<PAGE>
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
CONRAIL INC.
(Name of Subject Company)
NORFOLK SOUTHERN CORPORATION
ATLANTIC ACQUISITION CORPORATION
(Bidders)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
SERIES A ESOP CONVERTIBLE JUNIOR
PREFERRED STOCK, WITHOUT PAR VALUE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
NOT AVAILABLE
(CUSIP Number of Class of Securities)
JAMES C. BISHOP, JR.
EXECUTIVE VICE PRESIDENT-LAW
NORFOLK SOUTHERN CORPORATION
THREE COMMERCIAL PLACE
NORFOLK, VIRGINIA 23510-2191
TELEPHONE: (757) 629-2750
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
with a copy to:
RANDALL H. DOUD, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 735-3000
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
<S> <C>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
$11,165,630,500 $2,233,127
</TABLE>
* For purposes of calculating the filing fee only. This calculation
assumes the purchase of all outstanding shares of Common Stock, par
value $1.00 per share (the "Common Shares"), and Series A ESOP
Convertible Junior Preferred Stock, without par value (the "ESOP
Preferred Shares"), of Conrail Inc. (the "Company") at $100 net per
share in cash. According to information included in the
Solicitation/Recommendation Statement on Schedule 14D-9, dated October
16, 1996, filed by the Company with the Securities and Exchange
Commission, on October 10, 1996, 80,178,281 Common Shares and 9,571,086
ESOP Preferred Shares were outstanding and 5,951,461 Common Shares were
reserved for issuance pursuant to the Company's Long-Term Incentive
Plans. Also according to such Schedule 14D-9, pursuant to a Stock Option
Agreement, dated as of October 14, 1996, by and between the Company and
CSX Corporation ("CSX"), the Company has granted CSX the option to
purchase in certain circumstances up to 15,955,477 Common Shares.
** The amount of the filing fee, calculated in accordance with Rule
0-11(d) of the Securities Exchange Act of 1934, as amended, equals
1/50th of one percent of the aggregate value of cash offered by
Atlantic Acquisition Corporation for such number of Shares.
[ ]* Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount Previously Paid: Not applicable Filing Party: Not applicable
Form or Registration No.: Not applicable Date Filed: Not applicable
</TABLE>
<PAGE>
CUSIP NO. 208368 10 0 PAGE 1 OF 2
14D-1
1. NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
NORFOLK SOUTHERN CORPORATION (E.I.N.: 52-1188014)
- -----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- -----------------------------------------------------------------------------
3. SEC USE ONLY
- -----------------------------------------------------------------------------
4. SOURCE OF FUNDS
BK, WC
- -----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(e) or 2(f) [ ]
- -----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Virginia
- -----------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -----------------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN
SHARES [ ]
- -----------------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0.0%
- -----------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON
HC and CO
- -----------------------------------------------------------------------------
<PAGE>
CUSIP NO. 208368 10 0 PAGE 2 OF 2
14D-1
1. NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ATLANTIC ACQUISITION CORPORATION (E.I.N.: Applied For)
- -----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- -----------------------------------------------------------------------------
3. SEC USE ONLY
- -----------------------------------------------------------------------------
4. SOURCE OF FUNDS
AF
- -----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(e) or 2(f) [ ]
- -----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Pennsylvania
- -----------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
100 Common Shares
- -----------------------------------------------------------------------------
8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN
SHARES [ ]
- -----------------------------------------------------------------------------
9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
0.0%
- -----------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON
CO
- -----------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Conrail Inc., a Pennsylvania
corporation (the "Company"). The address of the Company's principal executive
offices is 2001 Market Street, Two Commerce Square, Philadelphia,
Pennsylvania 19101-1417.
(b) This Tender Offer Statement on Schedule 14D-1 relates to the offer by
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania corporation
and a wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Parent"), to purchase all outstanding 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 (the "ESOP
Preferred Shares" and, together with the Common Shares, the "Shares"), of the
Company, including, in each case, the associated Common Stock Purchase
Rights, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated October 24, 1996, and in the related Letter of Transmittal
(which, together with any amendments or supplements thereto, constitute the
"Offer") at a purchase price of $100 per Share, net to the tendering
shareholder in cash. According to information included in the
Solicitation/Recommendation Statement on Schedule 14D-9, dated October 16,
1996, filed by the Company with the Securities and Exchange Commission, on
October 10, 1996, 80,178,281 Common Shares and 9,571,086 ESOP Preferred
Shares were outstanding and 5,951,461 Common Shares were reserved for
issuance pursuant to the Company's Long-Term Incentive Plans. Also according to
such Schedule 14D-9, pursuant to a Stock Option Agreement, dated as of October
14, 1996, by and between the Company and CSX Corporation ("CSX"), the Company
has granted CSX the option to purchase in certain circumstances up to 15,955,477
Common Shares. The information set forth under "Introduction" in the Offer to
Purchase annexed hereto as Exhibit (a)(1) is incorporated herein by
reference.
