July 18, 1994
Kansas City Southern Industries, Inc.
114 West 11th Street
Kansas City, Missouri 64105
LETTER OF INTENT
Gentlemen:
This letter of intent ("Letter of Intent") confirms the understanding between
Kansas City Southern Industries, Inc. ("KCSI") and Illinois Central
Corporation ("Illinois Central") with regard to the proposed acquisition by
Illinois Central of KCSI, except for businesses, assets and operations that
are not within the businesses, operations, and assets of the Transportation
Services Division ("Transportation Services Division") of KCSI and certain
other non-transportation assets of KCSI. The proposed acquisition is referred
to herein as the "Transaction".
The terms of the understanding are as follows:
1. The structure of the Transaction will consist of the merger of KCSI
with and into Illinois Central (the "Merger") immediately following the
distribution in the form of a spin-off dividend to the common shareholders of
KCSI of all of KCSI's equity interest in the businesses constituting the
financial services and information processing operations and certain non-
transportation assets of KCSI (including KCSI's interests in the Mulberry
Western Property, the 10 Central Garage investment and the non-transportation
assets of Southern Leasing Corporation). Immediately prior to consummation
of the Merger, Illinois Central shall deliver the shares of the Illinois
Central Railroad to a trustee to be held pursuant to the terms of a voting
trust agreement, thereby enabling Illinois Central to acquire direct ownership
and control of Kansas City Southern Railway Company ("KCSR").
2. The aggregate consideration for the Transaction shall consist of (a)
.4883 of a share of common stock of Illinois Central, par value $.001 per
share ("Illinois Central Common Stock"), for each currently outstanding share
of common stock of KCSI, $.01 par value per share ("KCSI Common Stock"), (b)
an amount of cash equal to the aggregate par value of the outstanding shares
of preferred stock of KCSI, $25 dollar par value, and (c) the assumption of up
to $929 million of indebtedness of the Transportation Services Division
(including approximately $140 million of indebtedness that could be incurred
by KCSI for the purposes set forth in the letters dated June 24, 1994 and June
29, 1994 from Illinois Central to the Board of Directors of KCSI (the "Bid
Letters"). Illinois Central and KCSI shall in good faith consider the
advisability of a purchase price adjustment based upon changes in the net
worth of the Transportation Services Division or similar changes. Standard
representations and warranties with respect to KCSI and KCSR shall survive the
Merger and the entity to be spun-off by KCSI as contemplated by paragraph 1
shall remain liable for such representations and warranties, the exact nature
and extent of such representations and warranties to be negotiated as
contemplated by paragraph 3.
3. Each of Illinois Central and KCSI agrees to use its reasonable best
efforts in good faith and on an exclusive basis to prepare, negotiate and
execute definitive agreements and documents with respect to the Transaction.
Subject to the provisions of paragraph 11, the terms, conditions and
assumptions set forth in this Letter of Intent and the Bid Letters shall
provide the basis upon which Illinois Central and KCSI shall negotiate with
each other as contemplated by this paragraph 3.
4. Except as required by applicable law, all information obtained by
Illinois Central or KCSI or their respective affiliates, directors, officers,
employees, agents and representatives shall be kept confidential to the extent
required by, and in accordance with, the provisions of the confidentiality
agreement, dated March 7, 1994, between the parties.
5. Illinois Central and KCSI shall mutually agree on the form and
content of any public announcement which shall be made concerning this Letter
of Intent or the Transaction and neither Illinois Central nor KCSI shall make
any such public announcement without the consent of the other, which consent
shall not be unreasonably withheld, provided that (a) Illinois Central and
KCSI agree to publicly announce the execution of this Letter of Intent by
releasing the joint press release attached hereto as Annex A and (b) nothing
herein shall prohibit Illinois Central or KCSI from making any public
announcement or other disclosure required by law or the policy of any exchange
on which such party's securities are listed, provided that each party agrees
to use its reasonable efforts to consult with the other before making any such
public announcement or other disclosure.
6. KCSI agrees that during the term of this Letter of Intent neither it
nor any of its subsidiaries nor any of its officers and directors or the
officers and directors of its subsidiaries shall, and it shall direct and use
its best efforts to cause its representatives (including without limitation
any investment banker, attorney or accountant retained by it) not to,
initiate, solicit or waive standstill or similar provisions or encourage,
directly or indirectly (including by way of furnishing non-public
information), or take any action to facilitate any inquiries or the making or
implementation of any proposal or offer with respect to a merger, acquisition,
consolidation or similar transaction involving KCSI, or any purchase of the
assets or equity securities of KCSI (excluding its interest in Investors
Fiduciary Trust Company and Argus Health Systems, Inc.) representing, in the
aggregate, consideration of more than $200 million for all such purchases (any
such proposal or offer being referred to herein as an "Acquisition Proposal")
or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with or otherwise cooperate
with any person relating to an Acquisition Proposal, provided that the Board
of Directors of KCSI may furnish or cause to be furnished information and may
participate in such discussions and negotiations through its representatives
if the Board of Directors, after consultation with and based upon the advice
of independent counsel (who may be its regularly engaged counsel), determines
in good faith that such action is necessary for its Board of Directors to
comply with its fiduciary duties to the KCSI stockholders under applicable
state law provided, further that the Board shall not take any of the foregoing
actions or the actions set forth in the last sentence of this paragraph 6
until after reasonable notice to and consultation with Illinois Central with
respect to such action and that such Board of Directors shall continue to
consult with Illinois Central after taking such action and, in addition, if
the Board of Directors receives an Acquisition Proposal, then KCSI shall
promptly inform Illinois Central of the material terms of such proposal and
the identity of the person making it and whether the negotiations with respect
to such Acquisition Proposal have commenced or been authorized. KCSI shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Nothing contained in this paragraph 6 shall
prohibit KCSI from taking and disclosing a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and making
such disclosures to its stockholders which, in the reasonable judgment of its
Board of Directors, is required under applicable law.
