SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
SCHEDULE 14D-1
TENDER OFFER STATEMENT
PURSUANT TO
SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
(AMENDMENT NO. 3)
_______________
CONRAIL INC.
(Name of Subject Company)
CSX CORPORATION
GREEN ACQUISITION CORP.
(Bidders)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
SERIES A ESOP CONVERTIBLE JUNIOR
PREFERRED STOCK, WITHOUT PAR VALUE
(Title of Class of Securities)
NOT AVAILABLE
(CUSIP Number of Class of Securities)
MARK G. ARON
CSX CORPORATION
ONE JAMES CENTER
901 EAST CARY STREET
RICHMOND, VIRGINIA 23219-4031
TELEPHONE: (804) 782-1400
(Names, Addresses and Telephone Numbers of Persons Authorized
to Receive Notices and Communications on Behalf of Bidder)
With a copy to:
PAMELA S. SEYMON
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 403-1000
<PAGE>
This Statement amends and supplements the Tender Of-
fer Statement on Schedule 14D-1 filed with the Securities and
Exchange Commission (the "Commission") on October 16, 1996, as
previously amended and supplemented (the "Schedule 14D-1"), by
Green Acquisition Corp. ("Purchaser"), a Pennsylvania corpo-
ration and a wholly owned subsidiary of CSX Corporation, a Vir-
ginia corporation ("Parent"), to purchase an aggregate of
17,860,124 shares of (i) Common Stock, par value $1.00 per
share (the "Common Shares"), and (ii) Series A ESOP Convertible
Junior Preferred Stock, without par value (together with the
Common Shares, the "Shares"), of Conrail Inc., a Pennsylvania
corporation (the "Company"), including, in each case, the as-
sociated Common Stock Purchase Rights, upon the terms and sub-
ject to the conditions set forth in the Offer to Purchase,
dated October 16, 1996 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which, together with any amend-
ments or supplements thereto, constitute the "Offer") at a pur-
chase price of $92.50 per Share, net to the tendering share-
holder in cash. Capitalized terms used and not defined herein
shall have the meanings assigned such terms in the Offer to
Purchase and the Schedule 14D-1.
ITEM 10. ADDITIONAL INFORMATION.
(b)-(c) Section 16 of the Offer to Purchase is
hereby amended and supplemented by changing the words "will
request" to "have requested" in, and adding ", and such Office
has done so" at the end of, the fifth sentence of the first
paragraph under the subsection entitled "Antitrust." In addi-
tion, Section 16 is hereby amended and supplemented by adding
the following sentence after the above-modified sentence:
On this basis, Purchaser expects that the condition
set forth in subsection (1)(ii) of Section 15 will be
satisfied.
(e) (i) Section 16 of the Offer to Purchase is
hereby further amended and supplemented by adding the following
paragraph at the end of the subsection entitled "Norfolk
Southern Litigation":
On October 30, 1996, NSC filed a First Amended
Complaint for Declaratory and Injunctive Relief in
the United States District Court for the Eastern Dis-
trict of Pennsylvania. The Amended Complaint, among
other things, adds allegations related to certain
provisions in the Merger Agreement and the Rights
Agreement.
A copy of the above-described Amended Complaint is
attached hereto as Exhibit (c)(6), and the foregoing summary
description is qualified in its entirety by reference to such
exhibit.<PAGE>
(ii) Section 16 of the Offer to Purchase is hereby
further amended and supplemented by adding the following para-
graph after the subsection entitled "Norfolk Southern
Litigation":
Shareholder Litigation. On October 30, 1996,
three shareholders of the Company filed a complaint,
individually and derivatively on behalf of the Com-
pany, against the Company, Parent and certain other
defendants in the United States District Court for
the Eastern District of Pennsylvania. Plaintiffs
request declaratory and injunctive relief from, among
other things, defendants' alleged violations of fed-
eral securities laws, holding the Pennsylvania
Special Meeting, consummation of the Offer, alleged
illegal and ultra vires acts by the Company and its
directors, including seeking approval of the Articles
Amendment, and alleged breach of fiduciary duties by
directors of the Company.
(f) On October 30, 1996, Parent issued a press re-
lease in response to a letter sent by NSC to shippers. A copy
of the press release is attached hereto as Exhibit (a)(11), and
the foregoing description of such document is qualified in its
entirety by reference to such exhibit.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) -- Offer to Purchase, dated October 16, 1996.*
(a)(2) -- Letter of Transmittal.*
(a)(3) -- Notice of Guaranteed Delivery.*
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.*
(a)(5) -- Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nom-
inees.*
(a)(6) -- Guidelines for Certification of Taxpayer Identi-
fication Number on Substitute Form W-9.*
_____________________
* Previously filed.
-2-<PAGE>
(a)(7) -- Text of Press Release issued by Parent on Octo-
ber 15, 1996.*
(a)(8) -- Form of Summary Advertisement, dated October 16,
1996.*
(a)(9) -- Text of Press Release issued by Parent on Octo-
ber 22, 1996.*
(a)(10) -- Text of Press Release issued by Parent on Octo-
ber 23, 1996.*
(a)(11) -- Text of Press Release issued by Parent on Octo-
ber 30, 1996.
(b)(1) -- Commitment Letter, dated October 21, 1996.*
(c)(1) -- Agreement and Plan of Merger, dated as of Octo-
ber 14, 1996, by and among Parent, Purchaser and
the Company.*
(c)(2) -- Company Stock Option Agreement, dated as of Oc-
tober 14, 1996, between Parent and the Company.*
(c)(3) -- Parent Stock Option Agreement, dated as of Octo-
ber 14, 1996, between Parent and the Company.*
(c)(4) -- Form of Voting Trust Agreement.*
(c)(5) -- Complaint in Norfolk Southern Corporation, et
al. v. Conrail Inc., et al., No. 96-CV-7167,
filed on October 23, 1996.*
(c)(6) -- First Amended Complaint in Norfolk Southern
Corporation, et al. v. Conrail Inc., et al., No.
96-CV-7167, filed on October 30, 1996.
-3-<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, the undersigned certifies that the information set
forth in this statement is true, complete and correct.
CSX CORPORATION
By: /s/ Mark G. Aron
Name: Mark G. Aron
Title: Executive Vice President-
Law and Public Affairs
Dated: October 31, 1996<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, the undersigned certifies that the information set
forth in this statement is true, complete and correct.
GREEN ACQUISITION CORP.
By: /s/ Mark G. Aron
Name: Mark G. Aron
Title: General Counsel
and Secretary
Dated: October 31, 1996<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
(a)(1) -- Offer to Purchase, dated October 16, 1996.*
(a)(2) -- Letter of Transmittal.*
(a)(3) -- Notice of Guaranteed Delivery.*
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.*
(a)(5) -- Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nom-
inees.*
(a)(6) -- Guidelines for Certification of Taxpayer Identi-
fication Number on Substitute Form W-9.*
(a)(7) -- Text of Press Release issued by Parent on Octo-
ber 15, 1996.*
(a)(8) -- Form of Summary Advertisement dated October 16,
1996.*
(a)(9) -- Text of Press Release issued by Parent on Octo-
ber 22, 1996.*
(a)(10) -- Text of Press Release issued by Parent on Octo-
ber 23, 1996.*
(a)(11) -- Text of Press Release issued by Parent on Octo-
ber 30, 1996.
(b)(1) -- Commitment Letter, dated October 21, 1996.*
(c)(1) -- Agreement and Plan of Merger, dated as of Octo-
ber 14, 1996, by and among Parent, Purchaser and
the Company.*
(c)(2) -- Company Stock Option Agreement, dated as of Oc-
tober 14, 1996, between Parent and the Company.*
(c)(3) -- Parent Stock Option Agreement, dated as of Octo-
ber 14, 1996, between Parent and the Company.*
_____________________
* Previously filed.<PAGE>
(c)(4) -- Form of Voting Trust Agreement.*
(c)(5) -- Complaint in Norfolk Southern Corporation, et
al. v. Conrail Inc., et al., No. 96-CV-7167,
filed on October 23, 1996.*
(c)(6) -- First Amended Complaint in Norfolk Southern
Corporation, et al. v. Conrail Inc., et al., No.
96-CV-7167, filed on October 30, 1996.
-2-
EXHIBIT (a)(11)
[LOGO] [CSX Corporation letterhead]
_______________________________________________________________
CSX Terms NSC Shipper Letter an `Act of Desperation'
RICHMOND, Va., Oct. 30 /PRNewswire/ -- CSX Corporation
(NYSE: CSX) today issued the following statement in response
to Norfolk Southern's recently released letter to shippers:
"Norfolk Southern's letter to shippers is a thinly
disguised attempt to re-write more than 20 years of regulatory
history in the United States. This act of desperation must
reflect their own awareness that Norfolk Southern has been and
continues to pursue a loser's strategy, solely intent on gain-
ing or forcing competitive concessions from CSX/CRR. Moreover,
this letter seems to be in disregard of the Surface Transporta-
tion Board's established process, with which we are fully pre-
pared to comply.
"Shippers as well as employees and shareholders well know
the fact that only after it became overwhelmingly apparent that
Norfolk Southern's only interest was in consuming Conrail in
its entirety, did Conrail and CSX commence discussions.
"The result of that effort was our proposed merger of
equals, following which we immediately reached out to Norfolk
Southern, seeking their involvement as the other major rail
carrier in the region. They ignored those overtures, only to
now set forth their position in a letter to shippers.
"The business combination of Conrail Inc. (CRR) and CSX
Corporation makes excellent strategic sense and good, sound
public policy, serving the vital best interests of employees,
customers, shareholders and the communities served by these two
excellent organizations.
"As each day passes, we are strengthened in this view and
we look forward to working closely with our colleagues at
Conrail in bringing this transaction to fruition in an effec-
tive and constructive manner. We remain willing to meet with
Norfolk Southern and explore our mutual interests with them, as
we have indicated in the past."<PAGE>
CSX Corporation, headquartered in Richmond, Va., is an
international transportation company offering a variety of
rail, container-shipping, intermodal, trucking, barge and con-
tract logistics services.
CSX Corporation's Internet address is http://www.csx.com
SOURCE CSX Corporation
-0- 10/30/96
/CONTACT: Thomas E. Hoppin of CSX, 804-782-1450/
(CSX)
-2-
EXHIBIT (c)(6)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
-----------------------------------x
:
NORFOLK SOUTHERN CORPORATION, a :
Virginia corporation, :
Three Commercial Place :
Norfolk, VA 23510-2191, :
:
Atlantic Acquisition Corporation :
Three Commercial Place :
Norfolk, VA 23510-2191, :
:
and :
:
Kathryn B. McQuade :
5114 Hunting Hills Drive :
Roanoke, VA 24014, :
:
Plaintiffs, :
:
-against- :
: C.A. No. 96-CV-7167
Conrail Inc., a Pennsylvania :
corporation, :
Two Commerce Square :
2001 Market Street :
Philadelphia, PA 19101, :
:
David M. LeVan :
245 Pine Street :
Philadelphia, PA 19103-7044, :
:
H. Furlong Baldwin :
4000 N. Charles Street :
Baltimore, MD 21218-1756, :
:
Daniel B. Burke :
Capital Cities/ABC Inc. :
77 W. 66th Street :
New York, NY 10023-6201, :
(Caption continued on next page)<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Roger S. Hillas :
Two Commerce Square :
2001 Market Street :
Philadelphia, PA 19101, :
:
Claude S. Brinegar :
1574 Michael Lane :
Pacific Palisades, CA 90272-2026, :
:C.A. No. 96-CV-7167
Kathleen Foley Feldstein :
147 Clifton Street :
Belmont, MA 02178-2603, :
:
David B. Lewis :
1755 Burns Street :
Detroit, MI 48214-2848, :
:
John C. Marous :
109 White Gate Road :
Pittsburgh, PA 15238, :
:
David H. Swanson :
Countrymark Inc. :
950 N. Meridian Street :
Indianapolis, IN 46204-3909, :
:
E. Bradley Jones :
2775 Lander Road :
Pepper Pike, OH 44124-4808, :
:
Raymond T. Schuler :
Two Commerce Square :
2001 Market Street :
Philadelphia, PA 19101, :
:
and :
:
CSX Corporation :
One James Center :
901 East Cary Street :
Richmond, VA 23219, :
:
Defendants. :
-----------------------------------x
<PAGE>
FIRST AMENDED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs, by their undersigned attorneys, as
and for their First Amended Complaint, allege upon knowl-
edge with respect to themselves and their own acts, and
upon information and belief as to all other matters, as
follows:
Nature of the Action
1. This action arises from the attempt by
defendants Conrail Inc. ("Conrail"), its directors (the
"Director Defendants"), and CSX Corporation ("CSX") to
coerce, mislead and fraudulently manipulate Conrail's
shareholders to swiftly deliver control of Conrail to CSX
for eighty-some dollars in cash and stock and to fore-
stall any competing higher bid for Conrail by plaintiff
Norfolk Southern Corporation ("NS"). Although defendants
have attempted to create the impression that NS's superi-
or $100 per share all-cash offer for all of Conrail's
stock is a "non-bid" or a "phantom offer," in reality the
only obstacles to the availability of the $100 per share
offered by NS are illegal actions and ultra vires agree-
ments by defendants. The ultimate purpose of this action
is to establish the illegality of such actions and agree-
ments so that NS may proceed to provide superior value to
1<PAGE>
Conrail's shareholders and a superior transaction to
Conrail and all of its constituencies.
2. Additionally, plaintiffs will seek interim
injunctive relief to maintain the status quo and ensure
that Conrail shareholders will not be coerced, misled and
fraudulently manipulated by defendants' illegal conduct
to deliver control over Conrail to CSX before the Court
can finally determine the issues raised in this action.
3. The event that set this controversy in
motion was the unexpected announcement that CSX would
take over Conrail. In a surprise move on October 15,
1996, defendants Conrail and CSX announced a deal to
rapidly transfer control of Conrail to CSX and foreclose
any other bids for Conrail (the "CSX Transaction"). The
CSX Transaction is to be accomplished through a compli-
cated multi-tier structure involving a coercive front-end
loaded cash tender offer, a lock-up stock option and,
following required regulatory approvals or exemptions, a
back-end merger in which Conrail shareholders will re-
ceive stock and, under certain circumstances, cash. As
of the close of business on October 29, 1996, the blended
value of the CSX Transaction was slightly more than $85
per Conrail share. Integral to this deal are executive
succession and compensation guarantees for Conrail man-
2<PAGE>
agement and board composition covenants effectively
ensuring Conrail directors of continued board seats.