(c) The information set forth under "Price Range of Shares; Dividends" in
the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Statement is being filed by Purchaser and Parent. The
information set forth under "Introduction" and "Certain Information
Concerning Purchaser and Parent" in the Offer to Purchase and Schedule I
thereto is incorporated herein by reference.
(e)-(f) During the last five years, neither Purchaser, Parent nor any
persons controlling Purchaser, nor, to the best knowledge of Purchaser or
Parent, any of the persons listed on Schedule I to the Offer to Purchase (i)
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of which any
such person was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth under "Introduction," "Background of the
Offer; Contacts with the Company," "Purpose of the Offer and the Merger;
Plans for the Company; Certain Considerations," "Certain Information
Concerning the Company" and "Certain Information Concerning Purchaser and
Parent" in the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth under "Introduction" and "Source and
Amount of Funds" in the Offer to Purchase is incorporated herein by
reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "Introduction," "Background of the
Offer; Contacts with the Company" and "Purpose of the Offer and the Merger;
Plans for the Company; Certain Considerations" in the Offer to Purchase is
incorporated herein by reference.
1
<PAGE>
(f)-(g) The information set forth under "Introduction" and "Effect of the
Offer on the Market for the Common Shares; Exchange Listing and Exchange Act
Registration; Margin Regulations" in the Offer to Purchase is incorporated
herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth under "Introduction," and "Certain
Information Concerning Purchaser and Parent" in the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "Introduction," "Purpose of the Offer and
the Merger; Plans for the Company; Certain Considerations" and "Certain Legal
Matters; Regulatory Approvals; Certain Litigation" in the Offer to Purchase
is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Fees and Expenses" in the Offer to
Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under "Certain Information Concerning Purchaser
and Parent" in the Offer to Purchase is incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) The information set forth under "Introduction" and "Certain Legal
Matters; Regulatory Approvals; Certain Litigation" in the Offer to Purchase
is incorporated herein by reference.
(d) The information set forth under "Effect of the Offer on the Market for
the Common Shares; Exchange Listing and Exchange Act Registration; Margin
Regulations" in the Offer to Purchase is incorporated herein by reference.
(e) The information set forth under "Certain Legal Matters; Regulatory
Approvals; Certain Litigation" in the Offer to Purchase is incorporated
herein by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, is incorporated herein by reference.
2
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a) (1) Offer to Purchase, dated October 24, 1996.
(2) Letter of Transmittal.
(3) Notice of Guaranteed Delivery.
(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(7) Text of Press Release issued by Norfolk Southern Corporation on
October 23, 1996.
(8) Summary Advertisement dated October 24, 1996.
(9) Text of Press Release issued by Norfolk Southern Corporation on
October 24, 1996.
(10) Text of a presentation made to the financial community beginning
October 24, 1996.
(b) (1) Commitment Letter dated October 22, 1996 from Morgan Guaranty
Trust Company of New York, J.P. Morgan Securities Inc., Merrill
Lynch Capital Corporation and Merrill Lynch & Co. to Norfolk
Southern Corporation.
(c) (1) Form of Voting Trust Agreement.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) (1) Complaint filed by Norfolk Southern Corporation, Atlantic
Acquisition Corporation and Kathryn B. McQuade against Conrail
Inc., CSX Corporation et. al. (dated October 23, 1996, United
States District Court for the Eastern District of Pennsylvania).
3
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: October 24, 1996
NORFOLK SOUTHERN CORPORATION
By: /s/ JAMES C. BISHOP, JR.
-----------------------------
Name: James C. Bishop, Jr.
Title: Executive Vice
President --Law
ATLANTIC ACQUISITION CORPORATION
By: /s/ JAMES C. BISHOP, JR.
-----------------------------
Name: James C. Bishop, Jr.
Title: Vice President and
General Counsel
4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ----------- ------------------------------------------------------------------------------ --------
<S> <C> <C>
(a) (1) Offer to Purchase, dated October 24, 1996.
(2) Letter of Transmittal.
(3) Notice of Guaranteed Delivery.
