Record Date, and who become entitled to vote by complying with
subsection 138(2) of the CBCA;
ORDER that the accidental omission to give notice of the Meeting, or the
non-receipt of such notice, shall not invalidate any resolution passed or
proceedings taken at the Meeting;
<PAGE>
23.
AS TO QUORUM AND VOTING
ORDER that the quorum required at the Meeting shall be two holders of CN
Common Shares present in person or by proxy, and holding or representing
at least 10% of the CN Common Shares and who are entitled to attend and
vote at the Meeting, provided that, if no quorum is present within 30
minutes of the appointed meeting time, the Meeting shall stand adjourned
to be reconvened on a day which is not more than 30 days later, as
determined by the Chair of the Meeting, in the Chair's sole discretion,
and at such reconvened meeting, those persons present in person or by
proxy entitled to vote at such meeting on the Arrangement Resolution will
constitute a quorum for the reconvened meeting;
ORDER that the Meeting shall be a single meeting of CN Securityholders who
shall vote together on the Arrangement Resolution;
ORDER that votes shall be taken at the Meeting on the basis of one (1)
vote per CN Common Share, and in respect of each CN Option, one (1) vote
per CN Common Share that the holder thereof is entitled to receive upon
the valid exercise of such CN Option and that, subject to further order of
this Court, the vote required to pass the Arrangement Resolution shall be
the affirmative vote of at least 66 2/3% of the votes cast in respect of
that resolution by the CN Securityholders present or represented by proxy
at the Meeting;
AS TO ADJOURNMENT OF MEETING AND AMENDMENTS
ORDER that CN, if it deems advisable, is specifically authorized to
adjourn or postpone the Meeting on one or more occasions, without the
necessity of first convening the Meeting or first obtaining any vote of CN
Securityholders respecting the adjournment or postponement;
ORDER that CN is authorized to make such amendments, revisions or
supplements to the Plan of Arrangement as it may determine, without any
additional notice to the CN Securityholders, and the Plan of Arrangement
as so amended, revised or supplemented shall be the Plan of Arrangement
submitted to the Meeting and the subject of the Arrangement Resolution;
AS TO SCRUTINEERS
ORDER that the scrutineers for the Meeting shall be The Trust Company of
the Bank of Montreal (acting through its representatives for that purpose)
and the duties of the scrutineers shall include:
(a) invigilating and reporting to the Chair on the deposit and validity
of the proxies;
(b) reporting to the Chair on the quorum of the Meeting;
<PAGE>
24.
(c) reporting to the Chair on the polls taken or ballots cast at the
Meeting; and
(d) providing to CN and to the Chair written reports on matters related
to their duties;
AS TO PROXIES
ORDER that CN is authorized to use the form of proxy, in substantially the
same form as exhibit CN-12 and CN is authorized, at its expense, to
solicit proxies, directly and through its officers, directors and
employees, and through such agents or representatives as it may retain for
the purpose, and by mail or such other forms of personal or electronic
communication as it may determine;
ORDER that the procedure for the use of proxies at the Meeting shall be as
set out in the Proxy Solicitation Statement;
ORDER that CN may in its discretion waive generally the time limits for
the deposit of proxies by the CN Securityholders, if CN deems it advisable
to do so;
AS TO DISSENT RIGHTS
ORDER that the registered holders of CN Common Shares shall be permitted
to dissent from the Plan of Arrangement pursuant to the Plan of
Arrangement and section 190 of the CBCA as applied by the Interim Order,
and to seek fair value for their CN Common Shares, provided that they give
written objection to the Plan of Arrangement so as to be received prior to
5:00 p.m. (Montreal time) to the Senior Vice President, Chief Legal
Officer and Corporate Secretary of CN (at his address as set out in the
Proxy Solicitation Statement) on the Business Day preceding the Meeting
and that they otherwise strictly comply with the requirements of the Plan
of Arrangement and this Interim Order;
For the purposes of this Application, section 190 of the CBCA will be
applicable with the following adjustments:
(a) in subsection 190(3) the words "when the action approved by the
resolution from which he dissents or an order made under subsection
192(4) becomes effective" are removed and replaced with the words "at
the time when the action approved by the resolution approving the
arrangement becomes effective" and the words "determined as of the
close of business on the day before the resolution was adopted or the
order was made" are removed and replaced with the words "determined
as of the close of business on the day before the date on which the
action approved by the resolution approving the arrangement becomes
effective";
(b) in subsection 190(5) the words "at or before any meeting of
shareholders at which a resolution referred to in subsection (1) or
(2) is to be voted on"
<PAGE>
25.
shall be read as "before 5:00 p.m. Montreal time on the business day
preceding the Meeting";
(c) in subsection 190(6) the words "within ten days after the
shareholders adopt the resolution" are removed and replaced with the
words "within ten days after the date on which the action approved by
the resolution approving the arrangement becomes effective"; and
(d) in subsection 190(7) the words "within twenty days after he learns
that the resolution has been adopted" are removed and replaced with
the words "within twenty days after he learns that the action
approved by the resolution approving the arrangement is effective";
AS TO SERVICE OF COURT PROCEEDINGS
ORDER that CN shall include in the Meeting Materials, as Annex I to the
Proxy Solicitation Statement, a copy of the application (without those
exhibits not already part of the Meeting Materials) and this Interim Order
(collectively the "Court Materials"), and that the Court Materials shall
be deemed to have been received by and served upon the CN Securityholders
at the times specified above as to service of the application and the
Interim Order, whether those persons reside within Quebec or within
another jurisdiction;
ORDER that sending the Court Materials in accordance with this Interim
Order shall constitute good and sufficient service of such Court Materials
upon all persons who are entitled to receive such Court Materials pursuant
to this Interim Order and no other form of service need be made and no
other material need be served on such persons in respect of these
proceedings;
ORDER that CN shall make proof of service with an affidavit to the effect
that the Court Materials were sent in accordance with this Interim Order
to which shall be annexed the lists of CN Securityholders (CN-2 and CN-3
updated as at the Record Date) to whom such Court Materials were sent;
ORDER that the CN Securityholders (and any transferee after the Record
Date) and all other persons served in accordance with this Interim Order
shall be parties to this Application and shall be bound by the orders and
findings of this Court in this Application;
AS TO SANCTION HEARING
ORDER that, upon the approval by the CN Securityholders of the Plan of
Arrangement in the manner set forth in this Interim Order, CN may apply to
this Court for a final order as set out below ("Final Order");
<PAGE>
26.
ORDER that such Application for a Final Order be presented on May 18, 2000
at the Montreal Courthouse at 1 Notre-Dame East in Montreal, Quebec, in
room 2.16 at 9:00 a.m. or so soon thereafter as Counsel may be heard;
ORDER that a notice of such Application be published in La Presse and in
the Globe and Mail on or before April 24, 2000;
ORDER that any CN Securityholder has the right to appear (either in person
or by counsel) and make submissions at the hearing of the application for
the Final Order;
ORDER that any person seeking to appear at the hearing of the application
for the Final Order shall:
(a) file into the Court record, and serve to CN's Counsel of record, an
Appearance on or before May 1st, 2000;
(b) if the appearance is with a view to contesting the application for
Final Order, serve to CN's counsel of record and file into the Court
record, on or before May 11, 2000, a written contestation, supported
as to the facts by affidavit(s), and exhibit(s) if any, without which
such contestation the appearing person shall not be admitted to
contest the application for Final Order;
ORDER that any person who files an appearance shall be entitled to be
served with any additional court material not already served as provided
above and filed prior to or at the hearing of the application for the
Final Order, and that no other party other than the Director is entitled
to be served with these materials;
AS TO VARIANCE
ORDER that CN shall be entitled, at any time, to seek leave to vary this
Interim Order;
B) ON THE FINAL APPLICATION:
GRANT the application;
DECLARE the Plan of Arrangement, as submitted to and voted on by the CN
Securityholders, duly adopted in accordance with the directions given by
this Court on the Interim Order;
DECLARE that such Plan of Arrangement conforms with the requirements of
the CBCA and the CN Commercialization Act, S.C. 1995, c.24 applicable to
Canadian National Railway Company;
<PAGE>
27.
DECLARE that such Plan of Arrangement is fair and reasonable to CN
Securityholders;
ORDER that such Plan of Arrangement be and is hereby approved.
Montreal, February 28, 2000
-------------------------------------------
Stikeman Elliott
Attorneys for Canadian National Railway
Company
<PAGE>
28.
Affidavit
I, the undersigned, Jean Pierre Ouellet, of the City of Montreal, in the
Province of Quebec, do solemnly declare that:
1. I am the Senior Vice-President, Chief Legal Officer and Corporate
Secretary of Canadian National Railway Company;
2. All the facts stated in the present Application for Interim and Final
Orders with respect to an Arrangement are true;
Signed in Montreal, on February 28, 2000
-----------------------------------------
Jean Pierre Ouellet
Solemnly declared before me in
Montreal on February 28, 2000
- ----------------------------------
Commissioner for oaths
<PAGE>
29.
Notice of Presentation
To: The Director in charge of the
Canada Business Corporations Act
Complex Jean-Edmonds South
9th Floor
365 Laurier Avenue West
Ottawa, Ontario
TAKE NOTICE of the present Application for Interim Order with respect to
an Arrangement and its presentation at the Montreal Courthouse, practice
division, 1 Notre-Dame Street East, Montreal, in room 2.16, on March 6, 2000 at
9:00 a.m. or so soon thereafter as Counsel may be heard.
Montreal, February 28, 2000
------------------------------------
STIKEMAN ELLIOTT
Attorneys for Canadian National
Railway Company
<PAGE>
CANADA SUPERIOR COURT
====================================================
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL
No.: 500-05 IN THE MATTER OF THE ARRANGEMENT OF
CANADIAN NATIONAL RAILWAY
COMPANY, having its head
office at 935 de La
Gauchetiere Street West,
16th Floor, Montreal,
Quebec;
APPLICANT
-and-
SHAREHOLDERS, and HOLDERS OF OPTIONS to acquire
shares, of Canadian National Railway;
-and-
THE DIRECTOR IN CHARGE OF THE CANADA BUSINESS
CORPORATIONS ACT ("Director"), having his
head office at Complex Jean-Edmonds South, 9th
Floor, 365 Laurier Avenue West, Ottawa, Ontario;
MIS-EN-CAUSE
====================================================
List of Exhibits
CN-1 Last Annual Report of Canadian National Railway Company;
CN-2 List of CN shareholders;
CN-3 List of holders of CN options;
CN-4 Combination Agreement;
CN-5 Plan of Arrangement;
CN-6 Proxy Sollicitation Statement of CN and BNSF;
CN-7 Map showing the combined network of CN and BNSF;
CN-8 Conditional listing letter of the Toronto Stock Exchange dated
February 24, 2000 concerning the CN Stapled Securities;
CN-9 Diagrams illustrating the Arrangement and the Merger;
<PAGE>
Fifth draft (23.02.00)
CN-10 Opinion of Salomon Smith Barney;
CN-11 Opinion of Nesbitt-Burns;
CN-12 Forms of proxy accompanying the notice of meeting.
Montreal, February 28, 2000
---------------------------------
Stikeman Elliott
Attorneys for Canadian National Railway
Company
<PAGE>
ANNEX J
Canada Business Corporations Act
R.S.C. 1985, c. C-44 as amended
190. (1) Right to Dissent - Subject to sections 191 and 241, a holder of
shares of any class of a corporation may dissent if the corporation is subject
to an order under paragraph 192(4)(d) that affects the holder or if the
corporation resolves to
(a) amend its articles under section 173 or 174 to add, change or remove
any provisions restricting or constraining the issue, transfer or
ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any
restriction on the business or businesses that the corporation may
carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188; or
(e) sell, lease or exchange all or substantially all its property under
subsection 189(3).
(2) Further Right - A holder of shares of any class or series of shares
entitled to vote under section 176 may dissent if the corporation resolves to
amend its articles in a manner described in that section.
(3) Payment of Shares - In addition to any other right he may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which he dissents or
an order made under subsection 192(4) becomes effective, to be paid by the
corporation the fair value of the shares held by him in respect of which he
dissents, determined as of the close of business on the day before the
resolution was adopted or the order was made.
(4) No partial dissent - A dissenting shareholder may only claim under this
section with respect to all the shares of a class held by him on behalf of any
one beneficial owner and registered in the name of the dissenting shareholder.
(5) Objection - A dissenting shareholder shall send to the corporation, at
or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of his right to dissent.
<PAGE>
(6) Notice of resolution - The corporation shall, within ten days after the
shareholders adopt the resolution, send to each shareholder who has filed the
objection referred to in subsection (5) notice that the resolution has been
adopted, but such notice is not required to be sent to any shareholder who voted
for the resolution or who has withdrawn his objection.
(7) Demand for payment - A dissenting shareholder shall, within twenty days
after he receives a notice under subsection (6) or, if he does not receive such
notice, within twenty days after he learns that the resolution has been adopted,
send to the corporation a written notice containing
(a) his name and address;
(b) the number and class of shares in respect of which he dissents; and
(c) a demand for payment of the fair value of such shares.
(8) Share certificate - A dissenting shareholder shall, within thirty days
after sending a notice under subsection (7), send the certificates representing
the shares in respect of which he dissents to the corporation or its transfer
agent.
(9) Forfeiture - A dissenting shareholder who fails to comply with
subsection (8) has no right to make a claim under this section.
(10) Endorsing certificate - A corporation or its transfer agent shall
endorse on any share certificate received under subsection (8) a notice that the
holder is a dissenting shareholder under this section and shall forthwith return
the share certificates to the dissenting shareholder.
(11) Suspension of rights - On sending a notice under subsection (7), a
dissenting shareholder ceases to have any rights as a shareholder other than the
right to be paid the fair value of his shares as determined under this section
except where
(a) the dissenting shareholder withdraws his notice before the corporation
makes an offer under subsection (12),
(b) the corporation fails to make an offer in accordance with subsection
(12) and the dissenting shareholder withdraws his notice, or
(c) the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement under
subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9),
<PAGE>
(d) in which case his rights as a shareholder are reinstated as of the date
he sent the notice referred to in subsection (7).
(12) Offer to pay - A corporation shall, not later than seven days after
the later of the day on which the action approved by the resolution is effective
or the day the corporation received the notice referred to in subsection (7),
send to each dissenting shareholder who has sent such notice:
(a) a written offer to pay for his shares in an amount considered by the
directors of the corporation to be the fair value thereof, accompanied
by a statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is unable lawfully
to pay dissenting shareholders for their shares.
(13) Same terms - Every offer made under subsection (12) for shares of the
same class or series shall be on the same terms.
(14) Payment - Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(15) Corporation may apply to court - Where a corporation fails to make an
offer under subsection (12), or if a dissenting shareholder fails to accept an
offer, the corporation may, within fifty days after the action approved by the
resolution is effective or within such further period as a court may allow,
apply to a court to fix a fair value for the shares of any dissenting
shareholder.
(16) Shareholder application to court - If a corporation fails to apply to
a court under subsection (15), a dissenting shareholder may apply to a court for
the same purpose within a further period of twenty days or within such further
period as a court may allow.
(17) Venue - An application under subsection (15) or (16) shall be made to
a court having jurisdiction in the place where the corporation has its
registered office or in the province where the dissenting shareholder resides if
the corporation carries on business in that province.
(18) No security for costs - A dissenting shareholder is not required to
give security for costs in an application made under subsection (15) or (16).
(19) Parties - On an application to a court under subsection (15) or (16),
<PAGE>
(a) all dissenting shareholders whose shares have not been purchased by the
corporation shall be joined as parties and are bound by the decision of
the court; and
(b) the corporation shall notify each affected dissenting shareholder of
the date, place and consequences of the application and of his right to
appear and be heard in person or by counsel.
(20) Powers of court - On an application to a court under subsection (15)
or (16), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall then fix a fair
value for the shares of all dissenting shareholders.
(21) Appraisers - A court may in its discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(22) Final order - The final order of a court shall be rendered against the
corporation in favour of each dissenting shareholder and for the amount of the
shares as fixed by the court.
(23) Interest - A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
(24) Notice that subsection (26) applies - If subsection (26) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (22), notify each dissenting shareholder that it is unable lawfully
to pay dissenting shareholders for their shares.
(25) Effect where subsection (26) applies - If subsection (26) applies, a
dissenting shareholder, by written notice delivered to the corporation within
thirty days after receiving a notice under subsection (24), may
(a) withdraw his notice of dissent, in which case the corporation is deemed
to consent to the withdrawal and the shareholder is reinstated to his
full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as
soon as the corporation is lawfully able to do so or, in a liquidation,
to be ranked subordinate to the rights of creditors of the corporation
but in priority to its shareholders.
(26) Limitation - A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that
<PAGE>
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.
<PAGE>
ANNEX K
FORM OF VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT made as of the [ ] day of [ ], 200[ ].
B E T W E E N :
CANADIAN NATIONAL RAILWAY COMPANY, a corporation existing
under the laws of Canada,
(hereinafter referred to as "CN"),
OF THE FIRST PART,
- and -
NORTH AMERICAN RAILWAYS, INC., a corporation existing under
the laws of the State of Delaware,
(hereinafter referred to as "Newco"),
OF THE SECOND PART,
- and -
[NAR HOLDINGS COMPANY], an unlimited liability company
existing under the laws of the Province of Nova Scotia,
(hereinafter referred to as "NAR Subco"),
OF THE THIRD PART,
- and -
THE TRUST COMPANY OF THE BANK OF MONTREAL, a trust company
incorporated under the laws of Canada,
(hereinafter referred to as "Trustee"),
OF THE FOURTH PART.
WHEREAS pursuant to an amended and restated combination agreement (the
"Combination Agreement") dated as of December 18, 1999 among CN, Burlington
Northern Santa Fe Corporation ("BNSF"), Newco and Western Merger Sub, Inc., CN
and BNSF are to effect a business combination involving, among other things, the
recapitalization of CN through the issuance to its common shareholders of units
<PAGE>
-2-
("CN Stapled Units") each comprised of one voting share (a "CN Voting Share")
and one exchangeable share (a "CN Exchangeable Share"), all pursuant to the plan
of arrangement (the "Plan of Arrangement") contemplated by the Combination
Agreement;
AND WHEREAS pursuant to the Combination Agreement CN and Newco have
agreed to execute a voting and exchange trust agreement substantially in the
form of this trust agreement;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this trust agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions.
In this trust agreement, the following terms shall have the following
meanings:
"Affiliate" means an affiliated body corporate within the meaning of the CBCA.
"Arrangement" means the arrangement involving, among others, CN and its
shareholders contemplated by the Plan of Arrangement.
"Automatic Exchange Rights" means the benefit of the obligation of Newco to
effect the automatic exchange of Newco Common Shares for CN Exchangeable Shares
pursuant to section 5.12.
"Beneficiaries" means the registered holders from time to time of CN
Exchangeable Shares, represented by CN Stapled Units, other than CN, Newco and
their respective Affiliates.
"Beneficiary Votes" has the meaning ascribed thereto in section 4.2.
"Board of Directors" means the Board of Directors of CN.
"Business Day" means any day on which commercial banks are generally open for
business in New York, New York and Montreal, Quebec, other than a Saturday, a
Sunday or a day observed as a holiday in Montreal, Quebec under the laws of the
province of Quebec or the federal laws of Canada or in New York, New York under
the laws of the State of New York or the federal laws of the United States of
America.
<PAGE>
-3-
"CN Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the CN Exchangeable Shares.
"CN Exchangeable Shares" means the non-voting exchangeable shares in the capital
of CN.
"CN Stapled Unit" means a unit comprised of one CN Voting Share and one CN
Exchangeable Share, which unit does not constitute a security independent of the
shares it represents.
"CN Voting Shares" means the voting shares in the capital of CN.
"Canadian Dollar Equivalent" means, in respect of an amount expressed in a
currency other than Canadian dollars (the "Foreign Currency Amount") at any
date, the product obtained by multiplying (a) the Foreign Currency Amount by (b)
the noon spot exchange rate on such date for such foreign currency expressed in
Canadian dollars as reported by the Bank of Canada or, in the event such spot
exchange rate is not available, such exchange rate on such date for such foreign
currency expressed in Canadian dollars as may be deemed by the Board of
Directors to be appropriate for such purpose.
"Co-operation Agreement" means that certain co-operation agreement made as of
even date herewith between CN, Newco and NAR Subco.
"Current Market Price" means, in respect of a Newco Stapled Unit on any date,
the Canadian Dollar Equivalent of the average of the closing bid and asked
prices of Newco Stapled Units during a period of 20 consecutive trading days
ending not more than three trading days before such date on the New York Stock
Exchange, or, if the Newco Stapled Units are not then quoted on the New York
Stock Exchange, on such other stock exchange or automated quotation system on
which the Newco Stapled Units are listed or quoted, as the case may be, as may
be selected by the Board of Directors for such purpose; provided however, that
if in the opinion of the Board of Directors the public distribution or trading
activity of Newco Stapled Units during such period does not create a market
which reflects the fair market value of a Newco Stapled Unit, then the Current
Market Price of a Newco Stapled Unit shall be determined by the Board of
Directors, in good faith and in its sole discretion, and provided further that
any such selection, opinion or determination by the Board of Directors shall be
conclusive and binding.
"Exchange Right" has the meaning ascribed thereto in section 5.1.
"Insolvency Event" means the institution by CN of any proceeding to be
adjudicated a bankrupt or insolvent or to be wound up, or the consent of CN to
the institution of bankruptcy, insolvency or winding-up proceedings against it,
or the filing of a petition, answer or consent seeking dissolution or winding-up
under any
<PAGE>
-4-
bankruptcy, insolvency or analogous laws, including without limitation the
Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and Insolvency
Act (Canada), and the failure by CN to contest in good faith any such
proceedings commenced in respect of CN within 30 days of becoming aware thereof,
or the consent by CN to the filing of any such petition or to the appointment of
a receiver, or the making by CN of a general assignment for the benefit of
creditors, or the admission in writing by CN of its inability to pay its debts
generally as they become due, or CN not being permitted, pursuant to solvency
requirements of applicable law, to redeem any Retracted Shares pursuant to
section 6.6 of the CN Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Liquidation Event" has the meaning ascribed thereto in paragraph 5.12(b).
"Liquidation Event Effective Date" has the meaning ascribed thereto in section
5.12(c).
"List" has the meaning ascribed thereto in section 4.6.
"NAR Subco" means [NAR Holdings Company] an unlimited liability company existing
under the laws of the Province of Nova Scotia and a wholly-owned subsidiary of
Newco.
"Newco Affiliates" means Affiliates of Newco, including without limitation NAR
Subco.
"Newco Common Share" means a share of common stock, par value U.S.$0.01 per
share, in the capital of Newco.
"Newco Consent" has the meaning ascribed thereto in section 4.2.
"Newco Meeting" has the meaning ascribed thereto in section 4.2.
"Newco Stapled Unit" means a unit comprised of one CN Voting Share and one Newco
Common Share, which unit does not constitute a security independent of the
shares it represents.
