SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
Amendment No. 1
To
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant
to Section 14(d)(4) of the Securities Exchange Act of 1934
----------------
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
(Name of Subject Company)
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
(Names of Person(s) Filing Statement)
Common Stock, Par Value $0.01 Per Share
(Title of Class of Securities)
167155 10 0
(CUSIP Number of Class of Securities)
----------------
ROBERT SCHMIEGE
Chairman of the Board, President and Chief Executive Officer
Chicago and North Western Transportation Company
165 North Canal Street
Chicago, Illinois 60606-1551
(312) 559-7000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of the Person(s) filing Statement)
----------------
With a copy to:
PAUL J. MILLER, ESQ.
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
(312) 876-8074
This Amendment supplements and amends as Amendment No. 1 the
Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), originally filed on March 23, 1995 by Chicago
and North Western Transportation Company, a Delaware corporation
(the "Company"), relating to the tender offer by UP Rail, Inc. (the
"Purchaser"), a Utah corporation and an indirect wholly-owned
subsidiary of Union Pacific Corporation, a Utah corporation ("Union
Pacific"), initially disclosed in a Tender Offer Statement on
Schedule 14D-1, dated March 23, 1995, to purchase all of the
outstanding shares of common stock, par value $.01 per share (the
"Shares"), of the Company at $35 per Share, net to the sellers
thereof in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 23, 1995, and the
related Letter of Transmittal. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the
Schedule 14D-9.
Item 8. Additional Information
Item 8 of the Schedule 14D-9 is hereby supplemented by adding
the following information:
On March 28, 1995, an Amended Class Action Complaint, amending
two previously filed class action complaints entitled Feiwel v.
Martin, et. al. (C.A. No. 14109) and Steiner v. Davidson, et. al.
(C.A. No. 14111), was filed in the Court of Chancery in Delaware.
The Amended Class Action Complaint reiterates the claims made in
the earlier complaints which it amended, and also alleges, among
other things, (i) that, Blackstone, the investment bank retained by
the defendants to render a fairness opinion in connection with the
Offer, is not disinterested or independent and has a conflict of
interest with regard to the Offer, (ii) that the defendants
breached or aided and abetted breaches of their duties of good
faith and loyalty by approving for themselves and members of the
Company's senior management lucrative compensation packages and
other financial benefits, (iii) that the defendants structured the
transaction in such a way as to prevent the Company's public
stockholders from voting on the Merger or exercising dissenter's
rights, and (iv) that the defendants breached their duties of
candor and full disclosure by failing adequately to disclose, among
other things, the information described above, the reasons why the
Company's Board failed to implement a stockholders' rights plan and
the reasons for alleged discrepancies and variations between
valuation ranges for Company shares as prepared by the financial
advisors of Union Pacific and the Company, respectively. A copy of
such Amended Class Action Complaint is attached hereto as Exhibit
34 and incorporated herein by reference.
Item 9. Material to be Filed as Exhibits
Item 9 of the Schedule 14D-9 is hereby supplemented by adding
the following information:
Exhibit 34 - Amended Class Action Complaint in Feiwel v.
Martin, et. al. (Del. Ch., filed on March 9, 1995)(C.A. No. 14109)
and Steiner v. Davidson, et. al. (Del. Ch., filed on March 10,
1995) (C.A. No. 14111).
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement
is true, complete and correct.
CHICAGO AND NORTH WESTERN
TRANSPORTATION COMPANY
By: /s/ RONALD J. CUCHNA
Date: March 30, 1995
EXHIBIT INDEX
Exhibit No. Description
34 Amended Class Action Complaint in Feiwel
v. Martin, et. al. (Del. Ch., filed on
March 9, 1995)(C.A. No. 14109) and
Steiner v. Davidson, et. al. (Del. Ch.,
filed on March 10, 1995)(C.A. No. 14111).
EXHIBIT 34
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
----------------------------------------x
:
HERBERT FEIWEL, IRA ROLLOVER ACCOUNT, :
:
Plaintiff, :
: C.A. No. 14109
-against- :
:
JAMES E. MARTIN, JAMES J. MOSSMAN, :
JAMES R. THOMPSON, ROBERT SCHMIEGE, :
RICHARD K. DAVIDSON, HAROLD A. POLING, :
SAMUEL K. SKINNER, UNION PACIFIC :
COMPANY, CHICAGO AND NORTH WESTERN :
TRANSPORTATION COMPANY :
and UP RAIL INC., :
:
Defendants. :
----------------------------------------x
KENNETH STEINER, :
:
Plaintiff, :
:
-against- : C.A. No. 14111
:
RICHARD K. DAVIDSON, JAMES E. MARTIN, :
JAMES J. MOSSMAN, HAROLD A. POLING, :
ROBERT SCHMIEGE, SAMUEL K. SKINNER, :
JAMES R. THOMPSON, CHICAGO & NORTH :
WESTERN TRANSPORTATION COMPANY, UNION :
PACIFIC COMPANY and UP RAIL, INC., :
:
Defendants. :
----------------------------------------x
NOTICE OF FILING AMENDED
CLASS ACTION COMPLAINT
TO: Thomas J. Allingham, II, Esquire
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, DE 19801
Thomas Reed Hunt, Jr., Esquire
Morris, Nichols, Arsht & Tunnell
1201 N. Market Street
Wilmington, DE 19801
PLEASE TAKE NOTICE that plaintiffs herewith
file the within Amended Class Action Complaint as of course
pursuant to Rule 15(a).