4. Because plaintiff NS believes that a
business combination between Conrail and NS would yield
benefits to both companies and their constituencies far
superior to any benefits offered by the proposed Con-
rail/CSX combination, NS on October 23, 1996 announced
its intention to commence, through its wholly-owned
subsidiary, plaintiff Atlantic Acquisition Corporation
("AAC") a cash tender offer (the "NS Offer") for all
shares of Conrail stock at $100 per share, to be followed
by a cash merger at the same price (the "Proposed Merg-
er," and together with the NS Offer, the "NS Proposal").
The following day, on October 24, 1996, the NS Offer
commenced.
5. At the heart of this controversy is the
assertion by defendants, both expressly and through their
conduct, that the Director Defendants, as directors of a
Pennsylvania corporation, have virtually no fiduciary
duties. While it is true that Pennsylvania statutory law
provides directors of Pennsylvania corporations with wide
discretion in responding to acquisition proposals, defen-
dants here have gone far beyond what even Pennsylvania
law permits. Indeed, it appears that defendants are
3<PAGE>
taking Pennsylvania's statutory regime as carte blanche
to insulate Conrail, through the first half of the first
decade of the next millennium, from any acquisition by
any party (including CSX) other than the CSX Transaction
with its current pricing and other terms, regardless of
how favorable any such other proposed acquisition might
be to Conrail's shareholders, customers, and other con-
stituencies. As a result, this battle for control of
Conrail presents the most audacious array of lock-up
devices ever attempted:
. The Poison Pill Lock-In. The CSX Merger
Agreement exempts the CSX Transaction from
Conrail's Poison Pill Plan, and purports
to prohibit the Conrail Board from redeem-
ing, amending or otherwise taking any
further action with respect to the Plan.
Under the terms of the Poison Pill Plan,
the Conrail directors will lose their
power to make the poison pill inapplicable
to any acquisition transaction other than
the CSX Transaction on November 7, unless
CSX agrees to let them postpone that date.
Thus, the Poison Pill Lock-In threatens to
lock-up Conrail, even from friendly trans-
actions, until the year 2005, when the
poison pill rights expire. That is, un-
less the November 7 date is postponed,
Conrail will be unable to be acquired
other than through the CSX Transaction,
under its current terms, for a period of
almost nine years. Put simply, the CSX
Merger Agreement purports to require Con-
rail to swallow its own poison pill. The
Poison Pill Lock-In is an unprecedented,
draconian and utterly preclusive lock-up
device, is ultra vires under Pennsylvania
law, and constitutes a total abdication
4<PAGE>
and breach of the Conrail directors' fidu-
ciary duties of loyalty and care. To make
matters worse, in violation of the federal
securities laws, the defendants in their
tender offer filings affirmatively misrep-
resented key terms of the Conrail Poison
Pill Plan bearing directly upon the Poison
Pill Lock-In.
. The 180-Day Lock-Out. The CSX Merger
Agreement audaciously and unashamedly pur-
ports to prohibit Conrail's directors from
withdrawing their recommendation that
Conrail's shareholders accept and approve
the CSX Transaction and from terminating
the CSX Merger Agreement, even if their
fiduciary duties require them to do so,
for a period of 180 days from execution of
the agreement. Put simply, Conrail's
directors have agreed to take a six-month
leave of absence during what may be the
most critical six months in Conrail's
history. The 180-Day Lock-Out is ultra
vires under Pennsylvania law and consti-
tutes a complete abdication and breach of
the Conrail directors' duties of loyalty
and care.
. The Stock Option Lock-Up And The $300
Million Break-Up Fee. The CSX Merger
Agreement provides, in essence, that Con-
rail must pay CSX a $300 million windfall
if the CSX Merger Agreement is terminated
and Conrail is acquired by another compa-
ny. Further, a Stock Option Agreement
granted by Conrail to CSX threatens over
$100 million in dilution costs to any com-
peting bidder for Conrail. This lock-up
option is particularly onerous because the
higher the competing bid, the greater the
dilution it threatens.
. The Continuing Director Amendments To
Conrail's Poison Pill Plan. Recognizing
that Pennsylvania law permits shareholders
of Pennsylvania corporations to elect a
new board of directors if they disagree
5<PAGE>
with an incumbent board's decisions con-
cerning acquisition offers, the Conrail
Board altered the Conrail Poison Pill Plan
in September 1995 to deprive Conrail's
shareholders of the ability to elect new
directors fully empowered to act to render
the poison pill ineffective or inapplica-
ble to a transaction they deem to be in
the corporation's best interests. This
amendment to the Conrail Poison Pill plan
is ultra vires under Pennsylvania law and
Conrail's Charter and By-Laws, and consti-
tutes an impermissible interference in the
stockholder franchise and a breach of the
Conrail directors' duty of loyalty.
At bottom, what defendants have attempted here is to
litter the playing field with illegal, ultra vires appar-
ent impediments to competing acquisition proposals, and
then coerce Conrail shareholders to swiftly deliver
control of Conrail to CSX before the illegality of such
impediments can be determined and revealed.
6. Accordingly, by this action, plaintiffs NS,
AAC, and Kathryn B. McQuade, a Conrail shareholder, seek
emergency relief against defendants' illegal attempt to
lock-up the rapid sale of control of Conrail to CSX
through their scheme of coercion, deception and fraudu-
lent manipulation, in violation of the federal securities
laws, Pennsylvania statutory law, and the fiduciary
duties of the Director Defendants. In addition, to
facilitate the NS Proposal, plaintiffs seek certain
declaratory relief with respect to replacement of
6<PAGE>
Conrail's Board of Directors at Conrail's next annual
meeting of shareholders.
Jurisdiction and Venue
7. This Court has jurisdiction over this com-
plaint pursuant to 28 U.S.C. Sections 1331 and 1367.
8. Venue is proper in this District pursuant
to 28 U.S.C. Section 1391.
The Parties
9. Plaintiff NS is a Virginia corporation
with its principal place of business in Norfolk, Virgin-
ia. NS is a holding company operating rail and motor
transportation services through its subsidiaries. As of
December 31, 1995, NS's railroads operated more than
14,500 miles of road in the states of Alabama, Florida,
Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Maryland, Michigan, Mississippi, Missouri, New York,
North Carolina, Ohio, Pennsylvania, South Carolina,
Tennessee, Virginia and West Virginia, and the Province
of Ontario, Canada. The lines of NS's railroads reach
most of the larger industrial and trading centers in the
Southeast and Midwest, with the exception of those in
Central and Southern Florida. In the fiscal year ended
December 31, 1995, NS had net income of $712.7 million on
total transportation operating revenues of $4.668 bil-
7<PAGE>
lion. According to The New York Times, NS "is considered
by many analysts to be the nation's best-run railroad."
NS is the beneficial owner of 100 shares of common stock
of Conrail.
10. Plaintiff AAC is a Pennsylvania corpora-
tion. The entire equity interest in AAC is owned by NS.
AAC was organized by NS for the purpose of acquiring the
entire equity interest in Conrail.
11. Plaintiff Kathryn B. McQuade is and has
been, at all times relevant to this action, the owner of
Conrail common stock.
12. Defendant Conrail is a Pennsylvania corpo-
ration with its principal place of business in Philadel-
phia, Pennsylvania. Conrail is the major freight rail-
road serving America's Northeast-Midwest region, op-
erating over a rail network of approximately 11,000 route
miles. Conrail's common stock is widely held and trades
on the New York Stock Exchange. During the year ended
December 31, 1995, Conrail had net income of $264 million
on revenues of $3.68 billion. On the day prior to an-
nouncement of the CSX Transaction, the closing per share
price of Conrail common stock was $71.
13. Defendant David M. LeVan is President,
Chief Executive Officer, and Chairman of Conrail's Board
8<PAGE>
of Directors. Defendants H. Furlong Baldwin, Daniel B.
Burke, Roger S. Hillas, Claude S. Brinegar, Kathleen
Foley Feldstein, David B. Lewis, John C. Marous, David H.
Swanson, E. Bradley Jones, and Raymond T. Schuler are the
remaining directors of Conrail. The foregoing individual
directors of Conrail owe fiduciary duties to Conrail and
its stockholders, including plaintiffs.
14. Defendant CSX is a Virginia corporation
with its principal place of business in Richmond, Virgin-
ia. CSX is a transportation company providing rail,
internodal, ocean container-shipping, barging, trucking
and contract logistic services. CSX's rail transporta-
tion operations serve the southeastern and midwestern
United States.
Factual Background
The Offer
15. In response to the surprise October 15 an-
nouncement of the CSX Transaction, on October 23, 1996,
NS announced its intention to commence a public tender
offer for all shares of Conrail common stock at a price
of $100 cash per share. NS further announced that it in-
tends, as soon as practicable following the closing of
the NS Offer, to acquire the entire equity interest in
Conrail by causing it to merge with AAC in the Proposed
9<PAGE>
Merger. In the Proposed Merger, Conrail common stock not
tendered and accepted in the NS Offer would be converted
into the right to receive $100 in cash per share. On
October 24, 1996, NS, through AAC, commenced the NS
Offer. The NS Offer and the Proposed Merger represent a
40.8% premium over the closing market price of Conrail
stock on October 14, 1996, the day prior to announcement
of the CSX Transaction.
16. In a letter delivered on October 23, 1996
to the Defendant Directors, NS stated that it is flexible
as to all aspects of the NS Proposal and expressed its
eagerness to negotiate a friendly merger with Conrail.
The letter indicated, in particular, that while the NS
Proposal is a proposal to acquire the entire equity
interest in Conrail for cash, NS is willing to discuss,
if the Conrail board so desires, including a substantial
equity component to the consideration to be paid in a
negotiated transaction so that current Conrail sharehold-
ers could have a continuing interest in the combined
NS/Conrail enterprise.
10<PAGE>
The Current Crisis: In a Surprise Move
Intended To Foreclose Competing Bids,
Conrail and CSX Announce On October 15
That Conrail Has Essentially Granted CSX
A Lock-Up Over Control Of The Company
17. After many months of maintaining that Con-
rail was not for sale, on October 16, 1996, the Conrail
Board announced an abrupt about-face: Conrail would be
sold to CSX in a multiple-step transaction designed to
swiftly transfer effective, if not absolute, voting con-
trol over Conrail to a voting trustee who would be con-
tractually required to vote to approve CSX's acquisition
of the entire equity interest in Conrail through a fol-
low-up stock merger.
18. Two circumstances relating to the CSX
Transaction create the current crisis. First, as noted
above, and as explained more fully below, on November 7,
1996, a "Distribution Date" will occur under Conrail's
Poison Pill Plan, after which time Conrail's Board will
lose the ability to remove the poison pill rights as an
obstacle to any transaction other than the CSX Transac-
tion. This event, if it is allowed to occur, will irrep-
arably harm Conrail, its shareholders, and other constit-
uencies by making Conrail incapable of being acquired
until the year 2005, other than through the CSX Transac-
tion as it is currently proposed.
11<PAGE>
19. Even if the "Distribution Date" problem
with Conrail's Poison Pill Plan were remedied, the fate
of Conrail could be effectively determined on Novem-
ber 14, 1996, just 23 business days after announcement of
the CSX Transaction. That is when Conrail shareholders
will be called upon to vote on a proposed amendment to
Conrail's Articles of Incorporation designed to facili-
tate the swift transfer of control in favor of CSX, and
only CSX. If they approve the Charter Amendment, and
then, in the misinformed belief that the NS Proposal does
not present a viable and superior alternative, tender 40%
of Conrail's stock to CSX, Conrail's shareholders will
have been coerced by defendants' fraudulent and manipula-
tive tactics to sell Conrail to the low bidder.
Defendants Were Well Aware That
A Superior Competing Acquisition
Proposal By NS was Inevitable
20. For a number of years, certain members of
senior management of NS, including David R. Goode, Chair-
man and Chief Executive Officer of NS, have spoken numer-
ous times with senior management of Conrail, including
former Conrail Chairman and Chief Executive Officer,
James A. Hagen, and Current Conrail Chairman and Chief
Executive Officer, defendant David W. LeVan, concerning a
possible business combination between NS and Conrail.
12<PAGE>
Ultimately, Conrail management encouraged such discus-
sions prior to Mr. Hagen's retirement as Chief Executive
Officer of Conrail. Conrail discontinued such discus-
sions in September 1994, when the Conrail Board elected
Mr. LeVan as Conrail's President and Chief Operating
Officer as a step toward ultimately installing him as
Chief Executive Officer and Chairman upon Mr. Hagen's
departure.
21. Prior to 1994, senior management of NS and
Conrail discussed, from time to time, opportunities for
business cooperation between the companies, and, in some
of those discussions, the general concept of a business
combination. While the companies determined to proceed
with certain business cooperation opportunities, includ-
ing the Triple Crown Services joint venture, no decisions
were reached concerning a business combination at that
time.
22. In March of 1994, Mr. Hagen approached Mr.
Goode to suggest that under the current regulatory envi-
ronment, Conrail management now believed that a business
combination between Conrail and NS could be accomplished,
and that the companies should commence discussion of such
a transaction. Mr. Goode agreed to schedule a meeting
between legal counsel for NS and Conrail for the purpose
13<PAGE>
of discussing regulatory issues. Following that meeting,
Mr. Goode met with Mr. Hagen to discuss in general terms
an acquisition of Conrail by NS. Thereafter, during the
period from April through August 1994, management and
senior financial advisors of the respective companies met
on numerous occasions to negotiate the terms of a combi-
nation of Conrail and NS. The parties entered into a
confidentiality agreement on August 17, 1994. During
these discussions, Mr. Hagen and other representatives of
Conrail pressed for a premium price to reflect the acqui-
sition of control over Conrail by NS. Initially, NS
pressed instead for a stock-for-stock merger of equals in
which no control premium would be paid to Conrail share-
holders. Conrail management insisted on a control premi-
um, however, and ultimately the negotiations turned
toward a premium stock-for-stock acquisition of Conrail.
23. By early September 1994, the negotiations
were in an advanced stage. NS had proposed an exchange
ratio of 1-to-1, but Conrail management was still press-
ing for a higher premium. In a meeting in Philadelphia
on September 23, 1994, Mr. Goode increased the proposed
exchange ratio to 1.1-to-1, and left the door open to an
even higher ratio. Mr. Hagen then told Mr. Goode that
they could not reach agreement because the Conrail board
14<PAGE>
had determined to remain independent and to pursue a
stand-alone policy. The meeting then concluded.
24. The 1.1-to-1 exchange ratio proposed by
Mr. Goode in September of 1994 reflected a substantial
premium over the market price of Conrail stock at that
time. If one applies that ratio to NS's stock price on
October 14, 1996 -- the day the Conrail Board approved
the CSX Transaction -- it implies a per share acquisition
price for Conrail of over $101. Thus, there can be no
question that Mr. LeVan, if not Conrail's Board, was well
aware that NS would likely be willing and able to offer
more -- to Conrail's shareholders, rather than manage-
ment, that is -- than CSX could offer for an acquisition
of Conrail.