7. This Letter of Intent may be terminated and the Transaction may be
terminated:
(a) at any time by written agreement of Illinois Central and KCSI;
(b) at the option of either Illinois Central or KCSI on or after ninety
days after the date of this Letter of Intent, if by such date the parties
hereto shall not have executed definitive agreements providing for the Merger
and the other documentation which is necessary to effectuate the parties'
understandings set forth herein; or
(c) at the option of Illinois Central at any time (i) if KCSI shall have
breached the terms of paragraph 6, (ii) if KCSI shall have commenced or
authorized negotiations with respect to any Acquisition Proposal or
recommended an Acquisition Proposal or (iii) upon the acquisition by a person
or entity, or any group (as defined in the Exchange Act) of beneficial
ownership of 15% or more of the KCSI Common Stock whether by tender offer or
exchange offer or otherwise.
(d) at the option of KCSI if, following a proposal or offer representing
an Acquisition Proposal, the Board of Directors, after consultation with and
based upon the advice of independent counsel (who may be its regularly engaged
counsel), determines in good faith that such action is necessary for the Board
of Directors to comply with its fiduciary duties to the KCSI stockholders
under applicable state law.
(e) at the option of Illinois Central if, following any proposal or offer
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of, more than 15% of the assets or equity
securities of Illinois Central, the Board of Directors after consultation with
and based upon the advice of independent counsel (who may be its regularly
engaged counsel), determines in good faith that such action is necessary for
the Board of Directors to comply with its fiduciary duties to the Illinois
Central stockholders under applicable state law.
8. Whether or not the parties enter into definitive agreements with
respect to the Transaction, the parties hereto shall be responsible for all of
their own expenses incurred by them with respect to the investigation and
negotiation of this Letter of Intent and the Transaction. KCSI represents
that it has taken all action necessary so that the provisions of Section 203
of the Delaware General Corporation Law will not apply to this Letter of
Intent or the Transaction.
9. Notwithstanding any other provisions of this Letter of Intent, KCSI
agrees that if this Letter of Intent shall be terminated by (a) either
Illinois Central or KCSI pursuant to paragraph 7(b) and within one year after
the date of such termination a Business Combination (as defined below) shall
have been consummated or KCSI shall have entered into a definitive agreement
providing for a Business Combination, (b) by Illinois Central pursuant to
paragraph 7(c) or (c) by KCSI pursuant to paragraph 7(d), upon such
termination, or in the case of (a) upon the consummation of such Business
Combination or execution of such definitive agreement, KCSI shall pay to
Illinois Central a termination fee of $25,000,000. For purposes of this
paragraph 9, the term "Business Combination" shall mean (x) a merger,
consolidation, share exchange, business combination or similar transaction
involving KCSI or the KCSR, (y) a sale, lease, exchange, transfer or other
disposition of 15% or more of the assets of KCSI and its subsidiaries taken as
a whole, in a single transaction or series of transactions (other than a spin-
off dividend to the common stockholders of KCSI of all of KCSI's equity
interest in the businesses constituting the financial services and information
processing operations), or (z) the acquisition by a person (excluding the KCSI
Employee Stock Ownership Plan) or entity or any group (as defined in the
Exchange Act) of beneficial ownership of 15% or more of the KCSI Common Stock
whether by tender offer or exchange offer or otherwise; provided that a
Business Combination shall not include any transaction or series of
transactions in which the consideration amounts to less than $200 million or
any disposition by KCSI of its interest in Investors Fiduciary Trust Company
or Argus Health Systems, Inc. Any payments required to be made pursuant to
this paragraph 9 shall be made as promptly as practicable but not later than
five business days after the event giving rise to a termination fee. The
termination fee provisions as contemplated by the marked-up merger agreement
delivered by Illinois Central with the June 24, 1994 Bid Letter shall in
substance be incorporated in any definitive agreement between Illinois Central
and KCSI providing for the Merger, including a termination fee of $50,000,000.
In no event shall the amount payable under this paragraph 9 exceed $25,000,000
or be payable if Illinois Central terminates this Letter of Intent pursuant to
paragraph 7(e).
10. This Letter of Intent and the agreements governing the Transaction
shall be governed by and construed in accordance with the laws of the State of
Delaware without regard to conflicts of laws principles thereof.
11. It is understood that this Letter of Intent merely constitutes a
statement of the mutual intentions of Illinois Central and KCSI with respect
to the Transaction, does not contain all matters upon which agreement must be
reached in order for the Transaction to be consummated and therefore does not
constitute a binding commitment, nor an offer by either party to enter into a
binding commitment, with respect to the Transaction itself. A binding
commitment with respect to the Transaction shall result only from the
execution of definitive agreements and related documents, subject to the
conditions expressed therein. Notwithstanding the two preceding sentences of
this paragraph 11, the provisions of paragraphs 3 through 10 are agreed to be
fully binding on each of Illinois Central and KCSI upon the execution of this
Letter of Intent, and the provisions of paragraphs 4, 5, 8, 9 and 10 shall
survive the termination of this Letter of Intent unless and until they are
superseded by the definitive agreements for the Transaction. This Letter of
Intent may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
If the foregoing correctly sets forth your understanding with respect to the
Transaction, please indicate by executing a copy of this Letter of Intent as
provided below and returning the same to the undersigned.
ILLINOIS CENTRAL CORPORATION
By: /s/ G.H. Lamphere
Chairman of the Board
By:
President and Chief Executive Officer
Accepted and agreed to
this 18th day of July, 1994
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By: /s/ Landon H. Rowland
President and Chief Executive Officer