(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(7) Text of Press Release issued by Norfolk Southern Corporation on
October 23, 1996.
(8) Summary Advertisement dated October 24, 1996.
(9) Text of Press Release issued by Norfolk Southern Corporation on
October 24, 1996.
(10) Text of a presentation made to the financial community beginning
October 24, 1996.
(b) (1) Commitment Letter dated October 22, 1996 from Morgan Guaranty Trust
Company of New York, J.P. Morgan Securities Inc., Merrill Lynch Capital
Corporation and Merrill Lynch & Co. to Norfolk Southern Corporation.
(c) (1) Form of Voting Trust Agreement.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) (1) Complaint filed by Norfolk Southern Corporation, Atlantic Acquisition
Corporation and Kathryn B. McQuade against Conrail Inc., CSX Corporation
et. al. (dated October 23, 1996, United States District Court for the
Eastern District of Pennsylvania).
</TABLE>
5
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$100 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, NOVEMBER 21, 1996, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THE RECEIPT BY
ATLANTIC ACQUISITION CORPORATION ("PURCHASER"), A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION ("PARENT"), PRIOR TO THE EXPIRATION OF THE
OFFER, OF AN INFORMAL WRITTEN OPINION IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO PURCHASER FROM THE STAFF OF THE SURFACE TRANSPORTATION BOARD
(THE "STB"), WITHOUT THE IMPOSITION OF ANY CONDITIONS UNACCEPTABLE TO
PURCHASER, THAT THE USE OF A VOTING TRUST IN CONNECTION WITH THE OFFER AND
THE PROPOSED MERGER IS CONSISTENT WITH THE POLICIES OF THE STB AGAINST
UNAUTHORIZED ACQUISITIONS OF CONTROL OF A REGULATED CARRIER, (2) THE RECEIPT
BY PURCHASER, PRIOR TO THE EXPIRATION OF THE OFFER, OF AN INFORMAL STATEMENT
FROM THE PREMERGER NOTIFICATION OFFICE OF THE FEDERAL TRADE COMMISSION THAT
THE TRANSACTIONS CONTEMPLATED BY THE OFFER AND THE PROPOSED MERGER ARE NOT
SUBJECT TO, OR ARE EXEMPT FROM, THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976, AS AMENDED (THE "HSR ACT"), OR, IN THE ABSENCE OF THE RECEIPT OF
SUCH INFORMAL STATEMENT, ANY APPLICABLE WAITING PERIOD UNDER THE HSR ACT
HAVING EXPIRED OR BEEN TERMINATED PRIOR TO THE EXPIRATION OF THE OFFER, (3)
PARENT AND PURCHASER HAVING OBTAINED, (continued)
The Dealer Managers for the Offer are:
J.P. MORGAN & CO. MERRILL LYNCH & CO.
October 24, 1996
<PAGE>
PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS REASONABLY ACCEPTABLE TO
PARENT, SUFFICIENT FINANCING TO ENABLE CONSUMMATION OF THE OFFER AND THE
PROPOSED MERGER, (4) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN
PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF COMMON SHARES AND ESOP
PREFERRED SHARES WHICH TOGETHER CONSTITUTE AT LEAST A MAJORITY OF THE SHARES
OUTSTANDING ON A FULLY DILUTED BASIS, (5) PURCHASER BEING SATISFIED, IN ITS
SOLE DISCRETION, THAT SUBCHAPTER F OF CHAPTER 25 OF THE PENNSYLVANIA BUSINESS
CORPORATION LAW HAS BEEN COMPLIED WITH OR IS INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, (6) THE COMMON STOCK
PURCHASE RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF CONRAIL
INC. OR PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH COMMON
STOCK PURCHASE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER AND
THE PROPOSED MERGER, AND (7) PURCHASER BEING SATISFIED, IN ITS SOLE
DISCRETION, THAT THE PREVIOUSLY ANNOUNCED AGREEMENT AND PLAN OF MERGER
BETWEEN THE COMPANY AND CSX CORPORATION HAS BEEN TERMINATED IN ACCORDANCE
WITH ITS TERMS OR OTHERWISE. SEE SECTION 14.
IMPORTANT
Purchaser is currently reviewing its options with respect to the Offer and
may consider, among other things, changes to the material terms of the Offer.