Defendant LeVan Actively Misleads NS
Management In Order To Permit Him To
Lock Up The Sale of Conrail to CSX
25. During the period following September of
1994, Mr. Goode from time to time had conversations with
Mr. LeVan. During virtually all of these conversations,
Mr. Goode expressed NS's strong interest in negotiating
an acquisition of Conrail. Mr. LeVan responded that Con-
rail wished to remain independent. Nonetheless, Mr.
Goode was led to believe that if and when the Conrail
Board determined to pursue a sale of the company, it
15<PAGE>
would do so through a process in which NS would have an
opportunity to bid.
26. At its September 24, 1999 meeting, the NS
Board reviewed its strategic alternatives and determined
that NS should press for an acquisition of Conrail.
Accordingly, Mr. Goode again contacted Mr. LeVan to (i)
reiterate NS's strong interest in acquiring Conrail and
(ii) request a meeting at which he could present a con-
crete proposal. Mr. LeVan responded that the Conrail
board would be holding a strategic planning meeting that
month and that he and Mr. Goode would be back in contact
after that meeting. Mr. Goode emphasized that he wished
to communicate NS's position so that Conrail's Board
would be aware of it during the strategic planning meet-
ing. Mr. LeVan stated that it was unnecessary for Mr.
Goode to do so. At that point, the conversation conclud-
ed.
27. Following September 24, Mr. LeVan did not
contact Mr. Goode. Finally, on Friday, October 4, 1996,
Mr. Goode telephoned Mr. LeVan. Mr. Goode again reiter-
ated NS's strong interest in making a proposal to acquire
Conrail. Mr. LeVan responded that the Conrail Board
would be meeting on October 16, 1996, and assumed that he
and Mr. Hagen would contact Mr. Goode following that
16<PAGE>
meeting. Mr. Goode again stated that NS wanted to make a
proposal so that the Conrail Board would be aware of it.
Mr. LeVan stated that it was unnecessary to do so.
CSX's Chairman Snow Contributes To
LeVan's Deception
28. Several days prior to October 15, CSX's
Chairman, John W. Snow, publicly stated that he did not
expect to see any major business combinations in the
railroad industry for several years. On October 16,
1996, the New York Times reported that "less than a week
ago, Mr. Snow told Wall Street analysts that he did not
expect another big merger in the industry (in the next
few years)."
On the Day Before the Purportedly
Scheduled Meeting of Conrail's Board,
Defendants Announce the CSX Transaction
29. To NS's surprise and dismay, on Octo-
ber 15, 1996, Conrail and CSX announced that they had
entered into a definitive merger agreement (the "CSX
Merger Agreement") pursuant to which control of Conrail
would be swiftly sold to CSX and then a merger would be
consummated following required regulatory approvals. As
of the close of business on October 29, 1996, the blended
value of the CSX Transaction was slightly more than $85
per Conrail share. The CSX Transaction includes a break-
17<PAGE>
up fee of $300 million and a lock-up stock option agree-
ment threatening substantial dilution to any rival bidder
for control of Conrail. Integral to the CSX Transaction
are covenants substantially increasing Mr. LeVan's com-
pensation and guaranteeing that he will succeed John W.
Snow, CSX's Chairman and Chief Executive Officer, as the
combined company's CEO and Chairman.
CSX Admits That The Conrail Board Approved
The CSX Transaction Rapidly.
30. On October 16, 1996, The New York Times
reported that CSX's Snow on October 15, 1996, had stated
that the multi-billion dollar sale of Conrail in the CSX
Transaction "came together rapidly in the last two
weeks." The Wall Street Journal reported on October 16
that Mr. Snow stated that negotiations concerning the CSX
Transaction had gone "very quickly," and "much faster
than he and Mr. LeVan had anticipated." On October 24,
1996, the Wall Street Journal observed that "[i]n reach-
ing its agreement with CSX, Conrail didn't solicit other
bids ... and appeared to complete the accord at breakneck
speed."
31. Thus, Conrail's board approved the CSX
Transaction rapidly without a good faith and reasonable
investigation. Given the nature of the CSX Transaction,
18<PAGE>
with its draconian and preclusive lock-up mechanisms, the
Conrail Board's rapid approval of the deal constitutes
reckless and grossly negligent conduct.
CSX's Snow Implies That the CSX Transaction
Is a Fait Accomli and States That Conrail's
Directors Have Almost No Fiduciary Duties
32. On October 16, 1996, Mr. Goode met in
Washington, D.C. with Mr. Snow to discuss the CSX Trans-
action and certain regulatory issues that its consumma-
tion would raise. Mr. Snow advised Mr. Goode during that
meeting that Conrail's counsel and investment bankers had
ensured that the CSX, Transaction would be "bulletproof,"
implying that the sale of control of Conrail to CSX is
now a fait accompli. Mr. Snow added that the "Pennsylva-
nia statute," referring to Pennsylvania's Business Corpo-
ration Law, was "great" and that Conrail's directors have
almost no fiduciary duties. Mr. Snow's comments were
intended to discourage NS from making a competing offer
for control of Conrail and to suggest that NS had no
choice but to negotiate with CSX for access to such por-
tions of Conrail's rail system as would be necessary to
address the regulatory concerns that would be raised by
consummation of the CSX Transaction. After Mr. Snow told
Mr. Goode what CSX was willing to offer to NS in this
regard, the meeting concluded.
19<PAGE>
NS Responds With A
Superior Offer For Conrail
33. On October 22, the NS Board met to review
its strategic options in light of the announcement of the
CSX Transaction. Because the NS Board believes that a
combination of NS and Conrail would offer compelling
benefits to both companies, their shareholders and their
other constituencies, it determined that NS should make a
competing bid for Conrail. On October 23, 1996, NS pub-
licly announced its intention to commence a cash tender
offer for all shares of Conrail stock for $100 per share,
to be followed, after required regulatory approvals, by a
cash merger at the same price. On October 24, 1996, NS,
through AAC, commenced the NS Offer.
CSX Tells The Market That NS's Superior
Proposal To Acquire Conrail Is Not Real
34. CSX responded to the NS Proposal by at-
tempting to lead the market to believe that the superior
NS Proposal does not represent a real, viable and actual-
ly available alternative to the CSX Transaction. On
October 24, 1996, the Wall Street Journal reported:
CSX issued a harshly worded statement last
night that called Norfolk's move a "nonbid"
that would face inevitable delays and be sub-
ject to numerous conditions. It said the Nor-
folk bid couldn't be approved without Conrail's
board, and notes that merger pact [with CSX]
prohibited Conrail from terminating its pact
20<PAGE>
until mid-April. It said the present value of
the Norfolk bid was under $90 a share because
of the minimum six-month delay....
On the same day, The New York Times reported that "a
source close to CSX" characterized the NS Proposal as "a
phantom offer."
35. These statements are an integral part of
defendants' scheme to coerce, mislead and manipulate
Conrail's shareholders to rapidly deliver control of
Conrail to CSX by creating the false impression that the
NS Proposal is not a viable and actually available alter-
native.
The CSX Transaction
36. Consistent with Mr. Snow's remarks, dis-
cussed above, that Conrail's advisers had ensured that
the CSX Transaction is "bullet-proof" and that Conrail's
directors have almost no fiduciary duties, the CSX Merger
Agreement contains draconian "lock-up" provisions which
are unprecedented. These provisions are designed to
foreclose success by any competing bidder for Conrail and
to protect the lucrative compensation increase and execu-
tive succession deal promised to defendant LeVan by CSX.
The Poison Pill Lock-In
37. Perhaps the most onerous of these provi-
sions, in terms of the drastic consequences it threatens
21<PAGE>
to Conrail, its stockholders and its other legitimate
constituencies, is the poison pill "lock-in" provision
(the "Poison Pill Lock-In"). The CSX Merger Agreement
purports to bind the Conrail board not to take any action
with respect to the Conrail Poison Pill to facilitate any
offer to acquire Conrail other than the CSX Transaction.
At the same time, the Conrail board has amended the
Conrail Poison Pill to facilitate the CSX Transaction.
38. Because of certain unusual provisions to
the Conrail Poison Pill Plan -- which provisions, as
noted below, not only were not disclosed in the Schedule
14D-1 filed with the Securities and Exchange Commission
or in the Offer to Purchase circulated to Conrail's
stockholders by CSX, or in the Schedule 14D-9 circulated
to Conrail's shareholders by Conrail, but were in fact
affirmatively misdescribed in CSX's Schedule 14D-1 and
Offer to Purchase -- the provision in the CSX Merger
Agreement barring the Conrail Board from taking action
with respect to the Conrail Poison Pill threatens grave,
imminent and irreparable harm to Conrail and all of its
constituencies.
39. The problem is that on November 7, 1996, a
"Distribution Date", as that term is defined in the
Conrail Poison Pill Plan, will occur. Once that happens,
22<PAGE>
the "Rights" issued under the Plan will no longer be
redeemable by the Conrail Board, and the Plan will no
longer be capable of amendment to facilitate any takeover
or merger proposal. Put simply, once the Distribution
Date occurs, Conrail's directors will have no control
over the Conrail Poison Pill's dilutive effect on an
acquiror. Because of the draconian effects of the poison
pill dilution on a takeover bidder, no bidder other than
CSX will be able to acquire Conrail until the poison pill
rights expire in the year 2005, regardless of whether
such other bidder offers a transaction that is better for
Conrail and its legitimate constituencies than the CSX
Transaction. Further, not even CSX will be able to
acquire Conrail in a transaction other than the CSX
Transaction. In other words, if Conrail is not acquired
by CSX in the CSX Transaction for the level of cash and
stock currently offered by CSX, then it appears that Con-
rail will not be capable of being acquired until at least
2005. In essence, Conrail is about to swallow its own
poison pill.
40. Poison Pills -- typically referred to as
"shareholders rights plans" by the corporations which
adopt them -- are normally designed to make an unsolicit-
ed acquisition prohibitively expensive to an acquiror by
23<PAGE>
diluting the value and proportional voting power of the
shares acquired.
41. Under such a plan, stockholders receive a
dividend of originally uncertificated, unexercisable
rights. The rights become exercisable and certificated
on the so-called "Distribution Date," which under the
Conrail Poison Pill Plan is defined as the earlier of 10
days following public announcement that a person or group
has acquired beneficial ownership of 10% or more of
Conrail's stock or 10 days following the commencement of
a tender offer that would result in 10% or greater
ownership of Conrail stock by the bidder. On the
Distribution Date, the corporation would issue
certificates evidencing the rights, each of which would
allow the holder to purchase a share of stock at a set
price. Initially, the exercise price of poison pill
rights is set very substantially above market to ensure
that the rights will not be exercised. Once rights cer-
tificates were issued, the rights could trade separately
from the associated shares of stock.
42. The provisions of a poison pill plan that
cause the dilution to an acquiror's position in the
corporation are called the "flip-in" and "flip-over"
provisions. Poison pill rights typically "flip in" when,
24<PAGE>
among other things, a person or group obtains some
specified percentage of the corporation's stock; in the
Conrail Poison Pill plan, 10% is the "flip-in" level.
Upon "flipping in," each right would entitle the holder
to receive common stock of Conrail having a value of
twice the exercise price of the right. That is, each
right would permit the holder to purchase newly issued
common stock of Conrail at half price (specifically, $410
worth of Conrail stock for $205). The person or group
acquiring the 10% or greater ownership, however, would be
ineligible to exercise such rights. In this way, a
poison pill plan dilutes the acquiror's equity and voting
position. Poison pill rights "flip over" if the corpo-
ration engages in a merger in which it is not the
surviving entity. Holders of rights, other than the
acquiror, would then have the right to buy stock of the
surviving entity at half price, again diluting the
acquiror's position. The Conrail Poison Pill Plan
contains both a "flip-in" provision and a "flip-over"
provision.
43. So long as corporate directors retain the
power ultimately to eliminate the anti-takeover effects
of a poison pill plan in the event that they conclude
that a particular acquisition would be in the best inter-
ests of the corporation, a poison pill plan can be used
25<PAGE>
to promote legitimate corporate interests. Thus, typical
poison pill plans reserve power in a corporation's board
of directors to redeem the rights in toto for a nominal
payment, or to amend the poison pill plan, for instance,
to exempt a particular transaction or acquiror from the
dilutive effects of the plan.
44. The Conrail Poison Pill Plan contains
provisions for redemption and amendment. However, an
unusual aspect of the Conrail Poison Pill Plan is that
the power of Conrail's directors to redeem the rights or
amend the plan to exempt a particular transaction or
bidder terminates on the Distribution Date. While the
Conrail Poison Pill Plan gives Conrail directors the
power to effectively postpone the Distribution Date, the
CSX Merger Agreement purports to bind them contractually
not to do so. Thus, the Distribution Date under
Conrail's Poison Pill Plan will occur on November 7, 1996
-- ten business days after the date when NS commenced the
Offer -- and Conrail's directors have entered into an
agreement which purports to tie their hands so that they
cannot do anything to prevent it.
45. Ironically, the specific provisions of the
CSX Merger Agreement which purport to prevent the Conrail
directors from postponing the Distribution Date are the
26<PAGE>
very same sections which require Conrail to exempt the
CSX Transaction from the Conrail Poison Pill -- Sections
3.1(n) and 5.13. Section 3-1(n) provides, in pertinent
part:
Green-Rights Agreement and By-laws. (A) The
Green Rights Agreement has been amended (the
"Green Rights Plan Amendment") to (i) render
the Green Rights Agreement inapplicable to the
Offer, the Merger and the other transactions
contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither
White nor any of its wholly owned subsidiaries
is an Acquiring Person (as defined in the
Green Rights Agreement) pursuant to the Green
Rights Agreement and (z) a Shares Acquisition
Date, Distribution Date or Trigger Event (in
each case as defined in the Green Rights
Agreement) does not occur by reason of the
approval, execution or delivery of this Agree-
ment, and the Green Stock Option Agreement,
the consummation of the Offer, the Merger or
the consummation of the other transactions
contemplated by this Agreement and the Green
Stock Option Agreement, and the Green Rights
Agreement may not be further amended by Green
without the prior consent of White in its sole
discretion. (emphasis added)
Section 5.13 provides, in pertinent part:
The Board of Directors of Green shall take all
further action (in addition to that referred
to in Section 3.1(n)) reasonably requested in
writing by White (including redeeming the
Green Rights immediately prior to the
Effective Time or amending the Green Rights
Agreement) in order to render the Green Rights
inapplicable to the offer, the Merger and the
other transactions contemplated by this
Agreement and the Green Stock Option
27<PAGE>
Agreement. Except as provided above with
respect to the Offer, the Merger and the other
transactions contemplated by this Agreement
and the Green Stock Option Agreement, the
Board of Directors of Green shall not (a)
amend the Green Rights Agreement or (b) take
any action with respect to, or make any
determination under, the Green Rights Agree-
ment, including a redemption of the Green
Rights or any action to facilitate a Takeover
Proposal in respect of Green.
