SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
Delaware Otsego Corporation
(Name of Issuer)
Common Stock
(Title of Class of Securities)
246244 10 7
(Cusip Number)
Alan A. Rudnick
Vice President-General Counsel
and Corporate Secretary
CSX Corporation
901 East Cary Street
Richmond, Virginia 23219
(804) 782-1400
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
August 8, 1997
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box [].
Check the following box if a fee is being paid with this
statement. []. (A fee is not required only if the reporting
person: (1) has a previous statement on file reporting
beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five
percent or less of such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with
respect to the subject class of securities, and for any
subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
(continued on following page(s))
The information required on the remainder of this cover page
shall be deemed to be "filed" for the purpose of Section 18 of
the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).<PAGE>
1 NAME OF REPORTING PERSONS CSX CORPORATION
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
62-1051971
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) []
(b) []
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS []
REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E):
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES OF AMERICA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH PERSON WITH
7 SOLE VOTING POWER
0
8 SHARED VOTING POWER
110,250
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
110,250
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
110,250
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) []
EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.0%
14 TYPE OF REPORTING PERSON
CO
2<PAGE>
1 NAME OF REPORTING PERSONS CSX TRANSPORTATION, INC.
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
54-6000720
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) []
(b) []
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS []
IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E):
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES OF AMERICA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH PERSON WITH
7 SOLE VOTING POWER
0
8 SHARED VOTING POWER
110,250
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
110,250
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
110,250
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) []
EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.0%
14 TYPE OF REPORTING PERSON
CO
3
<PAGE>
This Amendment No. 2 to Schedule 13D, originally filed
February 12, 1996 and subsequently amended (as amended, the
"Schedule 13D"), by (i) CSX Corporation, a Virginia corporation
("CSX"), which has its principal executive offices at 901 East
Cary Street, Richmond, Virginia 23219, and (ii) CSX
Transportation, Inc., a Virginia corporation ("CSTX"), which
has its principal executive offices at 500 Water Street,
Jacksonville, Florida 32203, relates to the common stock of
Delaware Otsego Corporation (the "Company"), whose principal
executive offices are at 1 Railroad Avenue, Cooperstown, New
York 13326. Unless otherwise indicated all capitalized terms
used herein shall have the same meanings as set forth in the
Schedule 13D.
ITEM 3. SOURCE AND AMOUNT OF FUNDS AND OTHER
CONSIDERATION.
Item 3 of the Schedule 13D is hereby amended by the
addition of the following:
In the event of an acquisition of the Company as proposed
by the Letter (as defined below), necessary funds for CSX would
be provided from working capital.
ITEM 4. PURPOSE OF TRANSACTION.
Item 4 of the Schedule 13D is hereby amended by the
addition of the following:
On August 8, 1997, Mr. Walter G. Rich ("Mr. Rich"), the
Company's President and Chief Executive Officer, together with
CSX and NSC, delivered a proposal letter (the "Letter") to the
Board of Directors of the Company in the form attached hereto
as Exhibit 2. Reference is hereby made to the Letter, filed as
Exhibit 2 hereto, for the terms of such proposal letter. CSX
has engaged and expects to continue to engage in discussions
with representatives of the Company relative to such proposal
letter.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
This filing excludes all shares and options with
respect to shares of Common Stock of the Company beneficially
owned by Mr. Rich, as to which Mr. Rich possesses sole voting
and dispositive power.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH SECURITIES OF THE ISSUER.
Reference is hereby made to the information set forth
under Item 4 above.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 2 -- Letter, dated August 8, 1997.
4<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: August 11, 1997
CSX CORPORATION
By: /s/ Mark G. Aron
Mark G. Aron
Executive Vice President -
Law and Public Affairs
CSX TRANSPORTATION, INC.