In addition, Parent and Purchaser intend to continue to seek to negotiate
with the Company with respect to the acquisition of the Company by Parent or
Purchaser. Purchaser reserves the right to amend the Offer (including
amending the number of shares to be purchased, the purchase price and the
proposed merger consideration) upon entering into a merger agreement with the
Company or to negotiate a merger agreement with the Company not involving a
tender offer pursuant to which Purchaser would terminate the Offer and the
Common Shares (as defined herein) and ESOP Preferred Shares (as defined
herein, and together with the Common Shares, the "Shares") would, upon
consummation of such merger, be converted into cash, common stock of Parent
and/or other securities in such amounts as are negotiated by Parent and the
Company.
Any shareholder desiring to tender all or any portion of such
shareholder's Shares should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal, have such shareholder's signature thereon
guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or
deliver the Letter of Transmittal (or such facsimile thereof) and any other
required documents to the Depositary and either deliver the certificates for
such Shares and, if separate, the certificates representing the associated
Rights (as defined herein) to the Depositary along with the Letter of
Transmittal (or a facsimile thereof) or deliver such Shares (and Rights, if
applicable) pursuant to the procedure for book-entry transfer set forth in
Section 3 prior to the expiration of the Offer or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for such shareholder. A shareholder having Shares
(and, if applicable, Rights) registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such shareholder
desires to tender such Shares (and, if applicable, Rights). Unless and until
Purchaser declares that the Rights Condition (as defined herein) is
satisfied, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of such Share. The tender of
Rights is also required for the valid tender of ESOP Preferred Shares.
Participants in the Company's Matched Savings Plan (the "ESOP") desiring
that Fidelity Management Trust Company, as trustee under the ESOP (the "ESOP
Trustee"), tender the ESOP Preferred Shares allocated to their accounts,
which will be converted into Common Shares upon consummation of the Offer,
should so instruct the ESOP Trustee by completing the form that will be
provided to participants for that purpose. ESOP participants cannot tender
shares allocated to their ESOP accounts by executing the Letter of
Transmittal.
Any shareholder who desires to tender Shares (and, if applicable, Rights)
and whose certificates for such Shares (and, if applicable, Rights) are not
immediately available, or who cannot comply with the procedures for
book-entry transfer described in this Offer to Purchase on a timely basis,
may tender such Shares (and, if applicable, Rights) by following the
procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional
copies of this Offer to Purchase, the Letter of Transmittal or other tender
offer materials may be obtained from the Information Agent.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
INTRODUCTION .................................................................................. 1
1. Terms of the Offer; Expiration Date ................................................... 8
2. Acceptance for Payment and Payment for Shares ......................................... 9
3. Procedures for Tendering Shares ....................................................... 10
4. Withdrawal Rights ..................................................................... 13
5. Certain Federal Income Tax Consequences ............................................... 14
6. Price Range of Shares; Dividends ...................................................... 14
7. Effect of the Offer on the Market for the Common Shares; Exchange Listing and Exchange
Act Registration; Margin Regulations ................................................ 15
8. Certain Information Concerning the Company ............................................ 16
9. Certain Information Concerning Purchaser and Parent ................................... 19
10. Source and Amount of Funds ............................................................ 22
11. Background of the Offer; Contacts with the Company .................................... 23
12. Purpose of the Offer and the Merger; Plans for the Company; Certain Considerations ... 28
13. Dividends and Distributions ........................................................... 33
14. Conditions of the Offer ............................................................... 33
15. Certain Legal Matters; Regulatory Approvals; Certain Litigation ....................... 36
16. Fees and Expenses ..................................................................... 43
17. Miscellaneous ......................................................................... 44
Schedule I --Information Concerning the Directors and Executive Officers of
Parent and Purchaser ..................................................................... I-1
</TABLE>
i
<PAGE>
TO THE HOLDERS OF COMMON STOCK AND
SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK OF CONRAIL INC.:
INTRODUCTION
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania corporation
and a wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Parent"), hereby offers to purchase all outstanding 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 (the
"ESOP Preferred Shares" and, together with the Common Shares, the "Shares"),
of Conrail Inc., a Pennsylvania corporation (the "Company"), including, in
each case, the associated Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of July 19, 1989, as amended,
between the Company and First Chicago Trust Company of New York, as Rights
Agent (the "Rights Agreement"), at a price of $100 per Share, net to the
seller in cash, without interest thereon (the "Offer Price"), upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer"). Unless the context otherwise requires, all
references to Common Shares, ESOP Preferred Shares or Shares shall include
the associated Rights, and all references to the Rights shall include the
benefits that may enure to holders of the Rights pursuant to the Rights
Agreement, including the right to receive any payment due upon redemption of
the Rights.