In compliance with Rule 15(aa), plaintiffs
aver that the within Amended Complaint is in full substitu-
tion for the Complaints filed in Civil Action Nos. 14109 and
14111.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By
First Federal Plaza
P.O. Box 1070
Wilmington, DE 19801
Attorneys for Plaintiffs
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
----------------------------------------x
HERBERT FEIWEL, IRA ROLLOVER ACCOUNT, :
:
Plaintiff, : C.A. No. 14109
:
-against- :
:
JAMES E. MARTIN, JAMES J. MOSSMAN, :
JAMES R. THOMPSON, ROBERT SCHMIEGE, :
RICHARD K. DAVIDSON, HAROLD A. POLING, :
SAMUEL K. SKINNER, UNION PACIFIC :
COMPANY, CHICAGO AND NORTH WESTERN :
TRANSPORTATION COMPANY :
and UP RAIL INC., :
:
Defendants. :
----------------------------------------x
KENNETH STEINER, :
:
Plaintiff, :
:
-against- : C.A. No. 14111
:
RICHARD.K. DAVIDSON, JAMES E. MARTIN, :
JAMES J. MOSSMAN, HAROLD A. POLING, :
ROBERT SCHMIEGE, SAMUEL K. SKINNER, :
JAMES R. THOMPSON, CHICAGO & NORTH :
WESTERN TRANSPORTATION COMPANY, UNION :
PACIFIC COMPANY and UP RAIL, INC., :
:
Defendants. :
----------------------------------------x
AMENDED CLASS ACTION COMPLAINT
Plaintiffs, by their attorneys, for their amended
class action complaint against defendants, allege upon
personal knowledge with respect to paragraph 3, and upon
information and belief based, inter alia, upon the investi-
gation of counsel as to all other allegations herein, as
follows:
NATURE OF THE ACTION
1. This is a stockholders' class action on behalf
of the public stockholders of Chicago and North Western
Transportation Company ("CNW" or the "Company") against the
members of the Board of Directors of CNW (the "Individual
Defendants") and Union Pacific Company, which, through
subsidiaries, currently owns an approximate 29% interest in
the Company. As described below, the Individual Defendants
have caused the Company to enter into a merger agreement
with Union Pacific pursuant to which CNW's public sharehold-
ers will be paid $35 cash for their shares of CNW stock in a
two-step transaction, consisting of a tender offer followed
by a merger for untendered shares. In so doing, the Indi-
vidual Defendants have breached their fiduciary duties of
loyalty and due care, failed to make full and adequate
disclosure to the Company's public shareholders, and failed
to assure themselves that the proposed transaction repre-
sents the best value reasonably available to the Company's
public shareholders in connection with the sale of their
shares.
2. In particular, as set forth more fully below,
the Individual Defendants:
o considered, "negotiated," and approved
the proposed transaction at a single meeting of the Board of
Directors when no exigent circumstances existed necessitat-
ing such haste and lack of due deliberation;
o failed to auction CNW, determine whether
third-parties would be interested in purchasing the Company
on superior financial terms, or actively explore other
possibly value-maximizing transactions;
o retained to render a fairness opinion --
purportedly for the benefit of the Company's public share-
holders -- an investment banking firm that: (i) is being
paid $6 million for less than two weeks of work, which
monies are contingent on the transaction being consummated;
(ii) through an affiliated entity, took the Company private
in 1989 and then public several years later, is currently a
party to certain shareholder and rights agreements with the
Company and Union Pacific, and, as recently as 1993, owned
half a million shares of CNW stock, which shares it sold to
Union Pacific; (iii) has a General Partner on the CNW Board
who voted on the merger agreement despite his prospective
receipt of substantial personal compensation in connection
with the transaction; and (iv) for all the foregoing rea-
sons, is not disinterested or independent with regard to the
challenged transaction;
o Arranged for senior management of the
Company to receive millions of dollars in cash compensation
and other financial benefits in connection with the transac-
tion by approving, among other things, lucrative change of
control agreements, options that will immediately be payable
in cash, monies cryptically referred to in the proxy materi-
als as "separate payments," and charitable contributions
said to be "in honor" of CNW's Chairman of the Board;
o failed to constitute a special committee
to evaluate and approve the transaction, despite the fact
that over half of the members of the CNW Board that voted on
the merger agreement were interested in the transaction or
have disabling conflicts; and
o failed to provide CNW's public share-
holders -- who likely will not have the opportunity to vote
or exercise dissenters' rights in connection with the trans-
action -- with material facts necessary to determine whether
to tender their CNW shares.
3. The harm and injury that will be suffered by
plaintiffs and the other members of the Class is immediate
and irreparable. Under the circumstances, preliminary
and/or permanent injunctive relief is necessary and appro-
priate.
PARTIES
4. Plaintiffs are holders of common stock of CNW
and have held their shares at all times material hereto.