46. Thus, although under the Conrail Poison
Pill Plan the Conrail Board is empowered to "determine by
action ... prior to such time as any person becomes an
Acquiring Person" that the Distribution Date will occur
on a date later than November 7, the Conrail board has
contractually purported to bind itself not to do so.
47. If the Distribution Date is permitted to
occur, Conrail, its shareholders, and its other
constituents face catastrophic irreparable injury. If
the Distribution Date occurs and then the CSX Transaction
does not occur for any number of reasons -- for instance,
because (i) the Conrail shareholders do not tender
sufficient shares in the CSX offer, (ii) the Conrail
shareholders do not approve the CSX merger, (iii) the
merger does not receive required regulatory approvals, or
(iv) CSX exercises one of the conditions to its
obligation to complete its offer --- Conrail will be
essentially incapable of being acquired or engaging in a
business combination until 2005. This would be so
regardless of the benefits and strategic advantages of
any business combi-
28<PAGE>
nation which might otherwise be available to Conrail. In
the present environment of consolidation in the railroad
industry, such a disability would plainly be a serious
irremediable disadvantage to Conrail, its shareholders
and all of its constituencies.
48. The irreparable harm that will befall
Conrail and all of its constituencies if the Distribution
Date is permitted to occur is manifest.
The 180-Day Lock-Out
49. Setting aside the Poison Pill Lock-In, the
CSX Merger Agreement also contains an unprecedented
provision purporting to bind Conrail's directors not to
terminate the CSX Merger Agreement for 180 days
regardless of whether their fiduciary duties require them
to do so. The pertinent provisions appear in Section 4.2
of the CSX Merger Agreement. Under that section, Conrail
covenants not to solicit, initiate or encourage other
takeover proposals, or to provide information to any
party interested in making a takeover proposal. The CSX
Merger Agreement builds in an exception to this
prohibition -- it provides that prior to the earlier of
the closing of the CSX Offer and Conrail shareholder
approval of the CSX Merger, or after 180 days from the
date of the CSX Merger Agreement, if the Conrail board
determines
29<PAGE>
upon advice of counsel that its fiduciary duties require
it to do so, Conrail may provide information to and
engage in negotiations with another bidder. Thus, the
drafters of the CSX Merger Agreement -- no doubt counsel
for Conrail and CSX -- recognize that there are
circumstances in which Conrail's directors would be
required by their fiduciary duties to consider a
competing acquisition bid.
50. However, despite the recognition in the
CSX Merger Agreement that the fiduciary duties of the
Conrail Board may require it to do so, Section 4.2(b) of
the agreement (the "180-Day Lock-Out") purports to
prohibit the Conrail Board from withdrawing its
recommendations that Conrail shareholders tender their
shares in the CSX Offer and approve the CSX Merger for a
period of 180 days from the date of the CSX Merger Agree-
ment. Likewise, it prohibits the Conrail Board from
terminating the CSX Merger Agreement, even if the Conrail
Board's fiduciary duties require it to do so, for the
same 180-day period.
51. Thus, despite the plain contemplation of
circumstances under which the Conrail Board's fiduciary
duties would require it to entertain competing offers and
act to protect Conrail and its constituencies by (i)
30<PAGE>
withdrawing its recommendation that Conrail shareholders
approve the CSX Transaction and (ii) terminating the CSX
Merger Agreement, Conrail's Board has seen fit to disable
itself contractually from doing so.
52. As with the Poison Pill Lock-In, this
"180-Day Lock-Out" provision amounts to a complete
abdication of the duty of Conrail's directors to act in
the best interests of the corporation. With the 180-day
Lock-Out, the Conrail directors have determined to take a
six-month leave of absence despite their apparent
recognition that their fiduciary duties could require
them to act during this critical time.
53. The effect of this provision is to lock
out competing superior proposals to acquire Conrail for
at least six months, thus giving the CSX Transaction an
unfair time value advantage over other offers and adding
to the coercive effects of the CSX Transaction.
54. Because it purports to restrict or limit
the exercise of the fiduciary duties of the Conrail
directors, the 180-Day Lock-Out provision of the CSX
Merger Agreement is ultra vires, void and unenforceable.
Further, by agreeing to the 180-Day Lock-Out as part of
the CSX Merger Agreement, the Conrail directors breached
their fiduciary duties of loyalty and care.
31<PAGE>
Rapid Transfer of Control
55. The CSX Transaction is structured to
include (i) a first-step cash tender offer for up to
19.9% of Conrail's stock, (ii) an amendment to Conrail's
charter to opt out of coverage under Subchapter 25E of
Pennsylvania's Business Corporation Law (the "Charter
Amendment"), which requires any person acquiring control
of over 20% or more of the corporation's voting power to
acquire all other shares of the corporation for a "fair
price," as defined in the statute, in cash, (iii) follow-
ing such amendment, an acquisition of additional shares
which, in combination with other shares already acquired,
would constitute at least 40% and up to approximately 50%
of Conrail's stock, and (iv) following required
regulatory approvals, consummation of a follow-up stock-
for-stock merger.
56. Thus, once the Charter Amendment is approved,
CSX will be in a position to acquire either effective or abso-
lute control over Conrail. Conrail admits that the CSX Trans-
action contemplates a sale of control of Conrail. In its pre-
liminary proxy materials filed with the Securities and Exchange
Commission, Conrail stated that if CSX acquires 40% of
Conrail's stock, approval of the merger will be "virtually cer-
tain." CSX
32<PAGE>
could do so either by increasing the number of shares it will
purchase by tender offer, or, if tenders are insufficient, by
accepting all tendered shares and exercising the Stock Option.
CSX could obtain "approximately 50 percent" of Conrail's shares
by purchasing 40% pursuant to tender offer and by exercising
the Stock Option, in which event shareholder approval of the
CSX Merger will be, according to Conrail's preliminary proxy
statement, "certain."
57. The swiftness with which the CSX Transaction is
designed to transfer control over Conrail to CSX can only be
viewed as an attempt to lock up the CSX Transaction and ben-
efits it provides to Conrail management, despite the fact that
a better deal, financially and otherwise, is available for Con-
rail, its shareholders, and its other legitimate constituen-
cies.
The Charter Amendment
58. Conrail's Preliminary Proxy Materials for the
November 14, 1996 Special Meeting set forth the resolution to
be voted upon by Conrail's shareholders as follows:
An amendment (the "Amendment") of the Articles
of Incorporation of Conrail is hereby approved
and adopted, by which, upon the effectiveness of
such amendment Article Ten thereof will be
amended and restated in its entirety as fol-
33<PAGE>
lows: Subchapter E, Subchapter G and Subchapter
H of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended, shall not
be applicable to the Corporation; and further,
that the Board of Directors of Conrail, in its
discretion, shall be authorized to direct
certain executive officers of Conrail to file or
not to file the Articles of Amendment to
Conrail's Articles of Incorporation reflecting
such Amendment or to terminate the Articles of
Amendment prior to their effective date, if the
Board determines such action to be in the best
interests of Conrail.
59. Further, the preliminary proxy materials state
that
Pursuant to the Merger Agreement and in order to
facilitate the transactions contemplated there-
by, if the [Charter Amendment] is approved, Con-
rail would be required to file the Amendment
with the Pennsylvania Department of State so as
to permit the acquisition by CSX of in excess of
20% of the shares, such filing to be made and
effective immediately prior to such acquisition.
If CSX is not in a position to make such acqui-
sition (because, for example, shares have not
been tendered to CSX, Conrail is not required to
make such filing, (although approval of the
[Charter Amendment] will authorize Conrail to do
so) and Conrail does not currently intend to
make such filing unless it is required under the
Merger Agreement to permit CSX to acquire in
excess of 20% of the Shares.
60. Thus, if Conrail shareholders fail to tender
sufficient shares to CSX to permit CSX to acquire in excess of
20% of the shares, for example, because they wish to instead
accept the superior NS Proposal, the Defendant Directors are
actually asking Conrail share-
34<PAGE>
holders holders to grant them the authority to discriminatorily
withhold the filing of the Charter Amendment, and thereby
attempt to prevent consummation of the NS Proposal.
The $300 Million Break-up Fee
61. The CSX Merger Agreement provides for a $300
million break-up fee. This fee would be triggered if the CSX
Merger Agreement were terminated following a competing takeover
proposal.
62. This breakup fee is disproportionally large,
constituting over 3.5% of the aggregate value of the CSX Trans-
action. The breakup fee unreasonably tilts the playing field
in favor of the CSX Transaction -- a transaction that the de-
fendant directors knew, or reasonably should have known, at the
time they approved the CSX Transaction, provided less value and
other benefits to Conrail and its constituencies than would a
transaction with NS.
The Lock-Up Stock Option
63. Concurrently with the CSX Merger Agreement, Con-
rail and CSX entered into an option agreement (the "Stock Op-
tion Agreement") pursuant to which Conrail granted to CSX an
option, exercisable in certain events, to purchase 15,955,477
shares of Conrail common stock at
35<PAGE>
an exercise price of $92.50 per share, subject to adjustment.
64. If, during the time that the option under the
Stock Option Agreement is exercisable, Conrail enters into an
agreement pursuant to which all of its outstanding common
shares are to he purchased for or converted into, in whole or
in part, cash, in exchange for cancellation of the Option, CSX
shall receive an amount in cash equal to the difference (if
positive) between the closing market price per Conrail common
share on the day immediately prior to the consummation of such
transaction and the purchase price. In the event (i) Conrail
enters into an agreement to consolidate with, merge into, or
sell substantially all of its assets to any person, other than
CSX or a direct or indirect subsidiary thereof, and Conrail is
not the surviving corporation, or (ii) Conrail allows any per-
son, other than CSX or a direct or indirect subsidiary thereof,
to merge into or consolidate with Conrail in a series of trans-
actions in which the Conrail common shares or other securities
of Conrail represent less than 50% of the outstanding voting
securities of the merged corporation, then the option will be
adjusted, exchanged, or converted into options with identical
terms
36<PAGE>
as those described in the Stock Option Agreement, appropriately
adjusted for such transaction.
65. CSX and Conrail also entered into a similar op-
tion agreement, pursuant to which CSX granted to Conrail an
option, exercisable only in certain events, to purchase
43,090,773 shares of CSX Common Stock at an exercise price of
$64.82 per share.
66. The exercise price of the option under the Stock
Option Agreement is $92.50 per share. The Stock Option Agree-
ment contemplates that 15,955,477 authorized but unissued Con-
rail shares would be issued upon its exercise. Thus, for each
dollar above $92.50 that is offered by a competing bidder for
Conrail, such as NS, the competing acquiror would suffer
$15,955,477 in dilution. Moreover, there is no cap to the po-
tential dilution. At NS's offer of $100 par share, the dilu-
tion attributable to the Stock Option would be $119,666,077.50.
At a hypothetical offering price of $101 per share, the dilu-
tion would total $135,621,554.50. This lock-up structure
serves no legitimate corporate purpose, as it imposes increas-
ingly severe dilution penalties the higher the competing bid!
67. At the current $100 per share level of NS's bid,
the sum of the $300 million break-up fee and
37<PAGE>
Stock Option dilution of $119,666,077.50 constitutes nearly
5.2% of the CSX Transaction's $8.1 billion value. This is an
unreasonable impediment to NS's offer. Moreover, because these
provisions were not necessary to induce an offer that is in
Conrail's best interests, but rather were adopted to lock up a
deal providing Conrail's management with personal benefits
while selling Conrail to the low bidder, their adoption
constituted a plain breach of the Director Defendants'
fiduciary duty of loyalty.
Selective Discriminatory
Treatment of Competing Bids
68. Finally, the Conrail board has breached its fi-
duciary duties by electively (i) rendering Conrail's Poison
Pill Plan inapplicable to the CSX Transaction, (ii) approving
the CSX Transaction and thus exempting it from the 5-year
merger moratorium under Pennsylvania's Business Combination
Statute, and (iii), as noted above, purporting to approve the
Charter Amendment in favor of CSX only.
69. While Pennsylvania law does not require direc-
tors to amend or redeem poison pill rights or to take action
rendering anti-takeover provisions inapplicable, the law is
silent with respect to the duties of
38<PAGE>
directors once they have determined to do so. Once directors
have determined to render poison pill rights and anti-takeover
statutes inapplicable to a change of control transaction, their
fundamental fiduciary duties of care and loyalty require them
to take such actions fairly and equitably, in good faith, after
due investigation and deliberation, and only for the purpose of
fostering the best interests of the corporation, and not to
protect selfish personal interests of management.
70. Thus, Conrail's directors are required to act
evenhandedly, redeeming the poison pill rights and rendering
anti-takeover statutes inapplicable only to permit the best
competing control transaction to prevail. Directors cannot
take such selective and discriminatory defensive action to fa-
vor corporate executives' personal interests over those of the
corporation, its shareholders, and other legitimate constituen-
cies.
LeVan's Deal
71. As an integral part of the CSX Transaction, CSX,
Conrail and defendant LeVan have entered into an employment
agreement dated as of October 14, 1996 (the "LeVan Employment
Agreement"), covering a period of five-years from the effective
date of any merger between CSX and Conrail. The LeVan Employ-
ment Agreement provides
39<PAGE>
that Mr. LeVan will serve as Chief Operating Officer and
President of the combined CSX/Conrail company, and as Chief
Executive Officer and President of the railroad businesses of
Conrail and CSX, for two years from the effective date of a
merger between CSX and Conrail (the "First Employment
Segment"). Additionally, Mr. LeVan will serve as Chief
Executive Officer of the combined CSX/Conrail company for a
period of two years beginning immediately after the First
Employment Segment (the "Second Employment Segment"). During
the period commencing immediately after the Second Employment
Segment, or, if earlier, upon the termination of Mr. Snow's
status as Chairman of the Board (the "Third Employment Seg-
ment"), Mr. LeVan will additionally serve as Chairman of the
Board of the combined CSX/Conrail company.