Promptly upon the purchase by Parent, Purchaser or their affiliates of
Common Shares and ESOP Preferred Shares which constitute at least a majority
of the outstanding Shares on a fully diluted basis, such Common Shares and
ESOP Preferred Shares will be deposited in an independent voting trust (the
"Voting Trust") in accordance with the terms of a proposed Voting Trust
Agreement to be entered into with the trustee thereof (the "Voting Trust
Agreement") pending approval by the Surface Transportation Board (the "STB")
of the acquisition of control by Parent of the Company. The Offer is not
conditioned upon such STB approval. See Section 14. The Proposed Merger (as
defined below) would also not be conditioned on such STB approval.
Immediately prior to consummation of the Proposed Merger, Parent would place
all of the shares of common stock of Purchaser (which may become stock of
the surviving corporation upon consummation of the Proposed Merger) into the
Voting Trust. The Offer is conditioned upon the receipt by Purchaser, prior
to the expiration of the Offer, of an informal written opinion in form and
substance reasonably satisfactory to Purchaser from the staff of the STB,
without the imposition of any conditions unacceptable to Purchaser, that the
use of the Voting Trust in connection with the Offer and the Proposed Merger
is consistent with the policies of the STB against unauthorized acquisitions
of control of a regulated carrier.
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer. Purchaser will pay all charges and expenses of J.P.
Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Dealer Managers (in such capacity, the "Dealer Managers"),
The Bank of New York, as Depositary (the "Depositary"), and Georgeson &
Company Inc., as Information Agent (the "Information Agent"), incurred in
connection with the Offer. See Section 16.
Participants in the Company's Matched Savings Plan (the "ESOP") desiring
that Fidelity Management Trust Company, as trustee under the ESOP (the "ESOP
Trustee"), tender the ESOP Preferred Shares allocated to their accounts,
which will be converted into Common Shares upon consummation of the Offer,
should so instruct the ESOP Trustee by completing the form that will be
provided to participants for that purpose. ESOP participants cannot tender
shares allocated to their ESOP accounts by executing the Letter of
Transmittal.
The purpose of the Offer is to acquire control of, and the entire equity
interest in, the Company. Parent is seeking to negotiate with the Company a
definitive merger agreement pursuant to which the Company would, as soon as
practicable following consummation of the Offer, consummate a merger or
similar business combination with Purchaser or another direct or indirect
subsidiary of Parent (the "Proposed Merger"). In the Proposed Merger, each
Common Share and ESOP Preferred Share then outstanding (other than Shares
held by the Company or any subsidiary of the Company and Shares owned
<PAGE>
by Parent, Purchaser or any direct or indirect subsidiary of Parent would be
converted into the right to receive an amount in cash equal to the price per
Common Share and ESOP Preferred Share paid pursuant to the Offer. If
Purchaser acquires 80% or more of the outstanding Shares in the Offer,
Purchaser intends to effect the Proposed Merger as a "short-form" merger
under the Pennsylvania Business Corporation Law (the "PBCL"), without a vote
of the Company's shareholders or the Board of Directors of the Company (the
"Company Board"). See Section 11 and Section 12.
For a number of years, certain members of senior management of Parent,
including David R. Goode, Chairman and Chief Executive Officer of Parent,
have spoken numerous times with senior management of the Company, including
the Company's former Chairman and Chief Executive Officer, James A. Hagen,
and the Company's current Chairman, President and Chief Executive Officer,
David W. LeVan, concerning a possible business combination between Parent and
the Company. Ultimately, the Company's management encouraged such discussions
prior to Mr. Hagen's retirement as Chief Executive Officer of the Company and
discontinued such discussions in September 1994, when the Company announced
that Mr. LeVan would succeed Mr. Hagen.
On two recent occasions, in late September and again on October 4, 1996,
Mr. Goode contacted Mr. LeVan to reiterate Parent's strong interest in
acquiring the Company and request a meeting at which he could present a
concrete proposal. In each case, Mr. Goode emphasized that he wished to
communicate Parent's proposal so that the Company Board would be aware of it
during their next meeting. Also in each case, Mr. LeVan stated that it was
unnecessary for Mr. Goode to do so.
On October 15, 1996, the Company and CSX Corporation, a Virginia
corporation ("CSX"), announced that they had entered into a definitive merger
agreement (the "CSX Merger Agreement") pursuant to which control of the
Company would be swiftly sold to CSX pursuant to the CSX Offer (as defined
below) and then the Proposed CSX Merger (as defined below) would be
consummated following required regulatory approvals. The CSX Offer and the
Proposed CSX Merger are sometimes referred to collectively as the "Proposed
CSX Transaction". Integral to the Proposed CSX Transaction are covenants
substantially increasing Mr. LeVan's compensation and severance benefits and
guaranteeing that he will succeed John Snow, the Chairman and Chief Executive
Officer of CSX, as the combined company's Chairman and Chief Executive
Officer.
