<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K/A
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended December 31, 1994
Commission file number 33-30874
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-3526817
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
165 North Canal Street 60606
Chicago, Illinois (Zip code)
(Address of principal executive offices)
(312) 559-7000
(Registrant's telephone
number, including area code)
Securities registered pursuant to Section 12(b) or the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
As of March 31, 1995, the aggregate market value of common shares held by
nonaffiliates (based on the closing price as reported on the New York Stock
Exchange composite tape) was approximately $1,089 million.
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
<PAGE>
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the most recent practicable date:
CLASS OUTSTANDING AT MARCH 31, 1995
Common Stock 31,333,031 Shares
Non-Voting Common Stock 12,835,304 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
PART OF FORM 10-K/A INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
Information Statement pursuant to III
Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1
thereunder dated March 23, 1995.
<PAGE>
UP Rail, Inc. (the "Purchaser"), a Utah corporation and an indirect
wholly-owned subsidiary of Union Pacific Corporation, a Utah corporation ("Union
Pacific"), pursuant to a Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1"), dated March 23, 1995, has commenced a tender offer to purchase all of
the outstanding shares of the Common Stock ("Shares") of Chicago and North
Western Transportation Company ("Company") at a price of $35 per Share, net to
the Seller in cash (such price, or such higher amount per Share as may be
payable in the Offer, being referred to herein as the "Offer Price"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 23, 1995 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, as amended from time to time, together constitute the "Offer").
The Offer is being made pursuant to the terms of an Agreement and Plan of
Merger, dated as of March 16, 1995, by and among the Company, Union Pacific and
the Purchaser (the "Merger Agreement"). The Merger Agreement provides, among
other things, for the making of the Offer by the Purchaser and further provides
that, following the completion of the Offer and the satisfaction or the waiver
of certain conditions set forth in the Merger Agreement, the Purchaser will be
merged with and into the Company (the "Merger" and, together with the Offer, the
"Transaction"). Following the consummation of the Merger (the "Effective
Time"), the Company will be the surviving corporation (the "Surviving
Corporation") and an indirect wholly-owned subsidiary of Union Pacific.
Certain information contained in this Form 10-K/A relates to the
Transaction.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under Item 10 of Part III of the Company's Form
10-K for the year ended December 31, 1994 filed with the Securities and Exchange
Commission ("SEC") on March 22, 1995 (the "1994 10-K") is hereby deleted and the
following information is substituted therefor.
The following information is hereby incorporated by reference herein:
(i) the information set forth under the caption "Board of Directors"
(including information set forth under the subcaptions "General,"
"Right to Designate Directors," "The Union Pacific Designees,"
"Board of Directors of the Company, and "Board and Board
Committee meetings, Committee Functions and Composition"); and
(ii) the information set forth under the caption "Executive Officers,"
in each case in the Company's Information Statement pursuant to Section 14(f) of
the Securities Exchange Act of 1934 and Rule 14f-1 thereunder ("Information
Statement"), which Information Statement is included as Annex I to the Company's
Schedule 14D-9 ("Schedule 14D-9) dated March 23, 1995 and originally filed with
the SEC on such date.
-3-
<PAGE>
The Schedule 14D-9, including the Information Statement, is filed with the SEC
as Exhibit 99.2 to this Form 10-K/A.
Item 11. Executive Compensation
The information set forth under Item 11 of Part III of the Company's 1994
10-K is hereby deleted and the following information is substituted therefor.
The information set forth in the Information Statement under the captions
"Executive Compensation," "Summary Compensation Table," "Option Grants In Last
Fiscal Year," "Option Exercises and Year-End Value Table," "Pension Plan,"
"Agreements with Executive Officers," "Compensation of Directors," and "Certain
Relationships and Transactions - Compensation Committee Interlocks and Insider
Participation" and the information set forth under the caption "Merger Agreement
- - Compensation and Benefits" in the Schedule 14D-9 is hereby incorporated by
reference herein. Such information is supplemented by the information contained
in the second paragraph and third paragraphs in Section 2 and the second, third,
fourth, fifth and sixth paragraphs in Section 5 in the Supplement to Offer to
Purchase dated April 14, 1995 ("Supplement"), which was filed on such date with
Amendment No. 5 to the Schedule 14 D-9 as Exhibit 40 to the Schedule 14D-9, and
is filed as Exhibit 99.3 to this Form 10-K/A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under Item 12 of Part III of the Company's 1994
10-K is hereby deleted and the following information is substituted therefor.
The information set forth in the Information Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is hereby
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under Item 13 of Part III of the Company's 1994
10-K is hereby deleted and the following information is substituted therefor.
The following information is hereby incorporated herein by reference:
(i) the information set forth under the caption "Certain
Relationships and Transactions" (including information under all
subcaptions thereunder) in the Information Statement;
(ii) the information set forth in Item 8(b) - "Certain Litigation" in
the Schedule 14D-9 and the information set forth in the second,
third, fourth and fifth paragraphs of Section 6 of the
Supplement;
-4-
<PAGE>
(iii) the information set forth in Item 5 - "Persons Retained, Employed
or to be Compensated" in the Schedule 14D-9 and the information
set forth in the second and third paragraphs in Section 2 of the
Supplement; and
(iv) the information set forth under the caption "Merger Agreement" in
the Schedule 14D-9, the information set forth in the first
thirteen paragraphs, inclusive, under the caption "Special
Factors - Interests of Certain Persons" in the Offer to Purchase,
which excerpt is filed as Exhibit 99.4 to this Form 10-K/A, and
the information set forth in the second, third, fourth, fifth and
sixth paragraphs in Section 5 of the Supplement.
Part IV
Item 14. Exhibits
The information set forth under Item 14 of Part IV of the Company's 1994
10-K is hereby supplemented by adding the following information:
Exhibit 10.70 Amendment to the Company Stock Option Agreement, dated
April 13, 1995, by and between the Purchaser and the
Company (incorporated by reference to Exhibit 41 to
Amendment No. 5 to the Schedule 14D-9 ("Amendment
No. 5")).
# Exhibit 10.71 Clarification Document, dated April 12, 1995, among the
Company, Union Pacific and the Purchaser (incorporated by
reference to Exhibit 42 to Amendment No. 5).
Exhibit 10.72 Memorandum of Understanding, dated April 13, 1995, by and
among counsel for the Company, Union Pacific, and the
plaintiffs in the five purported class action suits
previously filed in the Court of Chancery in Delaware
(incorporated by reference to Exhibit 43 to Amendment
No. 5).
# Exhibit 10.73 Form of Employment Agreement to be entered into by the
Company, Union Pacific Railroad Company ("UPRC") and
certain executives of the Company (incorporated by
reference to Exhibit 36 to Amendment No. 3 to the Schedule
14D-9 ("Amendment No. 3")).
# Exhibit 10.74 Form of Severance Agreement to be entered into by the
Company, UPRC, Chicago and North Western Railway Company
and certain executives of the Company (incorporated by
reference to Exhibit 37 to Amendment No. 3).
-5-
<PAGE>
Exhibit 99.2 Schedule 14D-9, dated March 23, 1995 (including the
Information Statement attached thereto as Annex I, but
excluding the exhibits thereto).
Exhibit 99.3 Supplement to the Offer to Purchase, dated April 14, 1995.*
# Exhibit 99.4 Information set forth in the first thirteen paragraphs,
inclusive, under the caption "Special Factors - Interests
of Certain Persons" in the Offer to Purchase.
_____________________
* Sections 2, 5 and 6 of the Supplement are hereby incorporated by reference
in this Amendment. No other section of the Supplement is incorporated by
reference in this Amendment or shall be deemed filed with the SEC by the
Company for purposes of the Securities Exchange Act of 1934.
# Management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned on its behalf by the undersigned, thereunto duly
authorized.
CHICAGO AND NORTH WESTERN
TRANSPORTATION COMPANY
By /s/ F. Gordon Bitter
---------------------------
F. Gordon Bitter
Senior Vice President and
Chief Financial Officer
Date: April 21, 1995
-6-
<PAGE>
EXHIBIT INDEX
Exhibit 10.70 Amendment to the Company Stock Option Agreement, dated
April 13, 1995, by and between the Purchaser and the
Company (incorporated by reference to Exhibit 41 to
Amendment No. 5 to the Schedule 14D-9 ("Amendment No. 5")).
# Exhibit 10.71 Clarification Document, dated April 12, 1995, among the
Company, Union Pacific and the Purchaser
(incorporated by reference to Exhibit 42 to
Amendment No. 5).
Exhibit 10.72 Memorandum of Understanding, dated April 13, 1995,
by and among counsel for the Company, Union
Pacific, and the plaintiffs in the five purported
class action suits previously filed in the Court of
Chancery in Delaware (incorporated by reference to
Exhibit 43 to Amendment No. 5).
# Exhibit 10.73 Form of Employment Agreement to be entered into by
the Company, Union Pacific Railroad Company
("UPRC") and certain executives of the Company
(incorporated by reference to Exhibit 36 to
Amendment No. 3 to the Schedule 14D-9 ("Amendment
No. 3")).
# Exhibit 10.74 Form of Severance Agreement to be entered into by
the Company, UPRC, Chicago and North Western
Railway Company and certain executives of the
Company (incorporated by reference to Exhibit 37 to
Amendment No. 3).
Exhibit 99.2 Schedule 14D-9, dated March 23, 1995 (including the
Information Statement attached thereto as Annex I,
but excluding the exhibits thereto).
Exhibit 99.3 Supplement to the Offer to Purchase, dated April 14, 1995.*
# Exhibit 99.4 Information set forth in the first thirteen
paragraphs, inclusive, under the caption "Special
Factors - Interests of Certain Persons" in the
Offer to Purchase.
_____________________
* Sections 2, 5 and 6 of the Supplement are hereby incorporated by
reference in this Amendment. No other section of the Supplement is
incorporated by reference in this Amendment or shall be deemed
filed with the SEC by the Company for purposes of the Securities
Exchange Act of 1934.
# Management contract or compensatory plan or arrangement.
-7-
<PAGE>
EXHIBIT 99.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Chicago and North Western Transportation
Company, a Delaware corporation (the 'Company'). The address of the Company's
principal executive offices is 165 North Canal Street, Chicago, Illinois
60606-1551. The title of the class of securities to which this Statement relates
is the common stock, par value $.01 per share (the 'Shares'), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a 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'), disclosed in a
Tender Offer Statement on Schedule 14D-1 (the 'Schedule 14D-1'), dated March 23,
1995, to purchase all of the outstanding Shares at a price of $35 per Share, net
to the seller in cash (such price, or such higher amount per Share as may be
payable in the Offer, being referred to herein as the 'Offer Price'), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 23, 1995 (the 'Offer to Purchase'), and the related Letter of Transmittal
(which, as amended from time to time, together constitute the 'Offer'), which
have been filed with the Securities and Exchange Commission ('SEC') as Exhibits
1 and 2, respectively, to this Schedule 14D-9.
The Offer is conditioned upon, among other things, (i) there having been
validly tendered and not withdrawn prior to the expiration of the Offer, that
number of Shares which, when added to the shares of non-voting common stock,
$.01 par value per share ('Non-Voting Shares'), of the Company beneficially
owned by Union Pacific or the Purchaser (assuming conversion of such Non-Voting
Shares into Shares), constitutes at least a majority of the Shares outstanding
on a fully diluted basis (assuming conversion of the Non-Voting Shares into
Shares) (the 'Minimum Condition') and (ii) the Interstate Commerce Commission's
('ICC') approval of Union Pacific's and the Company's application for an order
authorizing the common control of the rail subsidiaries of Union Pacific and the
Company having become final and effective prior to the expiration of the Offer
(the 'ICC Final Approval Condition'). As of the close of business on March 22,
1995, the Purchaser beneficially owned 12,835,304 Non-Voting Shares representing
approximately 27.48% of the Shares outstanding on a fully diluted basis
(assuming conversion of the Non-Voting Shares into Shares and exercise of
outstanding stock options). See Section 10 of the Offer to Purchase under the
caption 'THE OFFER--Conditions of the Offer.'
The Offer is being made pursuant to the terms of an Agreement and Plan of
Merger, dated as of March 16, 1995, by and among the Company, Union Pacific and
the Purchaser (the 'Merger Agreement'). The Merger Agreement provides, among
other things, for the making of the Offer by the Purchaser and further provides
that, following the completion of the Offer and the satisfaction or the waiver
of certain conditions set forth in the Merger Agreement, the Purchaser will be
merged with and into the Company (the 'Merger' and, together with the Offer, the
'Transaction'). Following the consummation of the Merger (the 'Effective Time'),
the Company will be the surviving corporation (the 'Surviving Corporation') and
an indirect wholly-owned subsidiary of Union Pacific.
The Schedule 14D-1 states that the principal executive offices of Union
Pacific and the Purchaser are located at Martin Tower, Eighth and Eaton Avenues,
Bethlehem, Pennsylvania 18018.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) Except as described below or incorporated by reference herein, to the
knowledge of the Company, as of the date hereof, there exists no material
contract, agreement, arrangement or understanding and no actual or potential
conflict of interest between the Company or its affiliates and (i) the Company,
its executive officers, directors or affiliates or (ii) the Purchaser or its
executive officers, directors or affiliates.
Certain information with respect to certain contracts, agreements,
arrangements or understandings between the Company or its affiliates and (i) the
Company, its executive officers, directors or affiliates or (ii) the Purchaser
or its executive officers, directors or affiliates is set forth in Annex I to
this Schedule 14D-9 and is hereby incorporated herein by reference.
1
<PAGE>
In addition, certain contracts, agreements, arrangements and understandings
and certain actual and potential conflicts of interest between the Company and
certain of its directors, executive officers or affiliates, including
contractual arrangements between the Company and Union Pacific or its affiliates
and certain arrangements made in connection with the Merger Agreement, are
described in the Offer to Purchase under the captions 'SPECIAL
FACTORS--Interests of Certain Persons in the Transaction' and 'THE MERGER
AGREEMENT,' and such portions of the Offer to Purchase are hereby incorporated
herein by reference. Such portions of the Offer to Purchase contain summaries of
certain of these arrangements. Such summaries do not purport to be complete and
are qualified in their entirety by reference to the full text of the appropriate
agreements which have been filed with the SEC as Exhibits to this Schedule
14D-9, each of which is hereby incorporated herein by reference.
The following is a summary of certain provisions of (i) the Merger
Agreement (including the related Company Stock Option Agreement, dated March 16,
1995, by and between the Company and the Purchaser (the 'Option Agreement') and
(ii) the Confidentiality Agreement, dated March 10, 1995, by and among the
Company, Union Pacific, Union Pacific Holdings, Inc. and the Purchaser (the
'Confidentiality Agreement'). Such summary does not purport to be complete and
is qualified in its entirety by reference to the full text of the Merger
Agreement which is attached as Annex I to the Offer to Purchase, and to the full
text of the Option Agreement and the Confidentiality Agreement, which have been
filed with the SEC as Exhibits 3 and 4, respectively, to this Schedule 14D-9,
each of which is hereby incorporated herein by reference.
MERGER AGREEMENT
Capitalized terms not otherwise defined in the following summary shall have
the meanings set forth in the Merger Agreement.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to the prior satisfaction or
waiver (except that the Minimum Condition may not be waived) of the conditions
of the Offer, the Purchaser will purchase all Shares validly tendered pursuant
to the Offer. The Merger Agreement provides that, without the written consent of
the Company (such consent to be authorized by the Board of Directors or a duly
authorized committee thereof), the Purchaser will not decrease the Offer Price,
decrease the number of Shares sought in the Offer, waive the Minimum Condition,
or amend any condition of the Offer in a manner adverse to the holders of Shares
except that if on the initial scheduled expiration date of the Offer (as it may
be extended), all conditions to the Offer shall not have been satisfied or
waived, the Offer may be extended from time to time until June 30, 1995 without
the consent of the Company. In addition, the Merger Agreement provides that,
without the consent of the Company, the Offer Price may be increased and the
Offer may be extended to the extent required by law in connection with such an
increase in the Offer Price.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, at the Effective Time, the Purchaser will be merged with and
into the Company and the Company will become an indirect wholly owned subsidiary
of Union Pacific. As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the Surviving
Corporation and will continue to be governed by Delaware law. The Merger will
have the effects set forth under Delaware Law (as defined below) and the Utah
Business Corporation Act ('Utah Law').
The respective obligations of Union Pacific and the Purchaser, on the one
hand, and the Company, on the other hand, to effect the Merger are subject to
the satisfaction on or prior to the Closing Date of the following conditions:
(i) the Merger Agreement shall have been approved and adopted by the requisite
vote of the holders of Shares, if required by applicable law and the Company's
Restated Certificate of Incorporation, in order to consummate the Merger; (ii)
no statute, rule, order, decree or regulation shall have been enacted or
promulgated by any foreign or domestic government or any governmental agency or
authority of competent jurisdiction which prohibits the consummation of the
Merger and all foreign or domestic governmental consents, orders and approvals
required for the consummation of the Merger and the transactions contemplated by
the Merger Agreement will have been obtained and will be in effect at the
Effective Time; (iii) there will be no order or injunction of a foreign or
United States Federal or state court or other governmental authority of
competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger and there will be no suit, action,
proceeding or investigation by a governmental entity seeking to restrain, enjoin
or prohibit the Merger; and (iv) Union Pacific, the Purchaser or their
affiliates will have purchased the Shares pursuant to the Offer. In addition,
the obligation of Union Pacific to effect the Merger is subject to the ICC
having made a
2
<PAGE>
determination that the terms of the Merger are just and reasonable or having
issued a declaratory order that no such determination is required.
The Merger Agreement provides that as of the Effective Time, each issued
and outstanding share of Common Stock (other than Shares that are owned by the
Company as treasury stock and any Shares owned by Union Pacific, the Purchaser
or any other wholly owned subsidiary of Union Pacific) will be converted into
the right to receive the Offer Price, without interest.
Pursuant to the Merger Agreement, the issued and outstanding shares of
common stock, par value $.01 per share, of the Purchaser will be converted into
and become such number of fully paid and non-assessable shares of common stock
of the Surviving Corporation as the Company had outstanding immediately prior to
the Effective Time.
The Company's Board of Directors. The Merger Agreement provides that,
promptly upon the purchase of and payment for any Shares by the Purchaser or any
other subsidiary of Union Pacific pursuant to the Offer which, together with the
Non-Voting Shares represents at least a majority of the outstanding Shares on a
fully diluted basis (assuming conversion of the Non-Voting Shares into Shares),
Union Pacific will be entitled to designate such number of directors, rounded up
to the next whole number, to the Board of Directors of the Company as is equal
to the product of the total number of directors on such Board (giving effect to
the existing representatives of Union Pacific serving on the Board of Directors,
including representatives which Union Pacific has the right to designate
pursuant to the 1993 Agreement and the directors designated by Union Pacific
pursuant to this sentence) multiplied by the ratio of the aggregate number of
Shares and Non-Voting Shares (if any) beneficially owned by the Purchaser, Union
Pacific and any of their affiliates to the total number of Shares and Non-Voting
Shares (if any) then outstanding. Promptly after consummation of the Offer, the
Company will, upon request of the Purchaser, use its best efforts promptly
either to increase the size of the Board of Directors or, at the Company's
election, secure the resignations of such number of its incumbent directors as
is necessary to enable Union Pacific's designees to be so elected or appointed
to the Company's Board, and will cause Union Pacific's designees to be so
elected or appointed. The Merger Agreement also provides that the Company will
cause persons designated by Union Pacific to constitute the same percentage
(rounded up to the next whole number) as is on the Company's Board of Directors
of (i) each committee of the Company's Board of Directors, (ii) each board of
directors (or similar body) of each subsidiary of the Company and (iii) each
committee (or similar body) of each such board, in each case only to the extent
permitted by applicable law or the rules of any stock exchange on which the
Shares are listed. Notwithstanding the foregoing, until the Effective Time, the
Company and Union Pacific will use all reasonable efforts to retain as members
of the Board of Directors at least three directors who were directors of the
Company on the date of the Merger Agreement and were not representatives of
Union Pacific (or certain replacements) (the 'Company Directors'); provided,
that subsequent to the purchase of and payment for Shares pursuant to the Offer,
Union Pacific will always have its designees represent at least a majority of
the entire Board of Directors. The concurrence of a majority of the Company
Directors will be required for any amendment or termination of the Merger
Agreement by the Company, any waiver of any of the Company's rights thereunder,
any extension of the time for performance of Union Pacific's or the Purchaser's
obligations or other acts thereunder, or any other action taken by the Company's
Board of Directors in connection with the Merger Agreement (including actions to
enforce the Merger Agreement). If there are no such directors notwithstanding
the reasonable best efforts of the other directors to appoint Company Directors,
such actions may be effected by majority vote of the entire Board of Directors
of the Company. The Company's obligation to appoint the Purchaser's designees to
the Board of Directors is subject to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder.
Stockholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold a special meeting of its stockholders (the 'Special
Meeting') as soon as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger Agreement. The Merger Agreement
provides that the Company will, if required by applicable law in order to
consummate the Merger, prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and the Merger Agreement and use
its best efforts (i) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as defined below) and, after
consultation with Union Pacific, to respond promptly to any comments made by the
SEC with respect to the preliminary proxy or information statement and cause a
definitive proxy or information statement (the 'Proxy Statement') to be
3
<PAGE>
mailed to its stockholders and (ii) to obtain the necessary approvals of the
Merger and the Merger Agreement by its stockholders. The Company has agreed,
subject to the fiduciary obligations of the Board under applicable law as
advised by independent counsel, to include in the Proxy Statement the
recommendation of the Board that stockholders of the Company vote in favor of
the approval of the Merger and the adoption of the Merger Agreement. Following
the consummation of the Offer and receipt of the ICC Final Approval, Union
Pacific will convert or cause to be converted all of its Non-Voting Shares into
Shares and will vote, or cause to be voted, all of the Shares then owned by it,
the Purchaser or any of its other subsidiaries and affiliates in favor of the
approval of the Merger and the adoption of the Merger Agreement.
The Merger Agreement provides that in the event that Union Pacific, the
Purchaser or any other permitted assignee of the Purchaser acquires at least 90%
of the outstanding Shares, pursuant to the Offer, the Option Agreement, the
conversion of Non-Voting Shares into Shares or, subsequent to the consummation
of the Offer, by any other means, Union Pacific, the Purchaser and the Company
agree, at the request of Union Pacific and subject to the terms of the Merger
Agreement, to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of stockholders of the Company, in accordance with Utah Law and Delaware
Law. In connection therewith, Union Pacific and the Company entered into the
Option Agreement, pursuant to which, subject to Union Pacific having previously
acquired at least 85% of the outstanding Shares (assuming conversion of the
Non-Voting Shares into Shares) and other conditions set forth therein, the
Purchaser will have the right to purchase from the Company at the per Share
price paid in the Offer a sufficient number of Shares such that such Shares
purchased pursuant to the Option Agreement, together with all Shares owned by
Union Pacific or the Purchaser, would represent at least 90.01% of the
outstanding Shares and permit the Merger to be effected in accordance with Utah
Law and Delaware Law. Union Pacific has agreed to effect the Merger without a
meeting of stockholders of the Company promptly following the exercise of the
option under the Option Agreement.