"Newco Successor" has the meaning ascribed thereto in paragraph 11.1(a).
"Officer's Certificate" means, with respect to CN, Newco or NAR Subco, as the
case may be, a certificate signed by any one director or officer of CN, Newco or
NAR Subco, as the case may be.
<PAGE>
-5-
"person" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Plan of Arrangement" means the plan of arrangement of CN providing for the
Arrangement.
"Retracted Shares" has the meaning ascribed thereto in section 5.7.
"Retraction Call Right" has the meaning ascribed thereto in the CN Exchangeable
Share Provisions.
"Special Voting Share" means the one share of special voting stock of Newco, par
value U.S.$0.01, which entitles the holder of record to a number of votes at
meetings of holders of Newco Common Shares equal to the number of CN
Exchangeable Shares outstanding from time to time (other than CN Exchangeable
Shares held by Newco and Newco Affiliates), which share is to be issued to,
deposited with, and voted by, the Trustee as described herein.
"Trust" means the trust created by this trust agreement.
"Trust Estate" means the Special Voting Share, any other securities, the
Exchange Right, the Automatic Exchange Rights and any money or other property
which may be held by the Trustee from time to time pursuant to this trust
agreement.
"Trustee" means The Trust Company of the Bank of Montreal and, subject to the
provisions of Article 10, includes any successor trustee.
"Voting Rights" means the voting rights attached to the Special Voting Share.
Section 1.2 Interpretation Not Affected by Headings, etc.
The division of this trust agreement into Articles, sections and other
portions and the insertion of headings are for convenience of reference only and
should not affect the construction or interpretation of this trust agreement.
Unless otherwise indicated, all references to an "Article", "section" or
"paragraph" followed by a number and/or a letter refer to the specified Article
or section of this trust agreement. The terms "this trust agreement", "hereof",
"herein" and "hereunder" and similar expressions refer to this trust agreement
and not to any particular Article, section or other portion hereof and include
any agreement or instrument supplementary or ancillary hereto.
Section 1.3 Number, Gender, etc.
Words importing the singular number only shall include the plural and
vice versa. Words importing any gender shall include all genders.
<PAGE>
-6-
Section 1.4 Date for any Action.
If any date on which any action is required to be taken under this
trust agreement is not a Business Day, such action shall be required to be taken
on the next succeeding Business Day.
ARTICLE 2
PURPOSE OF AGREEMENT
Section 2.1 Establishment of Trust.
The purpose of this trust agreement is to create the Trust for the
benefit of the Beneficiaries, as herein provided. The Trustee will hold the
Special Voting Share in order to enable the Trustee to execute the Voting Rights
and will hold the Exchange Right and the Automatic Exchange Rights in order to
enable the Trustee to exercise such rights, in each case as trustee for and on
behalf of the Beneficiaries as provided in this trust agreement.
ARTICLE 3
SPECIAL VOTING SHARE
Section 3.1 Issue and Ownership of the Special Voting Share.
Newco hereby issues to, and deposits with, the Trustee, the Special
Voting Share to be hereafter held of record by the Trustee as trustee for and on
behalf of, and for the use and benefit of, the Beneficiaries and in accordance
with the provisions of this trust agreement. Newco hereby acknowledges receipt
from the Trustee as trustee for and on behalf of the Beneficiaries of good and
valuable consideration (and the adequacy thereof) for the issuance of the
Special Voting Share by Newco to the Trustee. During the term of the Trust and
subject to the terms and conditions of this trust agreement, the Trustee shall
possess and be vested with full legal ownership of the Special Voting Share and
shall be entitled to exercise all of the rights and powers of an owner with
respect to the Special Voting Share provided that the Trustee shall:
(a) hold the Special Voting Share and the legal title thereto as
trustee solely for the use and benefit of the Beneficiaries in
accordance with the provisions of this trust agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to sell, transfer, vote or otherwise deal in or
with the Special Voting Share and the Special Voting Share shall
not be used or disposed of by the Trustee for any purpose other
than the purposes for which this Trust is created pursuant to this
trust agreement.
<PAGE>
-7-
Section 3.2 Legended Share Certificates.
CN will cause each certificate representing CN Stapled Units to bear an
appropriate legend notifying the Beneficiaries of their right to instruct the
Trustee with respect to the exercise of the Voting Rights in respect of the CN
Exchangeable Shares forming part of the CN Stapled Units of the Beneficiaries.
Section 3.3 Safe Keeping of Certificate.
The certificate representing the Special Voting Share shall at all
times be held in safe keeping by the Trustee.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
Section 4.1 Voting Rights.
The Trustee, as the holder of record of the Special Voting Share, shall
be entitled to all of the Voting Rights, including the right to vote in person
or by proxy the Special Voting Share on any matters, questions, proposals or
propositions whatsoever that may properly come before the shareholders of Newco
at a Newco Meeting or in connection with a Newco Consent. The Voting Rights
shall be and remain vested in and exerciseable by the Trustee. Subject to
section 7.15:
(a) the Trustee shall exercise the Voting Rights only on the basis of
instructions received pursuant to this Article 4 from
Beneficiaries entitled to instruct the Trustee as to the voting
thereof at the time at which the Newco Meeting is held; and
(b) to the extent that no instructions are received from a Beneficiary
with respect to the Voting Rights to which such Beneficiary is
entitled, the Trustee shall not exercise or permit the exercise of
such Voting Rights.
Section 4.2 Number of Votes.
With respect to all meetings of shareholders of Newco at which holders
of Newco Common Shares are entitled to vote (each, a "Newco Meeting") and with
respect to all written consents sought by Newco from its shareholders including
the holders of Newco Common Shares (each, a "Newco Consent"), each Beneficiary
shall be entitled to instruct the Trustee to cast and exercise one of the votes
comprised in the Voting Rights for each CN Stapled Unit owned of record by such
Beneficiary on the record date established by Newco or by applicable law for
such Newco Meeting or Newco Consent, as the case may be (the "Beneficiary
Votes"), in respect of each matter, question, proposal or proposition to be
voted on at such Newco Meeting or in connection with such Newco Consent.
<PAGE>
-8-
Section 4.3 Mailings to Shareholders.
With respect to each Newco Meeting and Newco Consent, the Trustee will
mail or cause to be mailed (or otherwise communicate in the same manner as Newco
utilizes in communications to holders of Newco Stapled Units) to each of the
Beneficiaries named in the List referred to in section 4.6, such mailing or
communication to commence on the same day as the mailing or notice (or other
communication) with respect thereto is commenced by Newco to holders of Newco
Stapled Units:
(a) a copy of such notice, together with any related materials to be
provided to holders of Newco Stapled Units;
(b) a statement that such Beneficiary is entitled to instruct the
Trustee as to the exercise of the Beneficiary Votes with respect
to such Newco Meeting or Newco Consent or, pursuant to section
4.7, to attend such Newco Meeting and to exercise personally the
Beneficiary Votes thereat;
(c) a statement as to the manner in which such instructions may be
given to the Trustee, including an express indication that
instructions may be given to the Trustee to give:
(i) a proxy to such Beneficiary or his designee to exercise
personally the Beneficiary Votes; or
(ii) a proxy to a designated agent or other representative of the
management of Newco to exercise such Beneficiary Votes;
(d) a statement that if no such instructions are received from the
Beneficiary, the Beneficiary Votes to which such Beneficiary is
entitled will not be exercised;
(e) a form of direction whereby the Beneficiary may so direct and
instruct the Trustee as contemplated herein; and
(f) a statement of the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which
in the case of a Newco Meeting shall not be earlier than the close
of business on the [second Business Day] prior to such meeting,
and of the method for revoking or amending such instructions.
For the purpose of determining Beneficiary Votes to which a Beneficiary
is entitled in respect of any Newco Meeting or Newco Consent, the number of CN
Exchangeable Shares represented by CN Stapled Units owned of record by the
Beneficiary shall be determined at the close of business on the record date
<PAGE>
-9-
established by Newco or by applicable law for purposes of determining
shareholders entitled to vote at such Newco Meeting. Newco will notify the
Trustee of any decision of the Board of Directors of Newco with respect to the
calling of any Newco Meeting and shall provide all necessary information and
materials to the Trustee in each case promptly and in any event in sufficient
time to enable the Trustee to perform its obligations contemplated by this
section 4.3.
Section 4.4 Copies of Shareholder Information.
Newco will deliver to the Trustee copies of all proxy materials
(including notices of Newco Meetings but excluding proxies to vote Newco Common
Shares or CN Voting Shares), information statements, reports (including without
limitation, all interim and annual financial statements) and other written
communications that, in each case, are to be distributed from time to time to
holders of Newco Stapled Units in sufficient quantities and in sufficient time
so as to enable the Trustee to send those materials to each Beneficiary at the
same time as such materials are first sent to holders of Newco Stapled Units.
The Trustee will mail or otherwise send to each Beneficiary, at the expense of
Newco, copies of all such materials (and all materials specifically directed to
the Beneficiaries or to the Trustee for the benefit of the Beneficiaries by
Newco) received by the Trustee from Newco contemporaneously with the sending of
such materials to holders of Newco Stapled Units. The Trustee will also make
available for inspection by any Beneficiary at the Trustee's principal corporate
trust office in the City of Montreal all proxy materials, information
statements, reports and other written communications that are:
(a) received by the Trustee as the registered holder of the Special
Voting Share and made available by Newco generally to the holders
of Newco Stapled Units; or
(b) specifically directed to the Beneficiaries or to the Trustee for
the benefit of the Beneficiaries by Newco.
Section 4.5 Other Materials.
As soon as reasonably practicable after receipt by Newco or holders of
Newco Stapled Units (if such receipt is known by Newco) of any material sent or
given by or on behalf of a third party to holders of Newco Stapled Units
generally, including without limitation, dissident proxy and information
circulars (and related information and material) and tender and exchange offer
circulars (and related information and material), Newco shall use its reasonable
efforts to obtain and deliver to the Trustee copies thereof in sufficient
quantities so as to enable the Trustee to forward such material (unless the same
has been provided directly to Beneficiaries by such third party) to each
Beneficiary as soon as possible thereafter. Immediately upon receipt thereof,
the Trustee will mail or otherwise send to each Beneficiary, at the expense of
Newco, copies of all such materials received by the
<PAGE>
-10-
Trustee from Newco. The Trustee will also make available for inspection by any
Beneficiary at the Trustee's principal corporate trust office in the City of
Montreal copies of all such materials.
Section 4.6 List of Persons Entitled to Vote.
CN shall, (a) prior to each annual, general and special Newco Meeting
or the seeking of any Newco Consent and (b) forthwith upon each request made at
any time by the Trustee in writing, prepare or cause to be prepared a list (the
"List") of the names and addresses of the Beneficiaries arranged in alphabetical
order and showing the number of CN Exchangeable Shares represented by CN Stapled
Units held of record by each such Beneficiary, in each case at the close of
business on the date specified by the Trustee in such request or, in the case of
a List prepared in connection with a Newco Meeting or a Newco Consent, at the
close of business on the record date established by Newco or pursuant to
applicable law for determining the holders of Newco Stapled Units entitled to
receive notice of and/or to vote the Newco Common Share component thereof at
such Newco Meeting or to give consent in connection with such Newco Consent.
Each such List shall be delivered to the Trustee promptly after receipt by CN of
such request or the record date for such meeting or seeking of consent, as the
case may be. Newco agrees to give CN notice (with a copy to the Trustee) of the
calling of any Newco Meeting or the seeking of any Newco Consent, together with
the record dates therefor, sufficiently prior to the date of the calling of such
meeting or seeking of such consent so as to enable CN to perform its obligations
under this section 4.6.
Section 4.7 Entitlement to Direct Votes.
Any Beneficiary named in a List prepared in connection with any Newco
Meeting or Newco Consent will be entitled (a) to instruct the Trustee in the
manner described in section 4.3 with respect to the exercise of the Beneficiary
Votes to which such Beneficiary is entitled or (b) to attend such meeting and
personally exercise thereat, as the proxy of the Trustee, the Beneficiary Votes
to which such Beneficiary is entitled.
Section 4.8 Voting by Trustee, and Attendance of Trustee Representative at
Meeting.
(a) In connection with each Newco Meeting and Newco Consent, the
Trustee shall exercise, either in person or by proxy, in
accordance with the instructions received from a Beneficiary
pursuant to section 4.3, the Beneficiary Votes as to which such
Beneficiary is entitled to direct the vote (or any lesser number
thereof as may be set forth in the instructions); provided,
however, that such written instructions are received by the
Trustee from the Beneficiary prior to the time and date fixed by
the Trustee for receipt of such instruction in the notice given by
the Trustee to the Beneficiary pursuant to section 4.3.
<PAGE>
-11-
(b) The Trustee shall cause a representative who is empowered by it to
sign and deliver, on behalf of the Trustee, proxies for Voting
Rights to attend each Newco Meeting. Upon submission by a
Beneficiary (or its designee) of identification satisfactory to
the Trustee's representative, and at the Beneficiary's request,
such representative shall sign and deliver to such Beneficiary (or
its designee) a proxy to exercise personally the Beneficiary Votes
as to which such Beneficiary is otherwise entitled hereunder to
direct the vote, if such Beneficiary either (i) has not previously
given the Trustee instructions pursuant to section 4.3 in respect
of such meeting or (ii) submits to such representative written
revocation of any such previous instructions. At such meeting, the
Beneficiary exercising such Beneficiary Votes shall have the same
rights as the Trustee to speak at the meeting in favour of any
matter, question, proposal or proposition, to vote by way of
ballot at the meeting in respect of any matter, question, proposal
or proposition, and to vote at such meeting by way of a show of
hands in respect of any matter, question or proposition.
Section 4.9 Distribution of Written Materials.
Any written materials distributed by the Trustee pursuant to this trust
agreement shall be sent by mail (or otherwise communicated in the same manner as
Newco utilizes in such communication to holders of Newco Stapled Units) to each
Beneficiary at its address as shown on the books of CN. CN shall provide or
cause to be provided to the Trustee for this purpose, on a timely basis and
without charge or other expense:
(a) a current List; and
(b) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this trust agreement.
Section 4.10 Termination of Voting Rights.
All of the rights of a Beneficiary with respect to the Beneficiary
Votes exercisable in respect of the CN Exchangeable Shares represented by CN
Stapled Units held by such Beneficiary, including the right to instruct the
Trustee as to the voting of or to vote personally such Beneficiary Votes, shall
be deemed to be surrendered by the Beneficiary to Newco, and such Beneficiary
Votes and the Voting Rights represented thereby shall cease immediately upon the
delivery by such holder to the Trustee of the certificates for the CN Stapled
Units representing such CN Exchangeable Shares in connection with the exercise
by the Beneficiary of the Exchange Right or the occurrence of the automatic
exchange of CN Exchangeable Shares for Newco Common Shares, as specified in
Article 5 (unless, in either case, NAR Subco or Newco, as applicable, shall not
have caused to be issued the requisite
<PAGE>
-12-
Newco Common Shares issuable in exchange therefor and caused to be delivered
Newco Stapled Units representing same (together with the CN Voting Shares
retained by such holder) to the Trustee for delivery to the Beneficiaries), or
upon the redemption of CN Exchangeable Shares pursuant to Article 6 of the CN
Exchangeable Share Provisions, or upon the effective date of the liquidation,
dissolution or winding-up of CN pursuant to Article 5 of the CN Exchangeable
Share Provisions, or upon the purchase of CN Exchangeable Shares from the holder
thereof by NAR Subco pursuant to the exercise by NAR Subco of the Retraction
Call Right or the Liquidation Call Right unless, in each of these latter cases,
upon presentation and surrender of the required certificates, payment of the
total retraction price or purchase price, as the case may be, shall not be made
in which case the rights of such Beneficiary shall remain unaffected until the
total amount of such price has been paid.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
Section 5.1 Grant and Ownership of the Exchange Right.
Newco hereby grants to the Trustee as trustee for and on behalf of, and
for the use and benefit of, the Beneficiaries the right (the "Exchange Right"),
upon the occurrence and during the continuance of an Insolvency Event, to
require Newco to purchase from each or any Beneficiary all or any part of the CN
Exchangeable Shares held by the Beneficiary and the Automatic Exchange Rights,
all in accordance with the provisions of this trust agreement. Newco hereby
acknowledges receipt from the Trustee as trustee for and on behalf of the
Beneficiaries of good and valuable consideration (and the adequacy thereof) for
the grant of the Exchange Right and the Automatic Exchange Rights by Newco to
the Trustee. During the term of the Trust and subject to the terms and
conditions of this trust agreement, the Trustee shall possess and be vested with
full legal ownership of the Exchange Right and the Automatic Exchange Rights and
shall be entitled to exercise all of the rights and powers of an owner with
respect to the Exchange Right and the Automatic Exchange Rights, provided that
the Trustee shall:
(a) hold the Exchange Right and the Automatic Exchange Rights and the
legal title thereto as trustee solely for the use and benefit of
the Beneficiaries in accordance with the provisions of this trust
agreement; and
(b) except as specifically authorized by this trust agreement, have no
power or authority to exercise or otherwise deal in or with the
Exchange Right or the Automatic Exchange Rights, and the Trustee
shall not exercise any such rights for any purpose other than the
purposes for which the Trust is created pursuant to this trust
agreement.
<PAGE>
-13-
Section 5.2 Legended Unit Certificates.
CN will cause each certificate representing CN Stapled Units to bear an
appropriate legend notifying the Beneficiaries of:
(a) their right to instruct the Trustee with respect to the exercise
of the Exchange Right in respect of the CN Exchangeable Shares
forming part of the CN Stapled Units held by a Beneficiary; and
(b) the Automatic Exchange Rights.
Section 5.3 General Exercise of Exchange Right.
The Exchange Right shall be and remain vested in and exercisable by the
Trustee. Subject to section 7.15, the Trustee shall exercise the Exchange Right
only on the basis of instructions received pursuant to this Article 5 from
Beneficiaries entitled to instruct the Trustee as to the exercise thereof. To
the extent that no instructions are received from a Beneficiary with respect to
the Exchange Right, the Trustee shall not exercise or permit the exercise of the
Exchange Right.
Section 5.4 Purchase Price.
The purchase price payable by Newco for each CN Exchangeable Share to
be purchased by Newco under the Exchange Right shall be an amount per share
equal to (a) the Current Market Price of a Newco Stapled Unit on the last
Business Day prior to the day of closing of the purchase and sale of such CN
Exchangeable Share under the Exchange Right, which shall be satisfied in full by
Newco causing to be issued to such holder one Newco Common Share, plus (b) to
the extent not paid by CN, an additional amount equivalent to the full amount of
all declared and unpaid dividends on each such CN Exchangeable Share held by
such holder on any dividend record date which occurred prior to the closing of
the purchase and sale. The purchase price for each such CN Exchangeable Share so
purchased may be satisfied only by Newco issuing to the relevant Beneficiary,
one Newco Common Share and delivering or causing to be delivered to the relevant
Beneficiary a Newco Stapled Unit certificate representing same (as well as the
CN Voting Shares retained by such Beneficiary) and on the applicable payment
date a cheque for the balance, if any, of the purchase price without interest
(but less any amounts withheld pursuant to section 5.13).
Section 5.5 Exercise Instructions.
Subject to the terms and conditions herein set forth, a Beneficiary
shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event, to instruct the Trustee to exercise the Exchange Right with
respect to all or any part of
<PAGE>
-14-
the CN Exchangeable Shares represented by CN Stapled Units registered in the
name of such Beneficiary on the books of CN. To cause the exercise of the
Exchange Right by the Trustee, the Beneficiary shall deliver to the Trustee, in
person or by certified or registered mail, at its principal corporate trust
office in Montreal, Quebec or at such other places in Canada as the Trustee may
from time to time designate by written notice to the Beneficiaries, the CN
Stapled Unit certificates representing the CN Exchangeable Shares which such
Beneficiary desires Newco to purchase, duly endorsed in blank for transfer, and
accompanied by such other documents and instruments as may be required to effect
a transfer of CN Exchangeable Shares under the Canada Business Corporations Act
and the by-laws of CN and such additional documents and instruments as the
Trustee may reasonably require together with (a) a duly completed form of notice
of exercise of the Exchange Right, contained on the reverse of or attached to
the CN Stapled Unit certificates, stating (i) that the Beneficiary thereby
instructs the Trustee to exercise the Exchange Right so as to require Newco to
purchase from the Beneficiary the number of CN Exchangeable Shares specified
therein, (ii) that such Beneficiary has good title to and owns all such CN
Exchangeable Shares to be acquired by Newco free and clear of all liens, claims
and encumbrances, (iii) the names in which the certificates representing Newco
Stapled Units representing the Newco Common Shares issuable in connection with
the exercise of the Exchange Right are to be issued and (iv) the names and
addresses of the persons to whom such new certificates should be delivered and
(b) payment (or evidence satisfactory to the Trustee, CN and Newco of payment)
of the taxes (if any) payable as contemplated by section 5.8 of this trust
agreement. If only a part of the CN Exchangeable Shares represented by any CN
Stapled Unit certificate or certificates delivered to the Trustee are to be
purchased by Newco under the Exchange Right, a new certificate for the balance
of such CN Stapled Units shall be issued to the holder at the expense of CN.
Section 5.6 Delivery of Newco Stapled Units; Effect of Exercise.
Promptly after receipt of the CN Stapled Unit certificates representing
the CN Exchangeable Shares which the Beneficiary desires Newco to purchase under
the Exchange Right, together with such documents and instruments of transfer and
a duly completed form of notice of exercise of the Exchange Right (and payment
of taxes, if any, payable as contemplated by section 5.8 or evidence thereof),
duly endorsed for transfer, the Trustee shall notify Newco and CN of its receipt
of the same, which notice to Newco and CN shall constitute exercise of the
Exchange Right by the Trustee on behalf of the holder of such CN Exchangeable
Shares, and Newco shall promptly thereafter issue to the relevant Beneficiary
(or to such other persons, if any, properly designated by such Beneficiary) the
number of Newco Common Shares issuable in connection with the exercise of the
Exchange Right, and shall deliver or cause to be delivered to the relevant
Beneficiary a Newco Stapled Unit certificate representing same (as well as the
CN Voting Shares retained by such Beneficiary) and on the applicable payment
date cheques for the balance, if any, of
<PAGE>
-15-
the total purchase price therefor without interest (but less any amounts
withheld pursuant to section 5.13); provided, however, that no such delivery
shall be made unless and until the Beneficiary requesting the same shall have
paid (or provided evidence satisfactory to the Trustee, CN and Newco of the
payment of) the taxes (if any) payable as contemplated by section 5.8 of this
trust agreement. Immediately upon the giving of notice by the Trustee to Newco
and CN of the exercise of the Exchange Right as provided in this section 5.6,
the closing of the transaction of purchase and sale contemplated by the Exchange
Right shall be deemed to have occurred and the holder of the CN Stapled Units
representing the CN Exchangeable Shares so sold shall be deemed to have
transferred to Newco all of such holder's right, title and interest in and to
such CN Exchangeable Shares and the related interest in the Trust Estate and
shall cease to be a holder of such CN Exchangeable Shares and shall not be
entitled to exercise any of the rights of a holder in respect thereof, other
than the right to receive his or her proportionate part of the total purchase
price therefor, unless the requisite number of Newco Common Shares is not
allotted and issued by Newco and Newco Stapled Units representing same (as well
as the CN Voting Shares retained by such Beneficiary) shall not have been
delivered for distribution by the Trustee to such Beneficiary within five
Business Days of the date of the giving of such notice by the Trustee, in which
case the rights of the Beneficiary shall remain unaffected until such Newco
Common Shares are so allotted and issued and the Newco Stapled Units
representing same have been delivered by Newco. Upon delivery by Newco to the
Trustee of certificates for Newco Stapled Units representing such Newco Common
Shares, the Trustee shall deliver such Newco Stapled Units to such Beneficiary
(or to such other persons, if any, properly designated by such Beneficiary).