72. Defendant LeVan received a base salary from Con-
rail of $514,519 and a bonus of $24,759 during 1995. The LeVan
Employment Agreement ensures substantially enhanced compensa-
tion for defendant LeVan. It provides that during the First
Employment Segment, Mr. LeVan shall receive annual base compen-
sation at least equal to 90% of the amount received by the
Chief Executive Officer of CSX, but not less than $810,000,
together with bonus and other incentive compensation at
least
40<PAGE>
equal to 90% of the amount received by the Chief Executive
Officer of CSX. During 1995, Mr. Snow received a base salary
of $895,698 and a bonus having a cash value of $1,687,500.
Thus, if Mr. Snow's salary and bonus were to equal Mr. Snow's
1995 salary and bonus, the LeVan Employment Agreement would
provide LeVan with a salary of $810,000 and a bonus of
$1,518,750 in the First Employment Period. During the Second
and Third Employment Segments, Mr. LeVan will receive compen-
sation in an amount no less than that received by the Chief
Executive Officer during the First Employment Segment, but not
less than $900,000.
73. If CSX terminates Mr. LeVan's employment for a
reason other than cause or disability or Mr. LeVan terminates
employment for good reason (as those terms are defined in the
LeVan Employment Agreement), Mr. LeVan will be entitled to sig-
nificant lump sum cash payments based on his compensation dur-
ing the five year term of the employment agreement, continued
employee welfare benefits for the longer of three years or the
number of years remaining in the employment agreement; and the
immediate vesting of outstanding stock-based awards.
41<PAGE>
Defendants' Campaign Of Misinformation
74. On October 15, 1996, Conrail and CSX issued
press releases announcing the CSX Transaction, and Conrail pub-
lished and filed preliminary proxy materials with the SEC. On
October 16, 1996, CSX filed and published its Schedule 14D-1
Tender Offer Statement and Conrail filed its Schedule 14D-9
Solicitation/Recommendation Statement. These communications to
Conrail's shareholders reflect a scheme by defendants to co-
erce, mislead and fraudulently manipulate such shareholders to
swiftly deliver control of Conrail to CSX and effectively frus-
trate any competing higher bid.
75. Conrail's Preliminary Proxy Statement contains
the following misrepresentations of fact:
(a) Conrail states that "certain provisions of
Pennsylvania law effectively preclude . . . CSX from pur-
chasing 20% or more" of Conrail's shares in the CSX Offer
"or in any other manner (except the [CSX] Merger." This
statement is false. The provisions of Pennsylvania law to
which Conrail is referring are those of Subchapter 25E of
the Pennsylvania Business Corporation Law. This law does
not "effectively preclude CSX from purchasing 20% or more
of Conrail's stock other than through the CSX Merger.
42<PAGE>
Rather, it simply requires a purchaser of 20% or more of
Conrail's voting stock to pay a fair price in cash, on
demand, to the holders of the remaining 80% of the shares.
The real reason that CSX will not purchase 20% or more of
Conrail's voting stock absent the Charter Amendment is
that, unlike NS, CSX is unable or unwilling to pay a fair
price in cash for 100% of Conrail's stock.
(b) Conrail states that its "Board of Directors
believes that Conrail shareholders should have the op-
portunity to receive cash in the near-term for 40% of
[Conrail's] shares," and that "[t]he Board of Directors
believes it is in the best interests of shareholders that
they have the opportunity to receive cash for 40% of their
shares in the near term." These statements are false.
First of all, the Conrail Board believes that Conrail
shareholders should have the opportunity to receive cash
in the near-term for 40% of Conrail's shares only if such
transaction will swiftly deliver effective control of Con-
rail to CSX. Second, the Conrail Board of Directors does
not believe that such swift transfer of control to CSX is
in the best interests of Conrail shareholders; rather, the
Conrail Board of
43<PAGE>
Directors believes that swift transfer of effective
control over Conrail to CSX through the CSX Offer will
lock up the CSX Transaction and preclude Conrail
shareholders from any opportunity to receive the highest
reasonably available price in a sale of control of Con-
rail.
76. CSX's Schedule 14D-1 contains the following mis-
representations of fact:
(a) CSX states that:
At any time prior to the announcement by [Con-
rail] or an Acquiring Person that an Acquiring Person
has become such, [Conrail] may redeem the [Conrail
Poison Pill Plan] rights ...
This statement is false. In fact, the Conrail Poison Pill
rights are redeemable any time prior to the Distribution
Date. After the Distribution Date, they cannot be re-
deemed. CSX further states that:
The terms of the [Conrail Poison Pill] rights
may be amended by the [Conrail Board] without the
consent of the holders of the Rights ... to make any
other provision with respect to the Rights which
[Conrail] may deem desirable; provided that from and
after such time as Acquiring Person becomes such, the
Rights may not be amended in any manner which would
adversely affect the interests of holders of Rights.
This statement is also false. The Conrail Board's power
to freely amend the poison pill rights termi-
44<PAGE>
nates on the Distribution Date, not the date when someone
becomes an Acquiring Person. These misrepresentations
operate to conceal the fact that the Conrail Board will
lose its power to control the drastic effects of the
poison pill ten days following commencement of a competing
tender offer.
(b) CSX states that the "purpose of the [CSX]
Offer is for [CSX] . . . to acquire a significant equity
interest in [Conrail] as the first step in a business com-
bination of [CSX] and [Conrail]." This statement is
false. The purpose of the CSX offer is to swiftly trans-
fer effective control over Conrail to CSX in order to lock
up the CSX Transaction and foreclose the acquisition of
Conrail by any competing higher bidder.
(c) CSX states that "the Pennsylvania Control
Transaction Law effectively precludes [CSX, through its
acquisition subsidiary] from purchasing 20% or more of
Conrail's shares pursuant to the [CSX] Offer." This
statement is false. The provisions of Pennsylvania law to
which Conrail is referring are those of Subchapter 25E of
the Pennsylvania Business Corporation Law. This law does
not "effectively preclude" CSX from purchasing 20% or more
of
45<PAGE>
Conrail's stock other than through the CSX Merger.
Rather, it simply requires a purchaser of 20% or more of
Conrail's voting stock to pay a fair price in cash, on
demand, to the holders of the remaining 80% of the shares.
The real reason that CSX will not purchase 20% or more of
Conrail's voting stock absent the Charter Amendment is
that, unlike NS, CSX is unable or unwilling to pay a fair
price in cash for 100% of Conrail's stock.
77. Conrail's Schedule 14D-9 states that "the [CSX
Transaction] . . . is being structured as a true merger-of-
equals transaction." This statement is false. The CSX Trans-
action is being structured as a rapid, locked-up sale of con-
trol of Conrail to CSX involving a significant, albeit inad-
equate, control premium.
78. Each of the Conrail Preliminary Proxy Statement,
the CSX Schedule 14D-1 and the Conrail Schedule 14D-9 omit to
disclose the following material facts, the disclosure of which
are necessary to make the statements made in such documents not
misleading:
(a) That the Conrail Board will lose its power to
redeem or freely amend the Conrail Poison Pill Plan rights on
the "Distribution Date," which
46<PAGE>
will occur 10 business days from the date when a competing
tender offer for Conrail is commenced.
(b) That both Conrail (and its senior management)
and CSX (and its senior management) knew (i) that NS was keenly
interested in acquiring Conrail, (ii) that NS has the financial
capacity and resources to pay a higher price for Conrail than
CSX could, and (iii) that a financially superior competing bid
for Conrail by NS was inevitable.
(c) That Conrail management led NS to believe that
if and when the Conrail Board determined to sell Conrail, it
would do so through a process in which NS would be given the
opportunity to bid, and that in the several weeks prior to the
announcement of the CSX Transaction, defendant LeVan on two
occasions prevented Mr. Goode from presenting an acquisition
proposal to Conrail by stating to him that making such a pro-
posal would be unnecessary and that Mr. LeVan would contact Mr.
Goode concerning NS's interest in acquiring Conrail following
(i) the Conrail Board's strategic planning meeting scheduled
for September 1996 and (ii) a meeting of the Conrail Board pur-
portedly scheduled for October 16, 1996.
47<PAGE>
(d) That in September of 1994, NS had proposed a
stock-for-stock acquisition of Conrail at an exchange ratio of
1.1 shares of NS stock for each share of Conrail stock, which
ratio, if applied to the price of NS stock on the day before
announcement of the CSX Transaction, October 14, 1996, implied
a bid by NS worth over $101 per Conrail share.
(e) That the CSX Transaction was structured to
swiftly transfer effective if not absolute voting control over
Conrail to CSX, and to prevent any other bidders from acquiring
Conrail for a higher price.
(f) That although Conrail obtained opinions from
Morgan Stanley and Lazard Freres that the consideration to be
received by Conrail stockholders in the CSX Transaction was
"fair" to such shareholders from a financial point of view,
Conrail's Board did not ask its investment bankers whether the
CSX Transaction consideration was adequate, from a financial
point of view, in the context of a sale of control of Conrail
such as the CSX Transaction.
(g) That although in arriving at their "fairness"
opinions, both Morgan Stanley and Lazard Freres purport to have
considered the level of
48<PAGE>
consideration paid in comparable transactions, both investment
bankers failed to consider the most closely comparable
transaction -- NS's September 1994 merger proposal, which, as
noted above, would imply a price per Conrail share in excess of
$101.
(h) That, if asked to do so, Conrail's investment
bankers would be unable to opine in good faith that the consi-
deration offered in the CSX Transaction is adequate to Con-
rail's shareholders from a financial point of view.
(i) That Conrail's Board failed to seek a fairness
opinion from its investment bankers concerning the $300 million
breakup fee included in the CSX Transaction.
(j) That Conrail's Board failed to seek a fairness
opinion from its investment bankers concerning the Stock Option
Agreement granted by Conrail to CSX in connection with the CSX
Transaction.
(k) That the Stock Option Agreement is structured so
as to impose increasingly severe dilution costs on a competing
bidder for control of Conrail for progressively higher acquisi-
tion bids.
(l) That the Conrail Board intends to withhold the
filing of the Charter Amendment follow-
49<PAGE>
ing its approval by Conrail's stockholders if the effectiveness
of such amendment would facilitate any bid for Conrail other
than the CSX Transaction.
(m) That the Charter Amendment and/or its submission
to a vote of the Conrail shareholders is illegal and ultra
vires under Pennsylvania law.
(n) That the Conrail Board's discriminatory (i) use
of the Charter Amendment, (ii) amendment of the Conrail Poison
Pill and (iii) action exempting the CSX Transaction from
Pennsylvania's Business Combination Statute, all to facilitate
the CSX Transaction and to preclude competing financially supe-
rior offers for control of Conrail, constitute a breach of the
Director Defendants' fiduciary duty of loyalty.
(o) That Conrail's Board failed to conduct a reason-
able, good faith investigation of all reasonably available ma-
terial information prior to approving the CSX transaction and
related agreements, including the lock-up Stock Option Agree-
ment.
(p) That in recommending that Conrail's shareholders
tender their shares to CSX in the CSX Offer, Conrail's Board
did not conclude that doing
50<PAGE>
so would be in the best interests of Conrail's shareholders.
(q) That in recommending that Conrail's shareholders
approve the Charter Amendment, the Conrail Board did not con-
clude that doing so would be in the best interests of Conrail's
shareholders.
(r) That in recommending that Conrail shareholders
tender their shares to CSX in the CSX Offer, primary weight was
given by the Conrail Board to interests of persons and/or
groups other than Conrail's shareholders.
(s) That in recommending that Conrail shareholders
tender their shares to CSX in the CSX Offer, primary weight was
given to the personal interests of defendant LeVan in increas-
ing his compensation and succeeding Mr. Snow as Chairman and
Chief Executive Officer of the combined CSX/Conrail company.
(t) That the Continuing Director Requirement in
Conrail's Poison Pill (described below in paragraphs 80 through
88, adopted by Conrail's board in September 1995 and publicly
disclosed at that time, is illegal and ultra vires under Penn-
sylvania law and therefore is void and unenforceable.
51<PAGE>
79. Each of the misrepresentations and omitted facts
detailed above are material to the decisions of Conrail's
shareholders concerning whether to vote in favor of the Charter
Amendment and whether, in response to the CSX Offer, to hold,
sell to the market, or tender their shares, because such mis-
representations and omitted facts bear upon (i) the good faith
of the Conrail directors in recommending that Conrail share-
holders approve the Charter Amendment and tender their shares
in the CSX Offer, (ii) whether taking such actions are in the
best interests of Conrail shareholders, (iii) whether the CSX
Offer represents financially adequate consideration for the
sale of control of Conrail and/or (iv) whether the economically
superior NS Proposal is a viable, available alternative to the
CSX Transaction. Absent adequate corrective disclosure by the
defendants, these material misrepresentations and omissions
threaten to coerce, mislead, and fraudulently manipulate Con-
rail shareholders to approve the Charter Amendment and deliver
control of Conrail to CSX in the CSX Offer, in the belief that
the NS Proposal is not an available alternative.
52<PAGE>
Conrail's Directors Attempt To Override
Fundamental Principles of Corporate Democracy
By Imposing A Continuing Directors
Requirement in Conrail's Poison Pill
80. As noted above, Conrail's directors have long
known that it was an attractive business combination candidate
to other railroad companies, including NS.
81. Neither Conrail's management nor its Board, how-
ever, had any intention to give up their control over Conrail,
unless the acquiror was willing to enter into board composi-
tion, executive succession, and compensation and benefit ar-
rangements satisfying the personal interests of Conrail manage-
ment and the defendant directors, such as the assignments pro-
vided for in the CSX Transaction. They were aware, however,
that through a proxy contest, they could be replaced by direc-
tors who would be receptive to a change in control of Conrail
regardless of defendants' personal interests. Accordingly, on
September 20, 1995, the Conrail directors attempted to elimi-
nate the threat to their continued incumbency posed by the free
exercise of Conrail's stockholders' franchise. They drasti-
cally altered Conrail's existing Poison Pill Plan, by adopting
a "Continuing Director" limitation to the Board's power to re-
deem the rights issued pursuant to the Rights Plan (the "Con-
tinuing Director Requirement").
53<PAGE>
82. Prior to adoption of the Continuing Director
Requirement, the Conrail Poison Pill Plan was a typical "flip-
in, flip-over" plan, designed to make an unsolicited acquisi-
tion of Conrail prohibitively expensive to an acquiror, and
reserving power in Conrail's duly elected board of directors to
render the dilutive effects of the rights ineffective by re-
deeming or amending them.
83. The September 20, 1995 adoption of the Continu-
ing Director Requirement changed this reservation of power. It
added an additional requirement for amendment of the plan or
redemption of the rights. For such action to be effective, at
least two members of the Board must be "Continuing Directors,"
and the action must be approved by a majority of such "Continu-
ing Directors." "Continuing Directors" are defined as members
of the Conrail Board as of September 20, 1995, i.e., the incum-
bents, or their hand-picked successors.