5. Defendant CNW is a Delaware corporation that
maintains its principal executive offices in Chicago, Illi-
nois. CNW is the holding company for the nation's eighth
largest railroad based on total operating revenues and miles
of railroad operated. CNW's wholly-owned subsidiary, West-
ern Railroad Properties, Inc. ("WPRI"), is one of only two
carriers in the Wyoming Powder River Basin. WPRI transports
low-sulfur coal principally under long-term contracts, and
is a highly efficient, low-cost operation. CNW also pro-
vides commuter service in the Chicago area under a service
contract with the regional transportation authority. As of
October 15, 1994, the Company had 44,059,760 shares of
common stock outstanding.
6. Defendant Robert Schmiege ("Schmiege") is, and
at all relevant times was, Chairman of the Board of Direc-
tors, President and Chief Executive Officer of the Company.
For the fiscal year ended December 31, 1993, defendant
Schmiege received cash and bonus compensation in excess of
$750,000.
7. Defendant Richard K. Davidson ("Davidson") is,
and at all relevant times was, Chairman and Chief Executive
Officer of defendant Union Pacific Company. Defendant
Davidson is also a director of CNW.
8. Defendants James E. Martin, James J. Mossman,
James R. Thompson, Harold A. Poling, and Samuel K. Skinner
are each, and at all relevant times were, members of the
Company's Board of Directors.
9. As of March 16, 1995, the Individual Defen-
dants, together with the other executive officers of the
Company, owned shares and options representing 2.49% of
CNW's outstanding shares on a fully diluted basis.
10. Because of their directorial and/or executive
positions in the Company, the Individual Defendants owe
fiduciary duties of good faith, fair dealing, due care and
candor to plaintiffs and the other members of the Class.
Each Individual Defendant owed and owes the public stock-
holders of CNW fiduciary obligations and were and are re-
quired to: use their ability to control and manage CNW in a
fair, just and equitable manner; act in furtherance of the
best interests of CNW and its shareholders; act to maximize
shareholder value; govern CNW in such a manner as to heed
the expressed views of its public shareholders; refrain from
abusing their positions of control; and not favor their own
interest at the expense of CNW and its shareholders.
11. (a) Defendant Union Pacific, a Utah corpora-
tion, is the sole shareholder of UP Holdings, Inc., also a
Utah corporation. UP Holdings, Inc. is, in turn, the sole
shareholder of UP Rail, Inc., a Delaware corporation.
(b) As of the close of business on March 6,
1995, UP Rail, Inc. beneficially owned 12,835,304 shares of
Non-Voting Common Stock of CNW. Upon the conversion of
those shares into common stock (as discussed below), those
shares will represent, in the aggregate, 29.13% of the
44,059,760 shares of CNW common stock outstanding as of
October 15, 1994.
(c) Union Pacific is a party to certain
stockholders and rights agreements, described more fully
below, with, inter alia, the Company's executive officers
and CNW, the cumulative effect of which is to enhance Union
Pacific's influence over the Company. Through its represen-
tation on CNW's Board of Directors, stock ownership in the
Company, and collaborative business relationships with CNW,
Union Pacific has access to confidential and proprietary
information concerning CNW, which information has been and
continues to be unavailable to the market or other potential
third party bidders.
(d) Union Pacific recently aborted its
efforts to acquire control of Santa Fe Pacific Corporation
("Santa Fe"), which agreed to be acquired by Burlington
Northern Inc. As described below, having failed in its
efforts to acquire Santa Fe, Union Pacific has now turned to
CNW as a means of expanding its railroad operations and
increasing its presence and influence in the railroad mar-
kets in which it operates.
(e) Unless otherwise indicated, Union Pacif-
ic Company, Union Pacific Holdings, Inc., and UP Rail, Inc.
are collectively referred to herein as "Union Pacific."
12. Each defendant herein is sued individually as
a conspirator and aider and abettor, and the liability of
each arises from the fact that they have engaged in all or
part of the unlawful acts, plans, schemes, or transactions
complained of herein.
CLASS ACTION ALLEGATIONS
13. Plaintiffs bring this action pursuant to Rule
23 of the Rules of Court of Chancery on their own behalf and
as a class action on behalf of all shareholders of the
Company (except the defendants herein and any persons, firm,
trust, corporation, or other entity related to or affiliated
with any of them or their successors in interest), who are
or will be threatened with injury arising from defendants'
actions as more fully described herein.
14. This action is properly maintainable as a
class action for the following reasons:
(a) The Class is so numerous that joinder of
all members is impracticable. As of October 15, 1994, the
Company had 44,059,760 shares of common stock outstanding,
and there are thousands of shareholders of record or benefi-
cial owners.
(b) The members of the Class are scattered
throughout the United States and are so numerous as to make
it impracticable to bring them all before the Court.
(c) There are questions of law and fact
which are common to the Class and which predominate over
questions affecting any individual Class member. The common
questions include, inter alia, the following:
i) whether defendants breached or aided
and abetted the breach of the fiduciary and common law
duties which they owe to plaintiffs and the other members of
the Class;
ii) whether defendants are engaging in
a plan or scheme to unlawfully shift control and ownership
of CNW to Union Pacific;
iii) whether defendants have engaged
and are continuing to engage in a plan and a scheme to
benefit themselves at the expense of CNW's public
shareholders; and
iv) whether plaintiffs and other mem-
bers of the Class will be irreparably damaged if defendants
are not enjoined from the conduct described herein below.