Concurrently with such Beneficiary ceasing to be a holder of CN Exchangeable
Shares, the Beneficiary shall be considered and deemed for all purposes to be
the holder of the Newco Common Shares delivered to it pursuant to the Exchange
Right.
Section 5.7 Exercise of Exchange Right Subsequent to Retraction.
In the event that a Beneficiary has exercised its right under Article 6
of the CN Exchangeable Share Provisions to require CN to redeem any or all of
the CN Exchangeable Shares held by the Beneficiary (the "Retracted Shares") and
is notified by CN pursuant to section 6.6 of the CN Exchangeable Share
Provisions that CN will not be permitted as a result of solvency requirements of
applicable law to redeem all such Retracted Shares, and provided that NAR Subco
shall not have exercised the Retraction Call Right with respect to the Retracted
Shares and that the Beneficiary has not revoked the retraction request delivered
by the Beneficiary to CN pursuant to section 6.1 of the CN Exchangeable Share
Provisions, the retraction request will constitute and will be deemed to
constitute notice from the Beneficiary to the Trustee instructing the Trustee to
exercise the Exchange Right with respect to those Retracted Shares that CN is
unable to redeem. In any such event, CN hereby agrees with the Trustee and in
favour of the Beneficiary promptly to forward or cause to be
<PAGE>
-16-
forwarded to the Trustee all relevant materials delivered by the Beneficiary to
CN or to the transfer agent of the CN Stapled Units (including without
limitation, a copy of the retraction request delivered pursuant to section 6.1
of the CN Exchangeable Share Provisions) in connection with such proposed
redemption of the Retracted Shares and the Trustee will thereupon exercise the
Exchange Right with respect to the Retracted Shares that CN is not permitted to
redeem and will require Newco to purchase such shares in accordance with the
provisions of this Article 5.
Section 5.8 Stamp or Other Transfer Taxes.
Upon any sale of CN Exchangeable Shares to Newco pursuant to the
Exchange Right or the Automatic Exchange Rights, the certificate or certificates
for the Newco Stapled Units representing the Newco Common Shares issued in
payment therefor to be delivered in connection with the payment of the total
purchase price therefor shall be issued in the name of the Beneficiary or in
such names as such Beneficiary may otherwise direct in writing without charge to
such Beneficiary; provided, however, that such Beneficiary (a) shall pay (and
none of Newco, CN or the Trustee shall be required to pay) any documentary,
stamp, transfer or other taxes that may be payable in respect of any transfer
involved in the issuance or delivery of such shares to a person other than such
Beneficiary or (b) shall have evidenced to the satisfaction of the Trustee,
Newco and CN that such taxes, if any, have been paid.
Section 5.9 Notice of Insolvency Event.
As soon as practicable following the occurrence of an Insolvency Event
or any event that with the giving of notice or the passage of time or both would
be an Insolvency Event, CN and Newco shall give written notice thereof to the
Trustee. As soon as practicable following the receipt of notice from CN and
Newco of the occurrence of an Insolvency Event, or upon the Trustee becoming
aware of an Insolvency Event, the Trustee will mail to each Beneficiary, at the
expense of Newco, a notice of such Insolvency Event, which notice shall contain
a brief statement of the rights of the Beneficiaries with respect to the
Exchange Right.
Section 5.10 Qualification of Newco Common Shares.
Newco covenants that if any Newco Common Shares to be issued pursuant
to the Exchange Right or the Automatic Exchange Rights require registration or
qualification with or approval of or the filing of any document, including any
prospectus or similar document, or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian or United States federal, provincial or state law
or regulation or pursuant to the rules and regulations of any regulatory
authority or the fulfilment of any other Canadian or United States federal,
provincial or state legal requirement before such shares may be issued or the
Newco Stapled Units of which they form part may be delivered by Newco to the
initial holder thereof or in
<PAGE>
-17-
order that such shares and the Newco Stapled Units representing same may be
freely traded thereafter (other than any restrictions of general application on
transfer, including without limitation by reason of a holder being a "control
person" for purposes of Canadian provincial securities law or an "affiliate" of
Newco for purposes of United States federal or state securities law), Newco will
in good faith expeditiously take all such actions and do all such things as are
necessary or desirable to cause such Newco Common Shares and/or Newco Stapled
Units, as applicable, to be and remain duly registered, qualified or approved.
Newco will in good faith expeditiously take all such actions and do all such
things as are reasonably necessary or desirable to cause all Newco Common Shares
represented by Newco Stapled Units to be issued and delivered pursuant to the
Exchange Right or the Automatic Exchange Rights to be listed, quoted or posted
for trading on all stock exchanges and quotation systems on which such shares
have been listed by Newco and remain listed and are quoted or posted for trading
at such time.
Section 5.11 Newco Common Shares.
Newco hereby represents, warrants and covenants that the Newco Common
Shares issuable as described herein and in the CN Exchangeable Share Provisions
will be duly authorized and validly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance.
Section 5.12 Automatic Exchange on Liquidation of Newco.
(a) Newco will give the Trustee notice of each of the following events
at the time set forth below:
(i) in the event of any determination by the board of directors
of Newco to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to Newco or to effect
any other distribution of assets of Newco among its
shareholders for the purpose of winding up its affairs, at
least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution;
and
(ii) as soon as practicable following the earlier of (A) receipt
by Newco of notice of, and (B) Newco otherwise becoming
aware of, any threatened or instituted claim, suit, petition
or other proceedings with respect to the involuntary
liquidation, dissolution or winding-up of Newco or to effect
any other distribution of assets of Newco among its
shareholders for the purpose of winding up its affairs, in
each case where Newco has failed to contest in good faith
any such proceeding commenced in respect of Newco within 30
days of becoming aware thereof.
<PAGE>
-18-
(b) As soon as practicable following receipt by the Trustee from Newco
of notice of any event (a "Liquidation Event") contemplated by
paragraph 5.12(a)(i) or paragraph 5.12(a)(ii) above, the Trustee
will give notice thereof to the Beneficiaries. Such notice shall
include a brief description of the automatic exchange of CN
Exchangeable Shares for Newco Common Shares provided for in
paragraph 5.12(c).
(c) In order that the Beneficiaries will be able to participate on a
pro rata basis with the holders of Newco Common Shares in the
distribution of assets of Newco in connection with a Liquidation
Event, on the fifth Business Day prior to the effective date (the
"Liquidation Event Effective Date ") of a Liquidation Event all of
the then outstanding CN Exchangeable Shares shall be automatically
exchanged for Newco Common Shares. To effect such automatic
exchange, Newco shall purchase on the fifth Business Day prior to
the Liquidation Event Effective Date each CN Exchangeable Share
then outstanding and held by Beneficiaries, and each Beneficiary
shall sell the CN Exchangeable Shares held by it at such time, for
a purchase price per share equal to (a) the Current Market Price
of a Newco Stapled Unit on the fifth Business Day prior to the
Liquidation Event Effective Date, which shall be satisfied in full
by Newco issuing to the Beneficiary one Newco Common Share, and
(b) to the extent not paid by CN, an additional amount equivalent
to the full amount of all declared and unpaid dividends on each
such CN Exchangeable Share held by such holder on any dividend
record date which occurred prior to the date of the exchange.
(d) On the fifth Business Day prior to the Liquidation Event Effective
Date, the closing of the transaction of purchase and sale
contemplated by the automatic exchange of CN Exchangeable Shares
for Newco Common Shares shall be deemed to have occurred, and each
Beneficiary shall be deemed to have transferred to Newco all of
the Beneficiary's right, title and interest in and to such
Beneficiary's CN Exchangeable Shares and the related interest in
the Trust Estate and shall cease to be a holder of such CN
Exchangeable Shares and Newco shall issue to the Beneficiary the
Newco Common Shares issuable upon the automatic exchange of CN
Exchangeable Shares for Newco Common Shares and on the applicable
payment date shall deliver to the Trustee for delivery to the
Beneficiary a cheque for the balance, if any, of the total
purchase price for such CN Exchangeable Shares without interest
but less any amounts withheld pursuant to section 5.13.
Concurrently with such Beneficiary ceasing to be a holder of CN
Exchangeable Shares, the Beneficiary shall be considered and
deemed for all purposes to be the
<PAGE>
-19-
holder of the Newco Common Shares issued pursuant to the automatic
exchange of CN Exchangeable Shares for Newco Common Shares and the
certificates held by the Beneficiary previously representing the
CN Stapled Units containing the CN Exchangeable Shares exchanged
by the Beneficiary with Newco pursuant to such automatic exchange
shall thereafter be deemed to represent Newco Stapled Units
containing the Newco Common Shares issued to the Beneficiary by
Newco pursuant to such automatic exchange. Upon the request of a
Beneficiary and the surrender by the Beneficiary of CN Stapled
Unit certificates deemed to represent Newco Stapled Units
representing the Newco Common Shares so acquired upon the exercise
of such Automatic Exchange Right (as well as the CN Voting Share
retained by such Beneficiary), duly endorsed in blank and
accompanied by such instruments of transfer as Newco may
reasonably require, Newco shall deliver or cause to be delivered
to the Beneficiary certificates representing the Newco Stapled
Units of which the Beneficiary is the holder.
Section 5.13 Withholding Rights.
Newco, CN and the Trustee shall be entitled to deduct and withhold from
any consideration otherwise payable under this trust agreement to any holder of
CN Exchangeable Shares or Newco Common Shares such amounts as Newco, CN or the
Trustee is required or permitted to deduct and withhold with respect to such
payment under the Income Tax Act (Canada), the United States Internal Revenue
Code of 1986 or any provision of provincial, state, local or foreign tax law, in
each case as amended or succeeded. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes as having been paid to
the holder of the shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder, Newco, CN and
the Trustee are hereby authorized to sell or otherwise dispose of such portion
of the consideration as is necessary to provide sufficient funds to Newco, CN or
the Trustee, as the case may be, to enable it to comply with such deduction or
withholding requirement and Newco, CN or the Trustee shall notify the holder
thereof and remit to such holder any unapplied balance of the net proceeds of
such sale. CN and Newco represent and warrant that, based upon facts currently
known to each of them, CN has no current intention, as at the date of this
Agreement, to deduct or withhold, and Newco has no current intention, as at the
date of this Agreement to cause CN to deduct or withhold, from any dividend paid
to holders of CN Stapled Units representing CN Exchangeable Shares any amounts
under the United States Internal Revenue Code of 1986.
<PAGE>
-20-
ARTICLE 6
RESTRICTIONS ON ISSUE OF NEWCO SPECIAL VOTING STOCK
Section 6.1 Issue of Additional Shares.
During the term of this trust agreement, Newco will not, without the
consent of the holders at the relevant time of CN Exchangeable Shares, given in
accordance with section 9.2 of the CN Exchangeable Share Provisions, issue any
shares of its special voting stock in addition to the Special Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
Section 7.1 Powers and Duties of the Trustee.
The rights, powers, duties and authorities of the Trustee under this
trust agreement, in its capacity as trustee of the Trust, shall include:
(a) receipt and deposit of the Special Voting Share from Newco as
trustee for and on behalf of the Beneficiaries in accordance with
the provisions of this trust agreement;
(b) granting proxies and distributing materials to Beneficiaries as
provided in this trust agreement;
(c) voting the Beneficiary Votes in accordance with the provisions of
this trust agreement;
(d) receiving the grant of the Exchange Right and the Automatic
Exchange Rights from Newco as trustee for and on behalf of the
Beneficiaries in accordance with the provisions of this trust
agreement;
(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the
provisions of this trust agreement, and in connection therewith
receiving from Beneficiaries CN Exchangeable Shares and other
requisite documents and distributing to such Beneficiaries Newco
Stapled Units and cheques, if any, to which such Beneficiaries are
entitled upon the exercise of the Exchange Right or pursuant to
the Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the
Trust Estate as provided in this trust agreement;
<PAGE>
-21-
(h) taking action on its own initiative or at the direction of a
Beneficiary or Beneficiaries to enforce the obligations of Newco
and CN under this trust agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers, duties and authorities the
Trustee shall have (and is granted) such incidental and additional rights,
powers, duties and authority not in conflict with any of the provisions of this
trust agreement as the Trustee, acting in good faith and in the reasonable
exercise of its discretion, may deem necessary, appropriate or desirable to
effect the purpose of the Trust. Any exercise of such discretionary rights,
powers, duties and authorities by the Trustee shall be final, conclusive and
binding upon all persons.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith and with a view to the best
interests of the Beneficiaries and shall exercise the care, diligence and skill
that a reasonably prudent trustee would exercise in comparable circumstances.
Section 7.2 No Conflict of Interest.
The Trustee represents to Newco and CN that at the date of execution
and delivery of this trust agreement there exists no material conflict of
interest in the role of the Trustee as a fiduciary hereunder and the role of the
Trustee in any other capacity. The Trustee shall, within 90 days after it
becomes aware that such material conflict of interest exists, either eliminate
such material conflict of interest or resign in the manner and with the effect
specified in Article 10. If, notwithstanding the foregoing provisions of this
section 7.2, the Trustee has such a material conflict of interest, the validity
and enforceability of this trust agreement shall not be affected in any manner
whatsoever by reason only of the existence of such material conflict of
interest. If the Trustee contravenes the foregoing provisions of this section
7.2, any interested party may apply to the [Quebec Superior Court - NTD: unless
agreement governed by Ontario law] for an order that the Trustee be replaced as
Trustee hereunder.
Section 7.3 Dealings with Transfer Agents, Registrars, etc.
Newco and CN irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent
registrar or transfer agent, of the CN Exchangeable Shares, the CN
Voting Shares, the CN Stapled Units, the Newco Common Shares and
the Newco Stapled Units; and
<PAGE>
-22-
(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the
discharge of its duties and responsibilities under this trust
agreement and (ii) from the transfer agent of the Newco Common
Shares and the Newco Stapled Units, and any subsequent transfer
agent of such shares, the unit certificates issuable upon the
exercise from time to time of the Exchange Right and pursuant to
the Automatic Exchange Rights.
Newco and CN irrevocably authorize their respective registrars and
transfer agents to comply with all such requests. Newco covenants that it will
supply its transfer agent with duly executed unit certificates for the purpose
of completing the exercise from time to time of the Exchange Right and the
Automatic Exchange Rights.
Section 7.4 Books and Records.
The Trustee shall keep available for inspection by Newco and CN at the
Trustee's principal corporate trust office in Montreal, Quebec correct and
complete books and records of account relating to the Trust created by this
trust agreement, including without limitation, all relevant data relating to
mailings and instructions to and from Beneficiaries and all transactions
pursuant to the Exchange Right and the Automatic Exchange Rights. On or before
March 31, [NTD: insert year of/after Closing], and on or before March 31 in
every year thereafter, so long as the Special Voting Share is on deposit with
the Trustee, the Trustee shall transmit to Newco and CN a brief report, dated as
of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that
date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of CN Exchangeable Shares received by the Trustee
on behalf of Beneficiaries in consideration of the issuance by
Newco of Newco Common Shares in connection with the Exchange
Right, during the calendar year ended on such December 31; and
(c) any action taken by the Trustee in the performance of its duties
under this trust agreement which it had not previously reported
and which, in the Trustee's opinion, materially affects the Trust
Estate.
Section 7.5 Income Tax Returns and Reports.
The Trustee shall, to the extent necessary, prepare and file on behalf
of the Trust appropriate United States and Canadian income tax returns and any
other returns or reports as may be required by applicable law or pursuant to the
rules and regulations of any securities exchange or other trading system through
which the CN Stapled Units are traded.
<PAGE>
-23-
Section 7.6 Indemnification Prior to Certain Actions by Trustee.
The Trustee shall exercise any or all of the rights, duties, powers or
authorities vested in it by this trust agreement at the request, order or
direction of any Beneficiary upon such Beneficiary furnishing to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred by the Trustee therein or thereby, provided that no
Beneficiary shall be obligated to furnish to the Trustee any such security or
indemnity in connection with the exercise by the Trustee of any of its rights,
duties, powers and authorities with respect to the Special Voting Share pursuant
to Article 4, subject to section 7.15, and with respect to the Exchange Right
pursuant to Article 5, subject to section 7.15, and with respect to the
Automatic Exchange Rights pursuant to Article 5.
None of the provisions contained in this trust agreement shall require
the Trustee to expend or risk its own funds or otherwise incur financial
liability in the exercise of any of its rights, powers, duties, or authorities
unless funded, given security and indemnified as aforesaid.
Section 7.7 Action of Beneficiaries.
No Beneficiary shall have the right to institute any action, suit or
proceeding or to exercise any other remedy authorized by this trust agreement
for the purpose of enforcing any of its rights or for the execution of any trust
or power hereunder unless the Beneficiary has requested the Trustee to take or
institute such action, suit or proceeding and furnished the Trustee with the
security or indemnity referred to in section 7.6 and the Trustee shall have
failed to act within a reasonable time thereafter. In such case, but not
otherwise, the Beneficiary shall be entitled to take proceedings in any court of
competent jurisdiction such as the Trustee might have taken; it being understood
and intended that no one or more Beneficiaries shall have any right in any
manner whatsoever to affect, disturb or prejudice the rights hereby created by
any such action, or to enforce any right hereunder or the Voting Rights, the
Exchange Right or the Automatic Exchange Rights except subject to the conditions
and in the manner herein provided, and that all powers and trusts hereunder
shall be exercised and all proceedings at law shall be instituted, had and
maintained by the Trustee, except only as herein provided, and in any event for
the equal benefit of all Beneficiaries.
Section 7.8 Reliance Upon Declarations.
The Trustee shall not be considered to be in contravention of any its
rights, powers, duties and authorities hereunder if, when required, it acts and
relies in good faith upon statutory declarations, certificates, opinions or
reports furnished pursuant to the provisions hereof or required by the Trustee
to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder if such statutory declarations, certificates, opinions or
reports comply with the provisions of section 7.9, if applicable, and with any
other applicable provisions of this trust agreement.
<PAGE>
-24-
Section 7.9 Evidence and Authority to Trustee.
Newco and/or CN shall furnish to the Trustee evidence of compliance
with the conditions provided for in this trust agreement relating to any action
or step required or permitted to be taken by Newco and/or CN or the Trustee
under this trust agreement or as a result of any obligation imposed under this
trust agreement, including, without limitation, in respect of the Voting Rights
or the Exchange Right or the Automatic Exchange Rights and the taking of any
other action to be taken by the Trustee at the request of or on the application
of Newco and/or CN promptly if and when:
(a) such evidence is required by any other section of this trust
agreement to be furnished to the Trustee in accordance with the
terms of this section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives Newco and/or CN
written notice requiring it to furnish such evidence in relation
to any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of Newco and/or
CN or a statutory declaration or a certificate made by persons entitled to sign
an Officer's Certificate stating that any such condition has been complied with
in accordance with the terms of this trust agreement.
Whenever such evidence relates to a matter other than the Voting Rights
or the Exchange Right or the Automatic Exchange Rights or the taking of any
other action to be taken by the Trustee at the request or on the application of
Newco and/or CN, and except as otherwise specifically provided herein, such
evidence may consist of a report or opinion of any solicitor, attorney, auditor,
accountant, appraiser, valuer, engineer or other expert or any other person
whose qualifications give authority to a statement made by him, provided that if
such report or opinion is furnished by a director, officer or employee of Newco
and/or CN it shall be in the form of an Officer's Certificate or a statutory
declaration.
Each statutory declaration, Officer's Certificate, opinion or report
furnished to the Trustee as evidence of compliance with a condition provided for
in this trust agreement shall include a statement by the person giving the
evidence:
(a) declaring that he has read and understands the provisions of this
trust agreement relating to the condition in question;
(b) describing the nature and scope of the examination or
investigation upon which he based the statutory declaration,
certificate, statement or opinion; and
<PAGE>
-25-
(c) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give
the opinions contained or expressed therein.
Section 7.10 Experts, Advisers and Agents.
The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from any solicitor, attorney,
auditor, accountant, appraiser, valuer, engineer or other expert,
whether retained by the Trustee or by Newco and/or CN or
otherwise, and may employ such assistants as may be necessary to
the proper discharge of its powers and duties and determination of
its rights hereunder and may pay proper and reasonable
compensation for all such legal and other advice or assistance as
aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services
performed for it (and shall be entitled to receive reasonable
remuneration for all services performed by it) in the discharge of
the trusts hereof and compensation for all disbursements, costs
and expenses made or incurred by it in the discharge of its duties
hereunder and in the management of the Trust.
Section 7.11 Investment of Moneys Held by Trustee.
Unless otherwise provided in this trust agreement, any moneys held by
or on behalf of the Trustee which under the terms of this trust agreement may or
ought to be invested or which may be on deposit with the Trustee or which may be
in the hands of the Trustee may be invested and reinvested in the name or under
the control of the Trustee in securities in which, under the laws of the
[Province of Quebec], trustees are authorized to invest trust moneys, provided
that such securities are stated to mature within two years after their purchase
by the Trustee, and the Trustee shall so invest such moneys on the written
direction of CN. Pending the investment of any moneys as hereinbefore provided,
such moneys may be deposited in the name of the Trustee in any chartered bank in
Canada or, with the consent of CN, in the deposit department of the Trustee or
any other loan or trust company authorized to accept deposits under the laws of
Canada or any province thereof at the rate of interest then current on similar
deposits.
<PAGE>
-26-
Section 7.12 Trustee Not Required to Give Security.
The Trustee shall not be required to give any bond or security in
respect of the execution of the trusts, rights, duties, powers and authorities
of this trust agreement or otherwise in respect of the premises.
Section 7.13 Trustee Not Bound to Act on Request.
Except as in this trust agreement otherwise specifically provided, the
Trustee shall not be bound to act in accordance with any direction or request of
Newco and/or CN or of the directors thereof until a duly authenticated copy of
the instrument or resolution containing such direction or request shall have
been delivered to the Trustee, and the Trustee shall be empowered to act upon
any such copy purporting to be authenticated and believed by the Trustee to be
genuine.
Section 7.14 Authority to Carry on Business.