84. By adopting the Continuing Director Requirement,
the Director Defendants intentionally and deliberately have
attempted to destroy the right of stockholders of Conrail to
replace them with new directors who would have the power to
redeem the rights or amend the Rights Agreement in the event
that such new directors deemed such action to be in the best
interests
54<PAGE>
of the company. That is, instead of vesting the power to
accept or reject an acquisition in the duly elected Board of
Directors of Conrail, the Rights Plan, as amended, destroys the
power of a duly elected Board to act in connection with
acquisition offers, unless such Board happens to consist of the
current incumbents or their hand-picked successors. Thus, the
Continuing Director Requirement is the ultimate entrenchment
device.
85. The Continuing Director Requirement is invalid
per se under Pennsylvania statutory law, in that it purports to
limit the discretion of future Boards of Conrail. Pennsylvania
law requires that any such limitation on Board discretion be
set forth in a By-Law adopted by the stockholders. See Pa. BCL
Section 1721. Thus, the Director Defendants were without power
to adopt such a provision unilaterally by amending the Rights
Agreement.
86. Additionally, the Continuing Director Require-
ment is invalid under Conrail's By-Laws and Articles of Incor-
poration. Under Section 3.5 of Conrail's By-Laws, the power to
direct the management of the business and affairs of Conrail is
broadly vested in its duly elected board of directors. Insofar
as the Continuing Director Requirement purports to restrict the
power of Conrail's duly elected board of directors to redeem
the
55<PAGE>
rights or amend the plan, it conflicts with Section 3.5 of Con-
rail's By-Laws and is therefore of no force or effect. Article
Eleven of Conrail's Articles of Incorporation permits Conrail's
entire board to be removed without cause by stockholder vote.
Read together with Section 3.5 of Conrail's By-Laws, Article
Eleven enables Conrail's stockholders to replace the entire
incumbent board with a new board fully empowered to direct the
management of Conrail's business and affairs, and, specifi-
cally, to redeem the rights or amend the plan. Insofar as the
Continuing Director Requirement purports to render such action
impossible, it conflicts with Conrail's Articles of Incorpora-
tion and is therefore of no cause or effect.
87. Furthermore, the adoption of the Continuing Di-
rector Requirement constituted a breach of the Director Defen-
dants' fiduciary duty of loyalty. There existed no justifica-
tion for the directors to attempt to negate the right of stock-
holders to elect a new Board in the event the stockholders dis-
agree with the incumbent Board's policies, including their re-
sponse to an acquisition proposal.
88. Moreover, while the Director Defendants dis-
closed the adoption of the Continuing Director Re-
56<PAGE>
quirement, they have failed to disclose its illegality and the
illegality of their conduct in adopting it. If they are not
required to make corrective disclosures, defendants will permit
the disclosure of the Continuing Director Requirement's
adoption to distort stockholder choice in connection with the
special meeting, the CSX Offer, and (if they have not
successfully locked up voting control of Conrail by then) in
the next annual election of directors. The Director
Defendants' conduct is thus fraudulent, in that they have
failed to act fairly and honestly toward the Conrail
stockholders, and intended to preserve their incumbency and
that of current management, to the detriment of Conrail's
stockholders said other constituencies. Accordingly, such
action should be declared void and of no force or effect.
Furthermore, adequate corrective disclosure should be required.
Conrail's Charter Permits The Removal
and Replacement of its Entire Board of
Directors At its Next Annual Meeting
89. As noted above, plaintiff NS intends to facili-
tate the NS Proposal by replacing the Conrail board at Con-
rail's next annual meeting. Conrail's next annual meeting is
scheduled to be held on May 21, 1997 (accord-
57<PAGE>
ing to Conrail's April 3, 1996 Proxy Statement, as filed with
the Securities and Exchange Commission).
90. The Director Defendants adopted the Continuing
Director Requirement in part because they recognized that under
Conrail's Articles, its entire Board, even though staggered,
may be removed without cause at Conrail's next annual meeting.
91. Section 3.1 of Conrail's By-Laws provides that
the Conrail Board shall consist of 13 directors, but presently
there are only 11. The Conrail Board is classified into three
classes. Each class of directors serves for a term of three
years, which terms are staggered.
92. Article 11 of Conrail's Articles of Incorpora-
tion provides that:
The entire Board of Directors, or a class of the
Board where the Board is classified with respect to
the power to elect directors, or any individual di-
rector may be removed from office without assigning
any cause by vote of stockholders entitled to cast at
least a majority of the votes which all stockholders
would be entitled to cast at any annual election of
directors or of such class of directors.
93. Under the plain language of Article 11, the en-
tire Conrail Board, or any one or more of Conrail's directors,
may be removed without cause by a majority vote of the Conrail
stockholders entitled to vote at the
58<PAGE>
annual meeting. Plaintiffs anticipate, however, that
defendants will argue that under Article 11, only one class may
be removed at each annual meeting. Accordingly, plaintiffs
seek a declaratory judgment that pursuant to Article 11, the
entire Conrail Board, or any one or more of Conrail's
directors, may be removed without cause at Conrail's next
annual meeting.
Declaratory Relief
94. The Court may grant the declaratory relief
sought herein pursuant to 28 U.S.C. Section 2201. The Director
Defendants' adoption of the CSX Transaction (with its
discriminatory Charter Amendment poison pill, and state anti-
takeover statute treatment and draconian lock-up provisions) as
well as their earlier adoption of the Continuing Director
Requirement, clearly demonstrate their bad faith entrenchment
motivation and, in light of the NS Proposal, that there is a
substantial controversy between the parties. Indeed, given the
NS Proposal, the adverse legal interests of the parties are
real and immediate. Defendants can be expected to vigorously
oppose each judicial declaration sought by plaintiffs, in order
to maintain their incumbency and defeat the NS Proposal --
despite the benefits it would provide to Conrail's stockholders
and other constituencies.
59<PAGE>
95. The granting of the requested declaratory relief
will serve the public interest by affording relief from uncer-
tainty and by avoiding delay and will conserve judicial re-
sources by avoiding piecemeal litigation.
Irreparable Injury
96. The Director Defendants' adoption of the CSX
Transaction (with its discriminatory Charter Amendment, poison
pill and state anti-takeover statute treatment and draconian
lock-up provisions) as well as their earlier adoption of the
Continuing Director Requirement threaten to deny Conrail's
stockholders of their right to exercise their corporate fran-
chise without manipulation, coercion or false and misleading
disclosures and to deprive them of a unique opportunity to re-
ceive maximum value for their stock. The resulting injury to
plaintiffs and all of Conrail's stockholders would not be ade-
quately compensable in money damages and would constitute ir-
reparable harm.
Derivative Allegations
97. Plaintiffs bring each of the causes of action
reflected in Counts One through Seven and Fourteen and Fifteen
below individually and directly. Alternatively, to the extent
required by law, plaintiffs bring such causes of action deriva-
tively on behalf of Conrail.
60<PAGE>
98. No demand has been made on Conrail's Board of
Directors to prosecute the claims set forth herein since, for
the reasons set forth below, any such demand would have been a
vain and useless act since the Director Defendants constitute
the entire Board of Directors of Conrail and have engaged in
fraudulent conduct to further their personal interests in en-
trenchment and have ratified defendant LeVan's self-dealing
conduct:
a. The Director Defendants have acted fraudu-
lently by pursuing defendants' campaign of misinformation,
described above, in order to coerce, mislead, and manipu-
late Conrail shareholders to swiftly deliver control of
Conrail to the low bidder.
b. The form of resolution by which the share-
holders are being asked to approve the Charter Amendment
is illegal and ultra vires in that it purports to autho-
rize the Conrail Board to discriminatorily withhold filing
the certificate of amendment even after shareholder ap-
proval. Thus, its submission to the shareholders is il-
legal and ultra vires and, therefore, not subject to the
protections of the business judgment rule.
61<PAGE>
c. The Conrail directors' selective amendment
of the Conrail poison pill and discriminatory preferential
treatment of the CSX Transaction under the Pennsylvania
Business Combination Statute were motivated by their per-
sonal interest in entrenchment, constituting a breach of
their fiduciary duty of loyalty and rendering the business
judgment rule inapplicable.
d. The Director Defendants' adoption of the
breakup fee and stock option lock-ups in favor of CSX was
motivated by their personal interest in entrenchment, con-
stituting a breach of their duty of loyalty and render the
business judgment rule inapplicable.
e. The Continuing Director Requirement is il-
legal and ultra vires under Pennsylvania statutory law and
under Conrail's charter and by-laws, rendering the busi-
ness judgment rule inapplicable to its adoption by the
Director Defendants.
f. In adopting the Continuing Director Require-
ment, each of the Defendant Directors has failed to act
fairly and honestly toward Conrail and its stockholders,
insofar as by doing so the Defendant Directors, to pre-
serve their own incumbency,
62<PAGE>
have purported to eliminate the stockholders' fundamental
franchise right to elect directors who would be receptive
to a sale of control of Conrail to the highest bidder.
There is no reason to think that, having adopted this
ultimate in entrenchment devices, the Director Defendants
would take action that would eliminate it.
g. Additionally, the Director Defendants have
acted fraudulently, in that they intentionally have failed
to disclose the plain illegality of their conduct.
h. There exists no reasonable prospect that the
Director Defendants would take action to invalidate the
Continuing Director Requirement. First, pursuant to Penn-
sylvania statute, their fiduciary duties purportedly do
not require them to amend the Rights Plan in any way.
Second, given their dishonest and fraudulent entrenchment
motivation, the Director Defendants would certainly not
commence legal proceedings to invalidate the Continuing
Director Requirement.
99. Plaintiffs are currently beneficial owners of
Conrail common stock. Plaintiffs' challenge to the CSX Trans-
action (including the illegal Charter Amendment,
63<PAGE>
discriminatory treatment, and lock-ups) and to the Continuing
Director Requirement presents a strong prima facie case,
insofar as the Director Defendants have deliberately and
intentionally, without justification, acted to foreclose free
choice by Conrail's shareholders. If this action were not
maintained, serious injustice would result, in that defendants
would be permitted illegally and in pursuit of personal, rather
than proper corporate interests to deprive Conrail stockholders
of free choice and a unique opportunity to maximize the value
of their investments through the NS Proposal, and to deprive
plaintiff NS of a unique acquisition opportunity.
100. This action is not a collusive one to confer
jurisdiction on a Court of the United States that it would not
otherwise have.
COUNT ONE
(Breach of Fiduciary Duty with
Respect to the Charter Amendment)
101. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
64<PAGE>
102. The Conrail directors were and are obligated by
their fiduciary duties of due care and loyalty, to act in the
best interests of the corporation.
103. In conjunction with the proposed merger, the
Conrail board of directors has approved, and recommended that
the shareholders approve, an amendment to Conrail's Charter.
The amendment is required to allow a third party to acquire
more than 20% of Conrail's stock.
104. The Conrail directors have publicly stated
their intention to file the amendment only if the requisite
number of shares are tendered to CSX.
105. By adopting the illegal Charter Amendment and
then discriminately applying it to benefit themselves, the Con-
rail directors have breached their fiduciary duties of care and
loyalty.
106. Plaintiffs have no adequate remedy at law.
COUNT TWO
(Breach of Fiduciary Duty
With Respect to the Poison Pill)
107. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
108. The Conrail board of directors adopted its Poi-
son Pill Plan with the ostensible purpose of protect-
65<PAGE>
ing its shareholders against the consummation of unfair
acquisition proposals that may fail to maximize shareholder
value.
109. The Conrail Board has announced its intention
to merge with CSX, and the Conrail Board has also sought to
exempt CSX from the provisions of the Poison Pill.
110. Additionally, the Conrail Board has committed
itself to not pursue any competing offer for the Company.
111. By selectively and discriminately determining
to exempt CSX, and only CSX, from the Poison Pill provisions,
to the detriment to Conrail's shareholders, the Conrail direc-
tors have breached their fiduciary duties of care and loyalty.
112. Plaintiffs have no adequate remedy at law.
COUNT THREE
(Breach of Fiduciary Duty
with Respect to the Pennsylvania
Business Combinations Statute)
113. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
114. By approving the CSX Offer prior to its consum-
mation, the Director Defendants have rendered the
66<PAGE>
Pennsylvania Business Combinations Statute, subchapter 25F of
the Pennsylvania Business Corporation Law, and, particularly,
its five-year ban on mergers with substantial stockholders,
inapplicable to the CSX Transaction, while it remains as an
impediment to competing higher acquisition offers such as the
NS Proposal.
115. By selectively and discriminately exempting the
CSX Transaction from the five-year merger ban, for the purpose
of facilitating a transaction that will provide substantial
personal benefits to Conrail management while delivering Con-
rail to the low bidder, the Director Defendants have breached
their fiduciary duties of care and loyalty.
116. Plaintiffs have no adequate remedy at law.
COUNT FOUR
(Declaratory Judgment Against All
Defendants that the Poison Pill
Lock-In is Void Under Pennsylvania Law)
117. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
118. By purporting to bind Conrail and its directors
not to amend or take any action with respect to the Conrail
Poison Pill Plan without CSX'S consent, the
67<PAGE>
CSX Merger Agreement purports to restrict the managerial
discretion of Conrail's directors.
119. Under Pennsylvania law, agreements restricting
the managerial discretion of the board of directors are permis-
sible only in statutory close corporations. Conrail is not a
statutory close corporation.
120. No statute countenances Conrail's and the Di-
rector Defendants' adoption of the Poison Pill Lock-In terms of
the CSX Merger Agreement. No Conrail By-Law adopted by the
Conrail shareholders provides that Conrail's directors may con-
tractually abdicate their fiduciary duties and managerial pow-
ers and responsibilities with respect to the Conrail Poison
Pill Plan.
121. Plaintiffs, as well as all of Conrail's share-
holders and other legitimate constituencies, face imminent ir-
reparable harm unless the poison pill lock-in provisions are
declared ultra vires, void and unenforceable, and Conrail's
directors are enjoined to take such action as is necessary to
postpone the "Distribution Date" under the Conrail Poison Pill
Plan and retain their power to redeem and/or amend the poison
pill rights.
122. Plaintiffs have no adequate remedy at law.
68<PAGE>
COUNT FIVE
(Against the Defendant Directors
for Breach of Fiduciary Duty with
Respect to the Poison Pill Lock-In)
123. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
124. By entering into the Poison Pill Lock-In provi-
sions of the CSX Merger Agreement, the Director Defendants pur-
ported to relinquish their power to act in the best interests
of Conrail in connection with proposed acquisitions of Conrail,
and, unless they are enjoined to take such action as is neces-
sary to postpone the occurrence of a "Distribution Date" under
the Conrail Poison Pill Plan, will by their inaction lock Con-
rail into a situation in which it cannot be acquired, regard-
less of how beneficial the proposed transaction is, until the
year 2005, other than through the CSX Transaction at its cur-
rent price.