By: /s/ William M. Hart
William M. Hart
Vice President -
Corridor Development
August 8, 1997
The Board of Directors of
Delaware Otsego Corporation
One Railroad Avenue
Cooperstown, New York
Gentlemen:
On behalf of a new company ("Newco") to be organized by
CSX Corporation ("CSX"), Norfolk Southern Corporation ("NSC")
and Walter Rich ("Mr. Rich"), we are pleased to provide you
with an offer (the "Offer") for the acquisition (the "Transac-
tion") of all of the outstanding capital stock of Delaware
Otsego Corporation (the "Company"). The principal features of
the Transaction are described in a draft term sheet (the "Term
Sheet"), a copy of which is attached to this letter.
The principal terms of the Offer are as follows:
1. Form of Transaction. (a) Newco, a corporation to be
formed and capitalized with cash to be provided by CSX and NSC,
will acquire all outstanding shares of the Company's capital
stock from the Company's shareholders in a merger transaction
(the "Merger"). Mr. Rich will contribute to Newco a portion of
the shares and options to purchase shares of the Company's com-
mon stock ("Common Stock") owned by him.
(b) The capitalization of Newco will be comprised of
(i) a class of Cumulative Preferred Stock having two series
(differing only with respect to redemption, as described in the
Term Sheet) that will be non-participating and owned in amounts
of liquidation preference reflecting the contributions to Newco
of CSX, NSC and Mr. Rich, (ii) a class of Junior Preferred
Stock with an aggregate liquidation preference of $100 million
that will be non-participating and will be owned in equal pro-
portions by CSX and NSC and (iii) common stock, which will be
owned 80% by Mr. Rich, 10% by CSX and 10% by NSC. The terms of
the capital structure of Newco are more fully described in the
Term Sheet.
<PAGE>
(c) The Board of Directors of Newco will consist of
Mr. Rich and his designees, who will represent a majority, and
representatives of CSX and NSC. Certain designated matters to
be agreed upon will require the approval of a supermajority of
Newco's Board of Directors.
2. Consideration. Subject to the terms and conditions
delineated below, Newco will purchase, or exchange into new
securities, all capital stock of the Company and will enter
into an employment agreement with Mr. Rich. Total cash paid in
the Transaction will be as described below.
(a) Cash Consideration for the Stock. The cash con-
sideration for the purchase of the capital stock of the Company
will be $19 per share (the "Per Share Price") of the Company's
Common Stock.
(b) Stock Options. All outstanding Company employee
stock options ("Options"), other than those which may be con-
tributed to Newco by Mr. Rich, will be cashed out at the dif-
ference between the Per Share Price and the respective exercise
price therefor, multiplied by the number of shares of Common
Stock subject to the Option.
(c) Stock Contribution. Prior to the Merger, CSX
will contribute to Newco the 110,250 shares of Common Stock
owned by it and Mr. Rich will contribute to Newco a portion of
the Common Stock and Options owned by him. All such shares and
Options to purchase shares so held by Newco will be canceled in
the Transaction. The shares and Options contributed by CSX and
Mr. Rich will not be converted in the Transaction into cash but
instead will be converted into shares and options to purchase
shares of Cumulative Preferred Stock of Newco with a liquida-
tion preference equal to the value (at the Per Share Price) of
CSX's and Mr. Rich's respective contributions.
(d) Employment Agreement. Newco will enter into an
agreement (the "Employment Agreement") with Mr. Rich, the prin-
cipal terms of which are described in the Term Sheet.
(e) Financing. The Transaction will not be subject
to obtaining financing. Sources and uses in the Transaction
(other than with respect to working capital following the
Transaction) are as follows:
Source Value
Mr. Rich Contribution $2,602,350
CSX Stock Contribution 2,094,750
CSX Cash Contribution 23,440,473
NSC Cash Contribution 25,535,223
Total $53,672,796
2
<PAGE>
Use Amount
Purchase of Common Stock $35,726,555
Option and Warrant Cash-Out 4,698,225
Repayment of Bank Debt 6,748,016
Transaction Costs 6,500,000
Total $53,672,796
3. Conditions.
(a) Definitive Documents. The Offer is made subject
to the negotiation and execution of definitive documentation
("Definitive Documents") satisfactory to us and containing
representations and warranties, covenants and other terms and
conditions that are customary for an acquisition of this kind
(including that the Company will not take any action, regula-
tory or otherwise, inconsistent with facilitating consummation
of the Transaction), approval of the Company's Board of Direc-
tors and, if required, shareholders under applicable law and
the satisfaction of any and all applicable regulatory require-
ments. As stated above, the Offer is not subject to a financ-
ing condition.