The Trustee represents to Newco and CN that at the date of execution
and delivery by it of this trust agreement it is authorized to carry on the
business of a trust company in each of the Provinces of Canada but if,
notwithstanding the provisions of this section 7.14, it ceases to be so
authorized to carry on business, the validity and enforceability of this trust
agreement and the Voting Rights, the Exchange Right and the Automatic Exchange
Rights shall not be affected in any manner whatsoever by reason only of such
event but the Trustee shall, within 90 days after ceasing to be authorized to
carry on the business of a trust company in any Province of Canada, either
become so authorized or resign in the manner and with the effect specified in
Article 10.
Section 7.15 Conflicting Claims.
If conflicting claims or demands are made or asserted with respect to
any interest of any Beneficiary in any CN Stapled Units or CN Exchangeable
Shares, including any disagreement between the heirs, representatives,
successors or assigns succeeding to all or any part of the interest of any
Beneficiary in any CN Stapled Units or CN Exchangeable Shares, resulting in
conflicting claims or demands being made in connection with such interest, then
the Trustee shall be entitled, at its sole discretion, to refuse to recognize or
to comply with any such claims or demands. In so refusing, the Trustee may elect
not to exercise any Voting Rights, Exchange Rights or Automatic Exchange Rights
subject to such conflicting claims or demands and, in so doing, the Trustee
shall not be or become liable to any person on account of such election or its
failure or refusal to comply with any such conflicting claims or demands. The
Trustee shall be entitled to continue to refrain from acting and to refuse to
act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or Automatic Exchange Rights subject to
such
<PAGE>
-27-
conflicting claims or demands have been adjudicated by a final
judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right
or Automatic Exchange Rights subject to such conflicting claims or
demands have been conclusively settled by a valid written
agreement binding on all such adverse claimants, and the Trustee
shall have been furnished with an executed copy of such agreement
certified to be in full force and effect.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate to fully indemnify it as between all
conflicting claims or demands.
Section 7.16 Acceptance of Trust.
The Trustee hereby accepts the Trust created and provided for by and in
this trust agreement and agrees to perform the same upon the terms and
conditions herein set forth and to hold all rights, privileges and benefits
conferred hereby and by law in trust for the various persons who shall from time
to time be Beneficiaries, subject to all the terms and conditions herein set
forth.
ARTICLE 8
COMPENSATION
Section 8.1 Fees and Expenses of the Trustee.
Newco and CN jointly and severally agree to pay the Trustee reasonable
compensation for all of the services rendered by it under this trust agreement
and will reimburse the Trustee for all reasonable expenses (including taxes
other than taxes based on the net income of the Trustee) and disbursements,
including the cost and expense of any suit or litigation of any character and
any proceedings before any governmental agency reasonably incurred by the
Trustee in connection with its duties under this trust agreement; provided that
Newco and CN shall have no obligation to reimburse the Trustee for any expenses
or disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad faith or with
negligence, recklessness or willful misconduct.
<PAGE>
-28-
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 9.1 Indemnification of the Trustee.
Newco and CN jointly and severally agree to indemnify and hold harmless
the Trustee and each of its directors, officers and agents appointed and acting
in accordance with this trust agreement (collectively, the "Indemnified
Parties") against all claims, losses, damages, reasonable costs, penalties,
fines and reasonable expenses (including reasonable expenses of the Trustee's
legal counsel) which, without fraud, negligence, recklessness, willful
misconduct or bad faith on the part of such Indemnified Party, may be paid,
incurred or suffered by the Indemnified Party by reason or as a result of the
Trustee's acceptance or administration of the Trust, its compliance with its
duties set forth in this trust agreement, or any written or oral instruction
delivered to the Trustee by Newco or CN pursuant hereto.
In no case shall Newco or CN be liable under this indemnity for any
claim against any of the Indemnified Parties unless Newco and CN shall be
notified by the Trustee of the written assertion of a claim or of any action
commenced against the Indemnified Parties, promptly after any of the Indemnified
Parties shall have received any such written assertion of a claim or shall have
been served with a summons or other first legal process giving information as to
the nature and basis of the claim. Subject to (ii) below, Newco and CN shall be
entitled to participate at their own expense in the defence and, if Newco and CN
so elect at any time after receipt of such notice, either of them may assume the
defence of any suit brought to enforce any such claim. The Trustee shall have
the right to employ separate counsel in any such suit and participate in the
defence thereof but the fees and expenses of such counsel shall be at the
expense of the Trustee unless: (i) the employment of such counsel has been
authorized by Newco or CN; or (ii) the named parties to any such suit include
both the Trustee and Newco or CN and the Trustee shall have been advised by
counsel acceptable to Newco or CN that there may be one or more legal defences
available to the Trustee that are different from or in addition to those
available to Newco or CN and that, in the judgment of such counsel, would
present a conflict of interest were a joint representation to be undertaken (in
which case Newco and CN shall not have the right to assume the defence of such
suit on behalf of the Trustee but shall be liable to pay the reasonable fees and
expenses of counsel for the Trustee).
Section 9.2 Limitation of Liability.
The Trustee shall not be held liable for any loss which may occur by
reason of depreciation of the value of any part of the Trust Estate or any loss
incurred on any investment of funds pursuant to this trust agreement, except to
the extent that such loss is attributable to the fraud, negligence,
recklessness, willful misconduct or bad faith on the part of the Trustee.
<PAGE>
-29-
ARTICLE 10
CHANGE OF TRUSTEE
Section 10.1 Resignation.
The Trustee, or any trustee hereafter appointed, may at any time resign
by giving written notice of such resignation to Newco and CN specifying the date
on which it desires to resign, provided that such notice shall not be given less
than one month before such desired resignation date unless Newco and CN
otherwise agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the acceptance of
such appointment by the successor trustee. Upon receiving such notice of
resignation, Newco and CN shall promptly appoint a successor trustee by written
instrument in duplicate, one copy of which shall be delivered to the resigning
trustee and one copy to the successor trustee.
Section 10.2 Removal.
The Trustee, or any trustee hereafter appointed, may (provided a
successor trustee is appointed) be removed at any time on not less than 30 days'
prior notice by written instrument executed by Newco and CN, in duplicate, one
copy of which shall be delivered to the trustee so removed and one copy to the
successor trustee.
Section 10.3 Successor Trustee.
Any successor trustee appointed as provided under this trust agreement
shall execute, acknowledge and deliver to Newco and CN and to its predecessor
trustee an instrument accepting such appointment. Thereupon the resignation or
removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under this
trust agreement, with the like effect as if originally named as trustee in this
trust agreement. However, on the written request of Newco and CN or of the
successor trustee, the trustee ceasing to act shall, upon payment of any amounts
then due it pursuant to the provisions of this trust agreement, execute and
deliver an instrument transferring to such successor trustee all the rights and
powers of the trustee so ceasing to act. Upon the request of any such successor
trustee, Newco, CN and such predecessor trustee shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers.
Section 10.4 Notice of Successor Trustee.
Upon acceptance of appointment by a successor trustee as provided
herein, Newco and CN shall cause to be mailed notice of the succession of such
trustee hereunder to each Beneficiary specified in a List. If Newco or CN shall
fail to cause such notice to be mailed within 10 days after acceptance of
appointment by the
<PAGE>
-30-
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of Newco and CN.
ARTICLE 11
NEWCO SUCCESSORS
Section 11.1 Certain Requirements in Respect of Combination, etc.
Newco shall not consummate any transaction (whether by way of
reconstruction, reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so
if, in addition to any other requirements required to be satisfied pursuant to
the terms of the Co-operation Agreement or the CN Exchangeable Share Provisions:
(a) such other person or continuing corporation (herein called the
"Newco Successor "), by operation of law, becomes, without more,
bound by the terms and provisions of this trust agreement or, if
not so bound, executes, prior to or contemporaneously with the
consummation of such transaction, a trust agreement supplemental
hereto and such other instruments (if any) as are satisfactory to
the Trustee, acting reasonably, and in the opinion of legal
counsel to the Trustee are reasonably necessary or advisable to
evidence the assumption by the Newco Successor of liability for
all moneys payable and property deliverable hereunder and the
covenant of such Newco Successor to pay and deliver or cause to be
delivered the same and its agreement to observe and perform all
the covenants and obligations of Newco under this trust agreement;
and
(b) such transaction shall, to the satisfaction of the Trustee, acting
reasonably, and in the opinion of legal counsel to the Trustee, be
upon such terms and conditions as substantially to preserve and
not to impair in any material respect any of the rights, duties,
powers and authorities of the Trustee or of the Beneficiaries
hereunder.
Section 11.2 Vesting of Powers in Successor.
Whenever the conditions of section 11.1 have been duly observed and
performed, the Trustee and, if required by section 11.1, Newco Successor and CN
shall execute and deliver the supplemental trust agreement provided for in
Article 12 and thereupon Newco Successor shall possess and from time to time may
exercise each and every right and power of Newco under this trust agreement in
the name of Newco or
<PAGE>
-31-
otherwise and any act or proceeding by any provision of this trust agreement
required to be done or performed by the Board of Directors of Newco or any
officers of Newco may be done and performed with like force and effect by the
directors or officers of such Newco Successor.
Section 11.3 Wholly-Owned Subsidiaries.
Nothing herein shall be construed as preventing the amalgamation or
merger of any wholly-owned direct or indirect subsidiary of Newco with or into
Newco or the winding-up, liquidation or dissolution of any wholly-owned
subsidiary of Newco provided that all of the assets of such subsidiary are
transferred to Newco or another wholly-owned direct or indirect subsidiary of
Newco and any such transactions are expressly permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
Section 12.1 Amendments, Modifications, etc.
This trust agreement may not be amended or modified except by an
agreement in writing executed by Newco, CN and the Trustee and approved by the
Beneficiaries in accordance with section 9.2 of the CN Exchangeable Share
Provisions.
Section 12.2 Ministerial Amendments.
Notwithstanding the provisions of section 12.1, the parties to this
trust agreement may in writing, at any time and from time to time, without the
approval of the Beneficiaries, amend or modify this trust agreement for the
purposes of:
(a) adding to the covenants of any or all parties hereto for the
protection of the Beneficiaries hereunder provided that the Board
of Directors of each of CN and Newco shall be of the good faith
opinion that such additions will not be prejudicial to the rights
or interests of the Beneficiaries;
(b) making such amendments or modifications not inconsistent with this
trust agreement as may be necessary or desirable with respect to
matters or questions which, in the good faith opinion of the Board
of Directors of each of Newco and CN and in the opinion of the
Trustee, having in mind the best interests of the Beneficiaries it
may be expedient to make, provided that such Boards of Directors
and the Trustee shall be of the opinion that such amendments and
modifications will not be prejudicial to the interests of the
Beneficiaries; or
(c) making such changes or corrections which, on the advice of counsel
to Newco, CN and the Trustee, are required for the purpose of
curing or
<PAGE>
-32-
correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error, provided that the
Trustee and the Board of Directors of each of Newco and CN shall
be of the opinion that such changes or corrections will not be
prejudicial to the rights and interests of the Beneficiaries.
Section 12.3 Changes in Capital of Newco and CN.
At all times after the occurrence of any event contemplated pursuant to
section 4.1, 4.2, 4.3, 4.4 and 4.5 of the Co-operation Agreement or otherwise,
as a result of which either Newco Common Shares or the CN Exchangeable Shares or
both are in any way changed, this trust agreement shall forthwith be amended and
modified as necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which Newco Common Shares or the CN
Exchangeable Shares or both are so changed and the parties hereto shall execute
and deliver a supplemental trust agreement giving effect to and evidencing such
necessary amendments and modifications.
Section 12.4 Execution of Supplemental Trust Agreements.
No amendment to or modification or waiver of any of the provisions of
this trust agreement otherwise permitted hereunder shall be effective unless
made in writing and signed by all of the parties hereto. From time to time CN
(when authorized by a resolution of its Board of Directors), Newco (when
authorized by a resolution of its Board of Directors) and the Trustee may,
subject to the provisions of these presents, and they shall, when so directed by
these presents, execute and deliver by their proper officers, trust agreements
or other instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more of the following purposes:
(a) evidencing the succession of Newco Successors and the covenants of
and obligations assumed by each such Newco Successor in accordance
with the provisions of Article 11 and the successors of any
successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this trust agreement or the Voting Rights, the
Exchange Right or the Automatic Exchange Rights which, in the
opinion of the Trustee, will not be prejudicial to the interests
of the Beneficiaries or are, in the opinion of counsel to the
Trustee, necessary or advisable in order to incorporate, reflect
or comply with any legislation the provisions of which apply to
Newco, CN, the Trustee or this trust agreement; and
(c) for any other purposes not inconsistent with the provisions of
this trust agreement, including without limitation, to make or
evidence any
<PAGE>
-33-
amendment or modification to this trust agreement as contemplated
hereby, provided that, in the opinion of the Trustee, the rights
of the Trustee and Beneficiaries will not be prejudiced thereby.
Section 12.5 Meeting to Consider Amendments.
CN and Newco, acting jointly, shall be entitled to require the Trustee
to call a meeting or meetings of the Beneficiaries for the purpose of
considering any proposed amendment or modification requiring approval pursuant
hereto. Any such meeting or meetings shall be called and held in accordance with
the by-laws of CN, the CN Exchangeable Share Provisions and all applicable laws.
ARTICLE 13
TERMINATION
Section 13.1 Term.
The Trust created by this trust agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding CN Exchangeable Shares are held by a Beneficiary;
(b) each of CN and Newco elects in writing to terminate the Trust and
such termination is approved by the Beneficiaries in accordance
with section 9.2 of the CN Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants
of His Majesty King George VI of Canada and the United Kingdom of
Great Britain and CN Ireland living on the date of the creation of
the Trust.
[NTD: provide for re-execution/re-vesting every 20 years under Co-operation
Agreement to address issue raised under (c).]
Section 13.2 Survival of Agreement.
This trust agreement shall survive any termination of the Trust and
shall continue until there are no CN Exchangeable Shares outstanding held by a
Beneficiary; provided, however, that the provisions of Articles 8 and 9 shall
survive any such termination of this trust agreement.
ARTICLE 14
GENERAL
Section 14.1 Severability.
If any provision of this trust agreement is held to be invalid, illegal
or unenforceable, the validity, legality or enforceability of the remainder of
this trust
<PAGE>
-34-
agreement shall not in any way be affected or impaired thereby and the agreement
shall be carried out as nearly as possible in accordance with its original terms
and conditions. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this trust agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
Section 14.2 Enurement.
This trust agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted assigns and to
the benefit of the Beneficiaries.
Section 14.3 Notices to Parties.
All notices and other communications between the parties hereunder
shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for such party as shall be specified in like notice):
(a) if to CN:
[ ]
Attention: [ ]
Telecopier No.: [ ]
(b) if to Newco [or NAR Subco]:
[ ]
Attention: [ ]
Telecopier No.: [ ]
(c) if to the Trustee:
[ ]
Attention: [ ]
Telecopier No.: [ ]
<PAGE>
-35-
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
Section 14.4 Notice to Beneficiaries.
Any and all notices to be given and any documents to be sent to any
Beneficiaries may be given or sent to the address of such Beneficiary shown on
the register of holders of CN Stapled Units in any manner permitted by the
by-laws of CN from time to time in force in respect of notices to shareholders
and shall be deemed to be received (if given or sent in such manner) at the time
specified in such by-laws, the provisions of which by-laws shall apply mutatis
mutandis to notices or documents as aforesaid sent to such Beneficiaries.
Section 14.5 Counterparts.
This trust agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
Section 14.6 Jurisdiction.
This trust agreement shall be construed and enforced in accordance with
the laws of the Province of Quebec [NTD: alternatively Ontario] and the laws of
Canada applicable therein.
Section 14.7 Attornment.
Each of the Trustee and Newco and CN agrees that any action or
proceeding arising out of or relating to this trust agreement may be instituted
in the courts of Quebec [NTD: alternatively Ontario], waives any objection which
it may have now or hereafter to the venue of any such action or proceeding,
irrevocably submits to the jurisdiction of the said courts in any such action or
proceeding, agrees to be bound by any final judgment of the said courts and not
to seek, and hereby waives, any review of the merits of any such judgment by the
courts of any other jurisdiction and hereby appoints CN at its registered office
in the Province of Quebec [NTD: alternatively Ontario] as attorney for service
of process.
<PAGE>
-36-
IN WITNESS WHEREOF the parties hereto have caused this trust agreement
to be duly executed as of the date first above written.
CANADIAN NATIONAL RAILWAY COMPANY
By:
------------------------------------
Name: [ ]
Title: [ ]
NORTH AMERICAN RAILWAYS, INC.
By:
------------------------------------
Name: [ ]
Title: [ ]
[NAR HOLDINGS COMPANY]
By:
------------------------------------
Name: [ ]
Title: [ ]
THE TRUST COMPANY OF THE BANK OF MONTREAL
By:
------------------------------------
Name: [ ]
Title: [ ]
C.S.
By:
------------------------------------
Name: [ ]
Title: [ ]
<PAGE>
ANNEX L
FORM OF CO-OPERATION AGREEMENT
NORTH AMERICAN RAILWAYS, INC.
-and-
[NAR HOLDINGS COMPANY]
- and -
CANADIAN NATIONAL RAILWAY COMPANY
- --------------------------------------------------------------------------------
CO-OPERATION AGREEMENT
- --------------------------------------------------------------------------------
[ ], 200[ ]
<PAGE>
- ii -
TABLE OF CONTENTS
ARTICLE 1. GOVERNANCE OF THE CORPORATIONS.....................................2
1.1. Core Principles...................................................2
1.2. Identicality of the Boards........................................2
1.3. Governance........................................................2
ARTICLE 2. SHAREHOLDER MATTERS................................................4
2.1. Place of Shareholder Meetings.....................................4
2.2. Record Date.......................................................5
2.3. Rights of Dissent.................................................5
2.4. CN Special Limited Voting Shares..................................5
ARTICLE 3. COVENANTS RELATING TO DIVIDENDS AND OTHER MATTERS..................5
3.1. Dividends.........................................................5
3.2. Other Covenants...................................................6
3.3. Reservation of Newco Common Shares................................6
3.4. Reservation of CN Voting Shares...................................7
3.5. Notification of Certain Events....................................7
3.6. Issuance of Newco Common Shares to CN.............................8
3.7. Qualification of Trading Units....................................8
ARTICLE 4. SHARE CAPITAL......................................................8
4.1. Distributions on Newco Common Shares..............................8
4.2. Subdivisions, Consolidations and Reclassifications of
Newco Common Shares...............................................9
4.3. Changes to CN Voting Shares and CN Exchangeable Shares............10
4.4. Distributions on CN Exchangeable Shares...........................10
4.5. Subdivisions, Consolidations and Reclassifications of
CN Exchangeable Shares............................................11
4.6. Economic Equivalence..............................................11
4.7. Issuance of Shares................................................11
4.8. Other Equity Issuances............................................12
4.9. Tender Offers.....................................................12
4.10. Self-Tenders......................................................12
4.11. No Transfer of CN Special Limited Voting Shares or CN
Non-voting Equity Shares..........................................13
ARTICLE 5. FINANCIAL STATEMENTS AND STOCK EXCHANGE LISTINGS...................13
5.1. Fiscal Year.......................................................13
<PAGE>
- iii -
5.2. Auditors..........................................................13
5.3. Financial Statements..............................................13
5.4. Stock Exchange Listings and Public Documents......................13
ARTICLE 6. AMENDMENT AND TERMINATION..........................................14
6.1. Amendment.........................................................14
6.2. Termination.......................................................15
ARTICLE 7. INTERPRETATION AND GENERAL PROVISIONS..............................15
7.1. Definitions.......................................................15
7.2. Definitions in CN Exchangeable Share Provisions...................16
7.3. Unanimous Approval of Directors...................................16
7.4. Schedules.........................................................16
7.5. Headings and Table of Contents....................................16
7.6. Gender and Number.................................................17
7.7. Invalidity of Provisions..........................................17
7.8. Waiver............................................................17
7.9. Governing Law.....................................................17
7.10. Remedies..........................................................17
7.11. Notices...........................................................17
SCHEDULE A - Articles of Arrangement of CN/Restated Certificate
of Incorporation of Newco
SCHEDULE B - By-laws of each Corporation
<PAGE>
CO-OPERATION AGREEMENT
THIS AGREEMENT is made [as of] the [ ] day of [ ], 200[ ]
B E T W E E N:
NORTH AMERICAN RAILWAYS, INC., a corporation incorporated under the
laws of the State of Delaware
("Newco")
-and-
[NAR HOLDINGS COMPANY], an unlimited liability company incorporated
under the laws of the Province of Nova Scotia
("NAR Subco")
- and -
CANADIAN NATIONAL RAILWAY COMPANY, a corporation incorporated under
the laws of Canada
("CN")
RECITALS:
A. Newco and CN have agreed to enter into this Co-operation Agreement to
ensure that, so far as possible, Newco and CN operate together as a single
economic enterprise and the shareholders of Newco and CN are provided with
equivalent economic returns;
B. This Co-operation Agreement will govern the future operations and
relationships of Newco and CN and sets out the governing principles of the
enterprise;
NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this Agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties hereto agree as follows:
<PAGE>
- 2-
ARTICLE 1.
GOVERNANCE OF THE CORPORATIONS
1.1. Core Principles
Each of Newco and CN agree that the Corporations shall be governed in a
manner that gives full effect to the following principles (the "Core
Principles"):
1.1.1. Newco and CN shall each maintain its separate corporate existence
but shall operate together as a single economic enterprise, and shall be
managed on a unified basis for the benefit of the public shareholders of
the two Corporations as a combined group;
1.1.2. Members of the boards of directors and the Chief Executive Officer
of Newco and CN will be identical and other members of senior management
will be selected to allow the Corporations to be managed on a unified
basis;
1.1.3. Participating shares and voting shares of the Corporations, other
than the CN Special Limited Voting Shares and the CN Non-voting Equity
Shares, will be issued, traded and transferred together in the form of
Trading Units, with the consequence that all holders of such shares (a)
will benefit identically when dividends are declared or other
distributions are made by either Corporation or on liquidation of either
Corporation, and (b) will have the right to vote or to direct votes in
each Corporation; and
1.1.4. Newco shall comply with the provisions of the CN Commercialization
Act as to the restriction on ownership of shares and the location of its
head office and shall adopt the principles of the Official Languages Act
(Canada) as provided herein.
1.2. Identicality of the Boards
Each Corporation will do all acts and things necessary and within their
respective powers to ensure that the board of directors of Newco and the board
of directors of CN comprise the same individuals (the "Identicality
Provision"). To that end, the Restated Certificate of Incorporation of Newco
shall provide that, subject to the amendment provisions contained therein, in
order to be qualified to be a member of the Newco board, an individual must be
a member of the CN board (the "Qualification Provision").
1.3. Governance
In order that the Corporations shall be governed in accordance with the
Core Principles:
1.3.1. Future Election of Directors and Directors' Meetings. The
Corporations shall call and hold meetings of their respective shareholders
to elect directors as close as possible in time, and shall cause to be
nominated and proposed as management nominees the same slate of people to
be elected as directors of each Corporation. Prior to each meeting of
<PAGE>
- 3 -
shareholders at which directors are to be elected, the nominating
committee of each board will select and propose for approval by the boards
of directors a common slate; provided that the slate shall be composed so
as to comply with the requirements as to qualification and residency of
directors contained in the incorporating legislation of both Corporations.