(d) The claims of plaintiffs are typical of
the claims of the Class in that all members of the Class
will be damaged by defendants' actions,
(e) Plaintiffs are committed to vigorously
prosecuting this action and have retained competent legal
counsel experienced in litigation of this nature. Plain-
tiffs are adequate representatives of the Class.
15. The prosecution of separate actions by indi-
vidual members of the Class would create the risk of incon-
sistent or varying adjudications with respect to individual
members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with
respect to individual members of the Class which would as a
practical matter be dispositive of the interests of the
other members not parties to the adjudications or substan-
tially impair or impede their ability to protect their
interests.
16. Defendants have acted, or refused to act, on
grounds generally applicable to, and causing injury to, the
Class, and therefore, preliminary and final injunctive
relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
Background
17. CNW, through its subsidiaries, is the succes-
sor to the business of CNW Corporation, which was acquired
in 1989 in a going-private transaction led by Blackstone
Capital Partners L.P. ("Blackstone Capital"). The Company
thereafter went public in 1992. Blackstone Capital sold
substantially all of its shares in connection with a second-
ary offering of CNW stock in 1993.
18. CNW has enjoyed steadily improving financial
results over the last several years. Operating revenues
have increased every year since 1989. For example, operat-
ing revenues in 1992 were $985 million, rising to $1,034.2
million in 1993, and further rising to $1,129.8 million in
1994. Moreover, CNW's per share earnings jumped to $1.20
per share in fiscal 1993, as compared to a loss of $3.15 per
share in fiscal 1992. Earnings per share continued to
increase in fiscal 1994 to $1.86 per share.
19. By all accounts, these growth trends are
expected to continue over the next four to five years.
Financial projections for CNW contained in the March 23,
1995 Tender Offer Statement on Schedule 14D-1 (the "Tender
Offer Statement"), indicate that from 1995 to 1999, consoli-
dated revenue will increase from $1,269 million to $1,833
million, net income will increase from $115.4 million to
$257.7 million, and earnings per share will increase from
$2.50 per share to $5.60 per share.
20. The investment community also recognizes the
strength of the Company and has forecasted continued robust
growth and improving financial results for CNW. For exam-
ple, a January 3, 1995, report issued by M.H. Lloyd, an
analyst with Natwest Securities Corp., stated: "we are
initiating coverage of [CNW] with a BUY rating. CNW is well
situated to benefit from soaring demand for low sulfur coal
from Wyoming and from the bumper U.S. corn crop recently
harvested. Coal and agricultural commodities account for
32% and 18%, respectively, of the company's revenues. In
addition, CNW's internodal revenues (12% of total) are
growing rapidly, aided by new internodal facilities . . .
CNW's earnings could expand 10-15% annually in the late
1990s."
Union Pacific's Ties to CNW
21. Union Pacific has substantial business,
equity ownership, and financial ties to CNW. For example,
UP Rail, Inc., the Company's executive officers, the Compa-
ny, and Blackstone Capital, among others, are parties to a
Second Amended and Restated Stockholders Agreement (the
"Stockholders Agreement"). Under the Stockholders Agree-
ment, CNW's executive officers must vote their CNW shares
for the election of one UP Rail designee to the Board of
Directors (that person is director Richard K. Davidson).
The Stockholders Agreement also provides for certain rights
of first refusal on behalf of Union Pacific in the event
that, among other things, the Company determines to sell all
or substantially all of its assets to a third party.
22. These same parties entered into a supplemen-
tal agreement in 1993 (the "1993 Agreement"), pursuant to
which the Company agreed to use its best efforts to cause
two additional members of Union Pacific's senior management
(the "Additional Nominees"), to be nominated to the Board of
Directors as members of the class of directors serving for a
term ending on the date of CNW's 1995 annual meeting. In
furtherance of these commitments, the Additional Nominees
were recently elected to the CNW Board, such election to be
effective on April 6, 1995. On that date, Union Pacific
will have three directors on the CNW Board, which will have
nine members.
23. As noted previously, moreover, Union Pacific
beneficially owns 12,835,304 shares of Non-Voting Common
Stock of CNW. Under a Standstill Agreement with CNW, Union
Pacific agreed not to acquire more than 30% of the aggregate
outstanding common stock and non-voting common stock of the
Company prior to April 6, 1994. The Standstill Agreement
terminated in July 1993.
24. Further cementing Union Pacific's close ties
to CNW, director James R. Thompson is the law partner of
Thomas Reynolds, who is a director of Union Pacific.
Union Pacific's Application to the ICC for "Common Control"
25. On January 29, 1993, Union Pacific applied to
the Interstate Commerce Commission (the "ICC") for an order
authorizing "common control" of CNW and UP Rail as well as
conversion of Union Pacific's Non-Voting Preferred Stock
into CNW common stock (the "Control Application"). Union
Pacific also requested from the ICC an order, inter alia,
permitting Union Pacific to acquire additional shares of CNW
common stock and allowing the further coordination of ser-
vices between the companies' respective railroad subsidiar-
ies. On December 13, 1994, the commissioners of the ICC
voted to approve the control Application effective on the
publication by the ICC of a written opinion.