Interim Operations. In the Merger Agreement, the Company has agreed that,
except as expressly provided in the Merger Agreement or consented to in writing
by Union Pacific, prior to the time the directors of the Purchaser have been
elected to, and shall constitute a majority of, the Board of Directors of the
Company: (i) the business of the Company and its subsidiaries will be conducted
only in the ordinary and usual course consistent with past practice and, to the
extent consistent therewith, each of the Company and its subsidiaries will use
its reasonable best efforts to preserve its business organization intact and
maintain its existing relations with customers, suppliers, employees, creditors
and business partners; (ii) the Company will not, directly or indirectly, split,
combine or reclassify the outstanding Shares, Non-Voting Shares or any
outstanding capital stock of any of the subsidiaries of the Company; (iii)
neither the Company nor any of its subsidiaries will (a) amend its articles of
incorporation or by-laws or similar organizational documents; (b) except as set
forth in the disclosure schedule to the Merger Agreement (the 'Disclosure
Schedule'), declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock (other than
dividends paid by a wholly-owned subsidiary in the ordinary course of business
consistent with past practice); (c) issue, sell, transfer, pledge, dispose of or
encumber any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of the Company or its
subsidiaries, other than issuances pursuant to the exercise of Options
outstanding on the date of the Merger Agreement or pursuant to the conversion of
the Non-Voting Shares into Shares; (d) transfer, lease, license, sell, mortgage,
pledge, dispose of, or encumber any material assets other than in the ordinary
and usual course of business and consistent with past practice, or incur or
modify any material indebtedness; (e) except as set forth in the Disclosure
Schedule, redeem, purchase or otherwise acquire directly or indirectly any of
its capital stock; (f) except as set forth in the Disclosure Schedule, promote
any employee or grant any increase in the compensation payable or to become
payable by the Company or any of its subsidiaries to any employee, except for
certain compensation increases (1) required by collective bargaining agreements
or (2) constituting annual raises for non-executive officers not to exceed 4%,
or adopt any new or amend or otherwise increase or accelerate the payment or
vesting of the amounts payable or to become payable under any existing bonus,
incentive compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee benefit
plan agreement or arrangement; (g) enter into any, or amend any existing,
employment or severance agreement with or, except in accordance with the
existing written policies of the Company, grant any severance or termination pay
to any officer, director or employee of the Company or any of its subsidiaries;
(h) modify, amend or terminate any of its material Company Agreements or waive,
release or
4
<PAGE>
assign any material rights or claims, except in the ordinary course of business
and consistent with past practice; (i) permit any material insurance policy
naming the Company or any of its subsidiaries, as a beneficiary or a loss
payable payee to be cancelled or terminated without notice to Union Pacific,
except in the ordinary course of business and consistent with past practice; (j)
incur or assume any long-term debt in excess of $1,000,000 in the aggregate, or,
except in the ordinary course of business, incur or assume any short-term
indebtedness in amounts not consistent with past practice; (k) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary course of business and consistent with past practice; (l) make any
loans, advances or capital contributions to, or investments in, any other person
(other than to wholly owned subsidiaries of the Company or customary loans or
advances to employees in accordance with past practice); (m) except as disclosed
in the Disclosure Schedule, enter into any material commitment or transaction
(including, but not limited to, any borrowing, capital expenditure or purchase,
sale or lease of assets) other than capital expenditures pursuant to the
Company's capital expenditures budget that aggregate since December 31, 1994 not
more than $75,000,000; (n) change any of the accounting principles used by it
unless required by GAAP; (o) pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any such
claims, liabilities or obligations, (1) in the ordinary course of business and
consistent with past practice, of claims, liabilities or obligations reflected
or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
subsidiaries, (2) incurred in the ordinary course of business and consistent
with past practice, or (3) which are legally required to be paid, discharged or
satisfied (provided that if such claims, liabilities or obligations referred to
in this clause (3) are legally required to be paid and are also not otherwise
payable in accordance with clauses (1) or (2) above, the Company will notify
Union Pacific in writing if such claims, liabilities or obligations exceed,
individually or in the aggregate, $10,000,000 in value, reasonably in advance of
their payment); (p) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries or any agreement
relating to a Takeover Proposal (as defined below) (other than the Merger); or
(q) enter into an agreement, contract, commitment or arrangement to do any of
the foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
No Solicitation. In the Merger Agreement, the Company has agreed that
neither the Company nor any of its subsidiaries or affiliates will, and the
Company (and its subsidiaries and affiliates) will use their best efforts to
ensure that their respective officers, directors, employees, investment bankers,
attorneys, accountants and other agents do not, directly or indirectly,
initiate, solicit, or encourage, or take any action to facilitate the making of,
any offer or proposal which constitutes or is reasonably likely to lead to any
Takeover Proposal of the Company or any subsidiary or affiliate or an inquiry
with respect thereto. The Company also agreed that it will, and will cause its
subsidiaries and affiliates to, immediately cease and cause to be terminated all
existing discussions and negotiations, if any, with any parties conducted prior
to the date of the Merger Agreement with respect to any Takeover Proposal
relating to the Company. The Merger Agreement provides that the Company may
engage in discussions and negotiations with, or provide any information or data
to, a third party concerning an unsolicited Takeover Proposal for the Company or
any subsidiary or affiliate if the Board of Directors of the Company determines,
based on the opinion of outside legal counsel, that the failure to engage in
such negotiations or discussions or provide such information would likely result
in a breach of the fiduciary duties of the Board of Directors under applicable
law. The Company has agreed to notify Union Pacific and the Purchaser of any
such offers or proposals (including Takeover Proposals) within 24 hours of the
receipt thereof, unless the Board determines, based on the opinion of outside
legal counsel to the Company, that giving such notice would result in a breach
of the Board of Directors' fiduciary duties under applicable law. The Merger
Agreement provides that the Company or the Board of Directors may make certain
disclosures and communications that the Company determines, pursuant to an
opinion of legal counsel, the Board of Directors would likely be required by its
fiduciary duties or otherwise to make under applicable law. As used in the
Merger Agreement, 'Takeover Proposal' when used in connection with any person
means any tender or exchange offer involving such person, any proposal for a
merger, consolidation or other business combination involving such person or any
subsidiary of such person, any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the business or
assets of, such person or any subsidiary of such person, any proposal or offer
with respect to any recapitalization or restructuring with respect to such
person or any subsidiary of such person or any
5
<PAGE>
proposal or offer with respect to any other transaction similar to any of the
foregoing with respect to such person or any subsidiary of such person;
provided, however, that, as used in the Merger Agreement, the term 'Takeover
Proposal' shall not apply to any transaction of the type described above
involving Union Pacific, the Purchaser or their affiliates.
Directors' and Officers' Insurance and Indemnification. In the Merger
Agreement, Union Pacific has agreed that at all times after consummation of the
Offer, it will indemnify, or will cause the Company (or the Surviving
Corporation if after the Effective Time) and its subsidiaries to indemnify, each
person who is now, or has been at any time prior to the date of the Merger
Agreement, an employee, agent, director or officer of the Company or of any of
the Company's subsidiaries, successors and assigns (individually an 'Indemnified
Party' and collectively the 'Indemnified Parties'), to the same extent and in
the same manner as is now provided in the respective charters or by- laws of the
Company and such subsidiaries or otherwise in effect on the date of the Merger
Agreement, with respect to any claim, liability, loss, damage, cost or expense
(whenever asserted or claimed) ('Indemnified Liability') based in whole or in
part on, or arising in whole or in part out of, any matter existing or occurring
at or prior to the Effective Time. Union Pacific will, and will cause the
Company (or the Surviving Corporation if after the Effective Time) to, maintain
in effect for not less than six years after consummation of the Offer the
current policies of directors' and officers' liability insurance maintained by
the Company and its subsidiaries on the date of the Merger Agreement (provided
that Union Pacific may substitute therefor policies having at least the same
coverage and containing terms and conditions which are no less advantageous to
the persons currently covered by such policies as insured) with respect to
matters existing or occurring at or prior to the Effective Time; provided,
however, that if the aggregate annual premiums for such insurance at any time
during such period will exceed 300% of the per annum rate of premium currently
paid by the Company and its subsidiaries for such insurance on the date of the
Merger Agreement, then Union Pacific will cause the Company (or the Surviving
Corporation if after the Effective Time) to, and the Company (or the Surviving
Corporation if after the Effective Time) will, provide the maximum coverage that
is then available at an annual premium equal to 300% of such rate, and Union
Pacific, in addition to the indemnification provided above, will indemnify the
Indemnified Parties for the balance of such insurance coverage on the same terms
and conditions as though Union Pacific were the insurer under those policies.
Without limiting the foregoing, in the event any Indemnified Party becomes
involved in any capacity in any action, proceeding or investigation based in
whole or in part on, or arising in whole or in part out of, any matter,
including the transactions contemplated by the Merger Agreement, existing or
occurring at or prior to the Effective Time, then to the extent permitted by law
Union Pacific will, or will cause the Company (or the Surviving Corporation if
after the Effective Time) to, periodically advance to such Indemnified Party its
legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by such
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final determination by a court of competent jurisdiction that such
Indemnified Party is not entitled thereto.
Conversion of Non-Voting Shares. Pursuant to the Merger Agreement, the
Company has agreed to (i) acquiesce in the Labor Condition and the Soo Condition
(as such terms are defined below) contained in the ICC's decision in Finance
Docket No. 32133 served on March 7, 1995, subject to the consummation of the
Offer and (ii) cooperate with Union Pacific, and join in any filings or
submissions to the ICC, in connection with obtaining the ICC Final Approval,
provided that prior to consummation of the Offer, neither the Company nor Union
Pacific waive any rights under the Stockholders Agreement with respect to
conditions contained in the Final ICC Approval. Under the Stockholders
Agreement, the Company is obligated to acquiesce in the Labor Condition and the
Soo Condition on the terms described in clause (y) of the following sentence.
The Merger Agreement also provides that on or after April 6, 1995 (provided no
stays have been entered by any court or by the ICC prior to such time) or on
such later date that the parties receive the ICC Final Approval, and if either
(x) the Offer has been consummated or (y) the cost of compliance with the Soo
Condition contained in the ICC Final Approval can reasonably be determined and
Union Pacific shall have fully and adequately indemnified the Company and its
affiliates with respect to the cost of compliance with the Soo Condition and the
cost of improper assertions of rights to labor protection under the Labor
Condition (and subject to the Company's right to determine with Union Pacific
the allocation between Union Pacific and the Company of costs of compliance with
the Labor Condition), the Company will convert Purchaser's Non-Voting Shares
into Shares and appoint two designees of Union Pacific to the Board of
Directors.
6
<PAGE>
ICC Determination. Pursuant to the Merger Agreement, the Company has
agreed to support, and if requested by Union Pacific, to join in, the
application of Union Pacific to the ICC requesting a determination that the
terms of the Merger are just and reasonable or, alternatively, a declaratory
order of the ICC that no such determination is required, and the Company has
agreed to take such further action as is necessary or desirable to obtain such
determination or order.
Compensation and Benefits. Pursuant to the Merger Agreement, Union Pacific
has agreed to cause the Surviving Corporation and its subsidiaries to honor and
assume the Change of Control Employment Agreements listed in the Disclosure
Schedule (the 'Change of Control Employment Agreements'). If Union Pacific
notifies the Company prior to the Effective Time that Union Pacific wishes to
substitute alternate contractual arrangements (to become effective as of the
Effective Time) with one or more of the employees who currently have Change of
Control Employment Agreements, the Company has agreed to use its best efforts to
facilitate Union Pacific's negotiations with any such employee and to cooperate
in making any such contractual changes which are agreed upon by Union Pacific
and such employee. Each individual employee who (i) receives a lump sum payment
in cash of all benefits under Section 5(a) of a Change of Control Employment
Agreement, (ii) agrees to amend certain agreements with the Company and Union
Pacific to terminate such agreements as of the Effective Time, and to waive all
rights thereunder, and (iii) waives any claims against the Company, except for
certain routine benefit claims and certain indemnification claims under the
Merger Agreement, will also receive a Separate Payment from the Company
representing his or her individual share of $15 million on a pro rata basis in
the proportion that his or her individual 1995 annualized compensation bears to
the total 1995 annualized compensation of all of the 27 executives who have
Change of Control Employment Agreements, subject to certain tax adjustments.
Under the Merger Agreement, no employee of the Company who is not an
executive officer of the Company and whose compensation or benefits are not the
subject of a collective bargaining agreement, and who has not entered into a
Change of Control Employment Agreement with the Company will be terminated
within 18 months of the Effective Date for the sole purpose of a reduction in
the workforce without being permitted to participate in a two-part cash
severance program (voluntary and involuntary) consistent with, and no less
generous than, that offered by Union Pacific to certain of its employees in
December 1994, under the Union Pacific Railroad Company Marketing and Sales
Department 1994 Voluntary Force Reduction Program.
Pursuant to the Merger Agreement, Union Pacific, the Purchaser and the
Company agreed that (i) each employee of the Company who is eligible to
participate in one or more of the Retirement Plans will, until December 31,
1995, continue to be eligible to participate in each Retirement Plan in which he
was eligible to participate as of the date of the Merger Agreement, subject to
the terms and conditions of the applicable Retirement Plan as in effect from
time to time, and under the Savings Program, the 1995 Company contribution will
be based upon the 1995 first quarter contribution base multiplied by four, (ii)
each of the Retirement Plans will be amended to provide that no benefits will
accrue thereunder after December 31, 1995, (iii) effective January 1, 1996, each
employee of the Company who was an active participant in the Company's Pension
Plan as of December 31, 1995 will become a participant in the Pension Plan for
Salaried Employees of Union Pacific Corporation and Affiliates (the 'UPPP') and
will be credited thereunder (A) with compensation paid by the Company before
January 1, 1996, as determined in accordance with the terms of the Pension Plan
as in effect on the date of the Merger Agreement, (B) for eligibility, vesting,
retirement eligibility, and benefit accrual purposes, with the service with
which he was credited for such purposes under the Pension Plan as of December
31, 1995, and (C) with compensation and service from and after January 1, 1996,
in accordance with the applicable provisions of the UPPP; provided that the
benefits to which each such employee shall be entitled under the UPPP shall be
reduced by certain amounts as provided in the Pension Plan and the actuarial
equivalent of certain benefits provided under certain other Retirement Plans,
(iv) effective January 1, 1996, each employee of the Company who was an active
participant in the Savings Program as of December 31, 1995 will be eligible to
participate in the Union Pacific Corporation Thrift Plan (the 'Thrift Plan') and
will receive credit, for eligibility and vesting purposes, with the service he
was credited with under the Savings Program as of December 31, 1995, and for
service from and after January 1, 1996, and (v) from and after January 1, 1996,
each employee of the Company on that date who was an active participant in the
Executive Retirement Plan, the Excess Benefit Plan, or both, as of December 31,
1995 will be entitled to participate in any excess benefit or other unfunded
deferred compensation plan that supplements the UPPP or the Thrift Plan and in
which similarly situated employees of Union Pacific are then entitled to
participate.
7
<PAGE>
Pursuant to the Merger Agreement, each of the Company's employee benefit
plans will be amended to provide that if an employee of the Company as of the
date of the Merger Agreement, whose compensation or benefits at such date are
not the subject of a collective bargaining agreement (a 'Nonagreement
Employee'), is transferred to employment with Union Pacific or the Purchaser
after such date and before January 1, 1996, the Nonagreement Employee will be
permitted to participate in such plan pursuant to the terms of such plan and
will not be prohibited from such participation solely by reason of such
transfer, provided that the Nonagreement Employee is otherwise eligible to
participate in the plan in accordance with the terms and conditions thereof. In
addition, except to the extent otherwise provided in the Merger Agreement, from
and after January 1, 1996, each Nonagreement Employee of the Company at the
Effective Time who is a Nonagreement Employee of Union Pacific, the Purchaser,
or the Company on January 1, 1996 will be entitled to participate in, and to
receive benefits under, the employee benefit plans of the Company, Union
Pacific, and the Purchaser, in accordance with terms and conditions that are
comparable to the terms and conditions that apply to similarly situated
employees of the Purchaser or Union Pacific. Except with respect to the
Retirement Plans, each employee of the Company whose compensation or benefits
are not subject to a collective bargaining agreement will at all times on and
after January 1, 1996 be given full credit for all past service under all
employee benefit plans of Union Pacific, the Purchaser and all affiliates to the
extent to which credit is given for such service under the Company's similar
benefit plans, subject to reduction for any benefits to which such employee is
entitled from the Company under its similar benefit plans.
Pursuant to the Merger Agreement, the Company will, after the Closing, pay
bonuses under its Bonus Plan in an amount determined by projecting to December
31, 1995 the Company's performance through the date of Closing and prorating the
resulting bonus amounts to the date of Closing.
Pursuant to the Merger Agreement, with respect to options granted under its
equity incentive plans (the 'Plans'), its Rollover Option Agreements or
otherwise (collectively the 'Options') the Company has agreed to (i) terminate
the Plans immediately prior to the Effective Time; (ii) grant no additional
Options after the date of the Merger Agreement; (iii) use its best efforts to
obtain the consent of Option holders to cancel the Options (whether or not
exercisable) the Company does not have the right to cancel; and (iv) cancel
those Options (whether or not exercisable) it has the right to cancel. The prior
sentence will not apply to Options (i) with respect to which the holder agrees
to exercise limited stock appreciation rights ('LSARs') prior to the Effective
Time and (ii) Options held by employees of the Company that Union Pacific has
agreed to employ, and who agree that their Options will be exchanged for options
of Union Pacific Common Stock (the 'Union Pacific Options') of similar value.
The Company will pay to each holder of an Option to purchase Shares (other than
those cancelled pursuant to LSAR exercises or in exchange for Union Pacific
Option grants) that is cancelled at the Effective Time (whether or not then
presently exercisable, and whether or not the Company had the right to cancel
the Option, provided that the holder of the Option has consented, if such
consent is required) in consideration of the cancellation thereof, an amount in
cash equal to the product of (i) the excess, if any, of the Offer Price over the
exercise price per Share of each such Option and (ii) the number of Shares
covered by such Option.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Union Pacific and the Purchaser
with respect to, among other things, its organization, authorization,
capitalization, financial statements, public filings, employee benefit plans,
compliance with laws, litigation, tax matters, environmental matters, consents
and approvals, the opinion of the Company's financial advisor, and the absence
of certain events, except as disclosed or provided for in the Disclosure
Schedule, the Company's Form 10-K or its Annual Report to Stockholders for the
fiscal year ended December 31, 1994 (including financial statements, exhibits
and schedules included or expressly incorporated by reference therein on or
prior to the date of the Merger Agreement) as filed with the SEC or delivered to
Union Pacific in draft form prior to the date of the Merger Agreement, in
certain cases having, or which would be reasonably likely to have, individually
or in the aggregate, a material adverse effect on the Company and its
subsidiaries, taken as a whole.
Termination; Fees. The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company, (a) by mutual consent of the Board of Directors of
Union Pacific and the Company, (b) by either the Board of Directors of Union
Pacific or the Board of Directors of the Company (i) if Shares have not been
purchased pursuant to the Offer on or prior to June 30, 1995, provided that such
right to terminate will not be available to any party whose failure to fulfill
any material obligation under the Merger Agreement was the cause of, or resulted
in, the failure of Union Pacific or the
8
<PAGE>
Purchaser, as the case may be, to purchase the Shares pursuant to the Offer on
or before such date; or (ii) if any governmental entity shall have issued an
order, decree or ruling or taken any other action (which order, decree, ruling
or other action the parties will use their reasonable efforts to lift), in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement and such order, decree, ruling
or other action shall have become final and non-appealable, (c) by the Board of
Directors of the Company (i) if, prior to the purchase of Shares pursuant to the
Offer, the Board of Directors of the Company shall have withdrawn (or modified
or changed in a manner adverse to Union Pacific or the Purchaser) its approval
or recommendation of the Offer, the Merger Agreement or the Merger in order to
approve and permit the Company to execute a definitive agreement relating to a
Takeover Proposal, and determined, based on an opinion of outside legal counsel
to the Company, that the failure to take such action would likely result in a
breach of its fiduciary duties under applicable law; or (ii) if, prior to the
purchase of Shares pursuant to the Offer, Union Pacific or the Purchaser
breaches or fails in any material respect to perform or comply with any of its
material covenants and agreements contained in the Merger Agreement or breaches
its representations and warranties in any material respect; (iii) if Union
Pacific or the Purchaser shall have terminated the Offer, or the Offer shall
have expired, without Union Pacific or the Purchaser, as the case may be,
purchasing any Shares pursuant thereto; provided, that the Company may not
terminate the Merger Agreement pursuant to this clause (iii) if the Company is
in material breach of the Merger Agreement; (d) by the Board of Directors of
Union Pacific (i) if (A) prior to the purchase of Shares pursuant to the Offer,
the Board of Directors of the Company shall have withdrawn or modified or
changed (including by amendment of the Schedule 14D-9) in a manner adverse to
Union Pacific or the Purchaser its approval or recommendation of the Offer, the
Merger Agreement or the Merger, or shall have recommended a Takeover Proposal,
or shall have executed an agreement in principle (or similar agreement) or
definitive agreement providing for a Takeover Proposal or other business
combination with a person or entity other than Union Pacific, the Purchaser or
their affiliates (or the Board of Directors of the Company resolves to do any of
the foregoing), or (B) it shall have been publicly disclosed or Union Pacific or
the Purchaser shall have learned that any person, entity or 'group' (as that
term is defined in Section 13(d)(3) of the Exchange Act) (an 'Acquiring
Person'), other than Union Pacific or its affiliates or any group of which any
of them is a member, shall have acquired beneficial ownership (determined
pursuant to Rule 13d-3 promulgated under the Exchange Act), of more than 30% of
any class or series of capital stock of the Company (including the Shares),
through the acquisition of stock, the formation of a group or otherwise, or
shall have been granted an option, right or warrant, conditional or otherwise,
to acquire beneficial ownership of more than 30% of any class or series of
capital stock of the Company (including the Shares), or (ii) if Union Pacific or
the Purchaser, as the case may be, shall have terminated the Offer, or the Offer
shall have expired without Union Pacific or the Purchaser, as the case may be,
purchasing any Shares thereunder, provided that Union Pacific may not terminate
the Merger Agreement pursuant to this clause (ii) if it or the Purchaser has
failed to purchase Shares in the Offer in violation of the material terms
thereof.
In accordance with the Merger Agreement, if (1) the Board of Directors of
the Company terminates the Merger Agreement pursuant to clause (c)(i) of the
immediately preceding paragraph, (2) the Board of Directors of Union Pacific
terminates the Merger Agreement pursuant to clause (d)(i) of the immediately
preceding paragraph, or (3) the Board of Directors of the Company terminates the
Merger Agreement pursuant to clause (c)(iii) or the Board of Directors of Union
Pacific shall terminate the Merger Agreement pursuant to clause (d)(ii) and
within one year of any such termination under this clause (3), a Person acquires
or beneficially owns a majority of the then outstanding Shares or shall have
obtained representation on the Company's Board of Directors or shall enter into
a definitive agreement with the Company with respect to a Takeover Proposal or
similar business combination, then in any such case as described in clause (1),
(2) or (3) (each such case of termination being referred to as a 'Trigger
Event'), the Company will promptly assume and pay, or reimburse Union Pacific
for, all reasonable fees and expenses incurred, or to be incurred, by Union
Pacific, the Purchaser and their affiliates, in connection with the Offer, the
Merger and the consummation of the transactions contemplated by the Merger
Agreement in an amount not to exceed $3 million in the aggregate.