Prior to any election or appointment of directors to be made by the boards
of directors, including without limitation any appointment of a director
to fill a vacancy on the boards, the nominating committee of each board
will select and propose for election or appointment by the boards of
directors, and the boards of directors shall elect or appoint, the same
individual or individuals to each board, subject to compliance with the
requirements as to qualification and residency of directors contained in
the incorporating legislation of both Corporations.
1.3.2. Charter Documents. The Restated Certificate of Incorporation of
Newco shall be in the form attached as Exhibit H to the Combination
Agreement and the articles of arrangement of CN shall be in the form
attached hereto as Schedule A, and each shall contain:
1.3.2.1. provisions imposing constraints on the issue, transfer and
ownership, including joint ownership, of voting shares of the
Corporation to prevent any one person, together with associates of
that person, from holding, beneficially owning or controlling,
directly or indirectly, otherwise than by way of security only, in
the aggregate, voting shares to which are attached more than fifteen
percent of the votes that may ordinarily be cast to elect directors
of the Corporation;
1.3.2.2. provisions respecting the enforcement of the constraints
imposed pursuant to section 1.3.2.1; and
1.3.2.3. provisions specifying that the head office of the
Corporation is to be situated in the Montreal Urban Community,
Quebec;
in a manner that complies with and is subject to the exceptions contained
in the CN Commercialization Act, and such provisions may only be amended
as provided in the Restated Certificate of Incorporation of Newco and the
articles of incorporation of CN.
1.3.3. By-Laws. The by-laws of each Corporation shall be in the form
attached hereto as Schedule B. The board of directors of each Corporation
may propose or make an amendment to its by-laws with respect to a matter
which is treated in a similar manner in the by-laws of the other
Corporation only if (a) a corresponding amendment is proposed or made to
the by-laws of the other Corporation, or (b) such amendment is required to
be made by law.
1.3.4. Chair. The initial Chair of the board of directors of both
Corporations shall be Robert D. Krebs, if he is willing and able to serve
in that capacity. On an ongoing basis, the boards of directors of the
Corporations shall agree on one person to be appointed as Chair of both
boards of directors.
<PAGE>
- 4 -
1.3.5. Board Committees. The board of directors of Newco and CN will
establish identical committees of the board, including (without
limitation) a nominating committee, audit committee and compensation
committee. The members of the corresponding committees of the Corporations
will be identical. Such number of the members of any such committees as
may be required by the CBCA from time to time to be resident Canadians
shall be resident Canadians.
1.3.6. Chief Executive Officer. The initial Chief Executive Officer of
both Corporations shall be Paul M. Tellier, if he is willing and able to
serve in that capacity. On an ongoing basis, the boards of directors of
the Corporations shall agree on one person to be appointed as the Chief
Executive Officer of both Corporations.
1.3.7. Management. Each Corporation will do, and agrees to cause each of
its subsidiaries to do, all acts and things that may be necessary and
desirable to ensure that the businesses of Newco and CN are managed on a
unified basis for the benefit of the shareholders of the two Corporations
as a combined group, including the appointment of common management at the
senior executive level for both Corporations.
1.3.8. Inter-Corporate Transactions. In consequence of the Core Principle
that the Corporations should be operated as a single economic enterprise,
no special board committee review, minority shareholder approval or other
similar procedures for the protection of minority shareholders shall be
required for transactions between Newco and its subsidiaries on the one
hand and CN and its subsidiaries on the other. Notwithstanding any other
provision of this Agreement, to the extent required by applicable tax law,
in any agreement, arrangement, dealing or transaction (a "Transaction")
involving Newco (or a subsidiary of Newco) and CN (or a subsidiary of CN),
the parties thereto shall agree to the amount and nature of any
consideration to be paid by one to the other and to terms and conditions
of the Transaction on the same basis as they would have agreed if they
were dealing with each other at arm's length.
1.3.9. English and French Language. Newco adopts the principles of
Canadian bilingualism applicable to services provided by federal
institutions as reflected in Parts IV and V of the Official Languages Act
(Canada) and will endeavour to implement those principles in the offering
of its services and the operation of its facilities in Canada.
ARTICLE 2.
SHAREHOLDER MATTERS
2.1. Place of Shareholder Meetings
Meetings of shareholders of the Corporations shall be held as close as
possible in time and at the same location, and shall be held at the registered
office of CN or at such other place within Canada as the directors of Newco and
CN may determine.
<PAGE>
- 5 -
2.2. Record Date
For all meetings of shareholders of the Corporations, the directors may
fix in advance a date as the record date for the purpose of determining
shareholders entitled to receive notice of the meetings of shareholders which,
in any case where the directors so fix a record date, shall be the same record
date for each Corporation. The directors shall not fail to fix a record date
for a meeting of shareholders if the effect under the incorporating legislation
of the Corporations would be to default to different record dates for the
meetings of shareholders of each Corporation.
2.3. Rights of Dissent
If dissent rights are granted to shareholders of one of the Corporations
by the incorporating legislation of the Corporation or otherwise in connection
with the proposed approval of any matter by shareholders, the board of
directors of the other Corporation shall ensure that shareholders of that
Corporation are granted equivalent dissent rights.
2.4. CN Special Limited Voting Shares
The Corporations and NAR Subco agree that the voting rights attaching to
the CN Special Limited Voting Shares shall be voted in a manner that is
consistent with the Core Principles.
ARTICLE 3.
COVENANTS RELATING TO DIVIDENDS AND OTHER MATTERS
3.1. Dividends
3.1.1. Subject to the articles of incorporation of CN, neither Corporation
shall declare or pay any cash or stock dividends or make any distributions
on shares comprising Trading Units unless the other Corporation shall
simultaneously declare or pay, as the case may be, an identical or
corresponding cash or stock dividend or distribution per share on the
shares comprising the other Trading Units, except that (a) CN may elect to
pay dividends in Canadian dollars in accordance with the CN Exchangeable
Share Provisions, and Newco may elect to pay dividends in U.S. dollars,
and (b) either Corporation may, in lieu of declaring a corresponding stock
dividend, effect a corresponding subdivision of the CN Exchangeable
Shares, CN Voting Shares and/or the Newco Common Shares, as the case may
be.
3.1.2. Each Corporation will take all such actions and do all such things
as are reasonably necessary, in co-operation with the other Corporation,
to ensure that (i) the respective declaration date, record date and
payment date for a dividend or distribution (or stock subdivision in lieu
of a stock dividend) on its shares shall be the same as the declaration
date, record date and payment date for a corresponding dividend or
distribution (or stock subdivision in lieu of a stock dividend) on the
other Corporation's shares.
<PAGE>
- 6 -
3.1.3. If the boards of directors of the Corporations determine that a
payment from one Corporation to the other is necessary or appropriate in
connection with the payment of a dividend or the making of a distribution
by the other Corporation, the relevant Corporation shall make an
equalizing payment to the other Corporation sufficient to permit the
other Corporation to pay the equivalent dividend or make the equivalent
distribution.
3.2. Other Covenants
3.2.1. Newco will take all such actions and do all such things as are
reasonably necessary or desirable to enable and permit CN, in accordance
with applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Liquidation Amount or the Retraction
Price in respect of each issued and outstanding CN Exchangeable Share upon
the liquidation, dissolution or winding-up of CN or the delivery of a
Retraction Request by a holder of CN Exchangeable Shares, as the case may
be, including without limitation all such actions and all such things as
are necessary or desirable to enable and permit CN to cause to be
delivered Newco Common Shares to the holders of CN Exchangeable Shares in
accordance with the provisions of Article 5 or 6, as the case may be, of
the CN Exchangeable Share Provisions;
3.2.2. Newco will take all such actions and do all such things as are
reasonably necessary or desirable to enable and permit NAR Subco, in
accordance with applicable law, to perform NAR Subco's obligations arising
upon the exercise by it of the Liquidation Call Right or the Retraction
Call Right, including without limitation all such actions and all such
things as are necessary or desirable to enable and permit NAR Subco to
cause Newco Common Shares to be issued to the holders of CN Exchangeable
Shares in accordance with the provisions of the Liquidation Call Right or
the Retraction Call Right, as the case may be; and
3.2.3. Neither Corporation shall initiate, propose or seek a voluntary
liquidation, dissolution or winding up of the other Corporation unless it
proposes to effect a substantially contemporaneous voluntary liquidation,
dissolution or winding up of itself.
3.2.4. If Newco becomes a "specified financial institution" (as such term
is defined in the Income Tax Act (Canada)) or does not deal at arm's
length with such a person, NAR Subco will exercise the Retraction Call
Right if requested to do so by a holder of CN Exchangeable Shares making a
Retraction Request who either alone or together with "specified persons"
(as such term is defined in paragraph (h) of the definition of "taxable
preferred share" in a subsection 248(l) of the Income Tax Act (Canada))
receives dividends in respect of more than 10% of the CN Exchangeable
Shares.
3.3. Reservation of Newco Common Shares
Newco hereby represents, warrants and covenants in favour of CN that Newco
has reserved for issuance and will, at all times while any CN Exchangeable
Shares (other than CN Exchangeable Shares held by Newco or its Affiliates) are
outstanding, keep available, free from
<PAGE>
- 7 -
pre-emptive and other rights, out of its authorized and unissued capital stock
such number of Newco Common Shares (or other shares or securities into which
Newco Common Shares may be reclassified or changed as contemplated by section
4.1 hereof) (a) as is equal to the sum of (i) the number of CN Exchangeable
Shares issued and outstanding from time to time and (ii) the number of CN
Exchangeable Shares issuable upon the exercise of all rights to acquire CN
Exchangeable Shares outstanding from time to time and (b) as are now and may
hereafter be required to enable and permit Newco to meet its obligations under
the Voting and Exchange Trust Agreement and under any other security or
commitment pursuant to which Newco may now or hereafter be required to issue
Newco Common Shares, to enable and permit NAR Subco to meet its obligations
under each of the Liquidation Call Right and the Retraction Call Right, and to
enable and permit CN to meet its obligations hereunder and under the CN
Exchangeable Share Provisions.
3.4. Reservation of CN Voting Shares
CN hereby represents, warrants and covenants in favour of Newco that it
will at all times keep available for issuance, free from pre-emptive and other
rights, an unlimited number of CN Voting Shares to permit all future issuances
and sales of Trading Units to include a CN Voting Share.
3.5. Notification of Certain Events
In order to assist Newco to comply with its obligations hereunder and to
permit NAR Subco to exercise the Liquidation Call Right and the Retraction Call
Right, CN will notify Newco and NAR Subco of each of the following events at
the time as set forth below:
3.5.1. in the event of any determination by the board of directors of CN
to institute voluntary liquidation, dissolution or winding-up proceedings
with respect to CN or to effect any other distribution of the assets of CN
among its shareholders for the purpose of winding up its affairs, at least
60 days prior to the proposed effective date of such liquidation,
dissolution, winding-up or other distribution;
3.5.2. as soon as practicable, upon the earlier of receipt by CN of notice
of and CN otherwise becoming aware of any threatened or instituted claim,
suit, petition or other proceedings with respect to the involuntary
liquidation, dissolution or winding-up of CN or to effect any other
distribution of the assets of CN among its shareholders for the purpose of
winding up its affairs, in each case where CN has failed to contest in
good faith any such proceeding commenced in respect of CN within 30 days
of becoming aware thereof;
3.5.3. immediately, upon receipt by CN of a Retraction Request; and
3.5.4. as soon as practicable upon the issuance by CN of any CN
Exchangeable Shares or rights to acquire CN Exchangeable Shares.
<PAGE>
- 8 -
3.6. Issuance of Newco Common Shares to CN
In furtherance of its obligations under sections 3.2.1 and 3.2.2 hereof,
upon notice from CN or NAR Subco of any event that requires CN or NAR Subco to
cause Newco Common Shares to be issued to any holder of CN Exchangeable Shares,
Newco shall forthwith issue and, jointly with CN, cause to be delivered the
requisite number of Trading Units representing Newco Common Shares to be
received by, and issued to or to the order of, the former holder of the
surrendered CN Exchangeable Shares, as CN or NAR Subco shall direct. All such
Newco Common Shares shall be duly authorized and validly issued as fully paid
and non-assessable and shall be free and clear of any lien, claim or
encumbrance.
3.7. Qualification of Trading Units
If any shares comprising the Trading Units to be issued and delivered
hereunder require registration or qualification with or approval of or the
filing of any document, including any prospectus or similar document or the
taking of any proceeding with or the obtaining of any order, ruling or consent
from any governmental or regulatory authority under any Canadian or United
States federal, provincial or state securities or other law or regulation or
pursuant to the rules and regulations of any securities or other regulatory
authority or the fulfilment of any other United States or Canadian legal
requirement before the shares comprising such Trading Units may be issued by
Newco and/or CN and the certificates representing such shares delivered to the
holder of surrendered certificates representing CN Exchangeable Shares or in
order that the shares comprising the Trading Units may be freely traded
thereafter, Newco and CN will in good faith expeditiously take all such actions
and do all such things as are necessary or desirable to cause the shares
comprising the Trading Units to be and remain duly registered, qualified or
approved under United States and/or Canadian law, as the case may be. Newco and
CN will in good faith expeditiously take all such actions and do all such
things as are reasonably necessary or desirable to cause all shares comprising
the Trading Units to be delivered hereunder to be listed, quoted or posted for
trading on all stock exchanges and quotation systems on which outstanding
shares comprising the Trading Units have been listed by Newco and CN and remain
listed and are quoted or posted for trading at such time.
ARTICLE 4.
Share Capital
4.1. Distributions on Newco Common Shares
Newco will not without the prior approval of CN and the prior approval of
the holders of the CN Exchangeable Shares given in accordance with of the CN
Exchangeable Share Provisions:
4.1.1. issue or distribute Newco Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire Newco Common Shares)
to the holders of all or substantially all of the then outstanding Newco
Common Shares by way of stock dividend or
<PAGE>
- 9 -
other distribution, other than an issue of Newco Common Shares to holders
of Newco Common Shares who exercise an option to receive dividends in
Newco Common Shares represented by Trading Units in lieu of receiving cash
dividends;
4.1.2. issue or distribute rights, options or warrants to holders of all
or substantially all of the then outstanding Newco Common Shares entitling
them to subscribe for or to purchase Newco Common Shares and CN Voting
Shares represented by Trading Units; or
4.1.3. issue or distribute to the holders of all or substantially all of
the then outstanding Newco Common Shares:
A. shares or securities of Newco of any class other than Newco Common
Shares;
B. rights, options or warrants other than those referred to in
section 4.1.2 above;
C. evidences of indebtedness of Newco; or
D. assets of Newco,
unless, in the case of sections 4.1.1 and 4.1.2 above a corresponding issue or
distribution of Trading Units comprised of CN Exchangeable Shares and CN Voting
Shares or rights, options or warrants to acquire Trading Units comprised of CN
Exchangeable Shares and CN Voting Shares, as applicable, is made or, in the
case of section 4.1.3, the economic equivalent on a per share basis of such
other shares or securities, rights, options, warrants, evidences of
indebtedness or other assets is issued or distributed simultaneously to holders
of the CN Exchangeable Shares or unless, in the case of a stock dividend
payable in Newco Common Shares represented by Trading Units, in lieu of such
stock dividend CN effects a corresponding subdivision of the outstanding CN
Exchangeable Shares and CN Voting Shares.
4.2. Subdivisions, Consolidations and Reclassifications of Newco Common Shares
Newco will not without the prior approval of CN and the prior approval of
the holders of the CN Exchangeable Shares given in accordance with the CN
Exchangeable Shares Provisions:
4.2.1. subdivide, redivide or change the then outstanding Newco Common
Shares into a greater number of Newco Common Shares;
4.2.2. reduce, combine, consolidate or change the then outstanding Newco
Common Shares into a lesser number of Newco Common Shares; or
4.2.3. reclassify or otherwise change the Newco Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting the
Newco Common Shares,
<PAGE>
- 10 -
unless the same, in the case of sections 4.2.1 and 4.2.2 above or, in the case
of section 4.1.3 above, the same or an economically equivalent change shall
simultaneously be made to, or in the rights of the holders of, the CN
Exchangeable Shares and the CN Voting Shares.
4.3. Changes to CN Voting Shares and CN Exchangeable Shares
CN shall not:
A. subdivide, redivide or change the then outstanding CN Exchangeable
Shares into a greater number of CN Exchangeable Shares; or
B. reduce, combine, consolidate or change the then outstanding CN
Exchangeable Shares into a lesser number of CN Exchangeable Shares;
unless the same change shall simultaneously be made to the CN Voting Shares.
4.4. Distributions on CN Exchangeable Shares
CN will not without the prior approval of Newco and the prior approval by
the holders of a majority of the Newco Common Shares casting a vote, assuming a
quorum is present:
4.4.1. issue or distribute CN Exchangeable Shares (or securities
exchangeable for or convertible into or carrying rights to acquire CN
Exchangeable Shares) to the holders of all or substantially all of the
then outstanding CN Exchangeable Shares by way of stock dividend or other
distribution, other than an issue of CN Exchangeable Shares to holders of
CN Exchangeable Shares who exercise an option to receive dividends in CN
Exchangeable Shares and CN Voting Shares represented by Trading Units in
lieu of receiving cash dividends;
4.4.2. issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding CN Exchangeable Shares
entitling them to subscribe for or to purchase CN Exchangeable Shares and
CN Voting Shares represented by Trading Units;
4.4.3. issue or distribute to the holders of all or substantially all of
the then outstanding CN Exchangeable Shares:
A. shares or securities of CN of any class other than CN
Exchangeable Shares;
B. rights, options or warrants other than those referred to in
section 4.4.2;
C. evidences of indebtedness of CN; or
D. assets of CN,
<PAGE>
- 11 -
unless, in the case of sections 4.4.1 and 4.4.2 above a corresponding issue or
distribution of Trading Units comprised of Newco Common Shares and CN Voting
Shares or rights, options or warrants to acquire Trading Units comprised of
Newco Common Shares and CN Voting Shares, as applicable, is made or, in the
case of Section 4.4.3, the economic equivalent on a per share basis of such
other shares or securities, rights, options, warrants, evidences of
indebtedness or other assets is issued or distributed simultaneously to holders
of the Newco Common Shares or unless, in the case of a stock dividend payable
in CN Exchangeable Shares represented by Trading Units, in lieu of such stock
dividend Newco and CN effect a corresponding subdivision of the outstanding
Newco Common Shares and CN Voting Shares, respectively.
4.5. Subdivisions, Consolidations and Reclassifications
of CN Exchangeable Shares
CN will not without the prior approval of Newco and the prior approval by
the holders of a majority of the Newco Common Shares casting a vote, assuming a
quorum is present:
4.5.1. subdivide, redivide or change the then outstanding CN Exchangeable
Shares into a greater number of CN Exchangeable Shares;
4.5.2. reduce, combine, consolidate or change the then outstanding CN
Exchangeable Shares into a lesser number of CN Exchangeable Shares; or
4.5.3. reclassify or otherwise change the CN Exchangeable Shares or effect
an amalgamation, merger, reorganization or other transaction affecting the
CN Exchangeable Shares,
unless the same, in the case of sections 4.5.1 and 4.5.2 above or, in the case
of section 4.5.3 above, the same or an economically equivalent change shall
simultaneously be made to, or in the rights of the holders of, the Newco Common
Shares and the CN Voting Shares.
4.6. Economic Equivalence
The boards of directors of the Corporations shall determine, in good faith
and in their sole discretion, economic equivalence for the purposes of sections
4.1, 4.2, 4.4 and 4.5, and each such determination shall be binding on the
Corporations and their shareholders. In making each such determination, the
boards of directors of the Corporations may consider the factors set out in
section 3.5 of the CN Exchangeable Share Provisions.
4.7. Issuance of Shares
4.7.1 Newco will issue Newco Common Shares only (i) upon exchange of CN
Exchangeable Shares or (ii) if CN issues CN Voting Shares and the
directors of the Corporations are satisfied that all appropriate measures
have been taken to ensure that the Newco Common Shares and CN Voting
Shares trade as a unit.
<PAGE>
- 12 -
4.7.2 CN will issue CN Exchangeable Shares only where it also issues CN
Voting Shares and the directors of the Corporations are satisfied that all
appropriate measures have been taken to ensure the CN Exchangeable Shares
and CN Voting Shares trade as a unit.
4.7.3 Newco will agree to maintain its Golden Share outstanding in
accordance with the Voting and Exchange Trust Agreement.
4.7.4 Only Trading Units will be issued by the Corporations as
consideration for any acquisition by the Corporations where equity is to
be issued as consideration in the acquisition.
4.8. Other Equity Issuances
Neither Newco nor CN will issue any participating shares or voting shares
except in accordance with Section 4.7. Either Corporation may issue
non-participating, non-voting shares, provided that the directors of both
Corporations are satisfied that such issuance is consistent with the Core
Principles.
4.9. Tender Offers
In the event that a tender offer, take-over bid, share exchange offer,
share exchange bid, or similar transaction with respect to either Corporation
(an "Offer") is proposed to the Corporation or its shareholders, the
Corporation will use its reasonable efforts expeditiously and in good faith to
take all such actions and do all such things as are necessary or desirable to
enable and permit holders of the shares represented by Trading Units of the
other Corporation to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of the shares of the Corporation,
without discrimination. Without limiting the generality of the foregoing, Newco
will use its reasonable efforts expeditiously and in good faith to ensure that
holders of CN Exchangeable Shares may participate in all such Offers without
being required to retract Exchangeable Shares (or, if so required, to ensure
that any such retraction shall be effective only upon, and shall be conditional
upon, the closing of the Offer and only to the extent necessary to tender or
deposit to the Offer).
4.10. Self-Tenders
Neither Corporation shall make a self-tender offer or issuer bid (a
"Self-Tender Offer") for its outstanding Trading Units (or for any of its
shares included in such Trading Units) unless a substantially contemporaneous
Self-Tender Offer for an equivalent percentage of the outstanding Trading Units
of the other Corporation is made on the same or corresponding terms; provided
that CN shall be entitled to offer to pay any cash consideration payable
thereunder in Canadian dollars and Newco shall be entitled to offer to pay any
cash consideration payable thereunder in U.S. dollars. In connection with any
such Self Tender Offers, the Corporations agree to make all commercially
reasonable efforts, including by seeking discretionary relief from applicable
securities regulatory authorities, to permit any pro-rationing of acceptances
of such
<PAGE>
- 13 -
Self-Tender Offers to occur on a basis which treats both Self-Tender
Offers as a single offer being made for a single class of securities.