Events Leading to the Merger Transaction
26. On February 28, 1995, the Individual Defen-
dants reviewed with management CNW's Five-Year Business Plan
and gave consideration to the adoption of a stockholder
rights plan. Such a plan would have given CNW's Board of
Directors enhanced leverage in negotiating a transaction
that would provide the best value reasonably available to
the Company's public shareholders. The plan, however, was
never adopted.
27. On March 7, 1995, the ICC issued a written
opinion approving the Control Application -- the approval
will be final and effective on April 6, 1995. Having re-
ceived approval to acquire "common control" of CNW, the
remaining shares of CNW held by the investing public repre-
sent a valuable asset to Union Pacific as to which the
Individual Defendants were and are obligated to obtain the
maximum price in connection with a transfer of control.
28. Immediately upon receiving ICC approval,
Union Pacific publicly disclosed in a Schedule 13-D filing
with the Securities and Exchange Commission that it was
considering acquiring the remaining publicly-held shares of
CNW. As a result of the announcement, Union Pacific effec-
tively "capped" the unaffected market price of CNW shares at
$24.875 per share (the closing price of CNW shares the day
prior to the 13-D filing), for purposes of assessing the
adequacy of the price offered in an acquisition of CNW
common shares.
29. Also on March 7, 1995, Drew Lewis, Chairman
and Chief Executive Officer of Union Pacific, discussed with
defendant Schmiege a possible acquisition of CNW, at a
price, according to the Tender Offer Statement, in the
"lower $30 per share range." A Special Meeting of the CNW
Board of Directors was then called for March 9, 1995, to
consider a possible acquisition of the Company by Union
Pacific.
30. At the March 9, 1995 Special Meeting of the
Board, the Individual Defendants considered, ostensibly
negotiated and ultimately approved the proposed sale of CNW
to Union Pacific for $35 per share. As an initial matter,
the Board "confirmed" that Blackstone Group L.P.
("Blackstone Group") (an affiliate of Blackstone Capital),
had been retained to act as exclusive financial adviser to
CNW and render a fairness opinion with regard to the pro-
posed transaction. For these services -- which consisted of
less than two weeks worth of work in a context where the
firm, was already intimately familiar with CNW's business
and operations -- the Individual Defendants agreed to pay
Blackstone Group $6 million, which sum is contingent on a
transaction being consummated.
31. During a recess in the meeting, Mr. Lewis
proposed to defendant Schmiege that Union Pacific would
acquire CNW for $34 per share. Defendant Schmiege reported
this conversation with Mr. Lewis to the Board, which, ac-
cording to the Tender Offer Statement, told him to "attempt
to increase" the consideration being offered for the Compa-
ny. During another recess, Mr. Lewis agreed to increase the
consideration offered to $35 per share, and the price was
swiftly rubber-stamped by Blackstone Group and agreed to by
the CNW Board.
32. The merger agreement was executed several
days later, on March 16, 1995. The Tender Offer Statement
describing the transaction was disseminated on March 23,
1995.
The Individual Defendants' Breaches of Fiduciary
Duty in Connection With the Proposed Transaction
33. The Individual Defendants fundamentally
breached their fiduciary duties of due care, loyalty and
complete candor in considering, approving and disclosing the
proposed merger transaction between CNW and Union Pacific.
The Company's Financial Advisors
Lack Independence To Render Fair
And Adequate Valuations And Opinion
34. As noted above, the Individual Defendants
retained Blackstone Group to serve as exclusive financial
advisor with respect to the sale of CNW. Blackstone Group,
however, is not independent or disinterested with regard to
the proposed transaction.
35. First, Blackstone Capital is an affiliate of
Blackstone Group, which led the going private transaction of
CNW in 1989 and facilitated the public offerings of CNW in
1992: Union Pacific was actively involved in and a party to
both transactions. Moreover, Blackstone Capital previously
owned thousands of shares of CNW stock, which it sold to
Union Pacific in 1993. In addition, James J. Mossman, a
general partner of Blackstone Group, is a member of the
Board of Directors of the Company and receives cash compen-
sation in connection with his directorship on the CNW Board.
Blackstone Capital is also a party to the Stockholders
Agreement and the 1993 Agreement, which provide for certain
rights and entitlements as between Blackstone Capital, CNW
and Union Pacific. Given these dual loyalties and pre-
existing affiliations with both the buyer and the seller in
the proposed transaction, Blackstone Group was and is in a
conflicted position and is unable to render an objective
opinion with respect to the fairness of any transaction
involving Union Pacific and the Company.
36. Further blurring any independence which
Blackstone purports to possess, Blackstone Group's $6 mil-
lion fee is entirely contingent on the consummation of a
transaction. Rather than being paid to render a purportedly
objective opinion for the benefit of the Company's public
shareholders, Blackstone Group is in reality being paid
merely to facilitate and rubber-stamp the proposed sale of
CNW to Union Pacific. Thus, Blackstone Group had every
incentive to conclude that the proposed transaction is fair
to the Company's public shareholders and a huge disincentive
to any contrary inclination.