CONFIDENTIALITY AGREEMENT
In connection with the proposed Transaction, the Company, Union Pacific,
Union Pacific Holdings, Inc. and the Purchaser entered into the Confidentiality
Agreement on March 10, 1995. Pursuant to the Confidentiality Agreement, Union
Pacific, Union Pacific Holdings, Inc. and the Purchaser (collectively, 'UP')
agreed, among other things, to keep confidential certain information furnished
to it by the Company and to use such information
9
<PAGE>
solely for the purpose of evaluating a possible transaction with the Company.
(The Merger Agreement modifies this use restriction by allowing Union Pacific to
also use such information for strategic and integration planning purposes.) The
Confidentiality Agreement also provides, among other things, that (i) UP may
disclose such information to those representatives of UP who need to know such
information for purposes of evaluating a possible transaction with the Company
and UP shall be responsible for any unauthorized use or disclosure by any such
representative, (ii) subject to certain requirements (including prior
notification of the Company), UP may disclose such information to the extent
required by law, (iii) upon the Company's request, UP must promptly return all
documents furnished by the Company and destroy all portions of documents,
memoranda, notes and other writings based on the confidential information
furnished by the Company and (iv) until March 1, 1996, UP may not solicit or
employ any current officer or senior employee of the Company so long as they are
employed by the Company without obtaining the prior written consent of the
Company. The Confidentiality Agreement has a term of one year.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation. At a meeting held on March 16, 1995, the Board of
Directors of the Company unanimously (with one director, Richard K. Davidson,
who is the President of Union Pacific, absent and not voting due to such status)
(i) determined that the terms of the Offer and Merger are fair to, and in the
best interests of, the Company and its stockholders (other than Union Pacific
and Purchaser), (ii) approved the terms of the Merger Agreement and authorized
the execution and delivery thereof, (iii) approved, to the extent required, the
transactions contemplated by the Merger Agreement in order to exempt such
transactions from the provisions of Section 203 of the Delaware General
Corporation Law ('Delaware Law') and (iv) recommended that stockholders of the
Company accept the Offer. Accordingly, the Board unanimously (with Mr. Davidson
not participating) recommends that the stockholders of the Company tender their
Shares pursuant to the Offer. The Merger Agreement was executed on March 16,
1995. A press release announcing the Merger Agreement and the transactions
contemplated thereby and a form of letter to stockholders of the Company
communicating the Board's recommendation have been filed with the SEC as
Exhibits 11 and 12, respectively, to this Schedule 14D-9, each of which is
hereby incorporated herein by reference.
(b)(1) Background. A predecessor of the Company was acquired in a
going-private transaction in 1989 involving the issuance and sale of Shares to
various parties, including Blackstone Capital Partners, L.P. ('BCP') (an
affiliate of Blackstone) and certain officers of the Company, and the sale of
convertible preferred stock of the Company to the Purchaser for a purchase price
of $100 million. In April 1992, the Company completed a recapitalization
involving, among other things, the sale of Shares in an initial public offering.
As part of such recapitalization, the Purchaser exchanged its preferred stock of
the Company (and an additional cash investment in the Company of $28 million)
for 10,153,304 Non-Voting Shares. In October 1992, the Purchaser purchased
182,000 Shares in the open market and in December 1992, the Purchaser purchased
2,000,000 Shares from BCP, all of such Shares having been exchanged by the
Company for the same number of Non-Voting Shares. Two parties to the 1989
going-private transaction (including BCP) sold substantially all of their Shares
in July 1993, 500,000 of such Shares to the Purchaser (which converted the
shares into Non-Voting Shares) and the balance in a secondary public offering.
On January 29, 1993, Union Pacific, Union Pacific Railroad Company, a
wholly owned subsidiary of Parent ('UPRC'), Missouri Pacific Railroad Company, a
wholly owned subsidiary of Union Pacific ('MPRR' and together with UPRC,
'UPRR'), the Company and Chicago and North Western Railway Company, a wholly
owned subsidiary of the Company ('CNW Railway') filed a joint application with
the ICC for an order authorizing the common control, within the meaning of the
Interstate Commerce Act (the 'IC Act'), of the rail subsidiaries of the Company
and Union Pacific. Union Pacific and the Company requested that the ICC issue an
order that would permit Union Pacific to, among other things, convert its
Non-Voting Shares into Shares, vote such Shares, acquire additional Shares if it
elects to do so and (subject to the approval of the Company) coordinate further
the railroad subsidiaries of Union Pacific and the Company, in each case without
the need to obtain any further control authorization from the ICC (the 'Control
Application').
On December 13, 1994, the commissioners of the ICC voted to approve the
Control Application, subject to a standard labor protection condition (the
'Labor Condition') and a requirement that the Soo Line Railroad Company ('Soo')
be permitted to admit third parties to certain joint facilities operated by Soo
and CNW
10
<PAGE>
Railway (the 'Soo Condition'), and effective upon publication by the ICC of a
written opinion (and the expiration of the applicable waiting period).
On February 9, 1995, at a committee meeting of the Association of American
Railroads, Robert Schmiege, Chairman, President and Chief Executive Officer of
the Company, inquired of Richard K. Davidson, President of Union Pacific and
Chairman and Chief Executive Officer of UPRR (and Union Pacific's designee on
the Company's Board of Directors), whether Union Pacific had made any
determination concerning the future of its investment in the Company. Mr.
Davidson advised that, although it was his personal view that a combination of
Union Pacific and the Company would be in the long-term best interests of both
companies, Union Pacific had made no determination concerning its investment in
the Company.
In conversations between Carl W. von Bernuth, Senior Vice President and
General Counsel of Union Pacific, and the Company's outside counsel, and between
Drew Lewis, Chairman and Chief Executive Officer of Union Pacific, and Mr.
Schmiege, on February 10, 1995 and February 14, 1995, respectively, Messrs. von
Bernuth and Lewis confirmed that neither management nor the Board of Directors
of Union Pacific had made any determination with respect to Union Pacific's
investment in the Company, other than to continue to hold such position as an
investment.
On February 28, 1995, at a regularly scheduled meeting of the Board of
Directors of the Company, the Board (with Mr. Davidson absent due to his status
as President of Union Pacific) reviewed with management the Company's Five-Year
Business Plan (the 'Business Plan') and gave preliminary consideration to the
adoption of a possible stockholder rights plan. At the meeting, Mr. Schmiege
discussed with the directors his conversations with Messrs. Lewis and Davidson
and the status of the Control Application. Counsel to the Company reviewed with
the directors the legal standards under Delaware Law applicable to board
decisions in business combination transactions and reviewed the terms of a
possible stockholder rights plan.
On March 7, 1995, the ICC issued a written opinion approving the Control
Application, subject to the Labor Condition and the Soo Condition. See 'THE
OFFER--Certain Legal Matters; Regulatory Approvals' in the Offer to Purchase. On
April 6, 1995, the ICC approval is expected to become final and effective
(provided that no stays have been entered by any court or the ICC prior to such
time). Also on March 7, 1995, Union Pacific and the Purchaser filed an amendment
to their Schedule 13D with the SEC disclosing, among other things, (i) receipt
of the ICC written opinion, (ii) Union Pacific's intention, upon the
effectiveness of ICC approval and upon making provision for the conditions
thereto, to designate two additional directors on an expanded nine-member Board
of the Company (as provided in the 1993 Agreement described below), and to
convert its Non-Voting Shares into Shares and (iii) Union Pacific's plan to seek
to explore with the Company from time to time the possibility of entering into
various operational arrangements and ways to enhance shareholder value,
including the acquisition of all or a part of the Company.
Later on March 7, 1995, Mr. Lewis and Mr. Davidson met with Mr. Schmiege to
discuss, among other things, the possibility of exploring the acquisition by
Union Pacific of the Company. Mr. Lewis indicated that he was prepared to
explore a possible acquisition at a price in the lower $30 per Share range. Mr.
Schmiege indicated that although the Board of Directors of the Company had not
made any decision to sell the Company, he would report their conversation to the
Board. On March 8, 1995, in conversations between Mr. Schmiege and Mr. Lewis,
Mr. Schmiege advised that the Company's Board of Directors would meet on March
9, 1995, and Mr. Lewis arranged to call Mr. Schmiege during or after such
meeting. On March 8 and 9, 1995, Messrs. Lewis and Davidson, in conversations
with Mr. Schmiege, continued to express interest in a possible transaction, and
outside counsel to Union Pacific and the Company had conversations regarding
process.
On March 9, 1995, the Board of Directors of the Company held a special
meeting (with Mr. Davidson absent due to his status as President of Union
Pacific) to consider the possibility of a transaction whereby the Company would
be acquired by Union Pacific. The Board first confirmed that Blackstone had been
retained to act as its exclusive financial advisor with respect to, among other
things, a potential sale of the Company. The Board then reviewed the status of
discussions with Union Pacific and received reports from management and
Blackstone and a further review by legal counsel of the legal standards
applicable to business combination transactions. Among the items discussed were
(i) Blackstone's preliminary discussion materials (the 'Blackstone Materials')
presenting a range of values of the Shares based on several different analyses
and methodologies (see 'SPECIAL FACTORS--Opinion of The Blackstone Group L.P.'
and '--Summary of Presentation Materials to the Board' in the Offer to Purchase)
and (ii) whether any sale at that time was desirable and in the best interests
11
<PAGE>
of the Company and the holders of its Shares. Blackstone also noted that based
on a preliminary review with the Company's management of other potential
strategic buyers, and given Union Pacific's existing ownership stake in the
Company, the significant business relationships between Union Pacific and the
Company, and the ICC's March 7, 1995 approval of the Control Application, which
would likely strengthen Union Pacific's position relative to other potential
railroad industry bidders since the acquisition of the Company by any other
railroad would be subject to future ICC approval, viable competition to acquire
the Company was unlikely to emerge. Blackstone also discussed with the Board a
possible leveraged buyout or leveraged recapitalization of the Company as set
forth in the Blackstone Materials, and the difficulties of financing such a
transaction. After considering various factors, including the advice of
Blackstone and legal counsel, it was the consensus of the Board of Directors
that management of the Company enter into negotiations with Union Pacific only
if Union Pacific were to make an offer which exceeded the lower $30 per Share
range.
During a recess in the meeting of the Board, Mr. Lewis contacted Mr.
Schmiege and indicated that Union Pacific was prepared to pursue discussions
with the Company concerning a possible transaction at a price of $34 per Share.
Mr. Schmiege replied that no decision had been made to sell the Company but that
he would report back to the Board of Directors of the Company and would call Mr.
Lewis back later in the evening.
The Board reconvened to consider the interest expressed by Union Pacific to
acquire the Company. Counsel to the Company again advised the Board as to their
fiduciary duties with respect to a possible sale of the Company to Union
Pacific. The Board, with the advice of Blackstone and legal counsel, determined
that although the Board might be willing to pursue discussions with Union
Pacific concerning a transaction at a price of $34 per Share, Mr. Schmiege
should attempt to increase the per Share consideration.
During another recess in the meeting, Mr. Schmiege advised Mr. Lewis that
the Board was prepared to negotiate a transaction for the sale of the Company
and, after further discussion, the two men reached an understanding for a
transaction in which Union Pacific would acquire 100% of the Shares at a price
of $35 per Share, subject to, among other things, negotiation and execution of a
mutually satisfactory merger agreement and approvals by Union Pacific's and the
Company's respective boards of directors.
The Board reconvened and Blackstone rendered its oral opinion that the cash
consideration of $35 per Share was fair to the holders of Shares from a
financial point of view. (See 'SPECIAL FACTORS--Opinion of The Blackstone Group
L.P.' in the Offer to Purchase). The Board of Directors, after considering
various factors, including the fairness opinion of Blackstone and legal advice
of the Company's counsel, approved (with Mr. Davidson absent and not voting) a
transaction in which Union Pacific would acquire 100% of the Shares at $35 per
Share in cash, subject to negotiation and execution of a mutually satisfactory
definitive merger agreement and approvals by Union Pacific's and the Company's
respective boards of directors. The Board also authorized management to
negotiate definitive terms and present a definitive merger agreement to the
Board.
Prior to the commencement of trading on March 10, 1995, the Company and
Union Pacific issued a joint press release regarding their discussions. The full
text of the joint press release of March 10 follows:
CHICAGO, ILLINOIS, MARCH 10, 1995--Union Pacific Corporation (NYSE:
UNP) and Chicago and North Western Transportation Company (NYSE: CNW)
announced today that they have agreed that Union Pacific will acquire 100%
of CNW's common stock at a price of $35 per share in cash. The transaction
is subject, among other things, to negotiation and execution of a mutually
satisfactory definitive purchase agreement and approvals by the companies'
respective boards of directors.
'I am very excited about this transaction. The Chicago and North
Western is an excellent managed and maintained railroad with a great route
to Chicago,' said Union Pacific Corporation Chairman and CEO Drew Lewis.
'This is a strategic move that will make Union Pacific an even greater
mover of southern Powder River Basin coal, grain, intermodal and other
products.'
Union Pacific is a transportation and natural resource company based
in Bethlehem, Pennsylvania, with sales of approximately $8 billion.
The Chicago and North Western Transportation Company is the holding
company for the Chicago and North Western Railway Company, a leading
railroad freight hauler in the central transcontinental corridor and major
transporter of coal, grain and double-stack containers.
On March 10, 1995, the Company, Union Pacific, the Purchaser and Union
Pacific Holdings, Inc., a wholly owned subsidiary of Union Pacific, entered into
a confidentiality agreement pursuant to which, among other
12
<PAGE>
things, the Company agreed to provide to Union Pacific certain information
concerning the Company and its operations for use in evaluating the Transaction
and the recipients agreed to keep such information confidential.
Commencing on March 11, 1995, representatives of Union Pacific and the
Company and their respective legal advisors began negotiating definitive terms
of a merger agreement and continued such negotiations through March 16, 1995.
Among other things, during the course of such negotiations: (i) the conditions
to Union Pacific's and the Purchaser's obligation to consummate the Offer were
narrowed; (ii) the scope of the representations and warranties made by the
Company was narrowed; (iii) provision was made for at least three current
directors of the Company to remain on the Board after consummation of the Offer,
and it was provided that the concurrence of a majority of such directors would
be required for any amendment or termination of the Merger Agreement; (iv) the
fiduciary duty exception to the provision in the Merger Agreement which
prohibits the Board from engaging in negotiations or discussions with, or
providing information to, any person (other than Union Pacific or its
affiliates) relating to any Takeover Proposal (as defined in the Merger
Agreement) was expanded and a proposed breakup fee in the event that the Board
accepts a Takeover Proposal with any such person was eliminated; and (v) the
expenses of Union Pacific, the Purchaser and their affiliates reimbursable by
the Company under certain circumstances (including the Company's acceptance of a
Takeover Proposal from a third party other than Union Pacific) were limited to
$3 million. On March 11, 1995, representatives and advisors of Union Pacific met
with representatives and advisors of the Company at the Company's offices in
Chicago, Illinois to discuss certain financial and other information regarding
the Company.
On March 16, 1995, the Board of Directors of the Company held a special
meeting (with Mr. Davidson absent due to his status as President of Union
Pacific) to consider the Merger Agreement, the Offer and the Merger. Blackstone
reviewed the Blackstone Materials in final form and indicated that during the
period since the public announcement on March 10, 1995, there had been no
inquiries, requests for information or offers from any other parties relating to
a proposed acquisition of the Company. Blackstone then presented its formal
written opinion that as of March 16, 1995, the cash consideration to be received
by the holders of Shares pursuant to the Offer and the Merger is fair to such
holders of Shares from a financial point of view. Counsel to the Company again
reviewed the fiduciary duties of directors and then reviewed in detail the terms
and conditions of the Merger Agreement and the Option Agreement. The Board of
Directors of the Company (with Mr. Davidson absent and not voting) unanimously
approved the Merger Agreement, authorized execution and delivery thereof,
determined that the Offer and the Merger are fair to and in the best interests
of the holders of Shares (other than Union Pacific and the Purchaser) and
recommended that stockholders of the Company accept the Offer and tender their
Shares pursuant to the Offer.
The Merger Agreement and the Option Agreement were executed in the evening
of March 16, 1995.
Prior to the commencement of trading on March 17, 1995, the Company and
Union Pacific issued a joint press release regarding the execution of the Merger
Agreement and the commencement of the Offer. The full text of the joint press
release of March 17 follows:
BETHLEHEM, MARCH 17, 1995--Union Pacific Corporation (UNP) and Chicago
and North Western Transportation Company (CNW) announced today that they
have executed a definitive agreement reflecting the previously announced
transaction in which Union Pacific will acquire 100 percent of CNW's common
stock at a price of $35 per share in cash. Union Pacific will shortly
commence a tender offer for all CNW shares. Following the consummation of
the tender offer, Union Pacific will acquire the remaining outstanding CNW
shares in a merger for $35 per share in cash.
'This acquisition will strengthen our capacity to compete in the key
western freight corridors,' said Drew Lewis, Union Pacific chairman and
CEO. 'It will increase Union Pacific's growing intermodal traffic from the
major West Coast ports to the Midwest and enhance our low-sulfur coal
shipments out of the Powder River Basin in Wyoming to the Mississippi
Valley and the East. We are delighted to have this fine railroad joining
the Union Pacific family.'
'In addition to providing a substantial premium for our shareholders,'
said Robert Schmiege, chairman, president and CEO of the CNW, 'this merger
offers an opportunity for our customers and virtually all of our employees
to participate in a larger railroad with broader horizons, greater
resources and enhanced opportunities for the marketing of our customers'
products and our employees' professional growth.'
13
<PAGE>
Union Pacific Corporation is a transportation and natural resource
company based in Bethlehem, Pennsylvania, with sales of approximately $8
billion.
The Chicago and North Western Transportation Company is the holding
company for the Chicago and North Western Railway Company, a leading
railroad freight hauler in the central transcontinental corridor and major
transporter of coal, grain and double-stack containers.
On March 23, 1995, Union Pacific and the Purchaser commenced the Offer.
(b)(2) Reasons for the Recommendation. In making the determination and
recommendation set forth in paragraph (a) above, the Board of Directors of the
Company considered many factors including, but not limited to, the following:
(i) the oral and written presentations of Blackstone (see 'SPECIAL
FACTORS--Opinion of The Blackstone Group L.P.' in the Offer to Purchase),
and the written opinion of Blackstone to the effect that the cash
consideration to be received by the holders of Shares in the Offer and the
Merger is fair to such holders from a financial point of view (a copy of
such opinion, setting forth assumptions made and matters considered and
limitations set forth by Blackstone, is attached as Exhibit 13 to this
Schedule 14D-9 and should be read in its entirety);
(ii) the historical market prices of and recent trading activity in
the Shares, particularly the fact that the Offer and the Merger will enable
the stockholders of the Company to realize a significant premium over the
prices at which the Shares traded prior to the public announcement of the
proposed Transaction; the Offer Price in the Transaction is significantly
higher than the highest price ($28.00 per Share on February 10, 1995) at
which the Shares had ever traded prior to the public announcement of the
Transaction;
(iii) the view that competing offers were unlikely to occur; the Board
considered the view of Blackstone that based on a preliminary review with
the Company's management of other potential strategic buyers, and given
Union Pacific's existing ownership stake in the Company, the significant
business relationships between Union Pacific and the Company and the ICC's
March 7, 1995 approval of the Control Application (currently scheduled to
become final and effective on April 6, 1995), which would be likely to
strengthen Union Pacific's position relative to other potential railroad
industry bidders since the acquisition of the Company by any other railroad
would be subject to future ICC approval, viable competition to acquire the
Company was unlikely to emerge; the Board further considered the fact that
since the public announcement on March 10, 1995 (which public announcement
occurred six days prior to the execution of the Merger Agreement) the
Company has not received any inquiries, requests for information or offers
from any other parties relating to a proposed acquisition of the Company;
(iv) the fact that although the Merger Agreement does not permit the
Company, its subsidiaries and its affiliates to initiate, solicit or
encourage any potential Takeover Proposal, in the event of an unsolicited
Takeover Proposal the Company may engage in negotiations or discussions
with, or provide information to, a third party to the extent the failure to
do so would likely result in a breach of the fiduciary obligations of the
Board; and the fact that in the event that the Board decided to accept a
takeover bid by a third party, the Board may terminate the Merger Agreement
without the payment of a break-up fee, subject only to the payment of the
expenses of Union Pacific, the Purchaser and their affiliates in an amount
not to exceed $3 million in the aggregate;
(v) the possible alternatives to the Offer and the Merger, including,
without limitation, continuing to operate the Company as a separate entity;
(vi) information with regard to the financial condition, results of
operations, business and prospects of the Company, as reflected in the
projections in the Company's Business Plan, as well as the risks involved
in achieving those prospects, current economic and market conditions
(including current conditions in the industry in which the Company is
engaged) and the going concern value of the Company (as reflected in part
in its historical and projected operating results and in the Blackstone
Materials); the Board did not consider the liquidation of the Company as a
viable course of action, and, therefore, no appraisal or liquidation values
were sought for purposes of evaluating the Offer and the Merger;
(vii) the expected timing of the Offer and the Merger, including the
fact that the ICC final approval of Union Pacific's control of the Company
is scheduled to become final and effective on April 6, 1995, prior to the
scheduled expiration of the Offer;
14
<PAGE>
(viii) the terms and conditions of the Merger Agreement, including the
fact that Union Pacific's obligation to consummate the Offer and the Merger
is subject only to a limited number of conditions and the fact that the
Offer is not conditioned upon financing; and
(ix) the terms of certain other recently consummated acquisitions of
companies in comparable lines of business as the Company.
The members of the Board of Directors of the Company (with Mr. Davidson,
President of Union Pacific, absent and not voting due to such status) considered
each of the factors listed above during the course of their deliberations and
negotiations prior to entering into the Merger Agreement. The Board evaluated
the factors listed above in light of their knowledge of the business and
operations of the Company and their business judgment. The Board based its
determination that the terms of the Offer and the Merger are fair to the
stockholders (other than Union Pacific and the Purchaser) of the Company
primarily on the opinion of Blackstone and the other factors set forth above.
The Board stated that it regarded all of such factors as important, and did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its decision.
The Board of Directors recognized that the Offer and the Merger are not
structured to require the approval of the majority of the unaffiliated
stockholders of the Company, and that Union Pacific and the Purchaser would be
able to close the Offer and effect the Merger without the vote of any other
stockholder of the Company if they acquire 10,522,798 or more of the outstanding
Shares pursuant to the Offer. In addition, the Board recognized that certain
officers and directors of the Company have certain interests in the Transaction
that present actual or potential conflicts of interest. See 'SPECIAL
FACTORS--Interest of Certain Persons in the Transaction' in the Offer to
Purchase. The Board also recognized that, while the consummation of the
Transaction offers stockholders the opportunity to realize a significant premium
over the price at which Shares were traded prior to the public announcement of
the proposed Transaction, the Transaction would eliminate the opportunity of all
stockholders other than Union Pacific to participate in the future growth and
profits of the Company. The Board believes, however, that this loss of
opportunity was reflected in the Offer Price of $35 per Share, and also
recognized that there can be no assurance as to the level of growth or profits
to be attained by the Company in the future.
If the Offer and the Merger are not consummated, the Board of Directors
expects to continue to operate the Company as an ongoing business.