4.11. No Transfer of CN Special Limited Voting Shares or CN Non-voting
Equity Shares
Newco and NAR Subco will not, and Newco will ensure that NAR Subco does
not, sell, pledge, encumber or otherwise deal in the CN Special Limited Voting
Shares or the CN Non-voting Equity Shares, except that Newco and NAR Subco
shall be permitted to transfer the CN Special Limited Voting Shares and the CN
Non-voting Equity Shares to a wholly owned direct or indirect subsidiary of
Newco or to another entity controlled and wholly owned, directly or indirectly,
by Newco.
ARTICLE 5.
FINANCIAL STATEMENTS AND STOCK EXCHANGE LISTINGS
5.1. Fiscal Year
The fiscal year of the Corporations shall terminate on the last day of
December in each year or such other date as the Corporations may from time to
time determine. The Corporations shall maintain the same fiscal year end.
5.2. Auditors
Unless and until the shareholders of the Corporation decide otherwise, the
auditors of each Corporation shall be the same international accounting firm.
5.3. Financial Statements
The Corporations will cooperate to produce consolidated financial
statements for distribution to shareholders and regulators. These financial
statements will be prepared in accordance with U.S. GAAP. Each Corporation will
also produce standalone financial statements for its debtholders if so required
under the terms of such indebtedness and, in CN's case, for its shareholders.
Newco's financial statements will be prepared in accordance with U.S. GAAP, and
CN's financial statements will be prepared in accordance with Canadian GAAP and
U.S. GAAP. Whether or not required by the incorporating legislation of the
Corporations, the consolidated financial statements shall be placed before the
shareholders of both Corporations at each annual meeting of shareholders.
5.4. Stock Exchange Listings and Public Documents
5.4.1. The Corporations will use their best efforts to maintain the
listing of the Newco Common Shares and CN Voting Shares represented by
Trading Units and the CN Exchangeable Shares and the CN Voting Shares
represented by Trading Units on the New York Stock Exchange and The
Toronto Stock Exchange, respectively.
<PAGE>
- 14 -
5.4.2. Subject to section 5.3, to the extent practicable, the Corporations
will prepare joint annual reports, proxy circulars and other similar
documents to be sent to shareholders or filed with regulatory authorities.
5.4.3. Each Corporation will, and so far as it
is able will ensure that each of its subsidiaries will, ensure that the
other is in a position to comply with obligations imposed on it by all
stock exchanges on which either or both of their securities are from time
to time listed, quoted or traded and all securities regulatory authorities
having jurisdiction over either Corporation. In particular, each
Corporation will provide to the other Corporation all information
reasonably required by the other Corporation for the purpose of making any
press release, report of material change or other filing required by a
stock exchange or securities regulatory authority and will use all
reasonable endeavours to ensure, as far as practicable, that the
Corporations co-ordinate the content and timing of release of
announcements.
5.4.4. The parties will co-operate with each other from time to time to
ensure that all information necessary or desirable for the making of (or
responding to any requests for further information consequent upon) any
notifications or filings made in respect of this Agreement, or the
transactions contemplated hereunder, is supplied to the party dealing with
such notification and filings and that they are properly, accurately and
promptly made.
ARTICLE 6.
AMENDMENT AND TERMINATION
6.1. Amendment
6.1.1 The boards of directors of the Corporations may make any amendments
to this Agreement which are formal or technical in nature or which are not
prejudicial to the rights or interests of the shareholders of either
Corporation or are necessary to correct any inconsistency or manifest
errors.
6.1.2 Articles 3 and 4 of this Agreement may not be amended in a manner
which is prejudicial to the rights or interests of: (a) the holders of the
CN Exchangeable Shares unless such amendment is approved by such holders
in accordance with the CN Exchangeable Share Provisions; or (b) the
holders of the Newco Common Shares unless such amendment is approved by
the holders of a majority of such shares casting a vote, assuming a quorum
is present.
6.1.3 Subject to section 6.1.2, the boards of directors of the
Corporations, by unanimous decision, may amend this Agreement and may take
an action or approve a matter, step or undertaking that departs from any
of the provisions of this Agreement, provided they have first determined
that the amendment or departure is: (i) in the best interests of the
Corporations considered as a single economic enterprise; (ii) permissible
under applicable law; and (iii) consistent with the Core Principles.
<PAGE>
- 15 -
6.1.4 Any amendment to this Agreement, other than amendments described in
sections 6.1.1, 6.1.2 and 6.1.3, but including, without limitation, any
amendment to section 4.11, may only be made with the unanimous approval of
the board of directors of each Corporation and by the affirmative vote of
not less than 85% of the votes cast at a meeting of shareholders of each
Corporation at which a quorum is present, provided that such number of
affirmative votes constitutes at least a majority of the votes entitled to
be cast on such amendment by holders of each Corporation's shares.
6.2. Termination
This Agreement may be terminated only if such termination is approved by
the directors and shareholders of both Corporations in the manner provided in
Section 6.1.4.
ARTICLE 7.
INTERPRETATION AND GENERAL PROVISIONS
7.1. Definitions
In this Agreement,
7.1.1. "Agreement" means this agreement and all schedules, if any,
attached to this agreement, in each case as they may be supplemented or
amended from time to time, and the expressions "hereof", "herein",
"hereto", "hereunder", "hereby" and similar expressions refer to this
agreement, and unless otherwise indicated, references to Articles and
sections are to Articles and sections in this agreement;
7.1.2. "Canadian GAAP" means for all principles stated in the Handbook of
the Canadian Institute of Chartered Accountants, such principles so
stated;
7.1.3. "Combination Agreement" means the amended and restated agreement
dated December 18, 1999 among CN, Western, Newco and Merger Sub to effect
the combination of the businesses of CN and Western;
7.1.4. "Core Principles" has the meaning attributed to such term in
section 1.1;
7.1.5. "Corporations" means both Newco and CN and "Corporation" means
either Newco or CN;
7.1.6. "Golden Share" means the special voting share in the capital of
Newco, which will be voted in accordance with the Voting and Exchange
Trust Agreement;
7.1.7. "Identicality Provision" has the meaning attributed to such term in
section 1.2;
7.1.8. "CN Commercialization Act" means the CN Commercialization Act, S.C.
1995, c. 24;
<PAGE>
- 16 -
7.1.9. "CN Exchangeable Share Provisions" means the attributes of the CN
Exchangeable Shares as set out in the articles of arrangement of CN;
7.1.10. "Offer" has the meaning attributed to such term in section 4.9;
7.1.11. "Qualification Provision" has the meaning attributed to such term
in section 1.2;
7.1.12. "Trading Unit" means (i) a unit consisting of a Newco Common Share
and a CN Voting Share, which shall be required by the constating documents
of each Corporation to be traded together; or (ii) a unit consisting of a
CN Exchangeable Share and a CN Voting Share, which shall be required by
the constating documents of CN to be traded together; for greater
certainty, Trading Units are not securities independent of the shares they
represent.
7.1.13. "Transaction" has the meaning attributed to such term in section
1.3.8;
7.1.14. "U.S. GAAP" means United States generally accepted accounting
principles; and
7.1.15. "Western" means Western, a corporation incorporated under the laws
of the State of Delaware.
7.2. Definitions in CN Exchangeable Share Provisions
Capitalized terms used herein and not otherwise defined herein shall have
the meaning attributed thereto in the CN Exchangeable Share Provisions.
7.3. Unanimous Approval of Directors
References in this Agreement to the unanimous approval or unanimous
decision of the board of directors of a Corporation of a particular matter
shall mean the approval of the matter in question by the affirmative vote of
all of the directors of the Corporation, other than any directors who are
unable to participate in the board of directors' deliberation due to medical
reasons.
7.4. Schedules
The following are the schedules attached to this Agreement:
Schedule A - Articles of Arrangement of CN/Restated
Certificate of Incorporation of Newco
Schedule B - By-Laws of each Corporation
7.5. Headings and Table of Contents
The inclusion of headings and a table of contents in this Agreement are
for convenience of reference only and shall not affect the construction or
interpretation hereof.
<PAGE>
- 17 -
7.6. Gender and Number
In this Agreement, unless the context otherwise requires, words importing
the singular include the plural and vice versa and words importing gender
include all genders.
7.7. Invalidity of Provisions
Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity or unenforceability of any such
provision by a court of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof.
7.8. Waiver
Except as expressly provided in this Agreement, no waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any provision of this Agreement shall constitute a waiver
of any other provision nor shall any waiver of any provision of this Agreement
constitute a continuing waiver unless otherwise expressly provided. Any waiver
of compliance in any material respect of the covenants contained in Articles 3
and 4 shall be deemed to be an amendment subject to the requirement of Article
6.
7.9. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Quebec and the federal laws of Canada applicable
therein.
7.10. Remedies
Each Corporation acknowledges that a breach or threatened breach by it of
any provision of this Agreement will result in the other Corporation suffering
irreparable harm which cannot be calculated or fully or adequately compensated
by recovery of damages alone. Accordingly, the other Corporation is entitled to
equitable relief, including interim or permanent injunctive relief, specific
performance, or other equitable remedies in the event of any breach of the
provisions of this Agreement, in addition to all other remedies available to
that Corporation.
7.11. Notices
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by facsimile or other means of
electronic communication or delivered by hand. Any such notice or other
communication, if sent by facsimile or other means of electronic communication,
shall be deemed to have been received on the Business Day following the
sending, or if delivered by hand shall be deemed to have been received at the
time it is delivered to the applicable address noted below either to the
individual designated below or to an individual at such address having apparent
authority to accept deliveries on behalf of the addressee. Notice of change of
address shall also be governed by this section. Notices and other
communications shall be addressed as follows:
<PAGE>
- 18 -
A. if to Newco or NAR Subco:
North American Railways, Inc.
[ ] {ADDRESS}
Telecopier number: ([ ]) [ ]
B. if to CN:
Canadian National Railway Company
[ ] {ADDRESS}
Telecopier number: ([ ]) [ ]
The failure to send or deliver a copy of a notice or other communication
to any legal counsel shall not invalidate any notice given under this section.
IN WITNESS WHEREOF the parties have executed this Agreement.
NORTH AMERICAN RAILWAYS, INC.
By:
-----------------------------------
--------------------------------------
CANADIAN NATIONAL RAILWAY COMPANY
By:
-----------------------------------
--------------------------------------
[NAR HOLDINGS COMPANY]
By:
-----------------------------------
--------------------------------------
<PAGE>
ANNEX M
FORM OF
RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN RAILWAYS, INC.
FIRST: The name of the corporation is North American Railways, Inc.
(the "Corporation").
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street in the City of Wilmington, County of
New Castle, and the name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The head office of the Corporation shall at all times be
situated in the Montreal Urban Community, Quebec, Canada. No amendment to this
Restated Certificate of Incorporation shall amend, alter, change or repeal any
of the provisions of this Article THIRD unless such amendment shall receive (i)
the affirmative vote of all of the directors of the Corporation, other than any
directors who are unable to participate in the board of directors' deliberations
due to medical reasons, and (ii) the affirmative vote of not less than 85% of
the votes cast at a meeting of stockholders at which a quorum is present,
provided that such number of affirmative votes constitutes at least a majority
of the votes entitled to be cast on such amendment by holders of the
Corporation's capital stock.
FOURTH: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law. The
Corporation shall have no corporate power or authority to effectuate any
amendment to Article THIRD unless, prior to such effectuation, and prior to
approval by the board of directors of the Corporation, the board of directors of
the Corporation shall have received a written opinion from a Canadian law firm
of national standing retained by the board of directors of the Corporation that
such amendment would not have a significant risk of resulting in a violation of
Canadian law. The Corporation shall have no corporate power or authority to
effectuate any amendment to Article FIFTH, Section I, subsection 3 unless, prior
to such effectuation, and prior to approval by the board of directors of the
Corporation, the board of directors of the Corporation shall have (i) received a
written opinion from a Canadian law firm of national standing retained by the
board of directors of the Corporation that such amendment would not have a
significant risk of resulting in a violation of Canadian law and (ii) concluded
that Canadian National Railway Company ("CN") and the
<PAGE>
Corporation should no longer be operated as a single economic enterprise. The
Corporation shall have no corporate power or authority to effectuate any
amendment to Article SIXTH unless, prior to effectuation, and prior to approval
by the board of directors of the Corporation, the board of directors of the
Corporation shall have received a written opinion from a Canadian law firm of
national standing retained by the board of directors of the Corporation that
such amendment would not have a significant risk of resulting in a violation of
Canadian law. The Corporation shall have no corporate power or authority to
effectuate any amendment to Article SEVENTH unless, prior to effectuation, and
prior to approval by the board of directors of the Corporation, the board of
directors of the Corporation shall have concluded that CN and the Corporation
should no longer be operated as a single economic enterprise.
FIFTH: The total number of shares of all classes of capital stock that
the Corporation shall have authority to issue is [ ] shares, of which (a)
[ ] shares shall be common stock, par value $0.01 per share ("Common
Stock"), (b) one share shall be special voting stock, par value $0.01 per share
("Special Voting Stock"), and (c) [ ] shares shall be preferred stock, par
value $0.01 per share ("Preferred Stock").
SECTION I: PROVISIONS RELATING TO COMMON STOCK
1. Voting Rights. At all times, each holder of Common Stock of the
Corporation shall be entitled to one vote for each share of Common Stock
standing in the name of such holder on the books of the Corporation. In respect
of all matters concerning the voting of shares of the Corporation, except as
required by law or as set forth in this Article FIFTH, the Common Stock and the
Special Voting Stock shall vote as a single class and such voting rights shall
be identical in all respects.
2. Common Stock to be Reserved. The Corporation shall at all times
reserve and keep available out of its authorized Common Stock, solely for
purposes of issuance upon the exchange of CN Exchangeable Shares (as defined in
the Combination Agreement, dated as of December 18, 1999 (the "Combination
Agreement"), by and among CN, Burlington Northern Santa Fe Corporation, the
Corporation, North American Railways, Inc. and Western Merger Sub, Inc.), such
number of shares of Common Stock as shall then be issuable upon the conversion
of (i) all outstanding CN Exchangeable Shares and (ii) all CN Exchangeable
Shares that are issuable upon the exercise of all outstanding rights to acquire
CN Exchangeable Shares.
3. Transfer Restrictions; Legend. (a) No shares of Common Stock of the
Corporation shall be issued or transferred, and no issuance or transfer shall be
reflected on the books of the Corporation, unless a simultaneous issuance or
transfer of a like number of CN Voting Shares (as defined in the Combination
Agreement) is made to the same holder and recorded on the books of CN or, in the
case of an exchange of CN Exchangeable Shares for shares of Common Stock, the
holder of such CN Exchangeable Shares will continue to be the
2
<PAGE>
holder of the corresponding CN Voting Shares upon consummation of such exchange.
The only certificate representing shares of Common Stock that a holder of Common
Stock shall be entitled to receive shall be a certificate representing both the
shares of Common Stock held by such holder and the CN Voting Shares held by such
holder.
(b) Each certificate representing shares of Common Stock shall contain
or have affixed thereto a legend in form and substance approved by the board of
directors of the Corporation with respect to the transfer restriction set forth
in this subsection (3).
(c) No amendment to this Restated Certificate of Incorporation shall
amend, alter, change or repeal any of the provisions of this subsection 3 unless
such amendment shall receive (i) the affirmative vote of all of the directors of
the Corporation, other than any directors who are unable to participate in the
board of directors' deliberations due to medical reasons, and (ii) the
affirmative vote of not less than 85% of the votes cast at a meeting of
stockholders at which a quorum is present, provided that such number of
affirmative votes constitutes at least a majority of the votes entitled to be
cast on such amendment by holders of the Corporation's capital stock.
4. Appraisal Rights. Holders of Common Stock shall be entitled to
appraisal rights under Section 262 of the Delaware General Corporation Law with
respect to any matter for which holders of CN Exchangeable Shares are entitled
to appraisal or dissenters' rights under the Canadian Business Corporations Act;
provided, however, that there shall be no appraisal rights with respect to the
Merger (as defined in the Combination Agreement) or the other transactions
contemplated by the Combination Agreement.
5. Acknowledgments. (a) Each holder of Common Stock acknowledges that
the Co-Operation Agreement (as defined in Article NINTH) provides, in part, that
CN shall not, without the prior approval of the Corporation and the holders of
Common Stock:
(i) issue or distribute CN Exchangeable Shares (or securities
exchangeable for or convertible into or carrying rights to acquire CN
Exchangeable Shares) to the holders of all or substantially all of the
then outstanding CN Exchangeable Shares by way of stock dividend or
other distribution, other than an issue of CN Exchangeable Shares to
holders of CN Exchangeable Shares who exercise an option to receive
dividends in CN Exchangeable Shares in lieu of receiving cash
dividends;
(ii) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then outstanding CN
Exchangeable Shares entitling them to subscribe for or to purchase CN
Exchangeable Shares; or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding CN Exchangeable Shares:
3
<PAGE>
(A) shares or securities of CN of any class other than
CN Exchangeable Shares;
(B) rights, options or warrants other than those
referred to in subsection 5(a)(ii);
(C) evidences of indebtedness of CN; or
(D) assets of CN;
unless, in the case of subsections 5(a)(i) and (ii), a corresponding issue or
distribution of units comprised of shares of Common Stock and CN Voting Shares
or rights, options or warrants to acquire units comprised of shares of Common
Stock and CN Voting Shares, as applicable, is made or, in the case of subsection
5(a)(iii), the economic equivalent on a per share basis of such other shares or
securities, rights, options, warrants, evidences of indebtedness or other assets
is issued or distributed simultaneously to holders of Common Stock or unless, in
the case of a stock dividend payable in CN Exchangeable Shares, in lieu of such
stock dividend, the Corporation and CN effect a corresponding stock dividend
payable in shares of Common Stock and CN Voting Shares.
(b) Each holder of Common Stock acknowledges that the Co-Operation
Agreement further provides, in part, that CN shall not, without the prior
approval of the Corporation and the holders of Common Stock:
(i) subdivide, redivide or change the then outstanding CN
Exchangeable Shares into a greater number of CN Exchangeable Shares;
(ii) reduce, combine, consolidate or change the then
outstanding CN Exchangeable Shares into a lesser number of CN
Exchangeable Shares; or
(iii) reclassify or otherwise change the CN Exchangeable
Shares or effect an amalgamation, merger, reorganization or other
transaction affecting the CN Exchangeable Shares;
unless, in the case of subsections 5(b)(i) and (ii) above, the same or, in the
case of subsection 5(b)(iii) above, the same or an economically equivalent
change is simultaneously made to, or in the rights of the holders of, Common
Stock and CN Voting Shares. The Co-Operation Agreement further provides, in
part, that the aforesaid provisions of the Co-Operation Agreement shall not be
changed without the approval of the holders of Common Stock.
4
<PAGE>
SECTION II: PROVISIONS RELATING TO SPECIAL VOTING STOCK
1. Voting Rights. At all times, the one share of Special Voting Stock
shall be entitled at any relevant date to that number of votes (including for
purposes of determining the presence of a quorum) equal to the number of CN
Exchangeable Shares outstanding as of the applicable record date of the
stockholder meeting at which any matter is to be considered. In respect of all
matters concerning the voting of shares of the Corporation, except as required
by law and except as set forth in this Article FIFTH, the Common Stock and the
Special Voting Stock shall vote as a single class and such voting rights shall
be identical in all respects.
2. No Dividends. No dividends shall be paid to the holder of the
Special Voting Stock.
3. Liquidation Rights. The holder of the share of Special Voting Stock
shall be entitled to receive $1.00 upon the liquidation, dissolution or
winding-up of the Corporation in preference to any shares of Common Stock of the
Corporation, but only after the liquidation preference of any shares of
Preferred Stock of the Corporation has been paid.
4. No Conversion. Except as provided in subsection (5), the Special
Voting Stock is not convertible into any other class or series of the capital
stock of the Corporation or into cash, property or other rights, and may not be
purchased or redeemed by the Corporation.
5. Redemption; Cancellation. At such time as the Special Voting Stock
has no votes attached to it because there are no CN Exchangeable Shares
outstanding, the Special Voting Stock shall be redeemable, and shall be
redeemed, by the Corporation for par value and canceled.
6. Restrictions. So long as the share of Special Voting Stock is
outstanding, the Corporation shall fully comply with all contractual obligations
of the Corporation associated with such CN Exchangeable Shares. So long as any
CN Exchangeable Shares shall be outstanding, the number of authorized shares of
Special Voting Stock shall not be increased or decreased and no other term of
the Special Voting Stock shall be amended, without the affirmative vote of at
least a majority of the votes entitled to be cast on such amendment by holders
of CN Exchangeable Shares.
SECTION III: PROVISIONS RELATING TO PREFERRED STOCK
The board of directors is expressly authorized to provide for the issue
of all or any shares of the Preferred Stock, in one or more series, and to fix
for each such series such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the board of directors of the Corporation providing for the issue of
such series (a "Preferred Stock Designation") and as may be permitted by the
Delaware General Corporation Law. The number
5
<PAGE>
of authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the Corporation's capital stock entitled to vote generally in the
election of directors (the "Voting Stock"), voting together as single class,
without a separate vote of the holders of the Preferred Stock, or any series
thereof, unless a vote of any such holders is required pursuant to any Preferred
Stock Designation.
SIXTH: Restrictions on the transferability of the capital stock of the
Corporation, in addition to those restrictions set forth elsewhere in this
Amended and Restated Certificate of Incorporation, are as follows:
1. Definitions. For purposes of this Article SIXTH, the following terms
have the following meanings:
"Act" means An Act to provide for the continuance of the Canadian
National Railway Company under the Canada Business Corporations Act and for the
issuance and sale of shares of the Company to the public, S.C. 1995, c.24
enacted on July 13, 1995;
"Aggregate Votes" means the aggregate of the votes attached to all
voting shares of the Corporation that may ordinarily be cast to elect directors
of the Corporation;
"associate" has the meaning set forth in subsection 6 of this Article
SIXTH;
"control" has the meaning set forth in subsection 7 of this Article
SIXTH;
"corporation" includes a body corporate, partnership and unincorporated
organization;
"Maximum Individual Holdings" means voting shares to which are attached
fifteen percent (15%) of the Aggregate Votes;
"Minister" means the Minister of Transport or such other member of the
Queen's Privy Council for Canada as may be designated by the Governor in Council
as the Minister for the purposes of the Act;
"Ownership Rights" means, with respect to voting shares of the
Corporation, all rights attaching thereto, including the rights to vote at any
meeting of stockholders, to receive any dividends declared thereon by the
Corporation, and to receive the remaining property of the Corporation upon
liquidation, dissolution or winding-up of the Corporation (but does not include
the right to receive proceeds of sale pursuant to subsection 5 of this Article
SIXTH);
"person" includes an individual, corporation, government, government
agency, trustee, executor, administrator and other legal representative; and
6
<PAGE>
"voting share" means a share of the Corporation carrying voting rights
under all circumstances or under some circumstances that have occurred and are
continuing, and includes a security currently convertible into such a share and
currently exercisable options and rights to acquire such a share or such a
convertible security.