On October 16, 1996, CSX commenced the CSX Offer. Also on that date, Mr.
Goode met in Washington, D.C. with Mr. Snow at Mr. Snow's invitation to
discuss the Proposed CSX Transaction and certain regulatory issues it raised.
Mr. Snow advised Mr. Goode during that meeting that the Company's counsel and
investment bankers had ensured that the Proposed CSX Transaction is
"bulletproof," implying that the sale of control of the Company to CSX is now
a fait accompli. Mr. Snow added that the Pennsylvania statute, referring to
the PBCL, is "great", adding that the Company's directors have almost no
fiduciary duties. Mr. Snow's comments were intended to discourage Parent from
making a competing offer for control of the Company and to suggest that
Parent had no choice but to negotiate with CSX for access to such portions of
the Company's rail system as would be necessary to address the regulatory
concerns that would be raised by consummation of the Proposed CSX
Transaction. After Mr. Snow told Mr. Goode what CSX was willing to offer to
Parent in this regard, the meeting concluded.
On October 22, Parent's Board of Directors (the "Parent Board") met to
review its strategic options in light of announcement of the Proposed CSX
Transaction. Because the Parent Board believes that a combination of Parent
and the Company would offer compelling benefits to both companies, their
shareholders, and their other constituencies, it determined that Parent
should make a competing offer for the Company.
On October 23, 1996, Parent submitted to the Company Board a written
proposal for the acquisition of the Company by Purchaser pursuant to the
Offer and the Proposed Merger and announced its intention to commence the
Offer. In its proposal, Parent indicated that it was prepared to consider
locating the corporate offices of the combined company in Philadelphia
following consummation of the Proposed Merger and was prepared to consider
substituting a continued equity interest in the combined company for a
substantial portion of the consideration offered in the Offer.
2
<PAGE>
Also on October 23, 1996, Parent, Purchaser and a shareholder of the
Company commenced litigation against the Company, the members of the Company
Board and CSX (the "Pennsylvania Litigation") in the United District Court
for the Eastern District of Pennsylvania seeking relief relating to various
matters, including the Company Board's approval of the CSX Merger Agreement
and actions taken by the Company Board in furtherance of the Proposed CSX
Transaction. See Section 15.
According to the Offer to Purchase included as Exhibit (a)(1) to the
Schedule 14D-1 filed by CSX with the Securities and Exchange Commission (the
"SEC") on October 16, 1996 (the "CSX Schedule 14D-1"), the Company entered
into the CSX Merger Agreement with CSX, pursuant to which (i) CSX has
commenced the CSX Offer to purchase for cash an aggregate of 17,860,124
Shares at a price of $92.50 per Share (the "CSX Offer") and (ii) following
the completion of the CSX Offer and the satisfaction or waiver of certain
conditions, the Company would be merged with and into a subsidiary of CSX and
would become a subsidiary of CSX (the "Proposed CSX Merger"). Pursuant to the
Proposed CSX Merger, each outstanding Share would be converted, at the
election of the holder of Shares and subject to certain limitations, into the
right to receive (i) $92.50 in cash, without interest, (ii) 1.85619 shares of
common stock, par value $1.00 per share, of CSX (the "CSX Common Stock") or
(iii) a combination of such cash and shares of CSX Common Stock.
In connection with the execution of the CSX Merger Agreement, the Company
and CSX entered into an option agreement (the "CSX Lockup Option Agreement")
pursuant to which the Company granted to CSX an option (the "CSX Lockup
Option"), exercisable in certain events, to purchase 15,955,477 Common Shares
at an exercise price of $92.50 per Common Share, subject to adjustment as set
forth therein.
The obligations of CSX and the Company to effect the Proposed CSX Merger
are subject to various conditions, including the approval of the shareholders
of the Company of the Proposed CSX Merger (the "Company Shareholder
Approval"), the approval of the shareholders of CSX with respect to, among
other things, the issuance of shares of CSX Common Stock in the Proposed CSX
Merger (the "CSX Shareholder Approval"), and the STB having issued a final
decision approving, exempting or otherwise authorizing consummation of the
Proposed CSX Merger and all other material transactions contemplated by the
CSX Merger Agreement as may require such authorizations and which, among
other things, does not impose on CSX, the Company or any of their respective
subsidiaries, terms or conditions that materially and adversely affect the
long-term benefits expected to be received by CSX from the transactions
contemplated by the CSX Merger Agreement. See Section 11.