125. Thus, by entering into the CSX Transaction and
by failing to postpone the "Distribution Date", the Director
Defendants have intentionally, in violation of their duty of
loyalty, completely abdicated their fiduciary duties and re-
sponsibilities. Alternatively, the Director Defendants, by en-
tering into the Poison Pill Lock-In provision of the CSX Merger
Agreement without
69<PAGE>
adequate investigation and comprehension of the consequences of
their action, and by failing to take action to rescind the
Poison Pill Lock-In provision and postpone the "Distribution
Date", have acted and are acting recklessly and with gross
negligence.
126. Absent prompt injunctive relief, plaintiffs, as
well as Conrail and all of its legitimate constituencies, face
imminent irreparable harm.
127. Plaintiffs have no adequate remedy at law.
COUNT SIX
(Declaratory Judgment Against All
Defendants That the 180-Day Lock-Out
is Void Under Pennsylvania Law)
128. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
129. By purporting to bind Conrail and its director
from acting to protect the interests of Conrail, its sharehold-
ers and its other legitimate constituencies by withdrawing its
recommendation that Conrail's shareholders accept the CSX Offer
and approve the CSX Merger even when the fiduciary duties of
Conrail's directors would require them to do so, the 180-Day
Lock-Out provision of the CSX Merger Agreement purports to re-
strict the managerial discretion of Conrail's directors.
70<PAGE>
130. By purporting to prohibit Conrail's directors
from terminating the CSX Merger Agreement when their fiduciary
duties would require them to do so, the 180-Day Lock-Out provi-
sion of the CSX Merger Agreement purports to restrict the mana-
gerial discretion of Conrail's directors.
131. Under Pennsylvania law, agreements restricting
the managerial discretion of the board of directors are permis-
sible only in statutory close corporations. Conrail is not a
statutory close corporation.
132. No statute countenances Conrail's and the Di-
rector Defendants' adoption of the 180-Day Lock-Out terms of
the CSX Merger Agreement. No Conrail By-Law adopted by the
Conrail shareholders provides that Conrail's directors may con-
tractually abdicate their fiduciary duties and managerial pow-
ers and responsibilities.
133. Unless the 180-Day Lock-Out provision is de-
clared ultra vires and void and defendants are enjoined from
taking any action enforcing it, Conrail and its legitimate con-
stituencies face irreparable harm.
134. Plaintiffs have no adequate remedy at law.
COUNT SEVEN
(Against the Defendant Directors
for Breach of Fiduciary Duty with
71<PAGE>
Respect to the 180-Day Lock-Out)
135. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
136. By entering into the 180-Day Lock-Out provision
of the CSX Merger Agreement, the Director Defendants purported
to relinquish their power to act in the best interest of Con-
rail in connection with proposed acquisitions of Conrail.
137. Thus, by entering into the 180-Day Lock-Out
provision, the Conrail directors have abdicated their fiduciary
duties, in violation of their duties of loyalty and care.
138. Plaintiffs have no adequate remedy at law.
COUNT EIGHT
(Breach of Fiduciary Duty with
Respect to the Lock-Up Provisions)
139. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
140. In conjunction with the CSX Merger Agreement,
the Conrail Board has agreed to termination fees of $300 mil-
lion and to the lock-up Stock Option Agreement.
141. These provisions confer no benefit upon Con-
rail's shareholders and in fact operate and are in-
72<PAGE>
tended to operate to impede or foreclose further bidding for
Conrail.
142. The Conrail directors have adopted these provi-
sions without regard to what is in the best interest of the
Company and its shareholders, in violation of their fiduciary
duties.
143. Plaintiffs have no adequate remedy at law.
COUNT NINE
(Declaratory Relief Against
Conrail and Director Defendants That
The Continuing Director Requirement
Is Void Under Pennsylvania Law)
144. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
145. Under Pennsylvania law, the business and af-
fairs of a Pennsylvania corporation are to be managed under the
direction of the Board of Directors unless otherwise provided
by statute or in a By-Law adopted by the stockholders. Pa. BCL
Section 1721.
146. Under Pennsylvania law, agreements restricting
the managerial discretion of directors are permissible only in
statutory close corporations.
147. No statute countenances Conrail's and the cur-
rent Board's adoption of the Continuing Director
73<PAGE>
Requirement. No Conrail By-Law adopted by the Conrail
stockholders provides that the current Board may limit a future
Board's management and direction of Conrail. Conrail is not a
statutory close corporation.
148. Adoption of the Continuing Director Requirement
constitutes an unlawful attempt by the Director Defendants to
limit the discretion of a future Board of Directors with re-
spect to the management of Conrail. In particular, under the
Continuing Director Requirement, a duly elected Board of Direc-
tors that includes less than two continuing directors would be
unable to redeem or modify Conrail's Poison Pill even upon de-
termining that to do so would be in Conrail's best interests.
149. Plaintiffs seek a declaration that the Continu-
ing Director Requirement is contrary to Pennsylvania statute
and, therefore, null and void.
150. Plaintiffs have no adequate remedy at law.
COUNT TEN
(Declaratory Relief Against Conrail
and The Director Defendants That
The Continuing Director Requirement
Is Void Under Conrail's Articles
of Incorporation And By-Laws)
151. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
74<PAGE>
152. Under Section 3.5 of Conrail's By-Laws,
The business and affairs of the Corpora-
tion shall be managed under the direction of
the Board which may exercise all such powers
of the Corporation and do all such lawful acts
and things as are not by statute or by the
Articles or by these By-laws directed or re-
quired to be exercised and done by the share-
holders.
153. Pursuant to Section 1505 of the Pennsylvania
Business Corporation Law, the By-Laws of a Pennsylvania corpo-
ration operate as regulations among the shareholders and affect
contracts and other dealings between the corporation and the
stockholders and among the stockholders as they relate to the
corporation. Accordingly, the Rights Plan and the rights is-
sued thereunder are subject to and affected by Conrail's By-
Laws.
154. Insofar as it purports to remove from the duly
elected board of Conrail the power to redeem the rights or
amend the Rights Plan, the Continuing Director Requirement di-
rectly conflicts with Section 3.5 of Conrail's By-Laws, and is
therefore void and unenforceable.
155. Article Eleven of Conrail's Articles of Incor-
poration provides that Conrail's entire board may be removed
without cause by vote of a majority of the stockholders who
would be entitled to vote in the election of
75<PAGE>
directors. Read together with Section 3.5 of Conrail's By-
Laws, Article Eleven enables the stockholders to replace the
entire incumbent board with a new board with all powers of the
incumbent board, including the power to redeem the rights or to
amend the Rights Agreement. The Continuing Director
Requirement purports to prevent the stockholders from doing so,
and is therefore void and unenforceable.
156. Plaintiffs have no adequate remedy at law.
COUNT ELEVEN
(Declaratory Relief Against Conrail
and The Director Defendants That Adoption
of the Continuing Director Requirement
Constituted A Breach of the Duty of Loyalty)
157. Plaintiffs repeat and reallege each of the fore-
going allegations as if fully set forth in this paragraph.
158. Adoption of the Continuing Director Requirement
constituted a breach of the duty of loyalty on the part of the
Director Defendants. Such adoption was the result of bad faith
entrenchment motivation rather than a belief that the action
was in the best interests of Conrail. In adopting the Continu-
ing Director Requirement, the Director Defendants have pur-
ported to circumvent the Conrail stockholders' fundamental
franchise
76<PAGE>
rights, and thus have failed to act honestly and fairly toward
Conrail and its stockholders. Moreover, the Director
Defendants adopted the Continuing Director Requirement without
first conducting a reasonable investigation.
159. The Continuing Director Requirement not only
impedes acquisition of Conrail stock in the NS Offer, it also
impedes any proxy solicitation in support of the NS Proposal
because Conrail stockholders will, unless the provision is in-
validated, believe that the nominees of plaintiffs will be pow-
erless to redeem the Poison Pill rights in the event they con-
clude that redemption is in the best interests of the corpora-
tion. Thus, stockholders may believe that voting in favor of
plaintiffs' nominees would be futile. The Director Defendants
intended their actions to cause Conrail's stockholders to hold
such belief.
160. Plaintiffs seek a declaration that the Director
Defendants' adoption of the Continuing Director Requirement was
in violation of their fiduciary duties and, thus, null, void
and unenforceable.
161. Plaintiffs have no adequate remedy at law.
77<PAGE>
COUNT TWELVE
(Against Conrail And The Director
Defendants For Actionable Coercion)
162. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
163. The Director Defendants owe fiduciary duties of
care and loyalty to Conrail. Furthermore, Conrail and the Di-
rector Defendants, insofar as they undertake to seek and rec-
ommend action by Conrail's shareholders, for example with re-
spect to the Charter Amendment, the CSX Offer or the NS Offer,
stand in a relationship of trust and confidence vis a vis Con-
rail's shareholders, and accordingly have a fiduciary obliga-
tion of good faith and fairness to such shareholders in seeking
or recommending such action.
164. Conrail and its directors are seeking the ap-
proval by Conrail's shareholders of the Charter Amendment and
are recommending such approval.
165. Conrail and its directors are seeking the ten-
der by Conrail's shareholders of their shares into the CSX Of-
fer and are recommending such tender.
166. In seeking such action and making such recom-
mendations, Conrail and its directors have sought to create the
impression among the Conrail shareholders that
78<PAGE>
the NS Proposal is not a financially superior, viable, and
actually available alternative to the CSX Transaction. This
impression, however, is false. The only obstacles to the NS
Proposal are the ultra vires, illegal impediments constructed
by defendants, including the Poison Pill Lock-In, the 180-Day
Lock-Out, and the continuing director provisions of the Conrail
Poison Pill Plan.
167. The purpose for which defendants' seek to cre-
ate this impression is to coerce Conrail shareholders into de-
livering control over Conrail swiftly to CSX. Furthermore, the
effect of this false impression is to coerce Conrail sharehold-
ers into delivering control over Conrail to CSX.
168. This coercion of the Conrail shareholders con-
stitutes a breach of the fiduciary relation of trust and confi-
dence owed by the Corporation and its directors to shareholders
from whom they seek action and to whom they recommend the ac-
tion sought.
169. The conduct of defendants Conrail and its di-
rectors is designed to, and will, if not enjoined, wrongfully
induce Conrail's shareholders to sell their shares to CSX in
the CSX Offer not for reasons related to the economic merits of
the sale, but rather because the
79<PAGE>
illegal conduct of defendants has created the appearance that
the financially (and otherwise) superior NS Proposal is not
available to them, and that the CSX Transaction is the only
opportunity available to them to realize premium value on their
investment in Conrail.
170. Plaintiffs have no adequate remedy at law.
COUNT THIRTEEN
(Against CSX For Aiding And Abetting)
171. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
172. Defendant CSX, through its agents, was aware of
and knowingly and actively participated in the illegal conduct
and breaches of fiduciary duty committed by Conrail and the
Director Defendants and set forth in Counts One through Nine
and Count Twelve of this complaint.
173. CSX's knowing and active participation in such
conduct has harmed plaintiffs and threatens irreparable harm to
plaintiffs if not enjoined.
174. Plaintiffs have no adequate remedy at law.
80<PAGE>
COUNT FOURTEEN
(Declaratory and Injunctive Relief Against
Conrail and the Director Defendants for
Violation of Section 14(a) of the Exchange Act
and Rule 14a-9 Promulgated Thereunder)
175. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
176. Section 14(a) of the Exchange Act provides that
it is unlawful to use the mails or any means or instrumentality
of interstate commerce to solicit proxies in contravention of
any rule promulgated by the SEC. 15 U.S.C. Section 78n(a).
177. Rule 14a-9 provides in pertinent part: "No
solicitation subject to this regulation shall be made by means
of any . . . communication, written or oral, containing any
statement which, at the time, and in light of the circumstances
under which it is made, is false and misleading with respect to
any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or
misleading. . . ." 17 C.F.R. Section 240.14a-9.
178. Conrail's Preliminary Proxy Statement contains
the misrepresentations detailed in paragraph 75
81<PAGE>
above. It also omits to disclose the material facts detailed
in paragraph 78 above.
179. Unless defendants are required by this Court to
make corrective disclosures, Conrail's stockholders will be
deprived of their federal right to exercise meaningfully their
voting franchise.
180. The defendants' false and misleading statements
and omissions described above are essential links in defen-
dants' effort to deprive Conrail's shareholders of their abil-
ity to exercise choice concerning their investment in Conrail
and their voting franchise.
181. Plaintiffs have no adequate remedy at law.
COUNT FIFTEEN
(Against Defendant CSX For Violation
Of Section 14(d) Of The Exchange Act
And Rules Promulgated Thereunder)
182. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
183. Section 14(d) provides in pertinent part: "It
shall be unlawful for any person, directly or indirectly by use
of the mails or by any means or instrumentality of interstate
commerce ... to make a tender offer for ... any class of any
equity security which is registered pursuant to section 781 of
this title, ... if,
82<PAGE>
after consummation thereof, such person would, directly or
indirectly, be the beneficial owner of more than 5 per centum
of such class, unless at the time copies of the offer, request
or invitation are first published, sent or given to security
holders such person has filed with the Commission a statement
containing such of the information specified in section 78m(d)
of this title, and such additional information as the
Commission may by rules and regulations prosecute...." 15
U.S.C. Section 78n(d).
184. On October 16, 1996, defendant CSX filed with
the SEC its Schedule 14D-1 pursuant to Section 14(d).
185. CSX's Schedule 14D-1 contains each of the false
and misleading material misrepresentations of fact detailed in
paragraph 76 above. Furthermore, CSX's Schedule 14D-1 omits
disclosure of the material facts detailed in paragraph 78
above. As a consequence of the foregoing, CSX has violated,
and unless enjoined will continue to violate, Section 14(d) of
the Exchange Act and the rules and regulations promulgated
thereunder.
186. CSX made the material misrepresentations and
omissions described above intentionally and knowingly, for the
purpose of fraudulently coercing, misleading
83<PAGE>
and manipulating Conrail's shareholders to tender their shares
into the CSX Offer.
187. Plaintiffs have no adequate remedy at law.
COUNT SIXTEEN
(Against Defendant Conrail For Violation
Of Section 14(d) Of The Exchange Act
And Rules Promulgated Thereunder)
188. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
189. Section 14(d)(4) provides in pertinent part:
"Any solicitation or recommendation to the holders of [securi-
ties for which a tender offer has been made] to accept or re-
ject a tender offer or request or invitation for tender shall
be made in accordance with such rules and regulations as the
[SEC] may prescribe as necessary or appropriate in the public
interest of investors." Rule 14d-9 provides in pertinent part:
"No solicitation or recommendation to security holders shall be
made by [the subject company] with respect to a tender offer
for such securities unless as soon as practicable on the date
such solicitation or recommendation is first published or sent
or given to security holders such person ... file[s] with the
[SEC] eight copies of a Tender Offer Solicitation/Recommenda-
tion Statement on Schedule 14D-9."