2. Constraints on Issue and Transfer. The Corporation shall not (a)
accept any subscription for its voting shares; (b) issue any of its voting
shares; or (c) register or otherwise recognize the transfer of any of its voting
shares if, as a result of such subscription, issue, transfer, purchase or
acquisition, voting shares to which are attached more than fifteen percent (15%)
of the Aggregate Votes are or would be held, beneficially owned or controlled,
directly or indirectly, by any one person together with the associates of such
person.
3. Constraints on Ownership Rights. No person, together with his, her
or its associates, shall hold, beneficially own or control, directly or
indirectly, voting shares to which are attached more than fifteen percent (15%)
of the Aggregate Votes. Subject to subsections 4(a) and 4(b) of this Article
SIXTH, the Corporation shall refuse to recognize all Ownership Rights that would
otherwise be attached to any voting shares held, beneficially owned or
controlled, directly or indirectly, in excess of the permitted Maximum
Individual Holdings by any person, together with such person's associates.
4. Limitation on Voting Rights; Dividend Forfeiture. (a) Where the
total number of voting shares held, beneficially owned or controlled, directly
or indirectly, by any one person together with such person's associates exceeds
the Maximum Individual Holdings, no person shall, in person or by proxy,
exercise the voting rights attached to the voting shares held, beneficially
owned or controlled, directly or indirectly, by such person or such person's
associates. If the Corporation redeems, purchases for cancellation or otherwise
acquires voting shares, and the result of such action is that any person and the
associates of that person who, prior to such action, were not in contravention
of the Maximum Individual Holdings are, after such action, in contravention,
then, notwithstanding any other provision of this Article SIXTH, the sole
consequence of such action to that person and the associates of that person, in
respect of the voting shares of that person and of the associates of that person
held, beneficially owned or controlled at the time of such action, shall be that
the number of votes attached to those voting shares shall be reduced to a number
that is the largest whole number of votes that may be attached to the voting
shares which that person and the associates of that person could hold,
beneficially own or control from time to time in accordance with the Maximum
Individual Holdings.
(b) Where the total number of voting shares held, beneficially owned or
controlled, directly or indirectly, by any one person together with his, her or
its associates exceeds the Maximum Individual Holdings, the percentage of any
and all dividends attributable to the percentage of voting shares exceeding the
Maximum Individual Holdings shall be forfeited, including any cumulative
dividend, and the amount of dividend so forfeited shall not become
7
<PAGE>
payable thereafter to any person for any reason whatsoever; provided, however,
that, notwithstanding any other provision of this Article SIXTH:
(i) the directors of the Corporation may determine to pay a
dividend or to make any other distribution on voting shares that would
otherwise be prohibited by any other provision of this Article SIXTH
where the contravention of the Maximum Individual Holdings that gave
rise to the prohibition was inadvertent or of a technical nature or it
would otherwise be inequitable not to pay the dividend or make the
distribution; and
(ii) where a dividend has not been paid or any other
distribution has not been made on voting shares of a person as a result
of a directors' determination of a contravention of the Maximum
Individual Holdings, the directors of the Corporation shall declare and
pay the dividend or make the distribution to the relevant person if
they subsequently determine that no such contravention occurred.
(c) Notwithstanding any other provision of this Article SIXTH, a
contravention of the Maximum Individual Holdings shall have no consequences
except those that are expressly provided for in this Article SIXTH. For greater
certainty, but without limiting the generality of the foregoing, (i) no
transfer, issue or ownership of, and no title to, voting shares; (ii) no
resolution of stockholders; and (iii) no act of the Corporation, including any
transfer of property to or by the Corporation, shall be invalid or otherwise
affected by any contravention of the Maximum Individual Holdings.
5. Sale of Constrained Shares. Without limiting any of the provisions
of this Article SIXTH (but subject to subsection 4(a) of this Article SIXTH) the
Corporation may, for the purposes of enforcing any constraint imposed pursuant
to subsection 2 of this Article SIXTH, sell, as if it were the owner thereof,
any voting shares that are owned, or that the directors determine may be owned,
by any person or persons, contrary to such constraint. Such sale shall be
conducted in accordance with the procedures set forth in Part VI of the Canadian
Business Corporations Act and Part VII of the Canadian Business Corporations
Regulations with necessary modifications, as if such provisions applied to the
sale of such voting shares, and the net proceeds of the sale thereof shall be
remitted to the person or persons entitled thereto; provided, however, that (i)
in the event the Corporation elects to transfer the proceeds of any such sale to
a trust company, the trust company may be either a United States or Canadian
trust company and (ii) in the event the proceeds of any such sale are not
claimed by a person entitled to receive such proceeds within ten years after the
date of such sale, the Corporation shall be entitled to retain such proceeds.
6. Associates. (a) For the purposes of this Article SIXTH, a person is
an "associate" of another person if:
(i) one is a corporation of which the other is an officer or
director;
8
<PAGE>
(ii) one is a corporation that is controlled by the other or
by a group of persons of which the other is a member;
(iii) one is a partnership of which the other is a partner;
(iv) one is a trust of which the other is a trustee;
(v) both are corporations controlled by the same person;
(vi) both are members of a voting trust that relates to voting
shares;
(vii) both, in the reasonable opinion of the directors of the
Corporation, are parties to an agreement or arrangement, a purpose of
which is to require them to act in concert with respect to their
interests, direct or indirect, in the Corporation or are otherwise
acting in concert with respect to those interests; or
(viii) both are at the same time associates, within the
meaning of any of clauses (i) to (viii), of the same person.
(b) Notwithstanding subsection 6(a) of this Article SIXTH, for the
purposes of this subsection 6:
(i) where a person who, but for this subsection 6(b), would be
an associate of another person submits to the Corporation such
declaration as required by the directors stating that:
(A) no voting shares held or to be held by the declarant
are or will be, to the declarant's knowledge, held in the right
of, for the use or benefit of, or under the control of, any other
person of which, but for this subsection 6(b), the declarant
would be an associate, and
(B) the declarant is not acting and will not act in
concert with any other person with respect to their interests,
direct or indirect, in the Corporation,
the declarant and that other person are not associates so long as the
directors of the Corporation are satisfied that the statements in the
declaration are being complied with and that there are no other
reasonable grounds for disregarding the declaration; and
(ii) two corporations are not associates pursuant to
subsection 6(a) of this Article SIXTH by reason only that, under such
subsection 6(a), each is an associate of the same individual; and
9
<PAGE>
(iii) where it appears from the stock ledger of the
Corporation that any person holds, beneficially owns or controls voting
shares to which are attached not more than the lesser of two
one-hundredths of one percent of the votes that may ordinarily be cast
to elect directors of the Corporation and five thousand such votes,
that person is not an associate of anyone else and no one else is an
associate of that person.
(c) For greater certainty, no person is presumed to be an associate of
any other person solely by reason that one of them has given the other the power
to vote or direct the voting of voting shares at a meeting of the holders of the
voting shares pursuant to a revocable proxy where the proxy is solicited solely
by means of a proxy statement issued in a public solicitation of proxies that is
made in respect of all voting shares and in accordance with applicable law.
7. Control. For purposes of this Article SIXTH, "control" and any
derivative thereof means control in any manner that results in control in fact,
whether directly through the ownership of securities or indirectly through a
trust, an agreement or arrangement, the ownership of any body corporate or
otherwise, and, without limiting the generality of the foregoing:
(a) a body corporate is controlled by a person if:
(i) securities of the body corporate to which are attached
more than fifty percent (50%) of the votes that may be cast to
elect directors of the body corporate are held, otherwise than by
way of security only, by or for the benefit of that person; and
(ii) the votes attached to those securities are sufficient, if
exercised, to elect a majority of the directors of the body
corporate; and
(b) a partnership or unincorporated organization is controlled by a
person if an ownership interest therein representing more than fifty percent
(50%) of the assets of the partnership or organization is held, otherwise than
by way of security only, by or for the benefit of that person.
8. Joint Ownership. For the purposes of this Article SIXTH, where
voting shares are held, beneficially owned or controlled by several persons
jointly, the number of voting shares held, beneficially owned or controlled by
any one such person shall include the number of voting shares held, beneficially
owned or controlled jointly with such other persons.
9. Exceptions. (a) Nothing in this Article SIXTH shall be construed to
apply to such a holder in respect of voting shares that:
(i) are held by the Minister in trust for Her Majesty in right
of Canada;
10
<PAGE>
(ii) are held by one or more underwriters solely for the
purpose of distributing the shares to the public or in connection
therewith, which shall include, without limitation, any voting shares
acquired through the exercise of an over-allotment option or in
stabilization transactions and, for the purposes of calculating the
percentage of voting shares of the Corporation held, beneficially owned
or controlled by any underwriter during the period of any distribution
of shares (such period not terminating for the purposes of this
provision while any over-allotment option remains unexercised and
unexpired), shall not include any shares owned or subject to
acquisition by such underwriter which have at the time of such
calculation been resold;
(iii) are held by any person that is acting in relation to the
shares solely in its capacity as an intermediary in the payment of
funds or the delivery of securities or both, in connection with trades
in securities and that provides centralized facilities for the clearing
of trades in securities, including, without limitation, intermediaries
such as The Canadian Depositary for Securities Limited and The
Depository Trust Company;
(iv) are held by way of security only; or
(v) are held by any custodian, depositary or other agent
appointed under an instalment receipt agreement or other agreement
pursuant to which, among other things, voting shares are purchased on
an instalment basis.
(b) None of the restrictions set forth in this Article SIXTH shall
apply to the Special Voting Stock; provided, however, that the voting rights of
the holder of Special Voting Stock shall be included for purposes of calculating
the number of Aggregate Votes; provided further, that any holder of voting
shares shall be deemed, for purposes of determining compliance with the
requirements of subsections 2 and 3 of this Article SIXTH, to hold an additional
number of voting shares equal to the number of votes attached to the Special
Voting Share of which such holder together with such holder's associates has the
right to direct the casting as a result of holding CN Exchangeable Shares and,
if any such holder, as a result thereof, is not in compliance with subsection 3
of this Article SIXTH, subsection 4 of this Article SIXTH shall be applicable to
the votes attached to the Special Voting Share of which such holder, together
with such holder's associates, has the right to direct.
10. By-Laws. (a) Subject to applicable law, the board of directors of
the Corporation may make, amend or repeal any by-laws required to administer the
constrained share provisions set forth in this Article SIXTH, including any
by-laws to determine the circumstances in which any declarations are required,
their form and the times when they are to be furnished.
(b) Where a person is required to furnish a declaration pursuant to a
by-law made under subsection 10(a) of this Article SIXTH, the board of directors
of the Corporation may refuse to register a transfer of a voting share in his,
her or its name or to issue a voting share to him, her or it until that person
has furnished the declaration.
11
<PAGE>
11. Powers of Directors. (a) Subject to applicable law, in the
administration of this Article SIXTH, the directors of the Corporation shall
enjoy, in addition to the powers set forth in this Article SIXTH, all of the
powers necessary or desirable, in their opinion, to carry out the intent or
purpose of this Article SIXTH.
(b) If the board of directors of the Corporation, acting in good faith,
determines that any persons are parties to an agreement or arrangement, a
purpose of which is to require them to act in concert with respect to their
interest, direct or indirect, in voting shares, the board of directors shall be
entitled to treat such persons as associates for the purposes of this Article
SIXTH.
(c) In administering the provisions of this Article SIXTH, the
directors of the Corporation may rely upon:
(i) a statement made in a declaration referred to in subsection 10
of this Article SIXTH;
(ii) the knowledge of a director, officer, employee or agent of the
Corporation; and
(iii) the opinion of counsel to the Corporation or of other
qualified advisors.
(d) Wherever in this Article SIXTH it is necessary to determine the
opinion of the board of directors of the Corporation, such opinion shall be
expressed and conclusively evidenced by a resolution of the directors of the
Corporation duly adopted, including a resolution in writing executed pursuant to
Section 141(f) of the Delaware General Corporation Law.
12. Disclosure Required. Each of the following documents issued or
published by the Corporation shall indicate conspicuously the general nature of
the constraints on issue, transfer and ownership of its voting shares contained
in this Article SIXTH:
(a) a certificate representing a voting share;
(b) a proxy statement; and
(c) a prospectus, statement of material facts, registration statement
or similar document.
13. Amendments to this Section. No amendment to this Restated
Certificate of Incorporation shall amend, alter, change or repeal any of the
provisions of this Article SIXTH unless such amendment shall receive (i) the
affirmative vote of all of the directors of the Corporation, other than any
directors who are unable to participate in the board of directors' deliberations
due to medical reasons, and (ii) the affirmative vote of not less than 85% of
the
12
<PAGE>
votes cast at a meeting of stockholders at which a quorum is present, provided
that such number of affirmative votes constitutes at least a majority of the
votes entitled to be cast on such amendment by holders of the Corporation's
capital stock. Notwithstanding the immediately preceding sentence, the
provisions of this Article SIXTH may be amended from time to time to conform
with any amendments made to the provisions of the Act if any such amendment to
this Article SIXTH receives (i) the affirmative vote of a majority of the
directors of the Corporation present at a meeting at which a quorum is present
and (ii) the affirmative vote of a majority of the votes entitled to be cast on
any such amendment by holders of the Corporation's capital stock.
SEVENTH: No person shall be qualified for election or appointment as a
director of the Corporation unless he or she is also a member of the board of
directors of CN or unless he or she is elected or appointed to the board of
directors of CN simultaneously with his or her appointment or election as a
director of the Corporation. No amendment to this Restated Certificate of
Incorporation shall amend, alter, change or repeal any of the provisions of this
Article SEVENTH unless such amendment shall receive (i) the affirmative vote of
all of the directors of the Corporation, other than any directors who are unable
to participate in the board of directors' deliberations due to medical reasons,
and (ii) the affirmative vote of not less than 85% of the votes cast at a
meeting of stockholders at which a quorum is present, provided that such number
of affirmative votes constitutes at least a majority of the votes entitled to be
cast on such amendment by holders of the Corporation's capital stock.
EIGHTH: No holder of capital stock of the Corporation shall be entitled
as a matter of right to subscribe for, purchase or receive any part of any new
or additional issue of capital stock of any class or any options or warrants for
such stock or any rights to subscribe to or purchase such stock or securities
convertible into or exchangeable for such stock, whether now or hereafter
authorized, or whether issued for money, for a consideration other than money,
or for no consideration.
NINTH: The Corporation shall take all such actions and do all such
things as shall be necessary or advisable to perform and comply with, and to
ensure performance and compliance by its subsidiaries with, all provisions of
the Co-Operation Agreement, dated as of _________, ___, as it may be amended
from time to time in accordance with its terms (the "Co-Operation Agreement"),
by and between the Corporation and CN applicable to the Corporation and its
subsidiaries, including, without limitation, taking all such actions and doing
all such things as shall be necessary or advisable to enforce to the fullest
extent possible for the direct benefit of the Corporation all rights and
benefits in favor of the Corporation under or pursuant to the CoOperation
Agreement. The board of directors of the Corporation may make any amendments to
the Co-Operation Agreement only in accordance with Article 6 of the Co-Operation
Agreement.
TENTH: Any action by stockholders of the Corporation shall be taken at
a meeting of stockholders and no action may be taken by written consent of
stockholders entitled to vote upon such action. With respect to any matter
submitted to the stockholders of the Corporation that is
13
<PAGE>
also submitted to the stockholders of CN, the meeting of stockholders at which
such matter is considered shall be held on the same day and at the same location
as the meeting at which such matter is considered by the stockholders of CN and
the record date for determining the stockholders of the Corporation entitled to
vote at such meeting shall be the same as the record date for determining the
stockholders of CN entitled to vote at such CN meeting.
ELEVENTH: In furtherance and not in limitation of the powers conferred
by law, the board of directors of the Corporation is expressly authorized:
(a) To adopt, amend or repeal the by-laws of the Corporation subject to
the power of the stockholders of the Corporation having voting power to adopt
by-laws and to amend or repeal by-laws adopted or amended by the board of
directors;
(b) To remove at any time any officer elected or appointed by the board
of directors by such vote of the board of directors as may be provided for in
the by-laws. Any other officer of the Corporation may be removed at any time by
a vote of the board of directors, or by any committee or superior officer upon
whom such power of removal may be conferred by the by-laws or by a vote of the
board of directors;
(c) To establish bonus, profit sharing, stock option, stock purchase,
retirement or other types of incentive or compensation plans for the employees
(including officers and directors) of the Corporation and to fix the terms of
such plans and to determine, or prescribe the method for determining, the
persons to participate in any such plans and the amount of their respective
participation; and
(d) From time to time to determine whether and to what extent, and at
what time and places and under what conditions and regulations, the accounts and
books of the Corporation (other than the stock ledger) or any of them, shall be
open to the inspection of the stockholders; and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
conferred by the laws of the State of Delaware or as authorized by the board of
directors.
TWELFTH: To the full extent that the Delaware General Corporation Law,
as it exists on the date hereof or may hereafter be amended, permits the
limitation or elimination of the liability of directors, 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. Any amendment to or
repeal of this Article TWELFTH shall not adversely affect any right or
protection of a director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
THIRTEENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of
14
<PAGE>
Delaware may, on the application in a summary way of the Corporation or of any
creditor or stockholder of the Corporation or on the application of any receiver
or receivers appointed for the Corporation under the provisions of Section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under the
provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
15
<PAGE>
ANNEX N
CANADIAN / U.S. GAAP RECONCILIATION AND RECLASSIFICATIONS
Canadian National
(Dollars in millions, except per share data)
Canadian National's consolidated financial statements, from which the selected
historical consolidated financial data is derived, are prepared on the basis
of both U.S. GAAP and Canadian GAAP, which are different in some respects.
The principal differences in Canadian National's financial statements include
the treatment of track replacement costs, expenditures for bridges and other
structures and freight cars, foreign exchange, pension and post-retirement
costs, loss on extinguishment of long-term debt, stock-based compensation,
joint ventures, convertible preferred securities and reorganization of
shareholders' equity. The following tables provide a reconciliation of
Canadian GAAP to U.S. GAAP and present certain reclassifications between
revenues and expenses. Canadian National made reclassifications in its 1999
reporting and therefore the as reported amounts for the years ended December
31, 1998, 1997, 1996 and 1995 have been reclassified.
<TABLE>
At or for the Year Ended December 31, 1999
-------------------------------------------------------------------------------------
Cdn. GAAP U.S. GAAP U.S. GAAP
as Reported Adjustments as Reported Reclassifications(a) Restated
----------- ----------- ----------- -------------------- ---------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues............................... $5,261 $(25) $5,236 $ -- $5,236
Income from continuing operations...... 602 144 746 -- 746
Cumulative effect of change in
accounting policy.................... -- 5 5 -- 5
Net income............................. 602 149 751 -- 751
Per Share Data
Income from continuing operations
Basic................................ $3.02 $3.78 $3.78
Diluted.............................. 2.93 3.71 3.71
Cumulative effect of change in
accounting policy
Basic................................ -- 0.03 0.03
Diluted.............................. -- 0.03 0.03
Net income:
Basic................................ 3.02 3.81 3.81
Diluted.............................. 2.93 3.74 3.74
Book value............................. 27.20 30.25 30.25
Cash dividends declared................ 0.6000 0.6000 0.6000
Balance Sheet Data
Total assets........................... $14,757 $1,673 $16,430 $ -- $16,430
Total debt, including current portion,
convertible preferred securities and
commercial paper..................... 4,233 320 4,553 -- 4,553
Shareholders' equity................... 5,506 616 6,122 -- 6,122
- ------------
(a) Reclassifications apply to Canadian and U.S. GAAP.
</TABLE>
<PAGE>
<TABLE>
At or for the Year Ended December 31, 1998
-------------------------------------------------------------------------------------
Cdn. GAAP U.S. GAAP U.S. GAAP
as Reported Adjustments as Reported Reclassifications(a) Restated
----------- ----------- ----------- -------------------- ---------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues.............................. $4,144 $(23) $4,121 $ (43) $4,078
Income from continuing operations..... 109 115 224 -- 224
Cumulative effect of change in
accounting policy................... -- 42 42 -- 42
Net income............................ 109 157 266 -- 266
Per Share Data
Income from continuing operations
Basic............................... $0.60 $1.22 $1.22
Diluted............................. 0.60 1.21 1.21
Cumulative effect of change in
accounting policy
Basic............................... -- 0.23 0.23
Diluted............................. -- 0.23 0.23
Net income
Basic............................... 0.60 1.45 1.45
Diluted............................. 0.60 1.44 1.44
Book value............................ 22.38 26.31 26.31
Cash dividends declared............... 0.5300 0.5300 0.5300
Balance Sheet Data
Total assets.......................... $10,864 $1,088 $11,952 $ -- $11,952
Total debt, including current portion
and commercial paper................ 4,143 (15) 4,128 -- 4,128
Shareholders' equity.................. 4,291 754 5,045 -- 5,045
- ------------
(a) Reclassifications apply to Canadian and U.S. GAAP.
</TABLE>
2
<PAGE>
<TABLE>
At or for the Year Ended December 31, 1997
-------------------------------------------------------------------------------------
Cdn. GAAP U.S. GAAP U.S. GAAP
as Reported Adjustments as Reported Reclassifications(a) Restated
----------- ----------- ----------- -------------------- ---------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues.............................. $4,352 $(30) $4,322 $ (39) $4,283
Income from continuing operations..... 421 48 469 -- 469
Discontinued operations and
cumulative effect of change in
accounting policy................... (18) 589 571 -- 571
Net income............................ 403 637 1,040 -- 1,040
Per Share Data
Income from continuing operations
Basic............................... $2.48 $2.75 $2.75
Diluted............................. 2.42 2.72 2.72
Discontinued operations and
cumulative effect of change in
accounting policy
Basic............................... (0.11) 3.36 3.36
Diluted............................. (0.10) 3.31 3.31
Net income
Basic............................... 2.37 6.11 6.11
Diluted............................. 2.32 6.03 6.03
Book value............................ 19.96 23.43 23.43
Cash dividends declared............... 0.4600 0.4600 0.4600
Balance Sheet Data
Total assets.......................... $7,075 $924 $7,999 $ -- $7,999
Total debt, including current portion
and commercial paper................ 1,683 (12) 1,671 -- 1,671
Shareholders' equity.................. 3,417 593 4,010 -- 4,010
- ------------
(a) Reclassifications apply to Canadian and U.S. GAAP.
</TABLE>
3
<PAGE>
<TABLE>
At or for the Year Ended December 31, 1996
-------------------------------------------------------------------------------------
Cdn. GAAP U.S. GAAP U.S. GAAP
as Reported Adjustments as Reported Reclassifications(a) Restated
----------- ----------- ----------- -------------------- ---------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues.............................. $3,995 $(39) $3,956 $ (45) $3,911
Income from continuing operations..... 836 12 848 -- 848
Discontinued operations and
extraordinary item.................. 14 (16) (2) -- (2)
Net income............................ 850 (4) 846 -- 846
Per Share Data
Income from continuing operations
Basic............................... $4.92 $4.99 $4.99
Diluted............................. 4.82 4.94 4.94
Discontinued operations and
extraordinary item
Basic............................... 0.08 (0.01) (0.01)
Diluted............................. 0.08 (0.01) (0.01)
Net income
Basic............................... 5.00 4.98 4.98
Diluted............................. 4.90 4.93 4.93
Book value............................ 18.18 17.85 17.85
Cash dividends declared............... 0.4000 0.4000 0.4000
Balance Sheet Data
Total assets.......................... $6,840 $(79) $6,761 $ -- $6,761
Total debt, including current portion
and commercial paper................ 1,526 (30) 1,496 -- 1,496
Shareholders' equity.................. 3,088 (56) 3,032 -- 3,032
- ------------
(a) Reclassifications apply to Canadian and U.S. GAAP.