In the CSX Merger Agreement, the Company has agreed to a provision (the
"No Negotiation Provision") providing that, subject to certain exceptions,
neither the Company nor any of its subsidiaries, officers, directors,
employees or representatives will, directly or indirectly through another
person, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, directly or
indirectly, any inquiries or the making of any Takeover Proposal (as defined
in Section 11), or (ii) participate in any discussions or negotiations
regarding any Takeover Proposal.
Except as permitted by the CSX Merger Agreement, the Company has agreed
that neither the Company Board nor any committee thereof will (i) withdraw or
modify (or propose publicly to do so), in a manner adverse to the other
party, its approval or recommendation of the CSX Offer or its adoption and
approval of the matters to be considered at the shareholders meetings of the
Company, (ii) approve or recommend (or propose publicly to do so), any
Takeover Proposal, or (iii) cause the Company to enter into any agreement (an
"Acquisition Agreement") related to a Takeover Proposal. In addition, the CSX
Merger Agreement provides that under certain circumstances in which the CSX
Merger Agreement is terminated, the Company will have an obligation to pay a
cash fee of $300 million to CSX (the "CSX Termination Fee"). In the event
that the CSX Termination Fee is paid and the CSX Lockup Option Agreement is
exercised by CSX, the aggregate additional cost to an acquiror of the Company
by reason of the CSX Lockup Option Agreement and the CSX Termination Fee will
amount to approximately $420 million (assuming an acquisition of the Company
at $100 per Share). In the Pennsylvania Litigation, Parent and Purchaser are
contesting the validity of both the CSX Lockup Option Agreement and the CSX
Termination Fee. See Section 11 and Section 15.
3
<PAGE>
The foregoing description of the CSX Merger Agreement and the CSX Lockup
Option Agreement is qualified in its entirety by reference to the full text
of the CSX Merger Agreement and the CSX Lockup Option Agreement, copies of
which have been included by the Company as exhibits to the Schedule 14D-9,
dated as of October 16, 1996, filed by the Company with respect to the CSX
Offer (the "Schedule 14D-9") and may be obtained in the manner described in
Section 8 (except that copies may not be available at regional offices of the
SEC).
Under Subchapter E of Chapter 25 of the PBCL (the "Pennsylvania Control
Transaction Law"), unless a corporation's articles of incorporation or
by-laws adopted by the shareholders otherwise provide, after the occurrence
of a "control transaction", any holder of voting shares of a "registered
corporation" (such as the Company) may make written demand on the
"controlling person" for payment of cash in an amount equal to the "fair
value" of each voting share as of the date on which the control transaction
occurs. A "control transaction" is the acquisition by a person or group of
the status of a "controlling person"--that is, a person or group of persons
acting in concert who have voting power over voting shares of the registered
corporation that would entitle the holders thereof to cast at least 20% of
the votes that all shareholders would be entitled to cast in an election of
directors. See Section 15.
The Company's Articles of Incorporation (the "Company Articles") currently
do not contain a provision by which the Company "opts out" of the
Pennsylvania Control Transaction Law. The Company has filed preliminary proxy
materials with the SEC for a special meeting of the Company's shareholders
(the "Pennsylvania Special Meeting") which it has publicly stated it expects
to be held on November 14, 1996 for the purpose of voting on an amendment to
the Company Articles (the "Articles Amendment") to opt out of the
Pennsylvania Control Transaction Law. Under the Company Articles and the
PBCL, the Articles Amendment must be approved by a majority of the votes cast
by the holders of outstanding Shares, voting as a single class. The Company's
shareholders need not approve the Articles Amendment to facilitate the Offer
because, unlike CSX, Purchaser is prepared to pay cash to acquire all Shares.