37. In rendering its opinion to the CNW Board,
moreover, Blackstone Group vastly understated the value
ranges for CNW's common shares by utilizing financial fore-
casts that did not accurately assess the Company's optimis-
tic future prospects. Indeed, the Tender Offering Statement
indicates that Union Pacific provided to its financial
adviser, CS First Boston, financial forecasts that repre-
sented a more "realistic estimate" of the Company's future
performance then the forecasts used by Blackstone Group. As
a result, CS First Boston derived per share values for CNW
that exceeded -- in some instances by significant amounts --
the per share value ranges for CNW derived by Blackstone
Group upon which the Individual Defendants predicated their
decision to proceed with the Union Pacific transaction.
The Individual Defendants Failed to
Exercise Due Care in Considering
and Approving the Proposed Transaction
38. The Individual Defendants fundamentally
failed to exercise due care in considering and approving the
proposed transaction. First, there were no exigent circum-
stances existing during the discussions with Union Pacific
that required the Individual Defendants to hastily consider
and approve the sale of CNW to Union Pacific at a single
meeting of the Board. Nor did the Board actively attempt to
negotiate a meaningfully higher acquisition price for the
Company's publicly-held shares, instead agreeing to Union
Pacific's first and only offer to increase the purchase
price $1 per share.
39. The Individual Defendants also inexplicably
failed to create a special committee to evaluate the pro-
posed transaction despite disabling conflicts held by a
majority of the CNW Board. Of the six CNW Board members who
voted on the transaction, two are members of CNW management
who will receive substantial financial and other compensa-
tion in connection with the transaction (Schmiege and Mar-
tin); one is a general partner of Blackstone Group, which
will receive $6 million for rendering the fairness opinion
(Mossman); and one is a co-partner in a law firm with a
director on the Board of Directors of Union Pacific (Thomp-
son).
40. The Individual Defendants further failed to
adequately assess whether a price greater than $35 per share
could be obtained for the Company's publicly-held shares.
No auction of CNW was ever conducted, nor was Blackstone
Group instructed to approach third parties to solicit or
explore interest in acquiring the Company. The Individual
Defendants also failed to seriously explore a transaction
other than a sale of the Company, despite the fact that
several model transactions formulated by Blackstone Group
projected per share values substantially higher then the $35
per share being offered to CNW's shareholders in connection
with the transaction agreed to by the CNW Board.
The Individual Defendants Breached
Their Duties of Good Faith and Loyalty
41. The Individual Defendants also fundamentally
breached their fiduciary duties of loyalty and good faith by
approving for themselves and members of CNW management
lucrative compensation packages and other financial bene-
fits. Among other things, the Individual Defendants ap-
proved and adopted extremely lucrative "Change of Control
Employment Agreements" (i.e., Golden Parachutes), which
provide for exorbitant payments to defendant Martin and
other members of senior management upon a change of control
of the Company. The circumstances under which the Change of
Control Employment Agreements were reached are highly suspi-
cious, being entered into, at, or around the time that
preliminary approval was given by the ICC in December 1994
to permit an increase in the ownership interest of CNW held
by Union Pacific.
42. The Merger Agreement also provides for the
receipt by officers with Golden Parachutes of "Separate
Payments" totalling in the aggregate $15 million. All that
CNW's officers are required to do to receive their "Separate
Payments" is relinquish whatever rights they may have under
the Stockholders Agreement and the 1993 Agreement and waive
any claim they may have against the Company.
43. The Merger Agreement also provides for the
cancellation of options held by CNW officers who will re-
ceive cash representing the difference between the $35
purchase price under the Merger Agreement and the exercise
price of the options. Under this arrangement, defendant
Schmiege will receive a cash payment of over $13.5 million,
and all executive officers of CNW as a group in excess of
$26 million.
44. Defendant Schmiege also arranged to have
Union Pacific contribute $1.5 million to charities of his
choice. The donations to Schmiege's charities are payable
over a period of five years.
The Individual Defendants Have Arranged to
Prevent CNW's Public Shareholders From Voting
On The Transaction Or Exercising Dissenter's Rights.
45. Defendants have further endeavored to pre-
clude CNW's public shareholders from voting on the proposed
merger transaction and exercising dissenter's rights.
Specifically, the Merger Agreement provides that should
Union Pacific acquire between 85% and 90% of CNW's common
shares, Union Pacific shall have an option to acquire from
CNW such number of shares as will increase its ownership
interest to 90% or greater. Under Delaware law, Union
Pacific will then be able to approve and adopt the Merger
Agreement without a vote of the Company's shareholders.
46. In approving and adopting this mechanism,
defendants have unilaterally facilitated a lowering of the
threshold for implementing a short-form merger transaction
from 90% to 85%. This was agreed to by the Individual
Defendants without obtaining for the Company or its public
shareholders any separate consideration or financial bene-
fits. In this regard, the structure of the option agreement
between CNW and Union Pacific appears to involve a payment
from Union Pacific to CNW of $35 for each share of CNW stock
to be issued under the option agreement. However, since
Union Pacific expects to control CNW after the transaction
is consummated, Union Pacific will effectively be paying
such monies to itself. Thus, the option agreement, which is
designed to deprive minority shareholders the opportunity to
vote on the proposed transaction, will have been obtained by
Union Pacific without meaningful, if any, consideration.