Because of the appointment of Blackstone as the financial advisor to the
Company and the fact that Mr. Davidson did not participate in the deliberations
relating to, or vote on, the Transaction, the Board of Directors did not
consider it necessary to retain unaffiliated representatives to act solely on
behalf of the public stockholders of the Company for purposes of negotiating the
terms of the Merger Agreement.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Except as described below, neither the Company nor any person acting on its
behalf has employed, retained or agreed to compensate any other person to make
solicitations or recommendations to stockholders of the Company concerning the
Offer.
Blackstone is acting as financial advisor to the Company in connection with
the Offer and other matters arising in connection therewith pursuant to a letter
agreement, dated as of March 3, 1995, between Blackstone and the Company (the
'Engagement Letter'). The Engagement Letter was entered into in addition to a
prior letter agreement, dated as of December 14, 1994 (the 'December Engagement
Letter') pursuant to which Blackstone had been retained by the Company,
effective November 29, 1994, to act as the Company's exclusive financial advisor
with respect to various matters, including the Company's discussions and
proposed agreement with Union Pacific relating to Union Pacific's then proposed
acquisition of Santa Fe Pacific Corporation. Under the terms of the Engagement
Letter, Blackstone has agreed to advise and assist the Company in its evaluation
of a potential sale of, investment in, recapitalization by, strategic alliances
with or joint ventures involving, the Company ('Possible Transactions'). The
Engagement Letter also provides, among other things, that Blackstone will render
an opinion as to the fairness, from a financial point of view, to the Company's
common stockholders of the consideration to be received by such stockholders in
any Possible Transaction.
Pursuant to the terms of the Engagement Letter, the Company agreed to pay
Blackstone a fee of $6,000,000, less one-half of any retainer fees paid to
Blackstone pursuant to the December Engagement Letter. Pursuant to
15
<PAGE>
the December Engagement Letter, the Company paid Blackstone retainer fees
totaling $500,000. The Company has also agreed in the Engagement Letter to
reimburse Blackstone and its affiliates for its reasonable out-of-pocket
expenses and to indemnify Blackstone and its affiliates against certain
liabilities, including those relating to or in connection with the Offer.
The Company selected Blackstone primarily due to Blackstone's reputation
and experience in investment banking and mergers and acquisitions in general, as
well as Blackstone's knowledge and familiarity with the Company in particular.
BCP, an affiliate of Blackstone, led a leveraged, going private transaction of
CNW Corporation, a predecessor of the Company, in 1989, and Blackstone has since
that time performed various financial advisory and financing services for the
Company. Mr. James J. Mossman, General Partner of Blackstone Group Holdings
L.P., an affiliate of Blackstone, serves on the Board of Directors of the
Company. Except as described herein and in Annex I under the caption 'CERTAIN
RELATIONSHIPS AND TRANSACTIONS' (the provisions of which are hereby incorporated
herein by reference), neither Blackstone nor any of its affiliates has any
material interest in, or relationship with, the Company.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in the Shares have been effected during the last 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, except as described in Item
3(b) above under the caption 'Merger Agreement--Compensation and Benefits' (the
provisions of which are hereby incorporated herein by reference) and subject to
applicable securities laws and personal considerations (including tax planning),
each of the directors and executive officers of the Company presently intends to
tender pursuant to the Offer all Shares owned beneficially or of record by him.
The foregoing does not include any Shares over which, or with respect to which,
any such director or executive officer acts in a fiduciary or representative
capacity or is subject to the instructions of a third party with respect to such
tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated herein by reference), no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company, (iii) a tender offer for, or other acquisition of,
securities by or of the Company or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated herein by reference), there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) Section 203 of Delaware Law
As a Delaware corporation, the Company is subject to Section 203 ('Section
203') of Delaware Law. Section 203 would prevent an 'Interested Stockholder'
(generally defined as a person beneficially owning 15% or more of a
corporation's voting stock) from engaging in a 'Business Combination' (as
defined in Section 203) with a Delaware corporation for three years following
the date such person became an Interested Stockholder unless: (i) before such
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Stockholder or approved the Business Combination, (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time that the
transaction commenced (excluding stock held by directors who are also officers
and by employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares) or (iii) following the
transaction in which such person became an Interested Stockholder, the Business
Combination is (x) approved by the board of directors of the corporation and (y)
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least 66 2/3% of the outstanding voting stock of the corporation not owned
by the Interested Stockholder. In accordance with the
16
<PAGE>
provisions of the Company's Restated Certificate of Incorporation, as amended,
and Section 203, the Board has approved, to the extent required, the
transactions contemplated by the Merger Agreement, including Purchaser's
acquisition of Shares pursuant to the Offer. Accordingly, the transactions
contemplated by the Merger Agreement, including Purchaser's acquisition of
Shares pursuant to the Offer, are exempt from the provisions of Section 203.
(b) Certain Litigation
The Company, its directors, Union Pacific and Purchaser have been named as
defendants in five purported class action lawsuits commenced on March 9, 10 and
13, 1995 in the Court of Chancery in and for New Castle County, Delaware. Such
actions each purport to be brought as a class action on behalf of all public
stockholders of the Company and are captioned as follows: Feiwel v. Martin, et.
al. (C.A. No. 14109); Steiner v. Davidson, et. al. (C.A. No. 14111); Katz v.
Martin, et. al. (C.A. No. 14112); Kowal, et al. v. Chicago and Northwestern
Transportation Company, et al. (C.A. No. 14115); and Gerber v. Martin, et. al.
(C.A. No. 14117). The complaints in the five lawsuits allege, among other
things, that (i) directors of the Company breached their fiduciary duties to the
stockholders of the Company in considering and approving the proposed
Transaction and (ii) as the controlling stockholder of the Company, Union
Pacific and Purchaser breached their fiduciary duties to the other stockholders
of the Company in agreeing to enter into the proposed Transaction. In
particular, such complaints allege that the directors agreed to sell the Company
at an inadequate price and without proper information concerning the true value
of the Company and its Shares because they failed to use an auction or an active
market check or explore other strategic alternatives; and failed to create a
special committee of fully disinterested directors. The Steiner complaint adds
the claim that the whole Board is disqualified from acting because of various
contractual agreements with Union Pacific. The complaint in Gerber alleges that
Union Pacific's 29% control of the Company permits Union Pacific to control the
terms of any buyout transaction without any bona fide negotiations taking place.
In addition, all claim Union Pacific and Purchaser had access to confidential
and proprietary non-public information about the Company and used that
information to acquire the Company at an inadequate price in violation of Union
Pacific's obligations as a controlling stockholder of the Company to assure that
the transaction be entirely fair. As relief, the complaints in Feiwel, Katz,
Gerber and Kowal seek an injunction against consummation of the Transaction and
damages in an unspecified amount. The complaint in Steiner seeks a court order
requiring the directors to properly evaluate the alternatives, ensure there are
no conflicts and appoint a special committee in connection with a proposed sale
of the Company and damages in an unspecified amount. The Company believes that
all of such lawsuits are without merit, and intends to vigorously defend such
actions.
The above summary does not purport to be complete and is qualified in its
entirety by reference to the full text of the complaints in Feiwel v. Martin,
et. al., Steiner v. Davidson, et. al. , Katz v. Martin, et. al., Kowal, et. al.
v. Chicago and North Western Transportation Company, et. al. and Gerber v.
Martin, et. al., which are attached as Exhibits 14, 15, 16, 17 and 18 hereto,
respectively, and which are hereby incorporated herein by reference.
17
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS***
<TABLE>
<S> <C> <C>
Exhibit 1 -- Offer to Purchase dated March 23, 1995 (including the Merger Agreement attached thereto as Annex
I).*
Exhibit 2 -- Letter of Transmittal for the Tender of Shares.
Exhibit 3 -- Company Stock Option Agreement, dated March 16, 1995, by and between the Company and the Purchaser.
Exhibit 4 -- Confidentiality Agreement, dated March 10, 1995, between the Company, Union Pacific, Union Pacific
Holdings, Inc. and the Purchaser.
Exhibit 5 -- Change of Control Employment Agreement between the Company and F. Gordon Bitter (incorporated by
reference to Exhibit 10.61 to the 1994 10-K).
Exhibit 6 -- Change of Control Employment Agreement between the Company and Paul A. Lundberg (incorporated by
reference to Exhibit 10.62 to the 1994 10-K).
Exhibit 7 -- Change of Control Employment Agreement between the Company and James E. Martin (incorporated by
reference to Exhibit 10.63 to the 1994 10-K).
Exhibit 8 -- Change of Control Employment Agreement between the Company and Arthur W. Peters (incorporated by
reference to Exhibit 10.64 to the 1994 10-K).
Exhibit 9 -- Change of Control Employment Agreement between the Company and Dennis E. Waller (incorporated by
reference to Exhibit 10.65 to the 1994 10-K).
Exhibit 10 -- Joint Press Release issued by the Company and Union Pacific on March 10, 1995 (incorporated by
reference to Exhibit 99 to the 1994 10-K).
Exhibit 11 -- Joint Press Release issued by the Company and Union Pacific on March 17, 1995 (incorporated by
reference to Exhibit 99.1 to the 1994 10-K).
Exhibit 12 -- Form of Letter, dated March 23, 1995, to Stockholders of the Company.**
Exhibit 13 -- Opinion of The Blackstone Group L.P.**
Exhibit 14 -- Complaint in Feiwel v. Martin, et. al. (Del. Ch., filed on March 9, 1995) (C.A. No. 14109).
Exhibit 15 -- Complaint in Steiner v. Davidson, et. al. (Del. Ch., filed on March 10, 1995) (C.A. No. 14111).
Exhibit 16 -- Complaint in Katz v. Martin, et. al. (Del. Ch., filed on March 10, 1995) (C.A. No. 14112).
Exhibit 17 -- Complaint in Kowal, et. al. v. Chicago and North Western Transportation Company, et. al. (Del. Ch.,
filed on March 13, 1995) (C.A. No. 14115).
Exhibit 18 -- Complaint in Gerber v. Martin, et. al. (Del. Ch., filed on March 13, 1995) (C.A. No. 14117).
Exhibit 19 -- Second Participation and Loan Agreement dated as of December 20, 1990 among Western Railroad
Properties, Incorporated as Lessee and Citibank, N.A., not individually but solely as Trustee, as
Lessor, and UP Leasing Corporation, as Beneficial Owner, and Union Pacific Corporation as
Beneficial Owner Parent, and Chicago and North Western Transportation Company and CNW Corporation
and Chemical Bank as Administrative Agent and Continental Bank, N.A. and the Long-Term Credit Bank
of Japan, Ltd., Chicago Branch, as Co-Agents, and Banque Paribas, New York Branch and Manufacturer
Hanover Trust Company as Lead Managers (incorporated by reference to Exhibit 10.19 to the 1990
10-K).
Exhibit 20 -- Amendment dated as of August 26, 1994, to the Second Participation and Loan Agreement dated as of
December 20, 1990 among Western Railroad Properties, Incorporated as Lessee and Citibank, N.A.,
Trustee under the Trust Agreement, as Lessor, and UP Leasing Corporation, as Beneficial Owner, and
Union Pacific Corporation, as Beneficial Owner Parent, and Chicago and North Western Railway
Company, as successor to Chicago and North Western Transportation Company and CNW Corporation, and
Chemical Bank, as Administrative Agent and Continental Bank N.A. and The Long-Term Credit Bank of
Japan, Ltd., Chicago Branch, as Co-Agents, and Banque Paribas, New York Branch, as Lead Manager
(incorporated by reference to Exhibit 4.14a to the 3rd Quarter 1994 10-Q).
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit 21 -- Second Amended and Restated Stockholders' Agreement, dated as of March 30, 1992, among Chicago and
North Western Holdings Corp., CNW Corporation, Chicago and North Western Transportation Company,
Blackstone Capital Partners L.P., Blackstone Family Investment Partnership L.P., Blackstone
Advisory Directors Partnership L.P., Chemical Investments, Inc., The Prudential Insurance Company
of America, DLJ Capital Corporation, Union Pacific Corporation, UP Rail, Inc. and the Management
Group (incorporated by reference to Exhibit 10.2 to the 1992 Form S-1).
Exhibit 22 -- Letter Agreement dated October 1, 1992 releasing certain persons from the Second Amended and
Restated Stockholders Agreement (incorporated by reference to Exhibit 10.2a to the 1992 10-K).
Exhibit 23 -- Agreement dated as of December 1, 1992 among Chicago and North Western Holdings Corp., Blackstone
Capital Partners, L.P., Blackstone Family Investment Partnership, L.P., Blackstone Advisory
Directors Partnership, Chemical Investments Inc., Prudential Insurance Company of America, DLJ
Capital Corporation, Union Pacific Corporation, UP Rail, Inc., CNW Corporation, Chicago and North
Western Transportation Company and the Management Group (incorporated by reference to Exhibit 10.2b
to the 1992 10-K).
Exhibit 24 -- Registration Rights Agreement, dated as of July 14, 1989, among Chicago and North Western Holdings
Corp., Blackstone Capital Partners L.P., DLJ Capital Corporation, Union Pacific Corporation and the
Management Group (the 'Registration Rights Agreement') (incorporated by reference to Exhibit 10.3
to Form S-4).
Exhibit 25 -- Amendment No. 1 to Registration Rights Agreement, dated as of July 24, 1989 (incorporated by
reference to Exhibit 10.4 to Form S-4).
Exhibit 26 -- Exchange Agreement between Chicago and North Western Holdings Corp. and UP Rail, Inc. dated March
30, 1992 (incorporated by reference to Exhibit 10.5 to the 1992 10-K).
Exhibit 27 -- Agreement for Modification of Joint Line Agreement and for Interim Trackage Rights dated April 21,
1986 (incorporated by reference to Exhibit 10.11 to Form S-4).
Exhibit 28 -- Agreement for UP Trackage Rights, dated as of July 14, 1989, by and among Union Pacific Railroad
Company, Missouri Pacific Railroad Company, CNW Corporation and Chicago and North Western
Transportation Company (incorporated by reference to Exhibit 10.60 to Form S-4).
Exhibit 29 -- Supplemental Form of Agreement for UP Trackage Rights, dated as of January 31, 1990 (incorporated
by reference to Exhibit 10.39 to the 1990 10-K).
Exhibit 30 -- Amendment to Agreement for UP Trackage Rights dated as of December 20, 1990 (incorporated by
reference to Exhibit 10.40 to the 1990 10-K).
Exhibit 31 -- Agreement as of June 21, 1993 among Chicago and North Western Holdings Corp., Blackstone Capital
Partners L.P., Blackstone Family Investment Partnership II L.P., Blackstone Advisory Directors
Partnership L.P., Chemical Investments, Inc., The Prudential Insurance Company of America, DLJ
Capital Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Union Pacific
Corporation, UP Rail, Inc., CNW Corporation, Chicago and North Western Transportation Company,
Chicago and North Western Acquisition Corporation, UP Leasing Corporation and certain individuals
(incorporated by reference to Exhibit 10.59 to 1993 10-K).
Exhibit 32 -- Letter agreement dated December 14, 1994 between Chicago and North Western Transportation Company
and The Blackstone Group L.P. for financial advisory services (incorporated by reference to Exhibit
10.60 to 1994 10-K).
Exhibit 33 -- Letter Agreement dated March 3, 1995, between Chicago and North Western Transportation Company and
The Blackstone Group L.P. for financial services.
</TABLE>
- ------------------
* The following Sections of the Offer to Purchase are hereby incorporated by
reference in this Statement: 'SPECIAL FACTORS--Background of the
Transaction,' '--Recommendation of the Board of Directors of the Company:
Fairness of the Transaction,' '--Opinion of the The Blackstone Group L.P.'
19
<PAGE>
'--Summary of Presentation Materials to the Board,' '--Interests of Certain
Persons in the Transaction,' 'THE MERGER AGREEMENT,' 'Annex I--Agreement and
Plan of Merger dated as of March 16, 1995 by and among the Company, Union
Pacific and Purchaser,' including the Conditions to the Tender Offer (Annex
A thereto). No other section of the Offer to Purchase is incorporated by
reference in this Statement or shall be deemed filed with the SEC by the
Company for purposes of the Exchange Act.
** Included in copies mailed to stockholders.
*** Certain Company exhibits are incorporated by reference to previous filings
of the Company as defined below:
Quarterly Report of Chicago and North Western Transportation Company
for the quarter ended September 30, 1994 (the '3rd Quarter 1994
10-Q').
The Form S-4 filed by Chicago and North Western Holdings Corp., file
number 33-30874 (the 'Form S-4').
The Form S-1 filed on March 27, 1992 by Chicago and North Western
Holdings Corp., file number 33-45265 (the '1992 Form S-1').
The Annual Report of Chicago and North Western Holdings Corp. on
Form 10-K for the year ended December 31, 1990, file number 33-30874
(the '1990 10-K').
The Annual Report of Chicago and North Western Holdings Corp. on
Form 10-K for the year ended December 31, 1992, file number 33-30874
(the '1992 10-K').
The Annual Report of Chicago and North Western Holdings Corp. on
Form 10-K for the year ended December 31, 1993, file number 33-30874
(the '1993 10-K').
The Annual Report of Chicago and North Western Transportation
Company on Form 10-K for the year ended December 31, 1994, file
number 33-30874 (the '1994 10-K').
Note: On May 6, 1994, the name of Chicago and North Western Holdings Corp.
was changed to Chicago and North Western Transportation Company and
the name of its wholly-owned subsidiary, Chicago and North Western
Transportation Company was changed to Chicago and North Western
Railway Company.
20
<PAGE>
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/ ROBERT SCHMIEGE__________
Name: Robert Schmiege
Title: Chairman, President and Chief
Executive Officer
Dated: March 23, 1995
21
<PAGE>
ANNEX I
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
165 NORTH CANAL STREET
CHICAGO, ILLINOIS 60606-1551
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about March 23, 1995 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the 'Schedule 14D-9'). You are receiving this Information Statement in
connection with the possible election of persons designated by Union Pacific to
a majority of the seats on the Board of Directors of the Company (the 'Board').
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
March 23, 1995. The Offer is scheduled to expire at 12:00 midnight on April 19,
1995, New York City time, at which time, upon the expiration of the Offer, if
all conditions of the Offer have been satisfied or waived, the Purchaser has
informed the Company that it intends to purchase all Shares validly tendered
pursuant to the Offer and not withdrawn. The consummation of the Offer and
Merger pursuant to the terms of the Merger Agreement would result in a change of
control of the Company.
The information contained in this Information Statement concerning Union
Pacific and the Purchaser has been furnished to the Company by Union Pacific and
the Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
BOARD OF DIRECTORS
GENERAL
The Shares are the only class of voting stock of the Company outstanding
and each Share is entitled to one noncumulative vote. As of March 16, 1995,
there were 31,330,631 Shares issued and outstanding. The Board currently
consists of seven members, and there are currently no vacancies; the size and
composition of the Board is subject to certain contractual commitments set forth
in the Stockholders Agreement, the 1993 Agreement and the Merger Agreement. See
'BOARD OF DIRECTORS--Right to Designate Directors,' and 'CERTAIN RELATIONSHIPS
AND TRANSACTIONS--Stockholders Agreement' and '--1993 Agreement.' The Board of
Directors currently is divided into three classes. The term of one director
expires in 1995, with three current directors continuing in office until 1996,
and another three current directors continuing until 1997. Each director of the
Company holds office until such director's successor is elected and qualified or
until such director's earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS
The Company has agreed in the Merger Agreement that, promptly upon the
purchase of and payment for any Shares by Purchaser or any other subsidiary of
Union Pacific pursuant to the Offer which, together with the Non-Voting Shares,
represents at least a majority of the outstanding Shares (on a fully diluted
basis and assuming conversion of the Non-Voting Shares into Shares and exercise
of outstanding options), Union Pacific shall be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as is equal to the product of the total number of
directors on such Board (giving effect to the existing representatives of Union
Pacific serving on the Board, including representatives which Union Pacific has
the right to designate under the 1993 Agreement and the directors designated by
Union Pacific pursuant to the Merger Agreement) multiplied by the ratio of the
aggregate number Shares and Non-Voting Shares (if any) beneficially owned by the
Purchaser, Union Pacific or any of their affiliates to the total number of
Shares and Non-Voting Shares (if any) then outstanding (the 'Union Pacific
Designees'), and the Company has agreed to
I-1
<PAGE>
use its best efforts promptly to cause the Union Pacific Designees to be elected
or appointed to the Board, including by increasing the size of the Board or, at
the Company's election, securing resignations of incumbent directors. In
addition, except as otherwise required by applicable law or the rules of the New
York Stock Exchange, the Company agreed pursuant to the Merger Agreement to
cause persons designated by Union Pacific to constitute the same percentage
(rounded up to the next whole number) as is on the Company's Board of Directors
of (i) each committee of the Company's Board of Directors, (ii) each board of
directors (or similar body) of each subsidiary of the Company and (iii) each
committee (or similar body) of each such board. The Company's obligation to
cause designees of Union Pacific to be elected or appointed to the Board of
Directors of the Company will be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder.
THE UNION PACIFIC DESIGNEES
Pursuant to the terms of the Merger Agreement, it is expected that the
Union Pacific Designees will take office as directors of the Company upon the
Purchaser's purchase of and payment for such number of Shares which, together
with the Non-Voting Shares, represents at least a majority of the outstanding
Shares (on a fully diluted basis and assuming conversion of the Non-Voting
Shares into Shares) in the Offer.
Union Pacific has advised the Company that the Union Pacific Designees will
be Richard K. Davidson (who already is a designee of Union Pacific serving on
the Company's Board) and the persons described in the following table.
<TABLE>
<CAPTION>
NAME AGE, BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Drew Lewis Age 63. Chairman, Chief Executive Officer and Director of Union Pacific;
Director, American Express Company, AT&T Corp., Ford Motor Company and
FPL Group, Inc.
L. White Matthews, III Age 49. Executive Vice President-Finance and Director of Union Pacific;
Director, the Pilot Funds.
Carl W. von Bernuth Age 51. Senior Vice President and General Counsel of Union Pacific since
September 1991; prior thereto, Mr. von Bernuth served as Vice President
and General Counsel of Union Pacific.
</TABLE>
The business address of each of the Union Pacific Designees is Martin
Tower, Eighth and Eaton Avenues, Bethlehem, Pennsylvania 18018, and each such
person is a citizen of the United States. Union Pacific has advised the Company
that each of the persons listed in the table above has consented to act as a
director, and that none of such persons has during the last five years been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors) or was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was, or is, subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws. Union Pacific has also advised the
Company that none of the persons listed in the table above is a director of, or
holds any position with, the Company, and that none of such persons beneficially
owns any equity securities, or rights to acquire any equity securities, of the
Company or has been involved in any transactions with the Company or any of its
directors, executive officers or affiliates which are required to be disclosed
pursuant to the rules and regulations of the SEC. The election of the Union
Pacific Designees will be accomplished at a meeting or by written consent of the
Board.
I-2
<PAGE>
BOARD OF DIRECTORS OF THE COMPANY
Listed below are the names, present titles, and ages of all directors of
the Company and the positions held by such persons in the last five years.
DIRECTOR WITH TERM EXPIRING AT 1995 ANNUAL MEETING
<TABLE>
<CAPTION>
NAME AGE, BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Robert Schmiege Age 53, Chairman and Chief Executive Officer since August 1988; President
and a Director since July 1988.