</TABLE>
4
<PAGE>
<TABLE>
At or for the Year Ended December 31, 1995
-------------------------------------------------------------------------------------
Cdn. GAAP U.S. GAAP U.S. GAAP
as Reported Adjustments as Reported Reclassifications(a) Restated
----------- ----------- ----------- -------------------- ---------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues.............................. $3,954 $(42) $3,912 $ (50) $3,862
Loss from continuing operations....... (1,092) 75 (1,017) -- (1,017)
Discontinued operations and
extraordinary item.................. 7 (38) (31) -- (31)
Net loss.............................. (1,085) 37 (1,048) -- (1,048)
Per Share Data
Loss from continuing operations
Basic............................... $(6.79) $(6.32) $(6.32)
Diluted............................. (6.79) (6.32) (6.32)
Discontinued operations and
extraordinary item
Basic............................... 0.05 (0.19) (0.19)
Diluted............................. 0.05 (0.19) (0.19)
Net loss
Basic............................... (6.74) (6.51) (6.51)
Diluted............................. (6.74) (6.51) (6.51)
Book value............................ 13.57 13.20 13.20
Cash dividends declared............... -- -- --
Balance Sheet Data
Total assets.......................... $6,048 $(145) $5,903 $ -- $5,903
Total debt, including current portion
and commercial paper................ 1,601 (29) 1,572 -- 1,572
Shareholders' equity.................. 2,306 (63) 2,243 -- 2,243
- ------------
(a) Reclassifications apply to Canadian and U.S. GAAP.
</TABLE>
5
<PAGE>
ANNEX O
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
North American Railways, Inc.
We have audited the accompanying consolidated balance sheet of North American
Railways, Inc. as of December 31, 1999. This consolidated balance sheet is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the balance sheet.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of North American
Railways, Inc. as of December 31, 1999, in conformity with generally accepted
accounting principles in the United States.
/s/ KPMG LLP /s/ PricewaterhouseCoopers LLP
Montreal, Canada Fort Worth, Texas
January 5, 2000 January 5, 2000
<PAGE>
NORTH AMERICAN RAILWAYS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999
Assets
Cash................................................................ $ 1,000
---------
Total assets...................................................... $ 1,000
---------
Shareholders' equity
Common stock, par value $.01 per share, 1,000 shares
issued and outstanding......................................... $ 10
Additional paid-in capital.......................................... 990
---------
Total shareholders' equity....................................... $ 1,000
---------
See accompanying notes to the consolidated balance sheet.
2
<PAGE>
NORTH AMERICAN RAILWAYS, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
1. The Company
North American Railways, Inc. (the Company) was incorporated under the
General Corporation Law of the State of Delaware on December 17, 1999 for
the purpose of effecting the proposed combination of Canadian National
Railway Company (CN) and Burlington Northern Santa Fe Corporation (BNSF)
pursuant to a combination agreement dated December 18, 1999. The Company
is equally owned by CN and BNSF and has not engaged in any activity since
its formation other than activities related to the combination.
2. Principles of Consolidation
The accompanying consolidated balance sheet includes all of the assets and
liabilities attributable to the Company and its wholly-owned subsidiary,
Western Merger Sub, Inc. All intercompany accounts and transactions have
been eliminated.
3. Shareholders' Equity
The Company is authorized to issue 1,000 shares, $0.01 par value common
stock. The Company has issued common stock to its two shareholders as
follows:
Number Amount
Canadian National Railway Company 500 $ 500
Burlington Northern Santa Fe Corporation 500 500
----- --------
1,000 $ 1,000
----- --------
3
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification under Canadian National By-Laws and Canadian Law. Section
124 of the Canada Business Corporations Act provides that a corporation may
indemnify its directors and officers. Section VII of CN's By-Law No. 1 provides
for the indemnification of directors and officers of Canadian National. Under
these provisions, Canadian National shall indemnify a director or officer of
Canadian National, a former director or officer of Canadian National or a
person who acts or acted at CN's request as a director or officer of a body
corporate or other enterprise of which Canadian National is or was a
shareholder or creditor and his heirs and legal representatives, against all
costs, charges and expenses, including amounts paid to settle any threatened,
pending or completed action or satisfy a judgment, reasonably incurred by such
person in respect of any civil, criminal or administrative action,
investigation or proceeding (other than in respect of an action by or on behalf
of Canadian National to procure a judgment in its favor) to which such person
is made a party by reason of his position with Canadian National or such body
corporate or other enterprise, if he fulfills the following two conditions: (a)
he acted honestly and in good faith with a view to the best interests of
Canadian National; and (b) in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful. In respect of an action by or on
behalf of Canadian National to procure a judgment in its favor, Canadian
National, with the approval of a court (which Canadian National has undertaken
to exercise all reasonable efforts to obtain, or assist in obtaining), shall
indemnify a director or officer of Canadian National (or a former director or
officer) against all costs, charges and expenses reasonably incurred by him in
connection with such action if he fulfills the conditions set out in clauses
(a) and (b) of the previous sentence. Canadian National has purchased at its
expense group liability insurance in the amount of Cdn$175,000,000, with a
deductible of Cdn$1,000,000 for the protection of directors and officers of
Canadian National and its subsidiaries against liability incurred by them in
such capacity.
Indemnification under North American Railways, Inc. Charter, By-Laws and
Delaware Law. North American Railways is incorporated under the laws of the
State of Delaware. The Delaware General Corporation Law provides for
indemnification of directors, officers and employees in certain situations. The
Delaware General Corporation Law, by its terms, expressly permits
indemnification where such a person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the corporation's best
interests and, in a criminal action, if such person had no reasonable cause to
believe that his or her conduct was unlawful. In the case of a claim by a third
party (i.e., a party other than the corporation), the Delaware General
Corporation Law expressly permits indemnification for expenses, judgments,
settlement payments and other costs. In the case of a claim by or in the right
of the corporation (including stockholder derivative suits), the Delaware
General Corporation Law expressly provides for indemnification for expenses
only and not for amounts paid in judgment or settlement of such actions.
Moreover, a corporation cannot, under the Delaware General Corporation Law,
provide for indemnification against expenses in the case of an action by or in
the right of the corporation if the person seeking indemnification is adjudged
liable to the corporation, unless the indemnification is ordered by a court.
The Delaware General Corporation Law also permits advancement of expenses to
directors and officers upon receipt of an undertaking by such director or
officer to repay all amounts advanced if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation. In addition,
the Delaware General Corporation Law specifically provides that its terms shall
not be deemed exclusive of any other right to indemnification to which a
director, officer, or employee may be entitled under any by-law, agreement, or
vote of stockholders or disinterested directors.
North American Railways' certificate of incorporation provides that, to
the full extent that the Delaware General Corporation Law permits the
limitation or elimination of the liability of directors, a director of North
American Railways shall not be liable to North American Railways or its
stockholders for monetary damages for breach of fiduciary duty as director.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
The exhibit list attached to this Registration Statement is hereby
incorporated by reference.
<PAGE>
(b) Financial Statement Schedules
Not required.
Item 22. Undertakings.
Canadian National
(a) Canadian National, an undersigned registrant, hereby undertakes:
(1) That prior to the reoffering of the securities registered
hereunder through use of a prospectus which is part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), such reoffering prospectus will contain
the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) Canadian National, an undersigned registrant, hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (c)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements and information on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule
3-19 of Regulation S-X if such financial statements and information are
contained in periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(d) Canadian National hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. Canadian National hereby undertakes to arrange to
provide for a facility in the U.S. for the purpose of responding to such
requests. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of responding
to the request.
(e) Canadian National hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
North American Railways
(a) North American Railways, an undersigned registrant, hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), such reoffering prospectus will contain
the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
North American Railways has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any
3
<PAGE>
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(c) North American Railways, an undersigned registrant, hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(d) North American Railways, an undersigned registrant, hereby undertakes,
to respond to requests for information that is incorporated by reference into
the Joint Proxy Statement/Circular/Prospectus pursuant to Item 4, 10(b), 11 or
13 of this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(e) North American Railways, an undersigned registrant, hereby undertakes
to supply by means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became effective.
(f) North American Railways, an undersigned registrant, hereby undertakes
that, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered hereby, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Montreal, Canada, on
March 3, 2000.
CANADIAN NATIONAL RAILWAY COMPANY
(Registrant)
By: /s/ Paul M. Tellier
----------------------------------------
Name: Paul M. Tellier
Title: President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul M. Tellier President, Chief Executive Officer and Director March 3, 2000
- --------------------------------- (Principal Executive Officer)
Paul M. Tellier
/s/ Claude Mongeau Senior Vice-President and Chief Financial March 3, 2000
- --------------------------------- Officer (Principal Financial Officer and
Claude Mongeau Principal Accounting Officer)
/s/ David G.A. McLean Chairman of the Board of Directors March 3, 2000
- ---------------------------------
David G.A. McLean
/s/ Jean Pierre Ouellet Senior Vice President, Chief Legal Officer and March 3, 2000
- --------------------------------- Corporate Secretary
Jean Pierre Ouellet
* Director March 3, 2000
- ---------------------------------
Michael R. Armellino
* Director March 3, 2000
- ---------------------------------
Purdy Crawford
* Director March 3, 2000
- ---------------------------------
J.V. Raymond Cyr
* Director March 3, 2000
- ---------------------------------
V. Maureen Kempston Darkes
* Director March 3, 2000
- ---------------------------------
James K. Gray
* Director March 3, 2000
- ---------------------------------
E. Hunter Harrison
5
<PAGE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 3, 2000
- ---------------------------------
Richard H. Kroft
* Director March 3, 2000
- ---------------------------------
Gilbert H. Lamphere
* Director March 3, 2000
- ---------------------------------
Denis Losier
* Director March 3, 2000
- ---------------------------------
Edward C. Lumley
* Director March 3, 2000
- ---------------------------------
Alexander P. Lynch
* Director March 3, 2000
- ---------------------------------
Edward P. Neufeld
* Director March 3, 2000
- ---------------------------------
Robert Pace
* Director March 3, 2000
- ---------------------------------
Cedric E. Ritchie
* Authorized U.S. representative March 3, 2000
- ---------------------------------
John E. Fenton
</TABLE>
* An asterisk denotes execution by Jean Pierre Ouellet, as attorney-in-fact.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Forth Worth, State of
Texas, on March 3, 2000.
NORTH AMERICAN RAILWAYS, INC.
(Registrant)
By: /s/ Jeffrey R. Moreland
----------------------------------
Name: Jeffrey R. Moreland
Title: President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jean Pierre Ouellet Treasurer, Secretary and Director March 3, 2000
- ------------------------------- (Principal Financial Officer and Chief
Jean Pierre Ouellet Accounting Officer)
/s/ Jeffrey R. Moreland President and Director March 3, 2000
- ------------------------------- (Chief Executive Officer)
Jeffrey R. Moreland
</TABLE>
7
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2(a) Combination Agreement, dated as of December 18, 1999, by and
among Canadian National Railway Company, Burlington Northern
Santa Fe Corporation, North American Railways, Inc. and
Western Merger Sub, Inc. (included as Annex A to the Joint
Proxy Statement/Circular/Prospectus contained in this
Registration Statement).
2(b) Form of Plan of Arrangement Under Section 192 of the
Canada Business Corporations Act (included as Annex B to
the Joint Proxy Statement/Circular/Prospectus contained
in this Registration Statement).
2(c) Form of Co-Operation Agreement between Canadian National
Railway and North American Railways, Inc. (included as Annex L
to the Joint Proxy Statement/Circular/Prospectus contained
in this Registration Statement).
3(a) Form of Restated Certificate of Incorporation of North American
Railways, Inc. (included as Annex M to the Joint Proxy Statement/
Circular/Prospectus contained in this Registration Statement).
*3(b) Certificate of Incorporation of North American Railways, Inc.
*3(c) By-laws of North American Railways, Inc.
3(d) Amended and Restated Certificate of Incorporation of Canadian
National Railway Company (Incorporated by reference as
Exhibit 3.3 to the Registration Statement on Form F-1
(No. 33-96250) filed on October 5, 1995).
3(e) Canada Business Corporations Act Form 4 Articles of Amendment
of Canadian National Railway Company (Incorporated as
Exhibit 1.2 to the Registration Statement on Form 8-A
(No. 333-10420) filed on June 14, 1999).
3(f) Amended and Restated By-laws of Canadian National Railway
Company (Incorporated by reference as Exhibit 3.3 to the
Registration Statement on Form F-1 (No. 33-96250) filed on
October 5, 1995).
**5(a) Opinion of Mayer, Brown & Platt, regarding the validity of
the securities being registered.
**5(b) Opinion of Stikeman, Elliott, regarding the validity of the
securities being registered.
**8(a) Opinion of Davis Polk & Wardwell, regarding certain U.S.
federal income tax consequences relating to the combination.
**8(b) Opinion of Mayer, Brown & Platt, regarding certain U.S.
federal income tax consequences relating to the combination.
**8(c) Opinion of Stikeman, Elliott, regarding certain Canadian
federal income tax consequences relating to the combination.
**8(d) Opinion of Torys, regarding certain Canadian federal income
tax consequences relating to the combination.
10(a) Stock Option Agreement, dated as of December 18, 1999,
between Burlington Northern Santa Fe Corporation and
Canadian National Railway Company (included as Annex D
to the Joint Proxy Statement/Circular/Prospectus
contained in this Registration Statement).
8
<PAGE>
Exhibit
Number Description
- ------- -----------
10(b) Stock Option Agreement, dated as of December 18, 1999,
between Canadian National Railway Company and Burlington
Northern Santa Fe Corporation (included as Annex E to the Joint
Proxy Statement/Circular/Prospectus contained in this
Registration Statement).
10(c) Agreement between Burlington Northern Santa Fe and
Robert D. Krebs, dated as of January 30, 1997
(Incorporated by reference to Exhibit 10.16 to
Burlington Northern Santa Fe's Report on Form 10-K for
the fiscal year ended December 31, 1996).
10(d) Form of Burlington Northern Santa Fe Change-in-Control Agreement
(applicable to Charles L. Schultz, Jeffrey R. Moreland and
Thomas N. Hund, among others) (Incorporated by reference to
Exhibit 10.17 to Burlington Northern Santa Fe's Report on
Form 10-K for the fiscal year ended December 31, 1996).
10(e) Burlington Northern Inc. Form of Severance Agreement and
amendments through September 18, 1995 (applicable to
Matthew K. Rose, among others) (Incorporated by
reference to Exhibit 10.21 to Burlington Northern Santa
Fe's Report on Form 10-K for the fiscal year ended
December 31, 1995) and Amendment to Form of Severance
Agreement, dated December 3, 1997 (Incorporated by
reference to Exhibit 10.21 to Burlington Northern Santa
Fe's Report on Form 10-K for the fiscal year ended
December 31, 1997).
23(a) Consent of KPMG Peat Marwick LLP to Canadian National
Railway Company.
23(b) Consent of KPMG Peat Marwick LLP to North American Railways, Inc.
23(c) Consent of PricewaterhouseCoopers LLP.
23(d) Consent of Arthur Andersen LLP.
**23(e) Consent of Mayer, Brown & Platt (included in the
opinions filed as Exhibits 5(a) and 8(b) to this
Registration Statement).
**23(f) Consent of Stikeman, Elliott (included in the opinions
filed as Exhibits 5(b) and 8(b) to this Registration
Statement).
**23(g) Consent of Davis Polk & Wardwell (included in the
opinion filed as Exhibit 8(a) to this Registration
Statement).
**23(h) Consent of Torys (included in the opinion filed as Exhibit 8(d)
to this Registration Statement).
23(i) Consent of Goldman, Sachs & Co.
23(j) Consent of Nesbitt Burns Inc.
23(k) Consent of Salomon Smith Barney Inc.
*24 Canadian National Power of Attorney.
**99(a) Form of Canadian National Railway Company Proxy Card.
**99(b) Form of Burlington Northern Santa Fe Corporation Proxy Card.
**99(c) Form of Instruction Card relating to Canadian National Employee
Share Direction Plan.
*99(d) Consent of Laurent Beaudoin.
*99(e) Consent of Steven A. Burd.
*99(f) Consent of Jean C. Monty.
9
<PAGE>
Exhibit
Number Description
- ------- -----------
*99(g) Consent of John J. Burns, Jr.
*99(h) Consent of Robert D. Krebs.
*99(i) Consent of Roy S. Roberts.
*99(j) Consent of J. Steven Whisler.
*99(k) Consent of Edward E. Whitacre, Jr.
*99(l) Consent of Michael B. Yanney.
- ---------
* Included with the original filing of this Registration Statement on
January 11, 2000.
** To be filed by amendment.
10
EXHIBIT 23(a)
CONSENT OF KPMG LLP
[KPMG Letterhead]
The Board of Directors
Canadian National Railway Company
We consent to the incorporation by reference in the joint proxy
statement/circular/prospectus on Form F-4 and Form S-4 of Canadian National
Railway Company and North American Railways, Inc. of our reports dated January
19, 1999 relating to the financial statements of Canadian National Railway
Company as at December 31, 1998 and 1997 for each of the years in the
three-year period ended December 31, 1998. These reports appear in the 1998
Annual Report to the Shareholders of Canadian National Railway Company included
in the annual report on Form 40-F of Canadian National Railway Company for the
fiscal year ended December 31, 1998.
/s/ KPMG LLP
------------------------
KPMG LLP
Montreal, Canada
March 3, 2000
EXHIBIT 23(b)
CONSENT OF KPMG LLP
[KPMG Letterhead]
The Board of Directors
North American Railways, Inc.
We consent to the incorporation in the joint proxy statement/circular/
prospectus on Form F-4 and Form S-4 of Canadian National Railway Company and
North American Railways, Inc. of our report dated January 5, 2000 relating to
the consolidated balance sheet of North American Railways, Inc. as at December
31, 1999.
/s/ KPMG LLP
--------------------------
KPMG LLP
Montreal, Canada
March 3, 2000
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form F-4 of Canadian National Railway Company and Form S-4 of
North American Railways, Inc. of our report dated February 8, 1999 relating to
the consolidated financial statements of Burlington Northern Santa Fe
Corporation, which appears in Burlington Northern Santa Fe Corporation's 1998
Annual Report to Shareholders, which is incorporated by reference in its Annual
Report on Form10-K, as amended, for the year ended December 31, 1998. We also
consent to the incorporation by reference of our report dated February 8, 1999
relating to the financial statement schedule of Burlington Northern Santa Fe
Corporation, which appears in such Annual Report on Form 10-K, as amended. We
also consent to the use of our report dated January 5, 2000 relating to the
consolidated balance sheet of North American Railways, Inc., which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
Fort Worth, Texas
March 3, 2000
EXHIBIT 23(d)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
ILLINOIS CENTRAL CORPORATION AND SUBSIDIARIES
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated January 12.
1999, covering Illinois Central Corporation's Consolidated Financial Statements
for the year ended December 31, 1998, (included in Amendment No. 2 to Form F-10
Registration Statement of Canadian National Railway Company covering U.S.
$200,000,000 Convertible Preferred Securities) and to all references to our
Firm included in or made a part of this registration statement.
Arthur Andersen LLP
Chicago, Illinois
March 3, 2000 By: /s/ Arthur Anderson LLP
--------------------------
EXHIBIT 23(i)
CONSENT OF GOLDMAN SACHS & CO.
Board of Directors
Burlington Northern Santa Fe Corporation
2650 Lou Menk Drive
Ft. Worth, TX 76131
Re: Form F-4 and S-4 of Canadian National Railway Company and North American
Railways, Inc.
Ladies and Gentlemen:
Attached is our opinion letter dated December 18, 1999 with respect to the
fairness from a financial point of view to the holders of the outstanding
shares of Common Stock, par value $0.01 per share (the "Shares"), of Burlington
Northern Santa Fe Corporation (the "Company") of the Exchange Ratio (as
defined) pursuant to the Combination Agreement, dated as of December 18, 1999
(the "Agreement"), by and among Canadian National Railway Company ("Canadian
National Railway"), the Company, North American Railways, Inc., a corporation
owned 50% by Canadian National Railway and 50% by the Company ("Newco"), and
Western Merger Sub. Inc., a wholly owned subsidiary of Newco.
The foregoing opinion letter is provided for the information and
assistance of the Board of Directors of Burlington Northern Santa Fe
Corporation in connection with its consideration of the transaction
contemplated therein and is not to be used, circulated, quoted or otherwise
referred to for any other purpose, nor is it to be filed with, included in or
referred to in whole or in part in any registration statement, proxy statement
or any other document, except in accordance with our prior written consent. We
understand that the Company has determined to include our opinion in the
above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions "SUMMARY--Opinions of Financial Advisors", "THE
COMBINATION--Our Reasons for the Combination; Other Factors Considered by the
Burlington Northern Santa Fe Board that Favored the Combination", and "THE
COMBINATION--Opinions of Financial Advisors", and to the inclusion of the
foregoing opinion as Annex H to the Joint Proxy Statement/Circular/Prospectus
included in the above-mentioned Registration Statement, as amended. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
EXHIBIT 23(j)
[Nesbitt Burns Letterhead]
CONSENT OF BMO NESBITT BURNS INC.
We hereby consent to the use of our name and to the description of our
opinion letter, dated December 18, 1999, under the caption "THE
COMBINATION--Opinions of Financial Advisors" in, and to the inclusion of such
opinion letter as Annex G to, the Joint Proxy Statement/Prospectus of Canadian
National Railway Company ("Canadian National"), which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 and Form
F-4 of Canadian National. By giving such consent we do not thereby admit that
we are experts with respect to any part of such Registration Statement within
the meaning of the term "expert" as used in, or that we come within the
category of persons whose consent is required under, the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Dated: March 3, 2000
BMO NESBITT BURNS INC.
By: /s/ BMO Nesbitt Burns Inc.
--------------------------
EXHIBIT 23(k)
[Salomon Smith Barney, Inc. Letterhead]
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use of our name and to the description of our
opinion letter, dated December 18, 1999, under the caption "THE
COMBINATION--Opinions of Financial Advisors" in, and to the inclusion of such
opinion letter as Annex F to, the Joint Proxy Statement/Prospectus of Canadian
National Railway Company ("Canadian National"), which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 of
Canadian National. By giving such consent we do not thereby admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in, or that we come within the category of
persons whose consent is required under, the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Dated: March 3, 2000
SALOMON SMITH BARNEY INC.
By: /s/ Salomon Smith Barney Inc.
-----------------------------