47. Defendants also intend to preclude the
Company's public shareholders from exercising dissenters'
rights. Stockholders of the Company will not have
dissenters' rights under state law, unless (a) Union Pacific
and the Company elect to seek, and obtain, a declaratory
order that the class exemption for mergers within a corpo-
rate family is available for the Merger, or (b) the ICC (or
any successor agency) or a court of competent jurisdiction
determines that state-law dissenters' rights are available
to holders of Shares. According to the Tender Offer State-
ment, Union Pacific will not seek the declaratory order
described in the preceding sentence. As such, dissenters'
rights will likely not be available to plaintiffs and the
other members of the Class.
Defendants' Materially Misleading And Deficient
Disclosures In The Tender Offer Statement
48. The Individual Defendants -- aided and abet-
ted by Union Pacific -- further breached their fiduciary
duties of candor and full disclosure in connection with the
proposed merger transaction. In particular, the Tender
Offer Statement provides wholly inadequate information
regarding the terms of the Merger Agreement, the retention
of Blackstone Group, the negotiations between Union Pacific
and CNW, and the Board's discussions in considering and
approving the transaction. Specifically, the Tender Offer
Statement does not adequately disclose:
o the proposed purchase prices for CNW
discussed between Messrs. Lewis and Schmiege during the
recesses of the March 9, 1995 special meeting;
o the nature of the discussions concerning
the Board's consent to the option agreement and the putative
benefits to CNW arising from that agreement;
o the fact that Blackstone's fees are
contingent on the outcome of the proposed transaction (in-
deed, a shareholder could only discern this fact by reading
the retainer agreement, which is an exhibit to the Tender
Offer Statement);
o the purpose of the Special Payments to
be received by officers with Golden Parachutes and the
background and genesis of the contributions to be made by
Union Pacific to charities designated by defendant Schmiege;
o why the Individual Defendants failed to
seriously explore and consider alternative transactions to
the sale of CNW to Union Pacific (particularly when the
Blackstone Group had opined that several such transactions
could provide greater values to the $35 per share offered by
Union Pacific), and why the financing of several such alter-
natives was, in Blackstone Group's view, "uncertain";
o why the individual Defendants consid-
ered, negotiated and approved the proposed transaction
during a single Board meeting when the circumstances war-
ranted and allowed for a more deliberate and informed evalu-
ation of the transaction;
o the specific assumptions underlying the
forecasts of CNW's projected financial results;
o the reasons why the Individual Defen-
dants failed to implement a stockholder rights plan, which
would have given CNW substantially greater leverage in
negotiating a more favorable acquisition on behalf of the
Company's public shareholders; and
o the reason or reasons for the substan-
tial discrepancies and variations as between the valuation
ranges for CNW's shares that were prepared by the Blackstone
Group on the one hand and Union Pacific's financial advisor,
CS First Boston -- also based on CNW Management's projec-
tions and yielding far higher values for CNW -- on the other
hand.
49. By reason of its substantial stock ownership
in and significant business relationships with CNW, Union
Pacific is in possession of nonpublic information concerning
CNW, which neither Union Pacific nor the other defendants
have disclosed to CNW's public stockholders. The proposed
Merger Agreement allows defendant Union Pacific to bid for
and purchase the assets of CNW using nonpublic information
and usurping assets for its own gain and to the detriment of
plaintiffs and the other members of the Class. In addition,
by virtue of its due diligence investigation of CNW, Union
Pacific has been privy to material nonpublic information
concerning CNW's business. Union Pacific has positioned
itself to purchase the outstanding shares of CNW at an
unreasonably low and unfair price to the detriment of the
public stockholders of the Company. Such a merger between
Union Pacific and CNW will allow Union Pacific to strengthen
its position in its business without paying adequate consid-
eration for CNW shares. Union Pacific is knowingly and
substantially assisting in, and benefitting from, the Indi-
vidual Defendants' breaches of fiduciary duties, and is
thereby aiding and abetting such breaches.
50. By virtue of its substantial stock ownership
of the Company, coupled with the Individual Defendants'
approval of the proposed transaction, Union Pacific has
effectively precluded any other bidder from offering to
acquire 100% of the Company's common stock or offering any
other strategic alternative to maximize shareholder value.
The minority stockholders will have no effective recourse
other than to surrender their stock to Union Pacific pursu-
ant to the proposed transaction.
51. The proposed purchase price of $35 per share
to be paid to CNW's stockholders does not represent the true
value of the Company and is unfair and grossly inadequate.
The terms of the proposed merger constitute unfair dealing
with respect to the minority shareholders because, among
other things:
(a) The $35 per share price is inadequate
and grossly unfair as it does not reflect the dramatically
improving prospects of the Company and its substantial
improvements in operating performance in recent quarters and
the anticipated continued growth and improvement in operat-
ing performance in the Company's future; and
(b) The $35 per share price is not the
result of arm's length negotiations and was not based upon
any independent evaluation of CNW's securities, assets or
business.
52. The proposed transaction will deny class
members their right to share proportionately in the true
value of CNW's valuable and profitable business, and future
growth in profits and earnings, at a time when the Company
is poised to increase its profitability. Because the defen-
dants are privy to the business and corporate affairs of CNW
and are in possession of material corporate information
concerning CNW's assets, business, and future financial
prospects, a gross disparity of information and economic
power exists between defendants and the minority stockhold-
ers of CNW, making it grossly and inherently unfair for
Union Pacific to seize ownership of CNW's assets for the
unfair and inadequate value which the defendants and those
acting in concert with them have fixed.