<CAPTION>
DIRECTORS WITH TERM EXPIRING AT 1996 ANNUAL MEETING
<S> <C>
Richard K. Davidson Age 53, Director since September 1991; President of Union Pacific since
May 1994; Chairman and Chief Executive Officer of UPRR since September
1991; President and Chief Executive Officer of UPRR from August 1991 to
September 1991; Executive Vice President-Operation of UPRR from 1989 to
1991; Mr. Davidson is also a director of FirstTier Financial, Inc. and
California Energy Company, Inc. Mr. Davidson was designated as a director
of the Company by Purchaser. Two executive officers and one former
executive officer of the Company are obligated to vote their Shares to
elect Mr. Davidson and to assure certain other representation of Purchaser
on the Company's Board of Directors. (See 'CERTAIN RELATIONSHIPS AND
TRANSACTIONS.')
Harold A. Poling Age 69, Director since November 1993; Chairman and Chief Executive Officer
of Ford Motor Company from March 1990 until his retirement in November
1993; Vice Chairman and Chief Operating Officer from October 1987 to
February 1990. Mr. Poling is a director of Shell Oil Company, LTV
Corporation, Kellogg Company, Flint Ink Corporation, the PGA Tournament
Policy Board, and is a member of the BHP International Advisory Council
and the VIAG International Board.
Samuel K. Skinner Age 56, Director since November 1993; President and director of
Commonwealth Edison Company since February 1993; prior to February 1993,
General Chairman of the Republican National Committee, Chief of Staff to
the President of the United States, and Secretary of Transportation. Mr.
Skinner is a director of LTV Corporation.
<CAPTION>
DIRECTORS WITH TERM EXPIRING AT 1997 ANNUAL MEETING
NAME AGE, BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
James E. Martin Age 68, Director since May 1992; Executive Vice President-Operations since
May 1994; President of the Belt Railway Company of Chicago from 1989 to
April 1994.
James J. Mossman Age 36, Director since February 1990 and Vice President, Assistant
Treasurer and Assistant Secretary from October 1989 through January 1992;
General Partner of Blackstone Group Holdings L.P. ('BGH') since 1990. Mr.
Mossman is a director of Collins & Aikman Corporation, Great Lakes Dredge
and Dock Corporation, Transtar, Inc. and Transtar Capital Corporation.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
NAME AGE, BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
James R. Thompson Age 58, Director since May 1992; Chairman of Winston & Strawn since
January 1993; Partner and Chairman of the Executive Committee of Winston &
Strawn since 1991. Governor of Illinois from 1977 until 1991. Governor
Thompson is a member of the Board of Directors of FMC Corporation,
American Publishing Company, Jefferson Smurfit Company, Prime Retail,
Inc., Wackenhut Corrections Corp., Pechiney International and the Chicago
Board of Trade, and is on the International Advisory Board of the Bank of
Montreal.
</TABLE>
Until the Effective Time, the Company and Union Pacific have agreed
pursuant to the Merger Agreement to use all reasonable efforts to retain as
members of its Board at least three directors who are directors of the Company
on the date of the Merger Agreement and who are not designees of Union Pacific
(the 'Company Directors'), provided that subsequent to consummation of the
Offer, designees of Union Pacific shall always constitute a majority of the
Company's Board. The Company Directors shall initially be Messrs. James R.
Thompson, Samuel K. Skinner and Harold A. Poling, provided that in the event
that any of such Company Directors resigns or otherwise ceases to be a director
for any reason, then the other Company Directors have the right pursuant to the
Merger Agreement to designate a replacement for such director (and such
replacement shall be a 'Company Director'). If for any reason at any time prior
to the Effective Time no Company Directors then remain, the other directors will
use their reasonable best efforts to designate three persons to serve as the
Company Directors, none of whom are directors, officers, employees or affiliates
of Union Pacific or the Purchaser.
It is contemplated that except for the Company Directors and Mr. Davidson
(who will continue to serve as a designee of Union Pacific), the remaining
current directors of the Company will resign upon the closing of the Offer.
BOARD AND BOARD COMMITTEE MEETINGS, COMMITTEE FUNCTIONS AND COMPOSITION
The Board of Directors of the Company has an Executive Committee, an Audit
Committee and a Compensation and Stock Option Committee.
The Executive Committee consists of Robert Schmiege, Chairman, James E.
Martin and James R. Thompson. During 1994, the Executive Committee did not meet.
The Executive Committee may exercise the powers of the Board in the management
of the business and affairs of the Company, subject to certain limitations of
Delaware law.
The Audit Committee consists of Samuel K. Skinner, Chairman, Richard K.
Davidson and Harold A. Poling. During 1994, the Audit Committee met four times.
The Audit Committee recommends the selection of independent public accountants
to the Board for approval, reviews the Company's annual financial statements and
its annual report on Form 10-K, considers matters relating to accounting policy
and internal controls, and reviews the scope of the annual audit.
The Compensation and Stock Option Committee consists of James R. Thompson,
Chairman, James J. Mossman and Harold A. Poling. During 1994, the Compensation
and Stock Option Committee met three times. The Compensation and Stock Option
Committee determines the salaries and fringe benefits of the executive officers,
reviews the salary administration and benefit policies, and administers the 1989
Equity Incentive Plan for Key Employees, the 1992 and 1994 Equity Incentive
Plans, and the Bonus Plan.
During 1994, the Board of Directors of the Company held six meetings. Each
director attended not less than 75 percent of the aggregate meetings of the
Company's Board of Directors and the Company's Board Committees on which he
served, during the period of his service.
I-4
<PAGE>
EXECUTIVE OFFICERS
Listed below are the names, present titles, and ages of all executive
officers of the Company except for Messrs. Schmiege and Martin and the positions
held by such persons in the last five years. For such information with respect
to Messrs. Schmiege and Martin, see 'Directors of the Company' above. Each
executive officer holds office until his successor shall have been elected or
appointed or until his death, resignation or removal.
<TABLE>
<CAPTION>
NAME AGE, BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
F. Gordon Bitter Age 52, Senior Vice President--Finance and Accounting since October of
1994; Senior Vice President of The Perkin-Elmer Corporation and President
of the Metco Division from 1992 to December 1993; Senior Vice
President--Finance and Administration of The Perkin-Elmer Corporation from
1990 to 1992, and Vice President--Finance and Chief Financial Officer from
May 1988 to December 1991.
Paul A. Lundberg Age 43, Senior Vice President--Transportation Services since May 1994;
Vice President--Labor Relations from July 1989 to April 1994.
Arthur W. Peters Age 52, Senior Vice-President--Sales and Marketing since June 1988.
Dennis E. Waller Age 48, Senior Vice-President--Engineering and Equipment since May 1994;
Vice President--Engineering and Materials from October 1990 to April 1994;
Vice President--Motive Power and Materials from December 1988 to September
1990.
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of March 1, 1995, with respect to
the persons or groups which are known to be the beneficial owners of more than
5% of the Shares. Beneficial ownership of Shares reflected in the tables below
includes the right to vote and to dispose of such Shares, except as otherwise
noted.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENT (5)
- ---------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
UP Rail, Inc.(1).................................................................. 12,835,304 29.1
The Capital Group Companies, Inc.(2).............................................. 2,969,500 6.7
Neuberger and Berman(3)........................................................... 2,921,520 6.6
MacKay-Shields Financial Corporation(4)........................................... 2,497,550 5.7
</TABLE>
- ------------------
(1) Purchaser's current stock ownership consists of Non-Voting Shares.
Subsequent to approval by the ICC, Purchaser may convert its Non-Voting
Shares into Shares on a share-for-share basis. It is a condition to certain
of Union Pacific's and Purchaser's obligations under the Merger Agreement
that such approval be final and effective (currently scheduled to occur on
April 6, 1995) prior to the expiration of the Offer. See 'CERTAIN
RELATIONSHIPS AND TRANSACTIONS--ICC Order.' The Non-Voting Shares would
automatically convert into Shares in the event of their transfer to an
entity not regulated by the ICC. The address of Purchaser is UP Rail, Inc.,
c/o Union Pacific Corporation, Martin Tower, Eighth and Eaton Avenues,
Bethlehem, Pennsylvania 18018.
(2) Based on information contained in the Schedule 13-G dated February 6, 1995
filed by The Capital Group Companies, Inc., 333 South Hope Street, Los
Angeles, CA 90071.
(3) Based on information contained in the Schedule 13-G dated February 10, 1995
filed by Neuberger & Berman, 605 Third Avenue, New York, New York 10158.
(4) Based on information contained in the Schedule 13-G dated February 10, 1995
filed by the MacKay-Shields Financial Corporation, 9 West 57th Street, New
York, New York 10019.
(5) Assumes the conversion of Non-Voting Shares into Shares.
I-5
<PAGE>
Set forth below is certain information as of March 1, 1995 regarding
beneficial ownership of the Shares by each of the Company's directors, by each
of the executive officers of the Company named in the Summary Compensation Table
below, and by all of the Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENT (7)
- -------------------------------------------------------------------------------------- --------- --------------
<S> <C> <C>
Richard K. Davidson (1)............................................................... 0 *
James E. Martin (2)................................................................... 3,000 *
James J. Mossman (3)(4)............................................................... 31,967 *
Harold A. Poling...................................................................... 500 *
Robert Schmiege (5)................................................................... 620,087 1.4
Samuel K. Skinner (3)................................................................. 4,137 *
James R. Thompson (3)................................................................. 4,237 *
Jerome W. Conlon (5).................................................................. 81,984 *
James P. Daley (5).................................................................... 196,245 *
Arthur W. Peters (5).................................................................. 328,069 *
All executive officers and directors as a group (11 persons) (6)...................... 964,167 2.1
* Less than 1%
</TABLE>
- ------------------
(1) Mr. Davidson is Chairman and Chief Executive Officer of UPRR and President
of Union Pacific. Share data for Mr. Davidson does not include any of the
Shares in the previous table beneficially owned by the Purchaser.
(2) Includes, for Mr. Martin, 1,000 Shares held in the Director's Pension Plan
(the 'Plan') which are voted by him but with respect to which he does not
have the right of disposition. Mr. Martin participated in the Plan until May
2, 1994 when he became Executive Vice President--Operations.
(3) Includes, for each of Messrs. Mossman, Skinner and Thompson, 4,137 Shares
held in the Plan which are voted by such respective directors but with
respect to which such directors do not have the right of disposition.
(4) Includes 27,830 Shares held through a limited partnership affiliated with
Blackstone.
(5) Includes shares which may be acquired within 60 days through the exercise of
options for Messrs. Schmiege, 466,895; Daley, 62,377; and Peters, 328,069.
Also includes 22,512 Shares held by Mr. Daley's spouse, of which Mr. Daley
disclaims beneficial ownership. Excludes 12,500 Shares which Mr. Peters does
not have the right to acquire in 60 days through the exercise of options.
(6) Includes all directors and executive officers as of March 1, 1995 but
excludes Messrs. Conlon and Daley who left the Company effective January 2,
1995 and December 31, 1994, respectively. Share data includes 857,341 shares
which may be acquired within 60 days through the exercise of options.
Excludes 62,500 Shares subject to options which such persons do not have the
right to acquire in 60 days through the exercise of options and also
excludes Shares included in the previous table for the Purchaser.
(7) Assumes the conversion of Non-Voting Shares into Shares.
I-6
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth compensation information for the Chief
Executive Officer and the four other executive officers of the Company who were
most highly compensated during the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION (1) AWARDS
---------------------------------- ---------------------- LONG-TERM
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK INCENTIVE ALL OTHER
YEAR POSITION SALARY BONUS COMPENSATION STOCK OPTIONS # PAYOUTS COMPENSATION(2)
- ----- ----------------------- -------- -------- ------------ ---------- --------- --------- ----------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1994 Robert Schmiege $445,000 $324,850 $ -- $ -- -- $ -- $ 137,793
1993 Chairman, President 390,000 292,500 -- -- -- -- 75,574
1992 and CEO 390,000 97,500 -- -- -- -- 136,586
1994 James E. Martin 157,913 253,447 -- -- -- -- --
1993 Executive Vice -- -- -- -- -- -- --
1992 President--Operations(3) -- -- -- -- -- -- --
1994 Arthur W. Peters 276,140 201,582 -- -- 12,500 -- 87,022
1993 Senior Vice 263,925 198,263 -- -- -- -- 49,575
1992 President-- Sales and 253,500 63,500 -- -- -- -- 85,459
Marketing
1994 James P. Daley(4) 232,824 169,961 -- -- -- -- 66,066
1993 Senior Vice 222,525 133,730 -- -- -- -- 41,036
1992 President, General 213,750 53,542 -- -- -- -- 71,338
Counsel and Secretary
1994 Jerome W. Conlon(4) 227,409 166,009 -- -- -- -- 64,410
1993 Senior Vice 217,350 130,620 -- -- -- -- 39,968
1992 President-- 208,735 52,288 -- -- -- -- 69,515
Administration
</TABLE>
- ------------------
(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) All Other Compensation consists of allocations of Company contributions
under its qualified profit sharing plan, the Chicago and North Western
Railway Company Profit Sharing and Retirement Savings Program (the
'Program'), and under its non-qualified unfunded defined contribution
retirement plans, the Chicago and North Western Transportation Company
Executive Retirement Plan and the Chicago and North Western Transportation
Company Excess Benefit Retirement Plan. During 1994, all other compensation
from each of the above plans totaled $7,500, $113,755 and $16,538,
respectively for Mr. Schmiege; $22,500, $62,984 and $1,528, respectively for
Mr. Peters; $7,500, $42,028 and $16,538, respectively for Mr. Daley; and
$22,500, $40,372 and $1,538, respectively for Mr. Conlon.
(3) Became an executive officer of the Company on May 2, 1994.
(4) Messrs. Daley and Conlon retired December 31, 1994 and January 2, 1995,
respectively.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
# OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OR BASE OPTION TERM
OPTIONS LAST FISCAL PRICE EXPIRATION -------------------------------
NAME GRANTED YEAR(2) ($/SH) DATE 0% 5% 10%
- -------------------------- ---------- ------------ -------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Schmiege........... -- -- -- -- -- -- --
James E. Martin........... -- -- -- -- -- -- --
Arthur W. Peters.......... 12,500(3) 3.5% $ 22.625 6-23-04 0 $177,863 $450,725
James P. Daley............ -- -- -- -- -- -- --
Jerome W. Conlon.......... -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) There were no awards of SARs to any of the named executive officers in
fiscal 1994.
(2) Based on 359,500 options granted to 112 employees.
(3) The option generally vests 20% per year for the first five years of its
term. The consummation of the Offer would result in the acceleration of
unvested options and the exercisability of tandem limited stock appreciation
rights.
I-7
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE (4)
<TABLE>
<CAPTION>
TOTAL VALUE OF
TOTAL NUMBER OF UNEXERCISED, IN-THE-MONEY
NUMBER OF UNEXERCISABLE OPTIONS(1) OPTIONS(1) HELD AT FISCAL YEAR
SHARES HELD AT FISCAL YEAR END END
ACQUIRED ON VALUE ---------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
- ---------------------------- ----------- -------- ----------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert Schmiege............. -- -- 466,895 -- $ 6,242,386 --
James E. Martin............. -- -- -- -- -- --
Arthur W. Peters............ 12,500 $270,750 328,069(3) 12,500 5,060,197(3) --
James P. Daley.............. 15,000 328,050 62,377 -- 833,980 --
Jerome W. Conlon............ 50,000 699,750 37,377 -- 499,730 --
</TABLE>
- ------------------
(1) All options were granted under the Company's 1989 Equity Incentive Plan for
Key Employees, except as otherwise noted herein and in footnote 3. None of
the named executive officers holds any options or related stock appreciation
rights under the Company's 1992 Equity Incentive Plan except that Mr. Peters
holds options granted under that plan.
(2) The dollar values shown are calculated by determining the difference between
the market value of the Shares underlying the options at December 30, 1994
($19.25) and the option exercise price. Based on the Offer Price, the total
value of unexercised in-the-money options (whether vested or unvested) upon
the consummation of the Offer is $13,595,982, $0, $10,381,972, $1,816,418,
and $1,088,418 for Messrs. Schmiege, Martin, Peters, Daley and Conlon,
respectively.
(3) Includes 140,692 rollover options (all exercisable) under the rollover
option agreements ('Rollover Option Agreements') received in exchange for
options of the Company's predecessor (total value $2,554,967).
(4) There have been no awards of SARs to any of the named executive officers.
PENSION PLAN
The Supplemental Pension Plan provides a benefit which is the equivalent of
a single life annuity for a participant's life commencing at age 65 in an amount
equal to (1) the product of 1.5% of the employee's final five years' average
annual salary, multiplied by his years of service (40 years maximum), that
product being reduced by (2) the sum of certain offsets related to other
benefits received under the Railroad Retirement Act and under the Program, the
Chicago and North Western Transportation Company Executive Retirement Plan, and
the Chicago and North Western Transportation Company Excess Benefit Retirement
Plan. The Internal Revenue Service has issued final regulations which in the
future could require the modification of certain of these offsets depending upon
the results of certain non-discrimination tests which are sensitive to
demographic changes in the population covered under the Supplemental Pension
Plan. The Company expects that any changes required to meet the
non-discrimination tests will not result in a material increase in the amount of
benefits provided under the Supplemental Pension Plan.
The Program was established in April 1975 and does not provide for benefits
based upon prior service. Therefore, the later the date at which an employee
reaches age 65, the larger the amount the employee could have accumulated under
the Program, and thus, the smaller the amount which would be payable under the
Supplemental Pension Plan. Actuarial projections indicate that none of the
persons named in the Summary Compensation Table will receive benefits under the
Supplemental Pension Plan.
AGREEMENTS WITH EXECUTIVE OFFICERS
In December 1994, the Company entered into Change of Control Employment
Agreements ('Employment Agreements') with Messrs. F. Gordon Bitter (Senior Vice
President--Finance and Accounting), Paul A. Lundberg (Senior Vice
President--Services), James E. Martin (Executive Vice President--Operations),
Arthur W. Peters (Senior Vice President--Sales and Marketing) and Dennis E.
Waller (Senior Vice President-- Engineering and Equipment) and 22 other
employees of the Company who are not executive officers. For purposes of such
Employment Agreements, a 'Change of Control' includes any of (i) the acquisition
by a person or group of 40% or more of the then outstanding voting securities of
the Company, (ii) a change in the Board of Directors so that persons who were
directors on the date of the Employment Agreement and persons
I-8
<PAGE>
who subsequently become directors whose nomination to the Board was approved by
at least two-thirds of the incumbent directors (as defined) cease to be a
majority of the Board, (iii) shareholder approval of a merger, reorganization or
consolidation on consummation of which beneficial owners of the Company's voting
securities immediately before the merger, reorganization or consolidation would
no longer own 60% of the voting securities of the resulting entity, (iv) the
sale or disposition of all or substantially all of the assets of the Company and
(v) a liquidation or dissolution of the Company. A Change of Control would occur
upon consummation of the Offer.
Each Employment Agreement provides for, among other things, (i) a
three-year employment period, beginning on the date of a Change of Control, at
an annual base salary equal to at least 12 times the highest monthly salary
payable during the 12-month period immediately preceding the change of control,
(ii) a guaranteed annual bonus and (iii) continued participation in the
incentive, savings, retirement, welfare and other fringe benefit plans sponsored
by the Company.
If the executive's employment is terminated by the Company (other than for
cause (as defined), or by reason of the executive's death or disability), or if
the executive terminates employment for good reason (as defined), the executive
will receive (i) annual base salary, guaranteed bonus and accrued vacation pay
through the date of termination, (ii) previously deferred and unpaid
compensation, (iii) an amount equal to three times the sum of the executive's
base salary and annualized guaranteed bonus in the year in which the termination
occurs, (iv) reimbursement for benefits which would have accrued in three more
years and for unvested benefits forfeited under the Company's Supplemental
Pension Plan as a result of termination and (v) continuation of all medical,
life insurance and other welfare benefits for a period of three years from
termination. Payments under each Agreement will be reduced to the extent it is
determined that any portion thereof would be nondeductible under Section 280G of
the Internal Revenue Code of 1986, as amended (the 'Code') as an 'excess
parachute payment.' If payments equal to or in excess of 300% of the executive's
'base amount' (generally the average annual compensation received by the
executive over his five most recent tax years) are made to the executive, then
all amounts in excess of 100% of the executive's base amount generally
constitute 'excess parachute payments' for purposes of the Code. It is
anticipated that the payments made to the executive officers under the
Employment Agreements after reduction for the portions of (i) the amount of the
prorated guaranteed bonus and (ii) the payments made under the Merger Agreement
with respect to the value of the executive's unvested options, all as determined
by the Company under the proposed regulations issued by the Internal Revenue
Service under Code Section 280G, are $437,112 for Mr. Bitter, $456,302 for Mr.
Lundberg, $1,181,172 for Mr. Martin, $1,212,549 for Mr. Peters, $431,648 for Mr.
Waller and $11,865,054 for all officers with Employment Agreements. It is
anticipated that the following bonus payments would be made pursuant to the
Bonus Plan if the Effective Time were May 1, 1995: Mr. Schmiege, $150,000, Mr.
Bitter, $91,667; Mr. Lundberg, $75,000; Mr. Martin, $91,667; Mr. Peters,
$96,073; Mr. Waller, $75,000; and $1,094,899 for all officers with Employment
Agreements.
Under the Merger Agreement, Union Pacific has agreed to cause the surviving
corporation to honor the Employment Agreements. In some instances individual
employees may enter into employment agreements with Union Pacific or one of its
affiliates pursuant to which the rights to payments under the Employment
Agreements are extinguished.
In addition, under the Merger Agreement, Union Pacific has agreed that each
individual officer with an Employment Agreement whose employment terminates
under the Employment Agreement as described in the second preceding paragraph
above and who (i) agrees to receive a lump sum payment in cash of all benefits
such officer is entitled to upon termination of employment under the Employment
Agreement, (ii) agrees to the amendment of the Stockholders Agreements, dated
March 30, 1992 and June 21, 1993 and the Registration Rights Agreement dated
July 14, 1989 to provide for their termination and to waive all rights which
such officer may have under such agreements and (iii) waives any claims which
such officer may have against the Company (other than any rights such officer
may have to benefits under the Company's benefit plans and any rights such
officer may have to indemnification by the Company as provided in the Merger
Agreement as described in Item 3(b) under the caption 'Merger
Agreement--Directors' and Officers' Insurance and Indemnification.') will
receive a separate payment ('Separate Payment') from the Company in an amount
equal to the product of $15.0 million and a fraction, the numerator of which is
such officer's individual 1995 annualized compensation (current salary and
maximum bonus) and the denominator of which is the total 1995 annualized
compensation (current salary and maximum bonus) of all officers with Employment
Agreements. As a result of the receipt by an
I-9
<PAGE>
executive of a Separate Payment in addition to payments under such officer's
Employment Agreement, portions of the total payments to the executive could
constitute 'excess parachute payments,' resulting in non-deductibility of such
'excess parachute payments' to the Company and imposition with respect thereto
of a 20% excise tax on the executive.
If the following executive officers have such a termination of employment
under the Employment Agreements and agree to the conditions identified for the
receipt of the Separate Payments, it is anticipated that such executive officers
would receive Separate Payments in the following amounts: Mr. Bitter,
$1,079,220; Mr. Lundberg, $882,998; Mr. Martin, $1,079,220; Mr. Peters,
$1,131,101, Mr. Waller, $882,998 and all officers with Employment Agreements,
$15,000,000. Officers who enter into employment agreements with Union Pacific or
one of its affiliates will not receive Separate Payments.