(b) Participation of Mr. Rich. The Offer is condi-
tioned upon mutually satisfactory arrangements between Newco
and Mr. Rich concerning the Employment Agreement and his ongo-
ing involvement in the affairs of the Company.
(c) Exclusivity. The Offer is conditioned upon the
agreement of the Company and Mr. Rich that, pending the execu-
tion and delivery of the Definitive Documents, neither the Com-
pany nor its management, nor any of their employees, affili-
ates, advisors or representatives, will solicit, encourage,
entertain, facilitate or enter into discussions or negotiations
with respect to any proposal (other than the Offer) to acquire
the stock or assets of the Company. Unless extended by mutual
agreement, the foregoing exclusivity provision will expire on
the earlier of (i) the execution of Definitive Documents (which
documents shall contain provisions that supersede this para-
graph) and (ii) 5:00 p.m. (New York City time) on August 19,
1997.
4. Legal Fees. CSX and NSC have agreed to pay the rea-
sonable fees and expenses of one firm of legal counsel advising
Mr. Rich, up to $50,000 plus 50% of any such fees in excess of
$50,000, for the benefit of Mr. Rich in connection with the
Transaction ("Legal Fees"). If following execution of this
letter by the Company (a) the Company does not comply with
Paragraph 3(c) of this letter or, following execution of the
Definitive Documents, the Company breaches any agreements con-
tained therein or (b) Definitive Documents are not entered into
or, following execution of Definitive Documents, the Merger is
not consummated and, in the case of this clause (b), within one
year following the date that the Company advises Newco that it
has determined not to pursue the Transaction, the Company en-
ters into an al-
3
<PAGE>
ternative transaction providing for the sale of its capital stock
or a material portion of its assets, then the Company shall be
responsible for the payment or reimbursement of the Legal Fees.
Mr. Rich shall be responsible for the payment of his legal fees
if he does not comply with Paragraph 3(c) of this letter.
5. Consummation of the Transaction. We are prepared to
proceed in the most expeditious manner so that, subject to the
terms and conditions of the Offer and the Definitive Documents,
the Transaction can be completed as soon as practicable. In
recognition of this, unless this letter is executed by the Com-
pany by 5:00 p.m. on Sunday, August 10, 1997, this proposal
should not be considered outstanding thereafter. Of course,
except in respect of Paragraphs 3(c) and (4) of this letter,
this letter does not create binding obligations on any party in
respect of the Transaction.
6. Counterparts. This letter may be executed in one or
more counterparts.
4<PAGE>
We hope that the terms of this Offer address the objec-
tives of the Company. We look forward to proceeding with you
to the completion of the Transaction. We and our counsel are
prepared to move forward immediately to reach definitive terms.
This letter shall not constitute a binding agreement between
the parties hereto, except that the provisions of Paragraphs
3(c) and 4 of this letter shall be binding on the parties
hereto upon execution below by the Company.
Very truly yours,
CSX CORPORATION
By: /s/ Mark G. Aron
Mark G. Aron
NORFOLK SOUTHERN CORPORATION
By: /s/ William J. Romig
William J. Romig
Accepted and Agreed to as /s/ Walter Rich
to Paragraphs 3(c) and 4 Walter Rich
as of August __, 1997:
DELAWARE OTSEGO CORPORATION
By: ______________________
5<PAGE>
PROJECT BASEBALL
TERM SHEET
Transaction Structure: Baseball Acquisition Corp.