53. The Individual Defendants are obligated in
connection with a sale of the Company and/or any contemplat-
ed transfer of control of CNW to seek to maximize sharehold-
er value by such means as an auction, active market check or
other exploration of strategic alternatives under the cir-
cumstances. The individual Defendants have failed to imple-
ment such procedures for the maximization of shareholder
value and are permitting the sale of CNW and its assets at a
value which fails to reflect the enhanced long-term value of
its stock given the positive trends CNW has consistently
shown in revenues and net income. Defendants have not
engaged in any effort to solicit competing bids for the
Company or to explore other strategic alternative involving
other potential parties. Nor have the Individual Defendants
sought to create any "Special Committee" of fully indepen-
dent and disinterested directors who will act objectively
and in the ultimate best interests of all shareholders of
CNW.
54. The defendants, contrary to their fiduciary
duties, have not taken steps to:
(a) adequately ensure that no conflicts of
interest exist or if such conflicts exist to ensure that all
conflicts are resolved in the best interests of CNW's public
stockholders;
(b) enhance CNW's value and attractiveness
as a merger/acquisition candidate;
(c) appropriately evaluate CNW's worth as a
merger/acquisition candidate;
(d) effectively expose CNW to the market-
place in an effort to create an active auction or market
check for CNW;
(e) provide CNW's stockholders with adequate
information to enable them to make an informed decision
regarding their investment in the Company; and
(f) prevent defendant Union Pacific from
obtaining benefits from the proposed merger transaction not
shared by the public shareholders.
55. By reason of the foregoing, the Individual
Defendants have violated their fiduciary duties to CNW and
the public stockholders of CNW in that they have acted
against the best interests of the Class, have failed to
maximize shareholder value (including failing to actively
pursue the acquisition of CNW by other companies or conduct-
ing a fair and open auction or market check), and have
otherwise failed to take other steps to protect the inter-
ests of the class.
56. In addition, the Individual Defendants have
breached their duty of due care by failing to adequately
assess the proposed transaction in a deliberate and careful
manner; but rather they quickly entered into an agreement to
effect a change in control of the Company in a single day's
negotiations, without the benefit of a thoughtful and pru-
dent analysis of the proposed transaction in light of all of
the possible alternatives.
57. Each of the defendants has rendered substan-
tial assistance in the accomplishment of the wrongdoing
complained of herein. In taking the actions, as particular-
ized herein, to aid and abet and substantially assist the
wrongs complained of, all defendants acted with an awareness
of the primary wrongdoing and realized that their conduct
would substantially assist the accomplishment of that wrong-
doing and were aware of their overall contribution to the
conspiracy, common scheme and course of wrongful conduct.
58. By reason of its substantial stock ownership
and several close business relationships with the Company,
Union Pacific owes a fiduciary duty to the minority public
shareholders of CNW, and has violated that duty by the
proposed transaction for inadequate consideration.
59. By reason of the foregoing, plaintiffs and
other members of the Class will be damaged in that they will
not receive their fair proportion of the value of CNW's
assets and business, and will be prevented from obtaining
fair consideration for their shares of CNW's common stock.
60. Plaintiffs and the Class are immediately
threatened by the acts and transactions complained of herein
which have caused and will cause irreparable injury to them.
61. Plaintiffs and the class have no adequate
remedy at law.
REQUEST FOR RELIEF
WHEREFORE, plaintiffs demand judgment as follows:
a) Declaring this to be a proper Class
Action;
b) Declaring that CNW and the Individual
Defendants have breached and are breaching their fiduciary
duties to plaintiffs and the other members of the Class;
c) Preliminarily and permanently enjoining
the defendants and their counsel, agents, employees and all
persons acting under, in concert with or for them, from
proceeding with or consummating the proposed acquisition of
CNW by Union Pacific or, if it is consummated, granting
rescission or rescissory damages to the Class;
d) Awarding compensatory damages against
defendants individually and severally in an amount to be
determined at trial, together with prejudgment interest at
the maximum rate allowable by law, arising from defendants'
wrongful conduct;
e) Awarding plaintiffs their costs and
disbursements and reasonable allowances of fees for plain-
tiffs' counsel and experts and reimbursement of expenses;
and
f) Granting plaintiffs and the Class such
other and further relief as the Court may deem just and
proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By:
First Federal Plaza
Suite 214
Wilmington, DE 19899
(302) 656-4433
Of Counsel:
MILBERG WEISS BERSHAD HYNES & LERACH
One Pennsylvania Plaza
New York, New York 10119
(212) 594-5300
GOODKIND LABATON RUDOFF & SUCHAROW
100 Park Avenue
New York, New York 10017
(212) 907-0700
CERTIFICATE OF SERVICE
I, Joseph A. Rosenthal, do hereby certify that on
March 28, 1995, I caused copies of the foregoing Notice of
Filing Amended Class Action Complaint to be served on
defendants' counsel as follows:
Thomas J. Allingham, II, Esquire
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, DE 19801
Thomas Reed Hunt, Jr., Esquire
Morris, Nichols, Arsht & Tunnel
1201 N. Market Street
Wilmington, DE 19801
Joseph A. Rosenthal