Subject to the employee consenting to the cancellation of his Options, if
consent is required by the terms of the Option (whether or not currently
exercisable), all outstanding Options under the Company's 1989 Equity Incentive
Plan for Key Employees, 1992 Equity Incentive Plan and 1994 Equity Incentive
Plan (the 'Option Plans') and certain Rollover Option Agreements will be
cancelled by the Company at the Effective Time. Options which have been
cancelled on exercise of LSARs will not be considered outstanding for this
purpose. In consideration for the cancellation of his or her Options, each
employee will receive payment with respect to each Share with respect to which
the employee holds an Option in the amount of the excess of the Offer Price over
the exercise price. Employees of the Company whom Parent or its affiliates have
agreed to employ will be permitted to make an advance election, in lieu of
receiving a cash payment, to exchange their Options for options with respect to
common stock of Parent having in the aggregate substantially the same terms and
conditions, but without change in control features, as the Company Options
exchanged therefor. If cash is received in respect of all of their options, the
executive officers and all officers with Employment Agreements would receive the
following payments as consideration for the cancellation of their Options: Mr.
Schmiege, $13,595,982; Mr. Bitter, $737,500; Mr. Lundberg, $493,743; Mr. Martin,
$0; Mr. Peters, $10,381,971; Mr. Waller, $807,976 and all executive officers,
$26,017,172.
In addition, in connection with the retention of Mr. James Martin as
Executive Vice President--Operations of the Company, effective May 2, 1994, Mr.
Martin, received a payment of $125,000 at the time of his retention, and, based
on the recommendation at that time of the Chief Executive Officer, is expected
to receive, in addition to his normal compensation, a service bonus of $125,000
when he retires.
COMPENSATION OF DIRECTORS
The Company compensated directors who are not officers or employees of the
Company or its principal stockholders (or affiliates thereof) with an annual fee
of $50,000. In 1994, such compensation amounted to $50,000 for Mr. Poling.
Messrs. Martin, Mossman, Skinner and Thompson participated in the Plan described
below. Other directors of the Company do not receive any fees or separate
compensation. All directors are reimbursed for out-of-pocket expenses. See
'CERTAIN RELATIONSHIPS AND TRANSACTIONS-- Compensation Committee Interlocks and
Insider Participation' for a description of annual management fees received by
Blackstone.
Beginning effective January 1, 1994, non-employee Directors may elect
annually in advance to receive fees currently or to defer all or any part of
them under the Chicago and North Western Holdings Corp. Directors' Pension and
Retirement Savings Plan ('Directors' Pension Plan') and the Chicago and North
Western Holdings Corp. Directors' Deferred Compensation Plan ('Directors'
Deferred Compensation Plan'). Pursuant to the Directors' Pension Plan,
participating directors are awarded matching contributions equal to 50% of the
fees which they elect to defer in a year. The Directors' Pension Plan credits
participating directors' accounts with contributions, dividends, and gains and
losses, as if their accounts are fully invested in shares of the Company's
Common Stock. The Directors' Deferred Compensation Plan credits participating
directors' deferred fee accounts with a rate of return based on London Interbank
Offered Rates (LIBOR) plus one percent.
Both plans are unfunded. However, the Company has established a trust
('Plan Trust') to hold shares of Common Stock in approximately the amount
credited to its participating directors' accounts under the Directors' Pension
Plan. The assets of this trust are subject to the claims of the Company's
creditors in the event of insolvency or bankruptcy, but are otherwise used to
discharge the Company's liabilities under the Directors'
I-10
<PAGE>
Pension Plan. Each of the participating directors votes any shares held in the
trust in the proportion that his account balance under the Directors' Pension
Plan is to all account balances under that plan.
Directors' Pension Plan
Each of the participating directors votes any shares held in the trust in
the proportion that his account balance under the Directors' Pension Plan is to
all account balances under that plan.
Distributions of a director's account balances under both plans are made,
in cash, promptly after he retires or otherwise ceases to be a director of the
Company. Under the Directors' Deferred Compensation Plan a director may elect,
at the time of his election to defer fees for a year, to be paid at the end of a
shorter fixed deferral period.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
A predecessor of the Company was acquired in a going-private transaction
(the 'Acquisition') in 1989 involving the issuance and sale of Shares to BCP,
Donaldson, Lufkin & Jenrette Capital Corporation ('DLJCC') and certain present
and former members of the Company's management, and the issuance and sale of
convertible preferred stock to Purchaser for a purchase price of $100 million.
In April 1992, the Company completed a recapitalization involving, among other
things, the sale of Shares in an initial public offering. As part of such
recapitalization, Purchaser exchanged its preferred stock (and an additional
cash investment in the Company of $28 million) for 10,153,304 Non-Voting Shares.
In October 1992, Purchaser purchased 182,000 Shares in the open market and in
December 1992, Purchaser purchased 2,000,000 Shares from BCP, all of such Shares
having been exchanged by the Company for the same number of Non-Voting Shares.
BCP and DLJCC and certain of their respective affiliates (collectively, 'Former
Principal Stockholders') sold substantially all of their Shares in July 1993,
500,000 of such Shares (the 'UP Purchase') to Purchaser (which converted the
Shares into Non-Voting Shares) and the balance in a secondary public offering
(the 'Offering'). The Merger Agreement provides that Union Pacific and the
Company will terminate, and will use their reasonable best efforts to cause the
other parties thereto to terminate, as of the Effective Time, the Stockholders
Agreement, the 1993 Agreement and the Registration Rights Agreement (defined and
summarized below).
Compensation Committee Interlocks and Insider Participation
During the last fiscal year, Mr. Mossman served as a member of the
Compensation and Stock Option Committee. He is a General Partner of BGH which
has entered into an agreement for management and advisory services. Mr. Mossman
is also a former officer of the Company.
An agreement among Donaldson, Lufkin & Jenrette Securities Corporation
('DLJSC'), an affiliate of DLJCC, Blackstone and the Company entered into in
connection with the Acquisition provided for DLJSC and Blackstone to act as
co-investment bankers to the Company with respect to certain transactions and
receive investment banking compensation in connection with such transactions to
be shared equally between DLJSC and Blackstone. DLJSC's rights described above
terminated in July 1992, and Blackstone's rights described above terminated in
March 1994.
Pursuant to a letter agreement dated as of March 24, 1992, Blackstone was
retained by the Company to provide strategic and financial advice, and the
Company agreed to pay Blackstone fees of $1,000,000 in each of 1992, 1993 and
1994, the last of which installments was paid in November, 1994.
Blackstone is acting as financial advisor to the Company in connection with
the Offer and other matters arising in connection therewith pursuant to the
Engagement Letter. The Engagement Letter was entered into in addition to the
December Engagement Letter pursuant to which Blackstone had been retained by the
Company, effective November 29, 1994, to act as the Company's exclusive
financial advisor with respect to various matters, including the Company's
discussions and proposed agreement with Union Pacific relating to Union
Pacific's then proposed acquisition of Santa Fe Pacific Corporation. Under the
terms of the Engagement Letter, Blackstone has agreed to advise and assist the
Company in its evaluation of Possible Transactions. The Engagement Letter also
provides, among other things, that Blackstone will render an opinion as to the
fairness, from a financial point of view, to the Company's common stockholders
of the consideration to be received by such stockholders in any Possible
Transaction.
Pursuant to the terms of the Engagement Letter, the Company agreed to pay
Blackstone a fee of $6,000,000, less one-half of any retainer fee paid to
Blackstone pursuant to the December Engagement Letter. Pursuant to the
I-11
<PAGE>
December Engagement Letter, the Company paid Blackstone retainer fees totaling
$500,000. The Company has also agreed in the Engagement Letter to reimburse
Blackstone and its affiliates for its reasonable out-of-pocket expenses and to
indemnify Blackstone and its affiliates against certain liabilities, including
those relating to or in connection with the Offer.
BCP and certain of its affiliates are also parties to the Stockholders
Agreement, the 1993 Agreement and the Registration Rights Agreement, defined and
summarized below.
Stockholders Agreement
Under the provisions of the Second Amended and Restated Stockholders
Agreement dated as of March 30, 1992, as amended, by and among certain of the
Company's executive officers, one former executive officer, the Purchaser and
the Company (the 'Stockholders Agreement'), such officers are required to vote
their shares for one designee of Purchaser to the Company's Board of Directors.
Certain former principal stockholders and certain former executive officers of
the Company were originally also parties to the Stockholders Agreement.
Under the Stockholders Agreement, subject to certain exceptions: (i) if the
Purchaser wishes to sell or otherwise dispose of any of its Non-Voting Shares or
Shares into which such Non-Voting Shares may be converted (the 'Transfer
Securities') to a person other than a party to the Stockholders Agreement or a
permitted transferee of such party (a 'Third Party') (excluding a sale or
spinoff to the stockholders of Union Pacific) in one transaction or from time to
time in different transactions or (ii) if the Company wishes to sell or
otherwise dispose of all or substantially all of its assets or all or a part of
the East-West Main Line, whether or not a part of the sale of any other assets
('Transfer Assets') (any Transfer Securities together with any Transfer Assets
being referred to herein as the 'Offered Assets'), then (a) the Purchaser or a
permitted transferee, in the case of a proposed sale by the Company of any
Transfer Assets and (b) the Company, in the case of a proposed sale of Transfer
Securities by Purchaser or any of its permitted transferees, shall have a right
of first refusal with respect to the Offered Assets at a price specified by
Purchaser or the Company, as the case may be (the 'Seller'), exercisable for a
period of 45 days following written notice from the Seller of the terms of such
proposed sale of Offered Assets (the 'Sale Notice'). Following a party's failure
to exercise its right of first refusal, for a period of 400 days from the date
of the Sale Notice, the Offered Assets may be sold to a Third Party on terms and
conditions no more favorable than those offered to the person having the right
of first refusal (each, a 'Rights Offeree'), provided that such sale (x) is at a
price in excess of 82.5% of the price at which the Offered Assets were offered
to the Rights Offeree and (y) is otherwise on the same general terms and
conditions as such offer to the Rights Offeree.
The Purchaser's right of first refusal with respect to the proposed sale of
any Transfer Assets is subject to certain limitations and exceptions and is also
subject to ICC approval or exemption, See 'CERTAIN RELATIONSHIPS AND
TRANSACTIONS--ICC Order.' In addition, the Purchaser's right of first refusal
with respect to the East-West Main Line terminates if, under certain
circumstances, the Purchaser fails to exercise its right, and its right of first
refusal with respect to the Transfer Assets (except with respect to the
East-West Main Line) terminates if the Purchaser, together with its permitted
transferees, ceases to own approximately 2,840,000 or more Shares or Non-Voting
Shares.
The Stockholders Agreement generally requires the Company to cooperate with
Union Pacific in seeking ICC approval of the common control, within the meaning
of the ICC Act, of the rail subsidiaries of Company and Parent. See 'CERTAIN
RELATIONSHIPS AND TRANSACTIONS--ICC Order.'
1993 Agreement
Pursuant to an agreement dated as of June 21, 1993 by and among the parties
to the Stockholders Agreement (the '1993 Agreement'), the Company has agreed
that commencing at the 'ICC Effective Time,' as defined below, it will use its
best efforts to (i) ensure that there will at all times be three nominees of the
Purchaser on the Board of Directors (and, if the Company shall continue to have
a staggered Board of Directors, one such nominee will be in Class I (current
term expiring in 1996) and two such nominees will be in Class III (current term
expiring in 1995)), such efforts to include, if necessary, expanding the Board
of Directors, and filling vacancies on the Board of Directors with, and
nominating and soliciting proxies for the election of Directors at each annual
meeting of the Company's stockholders of, Purchaser nominees and (ii) to ensure
that the Board of Directors consists of nine directors, provided that the number
of authorized directors may be increased in certain instances to permit the
election of the Purchaser's nominees. The obtaining of any approval, exemption
or declaratory
I-12
<PAGE>
order of the ICC necessary for the election of such individuals to become
effective is referred to herein as the 'ICC Effective Time.' See 'CERTAIN
RELATIONSHIPS AND TRANSACTIONS--ICC Order.'
Pursuant to the 1993 Agreement, Messrs. Schmiege and Peters and one former
executive officer of the Company have agreed to vote their Shares and otherwise
use their best efforts to ensure that there will at all times after the ICC
Effective Time be three nominees of the Purchaser on the Board of Directors,
provided that such obligation will not restrict sales of Shares held by the
executive officers and will cease with respect to any executive officer if he
ceases to be an employee of the Company.
The provisions of the 1993 Agreement described above will terminate (i)
with respect to the two additional Purchaser nominees to the Board of Directors
provided for by the 1993 Agreement, if the Purchaser ceases to own at least 20%
of the capital stock of the Company of any class or classes, the holders of
which are entitled to vote generally in the election of the Board of Directors,
and any securities of the Company presently convertible into, or exercisable or
exchangeable for, any such capital stock of the Company, including but not
limited to the Shares and the Non-Voting Shares (whether or not presently
convertible) and (ii) with respect to one of such additional Purchaser nominees,
if the Purchaser ceases to own at least 25%, but continues to own at least 20%
of such capital stock and securities.
Registration Rights Agreement
Pursuant to a Registration Rights Agreement dated as of July 14, 1989, as
amended by and among the Company, the Purchaser and certain other parties,
Purchaser has the right to require that the Company effect the registration
under the Securities Act of all or any part of its Non-Voting Shares, and
Purchaser and certain present and former executive officers of the Company have
certain piggyback registration rights at such time or times as the Company
publicly offers securities.
Trackage Rights Agreement
Pursuant to a Trackage Rights Agreement by and between UPRR and the
Company, as supplemented and amended by a Supplemental Form of Agreement for UP
Trackage Rights, dated as of January 31, 1990 (the 'Trackage Rights Agreement'),
which has been approved by the ICC, the Company hauls certain traffic over the
east-west main line for UPRR using Company employees, engines and facilities
under terms that preserve the Company's revenue on that traffic and at the same
time provide the Company with increased revenues in the event of increased UPRR
usage under the Trackage Rights Agreement. The Trackage Rights Agreement was
further amended by the amendment dated as of December 20, 1990. The Trackage
Rights Agreement, as so amended, required the Company to maintain 90% of the
east-west main line at Class 5 Federal Railroad Administration ('FRA') standards
by the end of 1994. Since December 31, 1992, this condition has been met. In
addition, UPRR agreed that if it determined by the end of 1994 that further
upgrading of the east-west main line was desirable, it would have provided $35
million of additional debt financing to help the Company achieve the maintenance
of 100% of the east-west main line at Class 5 FRA standards by 1996. UPRR did
not elect to provide such additional financing. As discussed below,
implementation of the Trackage Rights Agreement has been approved by the ICC.
The trackage rights granted to UPRR under the Trackage Rights Agreement run
for a term of 999 years and consist of bridge rights (i.e., rights to haul
freight from one end of the east-west main line to the other, but not to
originate, terminate or interchange traffic at intermediate points) between
Fremont, Nebraska/Council Bluffs, Iowa and points in and around Chicago,
Illinois, and full rights throughout the Chicago area, each subject to certain
limitations. UPRR retains the option of working with the Company and other
railroads on an interline basis rather than handling traffic via the trackage
rights. UPRR is allowed to interchange with all rail and non-rail transportation
companies in the Chicago area for traffic to and from points not served by the
Company or Fox River Valley Railroad Corporation (a Wisconsin regional railroad
which purchased its line from the Company and has since been acquired by Fox
Valley & Western Railroad, a subsidiary of Wisconsin Central Transportation
Company).
The Trackage Rights Agreement also calls for provision by the Company of
terminal services, including switching for UPRR to connecting railroad companies
and to and from selected terminal and shipper's facilities. Other services to be
provided to UPRR by the Company include locomotive servicing and fueling,
locomotive and train inspection, derailment cleanup, bad order repair and
clerical services.
I-13
<PAGE>
As compensation for the rights and services afforded thereunder, the
Trackage Rights Agreement obligates UPRR to pay the Company its revenue per unit
(by traffic classifications) of the first quarter of 1989 net of refunds and all
appropriate allowance payments, with the level of such compensation to be
adjusted upward or downward (subject to a defined minimum rate) in accordance
with the percentage increase or decrease of UPRR's net revenue per unit for each
trackage right traffic classification. The aforementioned level of compensation
will be adjusted every five years to reflect productivity per unit where such
adjustment would not reduce the revenue to variable cost ratio below the level
prevailing on the date of the Trackage Rights Agreement. In order to provide
UPRR with an incentive to increase the traffic subject to the Trackage Rights
Agreement, the compensation described above is to be adjusted to reflect UPRR's
increase in usage (volume as measured in carloads, trailers or containers) by
traffic classification for trackage rights traffic using the East-West Main
Line. In addition, the Company is entitled to supplementary compensation for
handling empty returns in excess of the number of loads handled. The Trackage
Rights Agreement also requires UPRR to reimburse the Company for additional
costs associated with certain special services.
Pursuant to the terms of the Trackage Rights Agreement, UPRR paid the
Company approximately $16.3 million in 1992, $18.8 million in 1993 and
approximately $23.9 million in 1994.
In order to ensure provision by the Company of the high level of service
and maintenance required under the Trackage Rights Agreement, any material
breach of the service or maintenance standards incorporated therein, which is
not cured within the period allotted therefor, will result in the entitlement of
UPRR to expanded rights in respect of the trackage right lines, including, under
certain circumstances, the right to undertake maintenance therefor, to make
capital improvements to ensure continued maintenance at Class 5 standards, the
immediate right to fully operate its own trains over such lines, and
corresponding changes in the compensation provisions for trackage rights.
The Trackage Rights Agreement further provides that, except in the event of
a material breach of the agreement (in which event control of train operations
will be held by the party with the greater usage and Union Pacific will be
permitted to utilize its own train crews), the Company will be solely
responsible for control of train operations on the lines subject to the Trackage
Rights Agreement and will conduct the same in a non-discriminatory manner.
Absent breach, the Company will also be obligated to provide crews for Union
Pacific trains and will in any event bear the same liability for trackage rights
traffic as it would have had if such traffic had moved in interline service.
WRPI Agreements
The Company and Union Pacific and certain of its subsidiaries are parties
to certain agreements entered into in connection with Union Pacific's
participation in the financing of Western Railroad Properties, Incorporated
('WRPI') in 1982 and which were restated in December of 1990 when WRPI completed
a refinancing (the 'WRPI Refinancing') of indebtedness incurred in connection
with the construction of WRPI's rail lines (the 'WRPI Agreements'). Under the
WRPI Agreements, a trust for the benefit of a subsidiary of Union Pacific (the
'WRPI Trust') owns approximately one-half of the track constituting the WRPI
line and certain support facilities and leases them to WRPI pursuant to a lease
agreement (the 'Lease'). During 1992, 1993 and 1994, WRPI paid $17.7 million,
$21.8 million and $20.2 million, respectively, to the WRPI Trust for fixed and
contingent rent payments under the Lease, excluding rent paid representing debt
service to lenders to the WRPI Trust. Another agreement between WRPI and UPRR
provides for the manner in which aggregate revenues from jointly transported
coal will be divided between them. At the present time, substantially all the
coal transported by WRPI out of the Powder River Basin is interchanged with UPRR
at South Morrill, Nebraska and is subject to such agreement. In order to secure
the performance of WRPI's obligations under the Lease (including rental payments
in respect of indebtedness incurred by the WRPI Trust in connection with the
WRPI Refinancing) and the other agreements entered into as part of the WRPI
Refinancing, all of the capital stock of WRPI is currently pledged to the WRPI
Trust. Under the pledge agreement with the WRPI Trust, the Company is required
(subject to certain exceptions) to obtain the consent of the WRPI Trust or Union
Pacific to any transfer of capital stock of WRPI at any time prior to April of
2001. In addition, the WRPI Trust has a right of first refusal with respect to
transfers of the capital stock of WRPI under this agreement and would have the
right, unless prohibited by law, to acquire the capital stock of WRPI at the
lower of the fair market value and the book value of such shares in the event
of: (i) a material breach of the participation and loan agreement entered into
in connection with the WRPI Refinancing, which, in the case of a non-monetary
breach, would, after expiration of a 60-day grace period, have
I-14
<PAGE>
a material adverse effect on Union Pacific or its affiliates or its interest in
WRPI or (ii) a continuing event of default under the Lease.
Operating Relationship
In addition to the foregoing, the Company has a substantial operating
relationship with UPRR. Approximately 62%, 65% and 67% of the Company's total
loads in 1992, 1993 and 1994, respectively, were interchanged with UPRR railroad
lines. Additionally, approximately 31%, 34% and 35% of Union Pacific's railroad
subsidiaries' total loads in 1992, 1993 and 1994, respectively, were
interchanged with the Company's railroad subsidiaries. The Company's east-west
main line also links UPRR's primary western routes with eastern railroads in
Chicago, providing a direct route for freight service between Chicago and West
Coast points. In connection with such interchanges, either or both of Union
Pacific's and the Company's railroad subsidiaries may be the party billing the
shipper of such interchanged freight, and in cases where one of the parties
bills for the entire shipment, such party will periodically remit to the other
party the net amount of the proceeds due to such other carrier in accordance
with standard industry practice.
ICC Order
Provisions of the IC Act require the ICC to approve the acquisition of
control over an entity, such as the Company, that controls one or more
railroads, by an entity, such as Purchaser, that is under common control with
one or more other railroads.
On January 29, 1993, Union Pacific, UPRR and the Company filed an
application with the ICC for an order authorizing the common control, within the
meaning of the IC Act, of the rail subsidiaries of the Company and Union
Pacific. Union Pacific and the Company requested that the ICC issue an order
that would permit Union Pacific to, among other things, convert its Non-Voting
Shares into Shares, vote such Shares, acquire additional Shares if it elects to
do so and (subject to the approval of the Company) coordinate further the
railroad subsidiaries of Union Pacific and the Company, in each case without the
need to obtain any further control authorization from the ICC.
On December 13, 1994, the commissioners of the ICC voted to approve the
Control Application, subject to the Labor Condition and the Soo Condition, and
issuance by the ICC of a written opinion.
On March 7, 1995, the ICC issued a written opinion approving the Control
Application ('ICC Opinion'). On April 6, 1995 (provided that no stays have been
entered by any court or the ICC prior to such time), the approval will be final
and effective (the 'ICC Final Approval').
Pursuant to the Merger Agreement, the Company has agreed to (i) acquiesce
in the Labor Condition and the Soo Condition contained in the ICC Opinion,
subject to the consummation of the Offer and (ii) cooperate with Union Pacific,
and join in any filings or submissions to the ICC, in connection with obtaining
the ICC Final Approval, provided that prior to consummation of the Offer,
neither the Company nor Union Pacific waive any rights under the Stockholders
Agreement with respect to conditions contained in the Final ICC Approval. Under
the Stockholders Agreement, the Company is obligated to acquiesce in the Labor
Condition and the Soo Condition on the terms described in clause (y) of the
following sentence. The Merger Agreement also provides that on or after April 6,
1995 (provided no stays have been entered by any court or by the ICC prior to
such time) or on such later date that the parties receive the ICC Final
Approval, and if either (x) the Offer has been consummated or (y) the cost of
compliance with the Soo Condition contained in the ICC Final Approval can
reasonably be determined and Union Pacific shall have fully and adequately
indemnified the Company and its affiliates with respect to such cost of
compliance and with respect to the cost of improper assertion of rights to labor
protection under the Labor Condition (and subject to the Company's rights to
determine with Union Pacific the allocation of costs between Union Pacific and
the Company of compliance with the Labor Condition), the Company will convert
Purchaser's Shares of Non-Voting Shares into Shares and appoint two Union
Pacific designees to the Board of Directors.