("Acquisition"), a company to
be formed on behalf of CSX (or
its designated affiliate), NSC
(or its designated affiliate)
and WR, shall acquire all out-
standing capital stock of Dela-
ware Otsego Corporation
("Baseball") at a cash price of
$19 per share. In arriving at
the cash purchase price it has
been assumed that there exist
transaction costs incurred by
Baseball of up to $6.5 million
(consisting of advisory fees,
change-of-control payments, re-
payment of existing bank debt
and the purchase price for cer-
tain real property) that will be
paid by Acquisition in addition
to the cash price and that all
convertible debt, warrants and
options of Baseball (other than
those held by WR) will be con-
verted into Baseball Shares at
or prior to the merger that
would occur between Acquisition
and Baseball.
Financing Structure: The acquisition shall be
financed by CSX, NSC and WR as
follows:
WR shall contribute his Baseball
Shares and options to purchase
Baseball Shares, having an ag-
gregate value of $2,602,350 at
$19 per Baseball Share, in ex-
change for Common Shares and
Cumulative Preferred Shares or
options to purchase Cumulative
Preferred Shares of Acquisition.
WR shall receive Cumulative Pre-
ferred Shares (or, to the extent
options are contributed, options
to purchase Cumulative Preferred
Shares) with a liquidation pref-
erence equal to the value con-
tributed.
CSX and NSC shall contribute
cash as may be required to pur-
chase Baseball Shares in the
acquisition and to pay the
transaction costs described
above. CSX shall also contrib-
ute its
<PAGE>
110,250 Baseball Shares.
Each of CSX and NSC shall re-
ceive Cumulative Preferred
Shares with a liquidation pref-
erence equal to the value of its
cash and stock contributions as
well as equal amounts of Junior
Preferred Shares (which shall
carry an aggregate liquidation
preference of $100 million).
Common Shares shall be owned 80%
by WR, 10% by CSX and 10% by
NSC; and WR shall have voting
control through such ownership
of Common Shares.
Economics of Cumulative
Preferred Shares: There shall be established two
series of a single class of
Cumulative Preferred Shares
which shall differ only as to
redemption, as follows:
Payment Preference. Cumulative
Preferred Shares shall have div-
idend and liquidation preference
over all Junior Preferred Shares
and all Common Shares. Divi-
dends on Cumulative Preferred
Shares shall cumulate at the
rate of 10% compounded annually
until the Board determines that
sufficient cash is available to
pay dividends in cash. No divi-
dend or liquidation payments
shall be made on Common Shares
or Junior Preferred Shares until
all Cumulative Preferred Shares,
with cumulative dividends, are
redeemed by Acquisition. The
series of Cumulative Preferred
Shares held by CSX and NSC (but
not the series held by WR) shall
have a redemption preference
over all Junior Preferred
Shares.
Redemption. If redeemable, Cu-
mulative Preferred Shares shall
be redeemed at liquidation pref-
erence plus accrued and unpaid
dividends. The series of Cumu-
lative Preferred Shares held by
CSX and NSC shall be mandatorily
redeemable upon achieving cer-
tain cash levels from cash flow
from operations and from dispo-
sitions of assets. The series
of Cumulative Preferred Shares
held by WR shall be redeemable
at WR's option at
-2-
<PAGE>
any time at which there is to be
a cash redemption of the series
of Cumulative Preferred Shares held
by CSX and NSC or of Junior Pre-
ferred Shares. Cumulative Pre-
ferred Shares shall be redeemed
ratably when redeemed for cash.
Subject to the supermajority
approval of Acquisition's Board,
CSX or NSC may use Cumulative
Preferred Shares in connection
with a purchase of any Acquisi-
tion assets by such party.