84<PAGE>
190. On October 16, 1996, Conrail (i) published its
board of directors' recommendation that Conrail shareholders
tender their shares in the CSX Offer and (ii) filed with the
SEC its Schedule 14D-9.
191. Conrail's Schedule 14D-9 contains each of the
false and misleading material misrepresentations detailed in
paragraph 77 above. Further, Conrail's Schedule 14D-9 omits
disclosure of the material facts detailed in paragraph 78
above. As a consequence of the foregoing, Conrail has vio-
lated, and unless enjoined will continue to violate, Section
14(d) of the Exchange Act and the rules and regulations pro-
mulgated thereunder.
192. Conrail made the material misrepresentations
and omissions described above intentionally and knowingly, for
the purpose of fraudulently coercing, misleading and manipulat-
ing Conrail's shareholders to tender their shares into the CSX
Offer.
193. Plaintiffs have no adequate remedy at law.
COUNT SEVENTEEN
(Against Conrail and CSX for Violation
of Section 14(e) of the Exchange Act
and Rules Promulgated Thereunder)
85<PAGE>
194. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
195. Section 14(e) provides in pertinent part: "It
shall be unlawful for any person to make any untrue statement
of a material fact or omit to state any material fact necessary
in order to make the statements made, in the light of the cir-
cumstances under which they are made, not misleading, or to
engage in any fraudulent, deceptive, or manipulative acts or
practices in connection with any tender offer . . . or any so-
licitation of security holders in opposition to or in favor of
any such offer . . . ." Defendants have violated and threaten
to continue to violate Section 14(e).
196. The CSX Schedule 14D-1 constitutes a communica-
tion made under circumstances reasonably calculated to result
in the procurement of tenders from Conrail shareholders in fa-
vor of the CSX Offer.
197. The Conrail Schedule 14D-9 and Proxy Statement
constitute communications made under circumstances reasonably
calculated to result in the procurement of tenders from Conrail
shareholders in favor of the CSX Offer.
86<PAGE>
198. The CSX Schedule 14D-1 contains the false and
misleading material misrepresentations detailed in paragraph 76
above. The CSX Schedule 14D-1 omits disclosure of the material
facts detailed in paragraph 78 above.
199. The Conrail Schedule 14D-9 contains the false
and misleading material misrepresentations detailed in para-
graph 77 above. The Conrail Schedule 14D-9 omits disclosure of
the material facts detailed in paragraph 78 above.
200. The Conrail Proxy Statement contains the false
and misleading material misrepresentations detailed in para-
graph 75 above. The Conrail Proxy Statement omits disclosure
of the material facts detailed in paragraph 78 above.
201. These omitted facts are material to the deci-
sions of Conrail shareholders to hold, sell to market, or ten-
der their shares in the CSX tender offer.
202. The defendants intentionally and knowingly made
the material misrepresentations and omissions described above,
for the purpose of coercing, misleading, and manipulating Con-
rail shareholders to swiftly transfer control over Conrail to
CSX by tendering their shares in the CSX Tender Offer.
87<PAGE>
203. Absent declaratory and injunctive relief re-
quiring adequate corrective disclosure, plaintiffs, as well as
all of Conrail's shareholders, will be irreparably harmed.
Conrail shareholders will be coerced by defendants' fraudulent
and manipulative conduct to sell Conrail to the low bidder.
Plaintiffs NS and AAC will be deprived of the unique opportu-
nity to acquire and combine businesses with Conrail.
204. Plaintiffs have no adequate remedy at law.
COUNT EIGHTEEN
(Against Defendants Conrail and CSX
For Civil Conspiracy To Violate
Section 14 Of The Exchange Act
And Rules Promulgated Thereunder)
205. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
206. Defendants Conrail and CSX conspired and agreed
to conduct the campaign of misinformation described in para-
graphs 48 through 51 above for the purpose of coercing, mis-
leading and manipulating Conrail shareholders to swiftly trans-
fer control over Conrail to CSX. As set forth in Counts Four-
teen through Seventeen above, which are incorporated by refer-
ence herein, the defendants' campaign of misinformation is vio-
lative of
88<PAGE>
Section 14 of the Exchange Act and the rules and regulations
promulgated hereunder.
207. Plaintiffs have no adequate remedy at law.
COUNT NINETEEN
(Against Conrail for
Estoppel/Detrimental Reliance)
208. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
209. By his actions, silence and statements during
the period from September 1994 to October 15, 1996, and par-
ticularly by his statements to Mr. Goode in September and Octo-
ber of 1996 (as detailed above in paragraphs 17 through 24,
defendant LeVan, Purporting to act on behalf of Conrail and its
Board of Directors and with apparent authority to so act, led
Mr. Goode to believe that Conrail's Board was not interested in
a sale of the company and that if and when the Conrail Board
decided to pursue such a sale, it would let NS know and give NS
an opportunity to bid.
210. Prior to October 15, 1996, NS had justifiably
relied on Mr. LeVan's false statements and representations in
refraining from making a proposal to Conrail's
89<PAGE>
Board or initiating a tender offer of its own for Conrail
shares.
211. Mr. LeVan and Conrail knew or should have known
that their actions, silence, statements and representations to
NS would induce NS to believe that Conrail's board was not in-
terested in selling the company and that NS would be given an
opportunity to bid if Conrail's Board decided that Conrail
would be sold.
212. Mr. LeVan and Conrail knew or should have known
that NS would rely upon their actions, silence, statements and
representations to its detriment in refraining from making a
proposal to Conrail's Board or initiating a tender offer of its
own for Conrail shares.
213. NS did in fact rely upon LeVan's and Conrail's
actions, silence, statements and representations to its detri-
ment in refraining from making a proposal to Conrail's Board or
initiating a tender offer of its own for Conrail shares.
214. Conrail and its Board are estopped from effec-
tuating a sale of the company without giving NS an adequate
opportunity to present its competing tender offer to the Con-
rail Board of Directors and Conrail shareholders. Similarly,
any provision in the CSX Merger Agreement that would impede
directors' or shareholders'
90<PAGE>
ability to approve a competing tender offer or takeover
proposal, such as that made by NS, is null and void.
215. By virtue of NS's justifiable reliance on Con-
rail's and Mr. Levan's actions, silence and statements, it has
suffered and will continue to suffer irreparable harm.
216. Plaintiffs have no adequate remedy at law.
COUNT TWENTY
(Unlawful And Ultra Vires Amendment
of Conrail's Articles of Incorporation)
217. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
218. The Conrail Board of Directors is attempting to
freeze out any competing tender offers and lock up the CSX
deal, to the detriment of shareholders, by improperly maneuver-
ing to "opt-out" of the "anti-takeover" provisions of the Penn-
sylvania Business Corporation Law in a discriminatory fashion.
This procedure distorts and subverts the provisions of the
Pennsylvania statute.
219. At the special meeting of Conrail shareholders,
such shareholders will be asked to approve the following amend-
ment to Conrail's Articles of Incorporation, which has already
been approved by the Conrail
91<PAGE>
Board of Directors: "Subchapter E, Subchapter G and Subchapter
H of Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended, shall not be applicable to the Corporation."
220. The Director Defendants are also asking for
authorization to exercise discretion in deciding whether or not
to file the Charter Amendment. According to the proposed proxy
materials, the defendant directors only intend to file the
Charter Amendment if CSX is in a position to purchases more
than 20% of Conrail's shares. Consequently, in effect, the
Charter Amendment becomes a "deal specific" opt-out.
221. The PBCL does not allow for such a discrimina-
tory application of an opt-out provision. Section 2541(a) of
the PBCL provides that Subchapter 25E will not apply to corpo-
rations that have amended their articles of incorporation to
state that the Subchapter does not apply. Section 1914 of the
PBCL provides that an articles amendment "shall be adopted" if
it received the affirmative vote of a majority of shareholders
entitled to vote on the amendment. While section 1914 also
provides that the amendment need not be deemed to be adopted
unless it has been approved by the directors, that approval has
already been given.
92<PAGE>
222. Conrail's Board is trying to distort and sub-
vert the provisions of the Pennsylvania statute by keeping a
shareholdler-approved opt-out from taking effect unless the CSX
deal is moving forward. The PBCL is quite clear -- it allows
corporations to exercise general, not selective, opt-outs.
Therefore, any action taken at the November 14, 1996 share-
holder meeting would be a nullity.
223. If the November 14, 1996 shareholder meeting is
allowed to take place and the amendment is passed, NS will suf-
fer irreparable harm.
224. Plaintiffs have no adequate remedy at law.
COUNT TWENTY-ONE
(Declaratory Judgment Against Conrail and the
Director Defendants That the Entire Conrail
Board, Or Any One or More of Conrail's
Directors, Can Be Removed Without Cause)
225. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this paragraph.
226. Plaintiffs intend, if necessary to facilitate
the NS Proposal, to solicit proxies to be used at Conrail's
next annual meeting to remove Conrail's current Board of Direc-
tors.
227. There is presently a controversy among Conrail,
the Director Defendants and the plaintiffs as to
93<PAGE>
whether the entire Conrail Board, or any one or more of
Conrail's directors, may be removed without cause at the annual
meeting by a vote of the majority of Conrail stockholders
entitled to cast a vote at the Annual Meeting.
228. Plaintiffs seek a declaration that Article 11
of Conrail's Articles of Incorporation permits the removal of
the entire Conrail Board, or any one or more of Conrail's di-
rectors, without cause by a majority vote of the Conrail stock-
holders entitled to cast a vote at an annual election.
229. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs respectfully request that this
Court enter judgment against all defendants, and all persons in
active concert or participation with them, as follows:
A. Declaring that:
(a) defendants have violated Sections 14(a),
14(d) and 14(e) of the Exchange Act and the rules and regula-
tions promulgated thereunder;
(b) defendants' use of the Charter Amendment is
violative of Pennsylvania statutory law and their fiduciary
duties;
94<PAGE>
(c) defendants' discriminatory use of Conrail's
Poison Pill Plan violates the director defendants' fiduciary
duties;
(d) the termination fees and stock option
agreements granted by Conrail to CSX are violative of the de-
fendants' fiduciary duties;
(e) the Continuing Director Requirement of Con-
rail's Poison Pill Plan is ultra vires and illegal under Penn-
sylvania Law and Conrail's Articles of Incorporation and By-
laws; and is illegal because its adoption constitutes a breach
of the defendants' fiduciary duties;
(f) Conrail's entire staggered board or any one
or more of its directors, can be removed without cause at Con-
rail's next annual meeting of stockholders;
(g) the defendants have engaged in a civil con-
spiracy to violate Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder;
(h) the Poison Pill Lock-In provisions in the
CSX Merger Agreement are ultra vires and, therefore, void under
Pennsylvania Law;
(i) the 180-Day Lock-Out provision in the CSX
Merger Agreement is ultra vires under Pennsylvania law and,
therefore, void; and
95<PAGE>
(j) the Director Defendants, by approving the
CSX Merger Agreement, breached their fiduciary duties of care
and loyalty.
B. Preliminarily and permanently enjoining the de-
fendants, their directors, officers, partners, employees,
agents, subsidiaries and affiliates, and all other persons act-
ing in concert with or on behalf of the defendants directly or
indirectly, from:
(a) commencing or continuing a tender offer for
shares of Conrail stock or other Conrail securities;
(b) seeking the approval by Conrail's stock-
holders of the Charter Amendment, or, in the event it has been
approved by Conrail's stockholders, from taking any steps to
make the Charter Amendment effective;
(c) taking any action to redeem rights issued
pursuant to Conrail's Poison Pill Plan or render the rights
plan inapplicable as to any offer by CSX without, at the same
time, taking such action as to NS's outstanding offer;
(d) taking any action to enforce the Continuing
Director Requirement of Conrail's Poison Pill Plan;
96<PAGE>
(e) taking any action to enforce the termina-
tion fee or stock option agreement granted to CSX by Conrail;
(f) failing to take such action as is necessary
to exempt the NS Proposal from the provisions of the Pennsylva-
nia Business Combination Statute;
(g) holding the Conrail special meeting until
all necessary corrective disclosures have been made and ad-
equately disseminated to Conrail's stockholders;
(h) taking any action to enforce the Poison Pill
Lock-In and/or the 180-Day Lock-Out provisions of the CSX
Merger Agreement;
(i) failing to take such action as is necessary
to ensure that a Distribution Date does not occur under the
terms of the Conrail Poison Pill Plan; and
(j) failing to take any action required by the
fiduciary duties of the Director Defendants.
C. Granting compensatory damages for all incidental
injuries suffered as a result of defendants' unlawful conduct.
D. Awarding plaintiffs the costs and disbursements
of this action, including attorneys' fees.
97<PAGE>
E. Granting plaintiffs such other and further relief
as the court deems just and proper.
Respectfully Submitted:
/s/ Mary A. McLaughlin
Mary A. McLaughlin
I.D. No. 24923
George G. Gordon
I.D. No. 63072
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
(215) 994-4000
Attorneys for Plaintiffs
Of Counsel:
Steven J. Rothschild
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, DE 19899
(302) 651-3000
DATED: October 30, 1996
98<PAGE>
VERIFICATION
Pursuant to Federal Rule of Civil Procedure 23.1 and
28 U.S.C. Section 1746, I, Henry C. Wolf, hereby verify under
penalty of perjury that the allegations and averments in the
foregoing First Amended Complaint for Declaratory and
Injunctive Relief are true and correct.
/s/ Henry C. Wolf
____________________________
Henry C. Wolf
Executive Vice President
Norfolk Southern Corporation
Executed on October 29, 1996.
<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that I caused this day the foregoing
First Amended Complaint For Declaratory And Injunctive Relief
to be served on the following attorneys in the manner specified
below:
Theodore N. Mirvis, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
By Fax and Fedex
David H. Pittinsky, Esq.
Ballard Spahr Andrews & Ingersoll
1735 Market Street
51st Floor
Philadelphia, PA 19103-7599
By Hand Delivery
Thomas L. VanKirk, Esq.
Stanley Yorsz, Esq.
Buchanan Ingersoll
Professional Corporation
One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, PA 15219
By Fax and Fedex
John Beerbower, Esq.
Gerald Ford, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
By Fax and Fedex
/s/ George G. Gordon
___________________________
George G. Gordon, Esq.
Dated: October 30, 1996