Pursuant to the Merger Agreement, the Company has agreed to support, and if
requested by Union Pacific, to join in, the application of Union Pacific to the
ICC requesting a determination that the terms of the Merger are just and
reasonable or, alternatively, a declaratory order of the ICC that no such
determination is required, and the Company has agreed to take such further
action as is necessary or desirable to obtain such determination or order.
I-15
<PAGE>
EXHIBIT 99.3
SUPPLEMENT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CHICAGO AND NORTH WESTERN
TRANSPORTATION COMPANY
AT
$35.00 NET PER SHARE
BY
UP RAIL, INC.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
UNION PACIFIC CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS HAVE BEEN EXTENDED UNTIL 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, APRIL 24, 1995,
UNLESS THE OFFER IS FURTHER EXTENDED.
------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH, WHEN ADDED TO THE SHARES OF NON-VOTING COMMON STOCK OF CHICAGO
AND NORTH WESTERN TRANSPORTATION COMPANY (THE 'COMPANY') BENEFICIALLY
OWNED BY UNION PACIFIC CORPORATION ('PARENT') AND UP RAIL, INC. (THE
'PURCHASER') (ASSUMING CONVERSION THEREOF INTO SHARES), CONSTITUTES AT
LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS
(ASSUMING CONVERSION OF THE NON-VOTING COMMON STOCK INTO SHARES)
AND (2) THE INTERSTATE COMMERCE COMMISSION'S APPROVAL OF PARENT'S
AND THE COMPANY'S APPLICATION FOR AN ORDER AUTHORIZING THE
COMMON CONTROL OF THE RAIL SUBSIDIARIES OF THE COMPANY AND
PARENT HAVING BECOME FINAL AND EFFECTIVE PRIOR TO THE
EXPIRATION OF THE OFFER. ON APRIL 6, 1995, THE INTERSTATE
COMMERCE COMMISSION (THE 'ICC') SERVED AN ORDER, EFFECTIVE
ON THE SAME DAY, SETTING THE FINAL TERMS OF THE PREVIOUSLY
IMPOSED CONDITION IN FAVOR OF THE SOO LINE RAILROAD
COMPANY ('SOO') TO PARENT'S EXERCISE OF CONTROL OVER
THE COMPANY'S RAILROAD SUBSIDIARIES. THE COMPANY IS
CONTRACTUALLY OBLIGATED, SUBJECT TO THE CONSUMMATION
OF THE OFFER, TO EXECUTE CERTAIN AMENDMENTS TO
AGREEMENTS, PREVIOUSLY ENTERED INTO BETWEEN THE
PREDECESSORS OF CHICAGO AND NORTH WESTERN
RAILWAY COMPANY ('CNW RAILWAY') AND SOO. UPON
SUCH EXECUTION, THE ICC ORDER WILL BE FINAL
AND EFFECTIVE, AND PARENT WILL HAVE ICC
AUTHORITY TO EXERCISE CONTROL OVER THE
COMPANY, INCLUDING THE PURCHASE OF
SHARES IN THE OFFER AND THE MERGER.
----------------------------------------------------------------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (WITH ONE DIRECTOR
AFFILIATED WITH PARENT ABSENT AND NOT VOTING) APPROVED THE OFFER AND THE
MERGER, HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN
THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS (OTHER THAN
PARENT AND THE PURCHASER) AND RECOMMENDS THAT STOCKHOLDERS OF
THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT
TO THE OFFER.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (i) complete and sign the revised Letter of Transmittal (or
a facsimile thereof) in accordance with the instructions in the revised Letter
of Transmittal, have such stockholder's signature thereon guaranteed if required
by Instruction 1 to the revised Letter of Transmittal, mail or deliver the
revised Letter of Transmittal or such facsimile and any other required documents
to the Depositary and either deliver the certificates for such Shares to the
Depositary along with the revised Letter of Transmittal or facsimile or deliver
such Shares pursuant to the procedure for book-entry transfer set forth in 'THE
OFFER--Procedures for Tendering Shares' in the Offer to Purchase prior to the
expiration of the Offer or (ii) request such stockholder's broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
such stockholder. Tendering stockholders may continue to use the BLUE Letter of
Transmittal delivered with the Offer to Purchase. A stockholder having Shares
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such stockholder desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates for such
Shares are not immediately available or who cannot comply with the procedures
for book-entry transfer on a timely basis, may tender such Shares by following
the procedures for guaranteed delivery set forth in 'THE OFFER--Procedures for
Tendering Shares' in the Offer to Purchase.
Questions and requests for assistance or for additional copies of the Offer
to Purchase, this Supplement, the revised Letter of Transmittal or other tender
offer materials, may be directed to the Information Agent or the Dealer Manager
at their respective addresses and telephone numbers set forth on the back cover
of this Supplement.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
CS First Boston
April 14, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION.......................................... 1
SPECIAL FACTORS....................................... 2
Background of the Transaction....................... 2
Opinion of The Blackstone Group L.P. ............... 2
Summary of Presentation Materials to the Board...... 3
Opinion of CS First Boston Corporation.............. 3
Interests of Certain Persons in the Transaction..... 3
Certain Litigation.................................. 5
FINANCING OF THE TRANSACTION.......................... 5
DISSENTERS' RIGHTS.................................... 6
THE OFFER............................................. 6
1. Terms of the Offer................................ 6
2. Acceptance for Payment and Payment................ 6
5. Price Range of Shares; Dividends.................. 7
11. Certain Legal Matters; Regulatory Approvals....... 7
<PAGE>
To the Holders of Common Stock of Chicago and North Western Transportation
Company:
INTRODUCTION
The following information amends and supplements the Offer to Purchase,
dated March 23, 1995 (the 'Offer to Purchase'), of UP Rail, Inc. (the
'Purchaser'), a Utah corporation and an indirect wholly owned subsidiary of
Union Pacific Corporation, a Utah corporation ('Parent'), pursuant to which the
Purchaser is offering to purchase all outstanding shares of common stock, par
value $.01 per share (the 'Common Stock' or the 'Shares'), of Chicago and North
Western Transportation Company, a Delaware corporation (the 'Company'), at a
price of $35.00 per Share, net to the seller in cash (the 'Offer Price'), upon
the terms and subject to the conditions set forth in the Offer to Purchase, this
Supplement and in the revised Letter of Transmittal (which, as amended from time
to time, together constitute the 'Offer').
This Supplement should be read in conjunction with the Offer to Purchase.
This Supplement, among other things, sets forth certain additional information.
Except as set forth in this Supplement or the revised Letter of Transmittal, the
terms and conditions previously set forth in the Offer to Purchase and the
Letter of Transmittal remain applicable in all respects to the Offer.
Capitalized terms used but not defined in this Supplement have the meanings
assigned to them in the Offer to Purchase.
The purpose of the Offer is for Parent, through the Purchaser, to acquire
the entire equity interest in the Company. The Purchaser currently beneficially
owns all 12,835,304 of the issued and outstanding shares of Non-Voting Common
Stock of the Company, par value $.01 per share (the 'Non-Voting Common Stock')
which, assuming conversion thereof into Shares, represents 27.48% of the
outstanding Shares calculated on a fully diluted basis (assuming conversion of
the shares of Non-Voting Common Stock into Shares and exercise of outstanding
stock options). The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of March 16, 1995 (the 'Merger Agreement'), by and among the
Company, Parent and the Purchaser, a copy of which is attached to the Offer to
Purchase as Annex I. The Merger Agreement provides that, following the
completion of the Offer and the satisfaction or the waiver of certain
conditions, the Purchaser will be merged with and into the Company (the
'Merger'), with the Company as the surviving corporation (the 'Surviving
Corporation'). In the Merger, each outstanding Share (other than Shares held in
the treasury of the Company or owned by Parent, the Purchaser or any other
wholly owned subsidiary of Parent), will be converted into the right to receive
the Offer Price or any higher price per Share paid in the Offer, without
interest thereon. As a result of the Merger, the Surviving Corporation will
become an indirect wholly owned subsidiary of Parent. See 'SPECIAL
FACTORS--Purpose and Structure of the Transaction' and 'THE MERGER AGREEMENT' in
the Offer to Purchase. The time at which the Merger is consummated in accordance
with the Merger Agreement is hereinafter referred to as the 'Effective Time.'
The Offer and the Merger are sometimes collectively referred to herein as the
'Transaction.'
On April 13, 1995, the Purchaser and the Company entered into an amendment
to the Option Agreement to provide that the Purchaser may only exercise its
option to acquire additional Shares from the Company (thereby permitting a
short-form merger) if the Purchaser acquires more than 87.5% (previously 85%)
but less than 90% of the Shares in the Offer.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER
OF SHARES WHICH, WHEN ADDED TO THE SHARES OF NON-VOTING COMMON STOCK
BENEFICIALLY OWNED BY PARENT AND THE PURCHASER (ASSUMING CONVERSION THEREOF INTO
SHARES), CONSTITUTES AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY
DILUTED BASIS (ASSUMING CONVERSION OF THE NON-VOTING COMMON STOCK INTO SHARES)
(THE 'MINIMUM CONDITION') AND (2) THE ICC'S APPROVAL OF PARENT'S AND THE
COMPANY'S APPLICATION FOR AN ORDER AUTHORIZING THE COMMON CONTROL OF THE RAIL
SUBSIDIARIES OF THE COMPANY AND PARENT HAVING BECOME FINAL AND EFFECTIVE PRIOR
TO THE EXPIRATION OF THE OFFER (THE 'ICC FINAL APPROVAL CONDITION'). ON APRIL 6,
1995, THE ICC SERVED AN ORDER, EFFECTIVE ON THE SAME DAY, SETTING THE FINAL
TERMS OF THE PREVIOUSLY IMPOSED CONDITION IN FAVOR OF SOO TO PARENT'S EXERCISE
OF CONTROL OVER THE COMPANY'S RAILROAD SUBSIDIARIES. THE COMPANY IS
CONTRACTUALLY OBLIGATED, SUBJECT TO THE CONSUMMATION OF THE OFFER, TO EXECUTE
CERTAIN AMENDMENTS TO AGREEMENTS, PREVIOUSLY ENTERED INTO BETWEEN THE
PREDECESSORS OF CNW
<PAGE>
RAILWAY AND SOO. UPON SUCH EXECUTION, THE ICC ORDER WILL BE FINAL AND EFFECTIVE,
AND PARENT WILL HAVE ICC AUTHORITY TO EXERCISE CONTROL OVER THE COMPANY,
INCLUDING THE PURCHASE OF SHARES IN THE OFFER AND THE MERGER.
THE BOARD OF DIRECTORS OF THE COMPANY (THE 'BOARD' OR 'BOARD OF DIRECTORS')
HAS UNANIMOUSLY (WITH MR. RICHARD K. DAVIDSON, PRESIDENT OF PARENT, ABSENT AND
NOT VOTING) APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF HOLDERS OF SHARES (OTHER THAN
PARENT AND THE PURCHASER) AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. See 'SPECIAL
FACTORS--Recommendation of the Board of Directors of the Company; Fairness of
the Transaction' in the Offer to Purchase.
THE BLACKSTONE GROUP L.P. ('BLACKSTONE') HAS DELIVERED TO THE BOARD ITS
WRITTEN OPINION TO THE EFFECT THAT, AS OF THE DATE OF THE MERGER AGREEMENT, THE
CASH CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF SHARES PURSUANT TO THE OFFER
AND THE MERGER IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT OF VIEW. See
'SPECIAL FACTORS--Opinion of The Blackstone Group L.P.' in the Offer to Purchase
and this Supplement.
THE OFFER TO PURCHASE, THIS SUPPLEMENT AND THE REVISED LETTER OF
TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE
ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
The procedure for tendering Shares is set forth in 'THE OFFER--Procedures
for Tendering Shares' in the Offer to Purchase. Tendering stockholders may
continue to use the BLUE Letter of Transmittal and GRAY Notice of Guaranteed
Delivery delivered with the Offer to Purchase or may use the GREEN revised
Letter of Transmittal and PINK revised Notice of Guaranteed Delivery which are
being provided with this Supplement.
Stockholders who have validly tendered Shares and not withdrawn such
tenders and who wish to have such Shares purchased pursuant to the Offer need
not take any further action except for complying with the procedure for
guaranteed delivery if such procedure is being used.
1. The discussion set forth in 'SPECIAL FACTORS--Background of the
Transaction' in the Offer to Purchase is hereby amended and supplemented as
follows:
During late 1994 and January 1995, representatives of Blackstone discussed
with the Company's management the advantages in terms of potentially increased
negotiating leverage and disadvantages of adopting a stockholders' rights plan;
they also discussed this topic with members of the Company's Board (with Mr.
Davidson absent) following the Board's December 15, 1994 meeting.
At the February 28 Board meeting, again with Mr. Davidson absent, the
benefits and detriments of adoption of a stockholders' rights plan were
reviewed, counsel made a presentation of legal considerations, and the Board
concluded to defer adoption of a plan. The Board's conclusion was based on their
view that (i) a rights plan would dissuade Parent from making a friendly offer,
and that, given Parent's existing 29% stock ownership in the Company and the
absence of any realistic potential competitive bidders, a friendly offer was
likely to result in a higher ultimate price than a hostile offer; and (ii) a
rights plan could be adopted quickly if the need arose. A rights plan was not
thereafter adopted because Parent proceeded to negotiate directly with the
Company's Board and did not make a hostile offer for the Company.
2. The discussion set forth in 'SPECIAL FACTORS--Opinion of The Blackstone
Group L.P.' in the Offer to Purchase is hereby amended and supplemented by
adding to the end thereof:
Pursuant to the terms of the March 3, 1995 letter agreement, the Company
agreed to pay Blackstone a fee equal to $6,000,000, less one-half of the
$500,000 fee paid Blackstone pursuant to the December 14, 1994 letter agreement,
plus reasonable expenses. Blackstone's fee was contingent upon the signing of a
definitive agreement for a sale of, investment in, recapitalization by,
strategic alliance with or joint venture involving, the Company (the 'CNW
Transaction') and was payable as follows: (i) $4,750,000 upon the signing of
such an agreement; and (ii) the remaining $1,000,000 upon the earlier of the
consummation of the CNW Transaction and December 31, 1995. Two directors,
Messrs. Poling and Skinner, voted against the approval of Blackstone's fee
arrangement, on the basis of their view that the fee should be consistent with
the amount of time involved to
2
<PAGE>
complete the transaction. At no time did either Mr. Poling or Mr. Skinner
express any reservation about Blackstone's independence, ability or work.
Transtar, Inc. ('Transtar') is a holding company which, among other
businesses, is involved in the rail transportation business which operates in
certain of the same and neighboring geographic regions as the Company.
Blackstone and its affiliates hold a 51% interest in Transtar. The remaining 49%
is held by USX Corporation ('USX') and Transtar management. The Company's
business with Transtar accounts for less than 1% of the Company's revenues.
During 1993 and 1994, the Company informally engaged in discussions with
Blackstone and USX regarding a possible acquisition of Transtar. These
discussions ended in March 1994, at which point Mr. Schmiege had indicated to a
representative of USX a possible interest in pursuing a transaction in the
future. Company director Mr. Mossman, a Blackstone General Partner, and
Blackstone General Partners Messrs. Peterson and Schwarzman serve as Transtar
directors. Transtar was in no way involved in any aspect of the Merger
Agreement.
3. The discussion set forth in 'SPECIAL FACTORS--Summary of Presentation
Materials to the Board--Potential Value to Parent--Pro Forma Merger Analysis'
in the Offer to Purchase is hereby supplemented by revising the next to last
sentence of such section to read as follows:
In the Control Application, Parent and the Company projected that a merger
between the two companies would result in normalized annual synergies totaling
approximately $184 million in 1991 dollars. The Company's management determined
that in assessing the value of the Company to Parent, this $184 million should
be discounted, ascribing a relatively high level of probability to its
approximately $79 million cost reduction component and a substantially lower
level of probability to its approximately $105 million revenue enhancement
component.
4. The discussion set forth in 'SPECIAL FACTORS--Opinion of CS First
Boston Corporation' in the Offer to Purchase is hereby amended and supplemented
as follows:
The Comparable Company Analysis and the Discounted Cash Flow Analysis
performed by CS First Boston did not consider the value of the Synergies which
would be created by a merger between Parent and the Company in assessing the
Company's value. In order to determine the value of the Company to Parent as an
acquisition, it is therefore necessary to add the values derived by CS First
Boston's Synergies Analysis to the values derived by its Comparable Company
Analysis and Discounted Cash Flow Analysis. The values derived by performing
this addition do not necessarily reflect the price Parent would be willing to
pay to acquire the Company.
The ranges of values calculated by means of CS First Boston's Synergies
Analysis were based on the Synergies projected by Parent as described in the
Offer to Purchase under the section 'SPECIAL FACTORS--Plans for the Company
after the Offer and Merger.' Parent advised CS First Boston that it believed
that such Synergies were a reliable estimate of the actual Synergies that would
be created as a result of the Merger.
CS First Boston's analyses indicated, based on Parent's view of the
estimates of realistically attainable Synergies, that the full value of the
Synergies would be approximately $21.00-$25.00, on a per Share basis. The
percentages of retained Synergies set forth in CS First Boston's Synergies
Analysis represent an assumed range of Synergies to be added to the Comparable
Company Analysis and Discounted Cash Flow Analysis, and not the absolute level
of Synergies that would be realized as a result of the Merger.
5. The discussion set forth in 'SPECIAL FACTORS--Interests of Certain
Persons in the Transaction' in the Offer to Purchase is hereby amended and
supplemented as follows:
Negotiations concerning the Separate Payments began after the CNW Board
negotiated and approved the $35 per Share price. The Company expressed the view
to Parent that amounts to be paid under the Change of Control Employment
Agreements would not be adequate severance compensation, especially in light of
the covenants not to compete which would prevent recipients from pursuing
employment in the railroad industry for a period of one year following the
cessation of their employment with the Company.
The Offer to Purchase under the caption 'SPECIAL FACTORS--Interests of
Certain Persons in the Transaction' sets forth the estimated amounts payable to
executive officers under the Change of Control Employment Agreements upon
qualifying terminations of employment, after reduction, pursuant to the terms of
such agreements, for (i) the amount of the prorated guaranteed bonus (assuming
an April 24, 1995 termination) and (ii) portions of the payments made under the
Merger Agreement with respect to the value of the executive's
3
<PAGE>
unvested options, all as determined by the Company under the proposed
regulations issued by the Internal Revenue Service under Code Section 280G, at
the amounts indicated in the left column below. Those amounts are currently
estimated as shown in the right column below.
<TABLE>
<CAPTION>
INITIAL CURRENT
ESTIMATES ESTIMATES
----------- -----------
<S> <C> <C>
Mr. Bitter........................................ $ 437,112 $ 355,743
Mr. Lundberg...................................... 456,302 391,243
Mr. Martin........................................ 1,181,172 1,106,460
Mr. Peters........................................ 1,212,549 1,127,466
Mr. Waller........................................ 431,648 366,589
All officers with Change of Control Employment
Agreements....................................... 11,865,054 10,906,363
</TABLE>
As previously disclosed in the Offer to Purchase under the caption 'SPECIAL
FACTORS--Interests of Certain Persons in the Transaction,' the Company and UPRR
have offered three-year employment agreements to certain executives which, if
accepted by the executives, will replace the Change of Control Employment
Agreements which the executives now have with the Company. Each proposed
employment agreement provides that, during the employment period, an executive's
salary will not be less than the executive's current salary and the executive's
annual bonus will not be less than the executive's bonus with respect to 1994.
After January 1, 1996, the executive will receive the benefits provided to
comparable employees performing similar services and will be given service
credit under the benefit plans for all years of service for which the executive
received credit under the comparable plans of CNW Railway (subject to reduction
for similar benefits therefrom). If the executive's employment is terminated
during the employment period by the employer without cause (or by the executive
after a reduction in the executive's salary or bonus), the executive will be
paid a lump sum amount equal to the present value of the aggregate salary and
bonus otherwise payable under the proposed employment agreement. Under the
proposed employment agreement the executive will make certain commitments as to
confidentiality, noncompetition and the amendment of certain other agreements to
which the executive may be a party. It is anticipated that one executive, at his
request, will be offered a revised employment agreement which will permit him to
defer the receipt of any bonus from UPRR for 1995 or subsequent years.
Of the twenty-seven executives with Change of Control Employment
Agreements, it is currently estimated that approximately nine of such executives
will enter into such employment agreements, including Mr. Peters. In addition,
in order to implement the terms of the severance arrangements provided for in
the Merger Agreement and described in the Offer to Purchase, the Company, UPRR
and CNW Railway have offered severance agreements to such twenty-seven
executives. It is anticipated that those of such executives who do not enter
into the employment agreements will enter into the severance agreements. Under
most of the proposed severance agreements, the executive's employment would
terminate shortly after the consummation of the Offer, but a few individuals may
agree to continue employment for various transition periods, which will not
exceed nine months.
On April 12, 1995, the Company, Parent and the Purchaser entered into a
document clarifying their understanding of how certain provisions of the Merger
Agreement should be applied with respect to employees of the Company whose
employment is terminated prior to the Effective Time. Such clarification
document provides that if the employment of a Company employee is terminated
(voluntarily or otherwise) prior to the Effective Time, each Option which is
held by such employee immediately prior to the later of the date of the
consummation of the Offer or the date of such termination of employment will be
cancelled on the later of such dates (provided that any required consent to
cancellation has been given by the employee). Promptly upon such cancellation,
the Company will pay to such employee an amount equal to the excess, if any, of
the Offer Price over the exercise price per Share subject to such Option,
multiplied by the number of Shares subject thereto. The clarification document
also provides that the Company will pay to a 'Terminated Employee' (as defined
below), as soon as reasonably practical after the date of his or her termination
of employment, a prorated bonus calculated in accordance with the Merger
Agreement, provided that such prorated bonus shall be based on the Company's
performance through the end of the calendar quarter coinciding with or
immediately preceding such termination and prorated to the date of such
termination. For such purposes, a 'Terminated Employee' shall mean a Company
employee, (i) whose employment is terminated (whether voluntarily or otherwise)
prior to the Effective Time, (ii) who does not (either before or after such
termination) enter into a severance agreement with
4
<PAGE>
respect to such employment similar to the employment agreements described in the
second preceding paragraph, and (iii) who was, immediately prior to the
execution of the Merger Agreement, a participant in the Company's Bonus Plan. A
copy of the clarification document has been filed as an exhibit to the Schedule
14D-1 and the Schedule 13E-3.
6. The discussion set forth in 'SPECIAL FACTORS--Certain Litigation' in
the Offer to Purchase is hereby amended and supplemented as follows:
On March 28, 1995, an amended class action complaint, amending two of the
previously filed five purported class action suits (the 'Amended Class Action'),
was filed in the Court of Chancery in Delaware. The Amended Class Action
reiterated the claims which had been made in the earlier suits which it amended,
and also alleged, 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 dissenters' 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 in this
paragraph, 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 the Shares as prepared by the financial
advisors of Parent and the Company, respectively.