Economics of Junior
Preferred Shares: Payment Preference. Junior Pre-
ferred Shares shall have a divi-
dend, liquidation and redemption
preference over all Common
Shares, but shall be subordi-
nate, with respect to dividend
and liquidation payments, to all
Cumulative Preferred Shares
(and, with respect to all re-
demption payments, to the series
of Cumulative Preferred Shares
held by CSX and NSC (but not the
series held by WR)). Dividends
on Junior Preferred Shares shall
cumulate at the rate of 4% com-
pounded annually until the Board
determines that sufficient cash
is available to pay dividends in
cash; and dividends on Junior
Preferred Shares shall not be
paid until all accrued and un-
paid dividends on Cumulative
Preferred Shares have been paid.
Redemption. Junior Preferred
shall be mandatorily redeemable,
following redemption of the
series of Cumulative Preferred
Shares held by CSX and NSC, at
liquidation preference plus ac-
crued and unpaid dividends upon
achieving certain cash levels
from cash flow from operations
and from dispositions of assets.
Junior Preferred Shares (and, if
applicable, Cumulative Preferred
Shares held by WR) shall be re-
deemed ratably when redeemed for
cash.
Management: WR shall enter into a three-year
employment agreement to be
Chairman and CEO. After the
three-year term, employment
shall be renewed automatically
for one-year renewal terms un-
less Acquisition delivers writ-
ten notice to
-3-
<PAGE>
WR in the period from 120 to 90
days prior to expiration. WR's
salary and benefits (including,
in lieu of receiving such benefits
in connection with the acquisition,
severance benefits) shall remain
at current levels. It shall be
a condition of employment that
WR retain his shares (subject to
the other provisions hereof) and
that WR live on the Edgewater
property for the convenience and
security of Acquisition and to
ensure WR's availability in the
event of an emergency. WR shall
enter into a customary non-
compete and exclusive service
agreement, subject to standard
permissible activities. Employ-
ment and put and call decisions
of Acquisition respecting WR
shall be made by disinterested
directors.
Acquisition shall create a Man-
agement Incentive Bonus Program,
to be approved by a supermajor-
ity of Acquisition's Board,
which shall provide cash bonuses
to operating management upon
achievement of certain financial
targets following the acquisi-
tion, determined without giving
effect to the financing and
transaction costs of the acqui-
sition.
Certain Dispositions: General. WR and the other on-
going Baseball management shall
receive a commission on asset
dispositions as described below:
Other than with respect to the
circumstances covered by clause
(y) under "West of Passaic Junc-
tion -- Non-freight" set forth
below, commissions shall be pay-
able only with respect to any
transaction (x) consummated dur-
ing WR's employment as CEO or
(y) arising from an opportunity
identified to the disinterested
directors on Acquisition's Board
and significantly pursued by WR
(except in the event of a termi-
nation of WR's employment by
Acquisition prior to the third
anniversary of the acquisition
without cause, in which case a
lesser standard shall apply),
the negotiation of which was
approved by the disinterested
directors on Acquisition's Board
during such
-4-
<PAGE>
employment, and consummated within
two years of the termination of such
employment, in the case of non-
passenger transactions, and four
years of the termination of such
employment, in the case of passenger
transactions. Commissions shall
be paid in cash at the rate of
7% of the gross consideration
received by Acquisition (or, in
the case of a non-cash transac-
tion, the fair market value of
the asset disposed) in such
transaction and shall be allo-
cated among such Baseball man-
agement (and in such amounts) as
is determined by WR.
Passaic Junction and East.
Freight. No commission shall be
payable with respect to any
freight transaction. Non-
freight. A commission shall be
payable with respect to any non-
freight transaction that does
not, in the reasonable judgment
of both CSX and NSC, interfere
with freight rights and opera-
tions if such non-freight trans-
action is approved by a superma-
jority of Acquisition's Board
and consummated.
West of Passaic Junction.
Freight. A commission shall be
payable with respect to a
freight transaction. Non-
freight. A commission shall be
payable with respect to (x) a
non-freight transaction or (y) a
reasonable, bona fide and firm
offer with respect to a non-
freight transaction which is
rejected by Acquisition's Board.
Right of First Refusal. Either
CSX or NSC shall have a right of
first refusal with respect to
any transaction with respect to
Baseball properties and assets
west of Passaic Junction.
Put and Call Rights: Subject to all necessary govern-
mental approvals, Acquisition
may call in whole but, except as
provided below, not in part, and
WR may put to Acquisition in
whole or, except as provided
below, in part, WR's Cumulative
Preferred Shares, options to
purchase Cumulative Preferred
Shares and Common Shares for a
price equal to the sum of (x) in
respect of Cumulative Preferred
Shares or options to purchase
-5-
<PAGE>
Cumulative Preferred Shares, the
liquidation preference of the
Cumulative Preferred Shares put
or called (or underlying the
options put or called) plus ac-
crued and unpaid dividends on
such shares plus (y) in respect
of Common Shares, the par value
of the Common Shares put or
called. Such put and call
rights may be exercised at any
time after the earlier of (i)
the termination of WR's employ-
ment as CEO by Acquisition or by
reason of WR's death or disabil-
ity and (ii) the third anniver-
sary of the acquisition. Acqui-
sition may assign its call right
or put obligation to CSX and NSC
(or to a voting trust estab-
lished by them) in equal propor-
tions, and, in the event that
Acquisition has insufficient
cash, WR exercising his put
right may put to CSX and NSC (or
to a voting trust established by
them) in equal proportions. CSX
and NSC may, upon exercising the
call rights or responding to an
exercise of WR's put rights,
provide that the subject securi-
ties be conveyed to a third par-
ty. In the event of any assign-
ment of the put obligation by
CSX or NSC, the payment of the
put price shall be guaranteed by
CSX and NSC in equal propor-
tions.
Notwithstanding the foregoing,
in the event of a termination of
WR's employment as CEO by Acqui-
sition for cause, until the
third anniversary of the acqui-
sition, WR's put right shall be
limited to his Common Shares and
shall not extend to his Cumula-
tive Preferred Shares and Acqui-
sition shall have the right to
call WR's Common Shares without
WR's Cumulative Preferred
Shares.
Corporate Governance: Acquisition's Board shall be
comprised of seven persons: the
CEO of Acquisition, four persons
designated by the CEO of Acqui-
sition and one person designated
by each of NSC and
-6-
<PAGE>
CSX.
Major decisions outside the or-
dinary course of business (in-
cluding material asset disposi-
tions and the business plan and
budget described below) shall be
subject to supermajority approv-
al of the Board (including by
both CSX and NSC), consistent
with STB/ICC precedent.
Except with respect to day-to-
day railroad operations, Acqui-
sition shall follow a mutually
agreed business plan and budget
which shall be designed prior to
Closing (and updated by Acquisi-
tion's Board annually thereaf-
ter) with the goals of (a)
ensuring repayment of contribu-
tions and (b) of maximizing Ac-
quisition's value, which may
include the disposition of as-
sets. The definitive documenta-
tion shall include appropriate
financial covenants customary
for such transactions.
The parties shall enter into a
Shareholders Agreement respect-
ing corporate governance, put
and call rights and transfer-
ability restrictions.
Expenses: Except as set forth under
"Transaction Structure" above,
each party shall bear its own
expenses; except that the provi-
sions contained in paragraph 4
of the proposal letter shall
apply with respect to Legal Fees
(as defined therein).
Conditions: Conditions to closing shall be
those customary for transactions
of this type, including, without
limitation, (a) completion of
satisfactory transaction and
employment documents; (b) the
absence of any governmental in-
vestigation or challenge or
third-party challenge with re-
spect to the transaction, (c)
satisfaction of all necessary
regulatory approvals and (d)
obtaining standard opinions.
Financing shall not be a condi-
tion.
Definitive Documentation: The definitive documentation
shall contain
-7-
<PAGE>
provisions providing that the
exercise of rights shall be subject
to all required regulatory approvals.
-8-