On March 30, 1995, the Delaware Court of Chancery, in the Amended Class
Action, granted expedited discovery and scheduled a hearing on April 13, 1995,
for (i) plaintiffs' motion for a preliminary injunction and (ii) defendants'
motion to dismiss the case for lack of subject matter jurisdiction on grounds
that the ICC is the exclusive forum to consider plaintiffs' purported claims.
On April 13, 1995, counsel for the Company, Parent and the plaintiffs in
the pending class action lawsuits entered into a memorandum of understanding
(the 'Memorandum of Understanding') proposing to settle all of the pending class
action lawsuits relating to the Offer. Pursuant to the Memorandum of
Understanding, Parent and the Company agreed, among other things, (i) to
disseminate certain supplemental disclosures to the Company's stockholders
(which disclosures, among others, are included in this Supplement), (ii) to
modify the Option Agreement to provide that the Purchaser may only exercise its
option to acquire additional Shares from the Company (thereby permitting a
short-form merger) if the Purchaser acquires more than 87.5% (previously 85%)
but less than 90% of the Shares in the Offer, and (iii) to extend the Expiration
Date until ten (10) calendar days after the date of this Supplement. The
Memorandum of Understanding also provides that Parent and/or the Company will
pay plaintiffs' counsel fees in an amount not to exceed $525,000, inclusive of
expenses, subject to approval of the Delaware Court of Chancery.
The parties to the Memorandum of Understanding also agreed to work in good
faith to prepare and submit to the Delaware Court of Chancery for its approval
at the earliest practicable time a Stipulation of Settlement of the pending
class action lawsuits. If such Stipulation of Settlement is not executed or is
not approved by the Court, or if the Offer is not consummated, the proposed
settlement will be null and void and will not prejudice the rights of any party
with respect to such litigation. A copy of the Memorandum of Understanding has
been filed as an exhibit to the Schedule 14D-1 and Schedule 13E-3.
7. The discussion set forth in 'FINANCING OF THE TRANSACTION' in the Offer
to Purchase is hereby amended and supplemented as follows:
As was contemplated by the Commitment, on April 11, 1995, Parent entered
into a credit agreement (the '$1.1 Billion Credit Agreement') among Parent,
Chemical Bank and Citicorp Securities, Inc., as Co-Arrangers, Chemical
Securities, Inc., as Syndication Agent, and the other banks named therein, which
provides Parent with a revolving credit facility in the amount of $1.1 billion
which will mature on April 11, 2000. In addition, as was contemplated by the
Commitment, on April 11, 1995, Parent entered into a separately documented
credit agreement (the '$1.2 Billion Credit Agreement') among Parent, Chemical
Bank and Citicorp Securities, Inc., as Co-Arrangers, Chemical Securities, Inc.,
as Syndication Agent, and the other banks named therein, which provides Parent
with a revolving credit facility in the amount of $1.2 billion which will mature
on April 10, 1996. The terms of the $1.1 Billion Credit Agreement and $1.2
Billion Credit Agreement were set forth in
5
<PAGE>
'FINANCING OF THE TRANSACTION' in the Offer to Purchase. The Facility fee
relating to the $1.2 Billion Credit Agreement is .060% per annum in contrast to
the .190% per annum disclosed in the Offer to Purchase.
The Purchaser estimates that the total amount of funds required to purchase
all Shares validly tendered pursuant to the Offer, consummate the Merger and to
pay all related costs and expenses (inclusive of estimated expenses of the
Company other than the cost of refinancing certain indebtedness of the Company,
if any) will be approximately $1.2 billion. See 'THE OFFER--Fees and Expenses'
in the Offer to Purchase.
The Purchaser plans to obtain the necessary funds through capital
contributions or advances made by Parent. Parent plans to obtain the funds for
such capital contributions or advances from its available cash and working
capital and/or the proceeds of the Facility or Parent's commercial paper
program.
Parent's commercial paper program involves the private placement of
unsecured, commercial paper notes with maturities of up to 270 days. The
commercial paper generally has an effective interest rate approximating the then
market rate of interest for commercial paper of similar rating, currently
approximately 6.2%. Parent may refinance any commercial paper borrowings used to
finance the purchase of Shares pursuant to the Offer through private placements
of additional commercial paper, borrowings under the Facility contemplated by
the Commitment or, depending on market or business conditions, through such
other financing as Parent may deem appropriate.
On April 6, 1995, the ICC served an order which, among other things, (i)
exempts Parent from the requirement of filing applications under 49 U.S.C. 11301
with respect to the issuance of certain securities and/or assumption of certain
obligations or liabilities, which are expected to be required for the repayment
of obligations incurred in financing the Transaction and prepaying certain
indebtedness of the Company, in a principal amount not to exceed $2.3 billion
and (ii) set April 10, 1995, as the date upon which such decision would become
effective.
8. The discussion set forth in 'DISSENTERS' RIGHTS' of the Offer to
Purchase is hereby amended and supplemented as follows:
As previously disclosed in the Offer to Purchase under the caption
'DISSENTERS' RIGHTS,' Parent and the Company stated their intention to seek a
determination of the ICC that the terms of the Merger are just and reasonable.
On April 4, 1995, Parent, UPRR, MPRR and the Company submitted to the ICC a
petition for a determination that the terms of the Merger are just and
reasonable. To date, the ICC has not issued any determination in response to
such petition.
9. The discussion set forth in 'THE OFFER--Terms of the Offer' in the
Offer to Purchase is hereby amended and supplemented as follows:
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date (as hereinafter defined) and not withdrawn
in accordance with Section 4 in the Offer to Purchase. The term 'Expiration
Date' means 12:00 Midnight, New York City time, on Monday, April 24, 1995,
unless and until the Purchaser, in its sole discretion (but subject to the terms
of the Merger Agreement), shall have extended the period of time during which
the Offer is open, in which event the term 'Expiration Date' shall refer to the
latest time and date at which the Offer, as so extended by the Purchaser, shall
expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition and the ICC Final Approval Condition. On April 6, 1995, the
ICC served an order, effective on the same day, setting the final terms of the
previously imposed condition in favor of Soo to Parent's exercise of control
over the Company's railroad subsidiaries. The Company is contractually
obligated, subject to the consummation of the Offer, to execute certain
amendments to agreements, previously entered into between the predecessors of
CNW Railway and Soo. Upon such execution, the ICC order will be final and
effective, and Parent will have ICC authority to exercise control over the
Company, including the purchase of Shares in the Offer and the Merger.
10. The discussion set forth in 'THE OFFER--Acceptance for Payment and
Payment' in the Offer to Purchase is hereby amended and supplemented as follows:
Notwithstanding the fact that the Purchaser stated in the Offer to Purchase
that it reserved the right to assert the occurrence of a condition following
acceptance for payment of Shares but prior to payment for Shares in
6
<PAGE>
order to delay payment or cancel its obligation to pay for properly tendered
Shares, the Purchaser understands that all conditions of the Offer, other than
receipt of necessary governmental approvals, must be satisfied or waived prior
to the acceptance of Shares for payment. In addition, if, following acceptance
of payment for Shares, the Purchaser asserts such a governmental approval as a
condition and does not promptly pay for Shares tendered, the Purchaser will
promptly return such Shares.
11. The discussion set forth in 'THE OFFER--Price Range of Shares;
Dividends' in the Offer to Purchase is hereby amended and supplemented as
follows:
The following table sets forth, for the quarters indicated, the high and
low closing sales prices per Share on the NYSE as reported by the Dow Jones News
Service.
<TABLE>
<CAPTION>
MARKET PRICE
----------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1993:
First Quarter............................................ $23 1/8 $19 1/8
Second Quarter........................................... 24 1/4 19 7/8
Third Quarter............................................ 23 19
Fourth Quarter........................................... 25 1/8 19 1/2
FISCAL YEAR ENDED DECEMBER 31, 1994:
First Quarter............................................ 28 1/8 24 1/8
Second Quarter........................................... 25 21 5/8
Third Quarter............................................ 24 1/4 19 3/8
Fourth Quarter........................................... 20 7/8 18 1/4
FISCAL YEAR ENDED DECEMBER 31, 1995:
First Quarter............................................ 34 7/8 19
Second Quarter (through April 13, 1995).................. 34 7/8 34 3/4
</TABLE>
Stockholders are urged to obtain a current market quotation for the Shares.
12. The discussion set forth in 'THE OFFER--Certain Legal Matters;
Regulatory Approvals' in the Offer to Purchase is hereby amended and
supplemented as follows:
ICC Matters. On April 6, 1995, the ICC served an order, effective on the
same day, setting the final terms of the previously imposed condition in favor
of Soo to Parent's exercise of control over the Company's railroad subsidiaries.
The Company is contractually obligated, subject to the consummation of the
Offer, to execute certain amendments to agreements, previously entered into
between the predecessors of CNW Railway and Soo. Upon such execution, the ICC
order will be final and effective, and Parent will have ICC authority to
exercise control over the Company, including the purchase of Shares in the Offer
and the Merger.
On April 4, 1995, Parent, UPRR, MPRR and the Company submitted to the ICC a
petition for a determination that the terms of the Merger are just and
reasonable. To date, the ICC has not issued any determination in response to
such petition.
UP RAIL, INC.
April 14, 1995
7
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal or revised
Letter of Transmittal will be accepted. The Letter of Transmittal or revised
Letter of Transmittal, certificates for Shares and any other required documents
should be sent or delivered by each stockholder of the Company or such
stockholder's broker, dealer, commercial bank, trust company or other nominee to
the Depositary at one of its addresses set forth below:
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Delivery: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data c/o Citicorp Data Corporate Trust Window
Distribution, Inc. Distribution, Inc. 111 Wall Street, 5th Floor
P.O. Box 1429 404 Sette Drive New York, New York
Paramus, New Jersey 07653 Paramus, New Jersey 07652
By Facsimile Transmission: By Telex:
(For Eligible Institutions Only) (710) 990-4964
(201) 262-3240 Answer Back: CDDI PARA
Confirm By Telephone:
(800) 422-2066
</TABLE>
-----------------------------
Questions and requests for assistance or for additional copies of the Offer
to Purchase, this Supplement, the revised Letter of Transmittal and the revised
Notice of Guaranteed Delivery may be directed to the Information Agent or the
Dealer Manager at their respective telephone numbers and locations listed below.
You may also contact your broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
<TABLE>
<S> <C> <C>
909 Third Avenue, 20th Floor 14755 Preston Road, Suite 725 39 South LaSalle Street
New York, New York 10022 Dallas, TX 75240 Chicago, Illinois 60603
(212) 754-8000 (214) 788-0977 (312) 444-1150
(Call Collect) (Call Collect) (Call Collect)
</TABLE>
or
Banks & Brokers Call Toll Free 1-800-662-5200
All Others Call Toll Free 1-800-566-9058
The Dealer Manager for the Offer is:
CS FIRST BOSTON
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
(212) 909-2000 (Call Collect)
<PAGE>
EXHIBIT 99.4
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the Board of Directors of the Company,
stockholders of the Company should be aware that certain officers and directors
of the Company have certain interests in the Transaction, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Offer. The Board was aware of these potential or actual
conflicts of interest and considered them along with other matters described
under 'SPECIAL FACTORS--Recommendation of the Board of Directors of the Company;
Fairness of the Transaction.'
Richard K. Davidson, who is the President of Parent and the Chairman and
Chief Executive Officer of UPRR and MPRR, is a member of the Board of Directors
of the Company and serves in such capacity as Purchaser's designee under the
Stockholders Agreement (as defined below). Mr. Davidson was absent and did not
vote at meetings of the Board held on February 28, March 9, and March 16, 1995.
See 'SPECIAL FACTORS--Background of the Transaction.' As of March 23, 1995, the
Purchaser owned 12,835,304 shares of Non-Voting Common Stock, which would, upon
conversion, constitute 27.48% of the outstanding Shares on a fully diluted basis
(assuming conversion of the shares of Non-Voting Common Stock into Shares and
exercise of all outstanding Options).
As of March 16, 1995, the executive officers and directors of the Company
owned an aggregate of 230,527 Shares and held Options to purchase an aggregate
of 932,505 Shares (whether or not exercisable). On such date, the Shares owned
by executive officers and directors of the Company and the Options held by such
persons (whether or not exercisable) together constituted 2.49% of the
outstanding Shares on a fully diluted basis (assuming the conversion of the
shares of Non-Voting Common Stock into Shares and exercise of all outstanding
Options). If the Transaction is consummated, such persons will receive an
aggregate of $8,068,445 in cash for their Shares and, in addition, an aggregate
of $26,017,172 in cash with respect to the cancellation of Options assuming no
such person receives rollover options on Parent common stock. See 'THE MERGER
AGREEMENT--Compensation and Benefits' for a discussion of the treatment of
Options in the Merger.
The following table sets forth, as of March 16, 1995, the number of Shares
and Options owned by, and the aggregate amounts to be received by, each
executive officer and director of the Company who owns any Shares or Options,
and all executive officers and directors of the Company as a group, pursuant to
the Transaction. Other than the individuals named below, no executive officer or
director of the Company owns any Shares.
<TABLE>
<CAPTION>
TOTAL
CASH AMOUNT
TO BE
NAME OF DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY SHARES OPTIONS(4) RECEIVED(5)
- ----------------------------------------------------------------------- ------- ----------- --------------
<S> <C> <C> <C>
F. G. Bitter........................................................... 0 50,000 $ 737,500
Richard K. Davidson(1)................................................. 0 0 0
Paul A. Lundberg....................................................... 13,997 32,125 983,638
James E. Martin(2)..................................................... 3,000 0 105,000
James J. Mossman(2)(3)................................................. 31,967 0 1,118,845
Harold A. Poling....................................................... 500 0 17,500
Robert Schmiege........................................................ 153,192 466,895 18,957,702
Samuel K. Skinner(2)................................................... 4,137 0 144,795
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
TOTAL
CASH AMOUNT
TO BE
NAME OF DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY SHARES OPTIONS(4) RECEIVED(5)
- ----------------------------------------------------------------------- ------- ----------- --------------
<S> <C> <C> <C>
James R. Thompson(2)................................................... 4,237 0 148,295
Arthur W. Peters....................................................... 0 340,569 10,381,971
Dennis E. Waller....................................................... 19,497 42,916 1,490,371
------- ----------- --------------
All Executive Officers and Directors (11 persons)...................... 230,527 932,505 $ 34,085,617
</TABLE>
- ------------------
(1) Mr. Davidson is the President of Parent. Share data does not include the
beneficial holdings of Parent or the Purchaser.
(2) Includes, for each of Messrs. Martin, Mossman, Skinner and Thompson, 4,137
shares held in the Director's Pension and Retirement Savings Trust (the
'Plan Trust') which are voted by each respective director but with respect
to which such directors do not have the right of disposition. Such Plan
Trust was established to hold Shares in connection with the Company's
Directors' Pension and Retirement Savings Plan.
(3) Includes 27,830 Shares held through a limited partnership affiliated with
Blackstone.
(4) Includes vested and unvested Options.
(5) Assumes all Options will be settled for cash.
In December 1994, the Company entered into Change of Control Employment
Agreements with Messrs. F. Gordon Bitter (Senior Vice President--Finance and
Accounting), Paul A. Lundberg (Senior Vice President-- Services), James E.
Martin (Executive Vice President--Operations), Arthur W. Peters (Senior Vice
President-- Sales and Marketing) and Dennis E. Waller (Senior Vice
President--Engineering and Equipment) and twenty-two other employees of the
Company who are not executive officers. Each such agreement provides for, among
other things: (i) a three-year employment period, beginning on the date of a
Change of Control (as defined in such agreements), at an annual base salary
equal to at least 12 times the highest monthly salary payable during the
12-month period immediately preceding the Change of Control; (ii) a guaranteed
annual bonus; and (iii) continued participation in the incentive, savings,
retirement, welfare and other fringe benefit plans sponsored by the Company. If
the executive's employment is terminated by the Company (other than for Cause
(as defined in such agreements) or by reason of the executive's death or
disability), or if the executive terminates employment for Good Reason (as
defined in such agreements), the executive will receive: (i) annual base salary,
guaranteed bonus and accrued vacation pay through the date of termination; (ii)
previously deferred and unpaid compensation; (iii) an amount equal to three
times the sum of the executive's base salary and annualized guaranteed bonus in
the year in which the termination occurs; (iv) reimbursement for benefits which
would have accrued in three more years and for unvested benefits forfeited under
the Company's Supplementel Pension Plan as a result of termination; and (v)
continuation of all medical, life insurance and other welfare benefits for a
period of three years from termination. Payments under each of such agreements
will be reduced to the extent it is determined that any portion thereof would be
nondeductible under Section 280G of the Internal Revenue Code of 1986, as
amended (the 'Code'), as an 'excess parachute payment.' If payments equal to or
in excess of 300% of the executive's 'base amount' (generally the average annual
compensation received by the executive over his five most recent tax years) are
made to the executive, then all amounts in excess of 100% of the executive's
base amount generally constitute 'excess parachute payments' for purposes of the
Code. It is anticipated that the payments made to the executive officers under
the Change of Control Employment Agreements after reduction for the portions of
(i) the amount of the prorated guaranteed bonus and (ii) the payments made under
the Merger Agreement with respect to the value of the executive's unvested
options, all as determined by the Company under the proposed regulations issued
by the Internal Revenue Service under Code Section 280G, are $437,112 for Mr.
Bitter, $456,302 for Mr. Lundberg, $1,181,172 for Mr. Martin, $1,212,549 for Mr.
Peters, $431,648 for Mr. Waller and $11,865,054 for all officers with Change of
Control Employment Agreements.
Pursuant to the Merger Agreement, the Company will, after the Effective
Time, pay bonuses under its Bonus Plan in an amount determined by projecting to
December 31, 1995, its performance through the date of closing and prorating the
resulting bonus amounts to the date of closing. The following bonus payments
would be made pursuant to the Bonus Plan if the Effective Time were May 1, 1995:
Mr. Schmiege, $150,000; Mr. Bitter, $91,667; Mr. Lundberg, $75,000; Mr. Martin,
$91,667; Mr. Peters, $96,073; Mr. Waller, $75,000; and $1,094,899 for all
officers with Change of Control Employment Agreements.
19
<PAGE>
Under the Merger Agreement, Parent has agreed to cause the Surviving
Corporation to honor the Change of Control Employment Agreements. In some
instances individual employees may enter into employment agreements with Parent
or one of its affiliates pursuant to which the rights to payments under the
Change of Control Employment Agreements are extinguished.
In addition, under the Merger Agreement, Parent has agreed that each
individual officer with a Change of Control Employment Agreement whose
employment terminates under the Change of Control Employment Agreement as
described in the third preceding paragraph above and who (i) agrees to receive a
lump sum payment in cash of all benefits such officer is entitled to upon
termination of employment under the Change of Control Employment Agreement, (ii)
agrees to the amendment of the Stockholders Agreements, dated March 30, 1992 and
June 21, 1993 and the Registration Rights Agreement, dated July 14, 1989 to
provide for their termination and to waive all rights which such officer may
have under such agreements and (iii) waives any claims which such officer may
have against the Company (other than any rights such officer may have to
benefits under the Company's benefit plans and any rights such officer may have
to indemnification by the Company as provided in the Merger Agreement as
described in 'THE MERGER AGREEMENT') will receive a separate payment ('Separate
Payment') from the Company in an amount equal to the product of $15.0 million
and a fraction, the numerator of which is such officer's individual 1995
annualized compensation (current salary and maximum bonus) and the denominator
of which is the total 1995 annualized compensation (current salary and maximum
bonus) of all officers with Change of Control Employment Agreements. As a result
of the receipt by an executive of a Separate Payment in addition to the payments
under such executive's Change of Control Employment Agreement, portions of the
total payments to such executive could constitute 'excess parachute payments,'
resulting in non-deductibility of such 'excess parachute payments' to the
Company and imposition with respect thereto of a 20% excise tax on the
executive.
If the following executive officers have such a termination of employment
under the Change of Control Employment Agreements and agree to the conditions
identified for the receipt of the Separate Payments, it is anticipated that such
officers would receive Separate Payments in the following amounts: Mr. Bitter,
$1,079,220; Mr. Lundberg, $882,998; Mr. Martin, $1,079,220; Mr. Peters,
$1,131,101, Mr. Waller; $882,998; and all officers with Change of Control
Employment Agreements (including the five identified officers), $15,000,000.
Officers who enter into employment agreements with Parent or one of its
affiliates will not receive Separate Payments.
Subject to the employee consenting to the cancellation of his Options, if
consent is required by the terms of the Option (whether or not currently
exercisable), all outstanding Options under the Company's 1989 Equity Incentive
Plan for Key Employees, 1992 Equity Incentive Plan, and 1994 Equity Incentive
Plan (the 'Option Plans') and certain Rollover Option Agreements will be
cancelled by the Company at the Effective Time. Options which have been
cancelled on exercise of limited stock appreciation rights will not be
considered outstanding for this purpose. In consideration for the cancellation
of his or her Options, each employee will receive payment with respect to each
Share with respect to which the employee holds an Option in the amount of the
excess of the Offer Price over the exercise price. Employees of the Company whom
Parent or its affiliates have agreed to employ will be permitted to make an
advance election, in lieu of receiving a cash payment, to exchange their Options
for options with respect to common stock of Parent having in the aggregate
substantially the same terms and conditions, but without reload or change in
control features, as the Company Options exchanged therefor. If cash is received
in respect of all of their Options, the executive officers and all officers with
Change of Control Employment Agreements would receive the following payments as
consideration for the cancellation of their Options: Mr. Schmiege, $13,595,982;
Mr. Bitter, $737,500; Mr. Lundberg, $493,743; Mr. Martin, $0; Mr. Peters,
$10,381,971; Mr. Waller, $807,976; and all executive officers, $26,017,172.
In addition, in connection with the retention of Mr. James Martin as
Executive Vice President--Operations of the Company, effective May 2, 1994, Mr.
Martin, received a payment of $125,000 at the time of his retention, and, based
on the recommendation at that time of the Chief Executive Officer of the
Company, is expected to receive in addition to his normal compensation, a
service bonus of $125,000 when he retires.
Parent has also agreed in the Merger Agreement that all rights to
indemnification existing in favor of present or former directors, officers,
employees and agents of the Company or any of its subsidiaries as provided in
the Company's Restated Certificate of Incorporation or By-Laws or the
certificate or articles of incorporation, by-laws or similar documents of any of
the Company's subsidiaries as in effect as of the date of the Merger Agreement
with respect to matters occurring prior to the Effective Time will survive the
Merger and will
20
<PAGE>
continue in full force and effect. In addition, the Merger Agreement provides
that subject to certain limitations, Parent will cause to be maintained in
effect for not less than six years from the consummation of the Offer the
current directors' and officers' liability insurance policies maintained by the
Company (provided that Parent may substitute therefor policies of at least the
same coverage containing terms and conditions which are no less advantageous)
with respect to matters occurring prior to the Effective Time. See 'THE MERGER
AGREEMENT--Directors' and Officers' Insurance and Indemnification.'
Following execution of the Merger Agreement, Parent approved an arrangement
under which, after the Effective Time, Parent will contribute to charities of
Mr. Schmiege's choice, in honor of Mr. Schmiege, an aggregate of $1,500,000,
payable over five years.