As indicated in Parent's proposal, Parent intends to continue to seek to
negotiate with the Company with respect to the acquisition of the Company by
Parent or Purchaser, whether pursuant to the Offer and the Proposed Merger,
or otherwise. If such negotiations result in a definitive merger agreement
between the Company and Parent or Purchaser, the consideration to be received
by holders of Shares could include or consist of consideration other than
cash. Accordingly, such negotiations could result in, among other things,
amendment or termination of the Offer and submission of a different
acquisition proposal to the Company's shareholders for their approval. See
Section 12 and Section 14.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer
and pending the consummation of the Proposed Merger, in accordance with
applicable law and subject to the terms of any merger agreement that it may
enter into with the Company, Parent (alone or through affiliates) may explore
any and all options which may be available to it. In this regard, Parent
intends to solicit proxies against the adoption of the Articles Amendment at
the Pennsylvania Special Meeting and has filed preliminary proxy materials
with the SEC concerning such solicitation. Parent may also determine, whether
or not the Offer is then pending, to conduct a proxy contest in connection
with the Company's 1997 annual meeting of shareholders seeking to remove the
current members of the Company Board and elect a new slate of directors
designated by Parent. See Section 15. After expiration or termination of the
Offer, Parent may seek to acquire additional Shares, through open market
purchases, privately negotiated transactions, a tender offer or exchange
offer or otherwise, upon such terms and at such prices as it may determine,
which may be more or less than the price to be paid per Share pursuant to the
Offer and could be for cash or other consideration.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR PURCHASER
MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS COMPLYING
WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT").
CERTAIN CONDITIONS TO THE OFFER
Consummation of the Offer is subject to the fulfillment of a number of
conditions, including the following:
4
<PAGE>
THE VOTING TRUST APPROVAL CONDITION. CONSUMMATION OF THE OFFER IS
CONDITIONED UPON THE RECEIPT BY PURCHASER OF AN INFORMAL WRITTEN OPINION IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO PURCHASER FROM THE STAFF OF THE
STB, WITHOUT THE IMPOSITION OF ANY CONDITIONS UNACCEPTABLE TO PURCHASER, THAT
THE USE OF THE VOTING TRUST IN CONNECTION WITH THE OFFER AND THE PROPOSED
MERGER IS CONSISTENT WITH THE POLICIES OF THE STB AGAINST UNAUTHORIZED
ACQUISITIONS OF CONTROL OF A REGULATED CARRIER (THE "VOTING TRUST APPROVAL
CONDITION").
The Voting Trust Agreement will provide that the Voting Trustee will have
sole power to vote Shares it holds, and will contain certain other terms and
conditions designed to ensure that neither Purchaser nor Parent would control
the Company during the pendency of any necessary STB proceedings. Parent and
Purchaser will promptly request the staff of the STB to issue such an opinion
and believe that they will obtain such an opinion. Parent understands that in
the past the STB staff generally has acted on such requests within two to
four weeks, although there can be no assurance that the STB staff will act
this quickly in this instance. See Section 15.
HSR CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE RECEIPT
OF AN INFORMAL STATEMENT FROM THE PREMERGER NOTIFICATION OFFICE OF THE
FEDERAL TRADE COMMISSION (THE "FTC") THAT THE TRANSACTIONS CONTEMPLATED BY
THE OFFER AND THE PROPOSED MERGER ARE NOT SUBJECT TO, OR EXEMPT FROM, THE
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR
ACT"), OR, IN THE ABSENCE OF RECEIPT OF SUCH INFORMAL STATEMENT, ANY
APPLICABLE WAITING PERIOD UNDER THE HSR ACT HAVING EXPIRED OR BEEN TERMINATED
PRIOR TO THE EXPIRATION OF THE OFFER (THE "HSR CONDITION").
Parent and Purchaser believe that the Offer and the Proposed Merger are
not subject to, or are exempt from, the HSR Act. Parent and Purchaser will
request the Premerger Notification Office of the FTC to confirm this
understanding.
FINANCING CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON PARENT
AND PURCHASER OBTAINING, PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS
REASONABLY ACCEPTABLE TO PARENT, SUFFICIENT FINANCING TO ENABLE CONSUMMATION
OF THE OFFER AND THE PROPOSED MERGER (THE "FINANCING CONDITION").
See Section 10 for a description of the commitments of Merrill Lynch
Capital Corporation and Morgan Guaranty Trust Company of New York ("Morgan"),
as lenders (in such capacity, the "Lenders"), to provide Parent with an
aggregate of $4 billion of loans in connection with the Offer and the
Proposed Merger. Parent intends to obtain the balance of the approximately
$11.5 billion in funds necessary to consummate the Offer and the Proposed
Merger, to pay related fees and expenses, to refinance Parent's and the
Company's existing debt and for working capital purposes through borrowings
from a syndicate of financial institutions to be arranged by the Lenders.
Parent expects to contribute such funds to Purchaser in order to finance the
purchase of Shares pursuant to the Offer and the Proposed Merger. See Section
10.
THE MINIMUM CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THERE
BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER
A NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES WHICH TOGETHER CONSTITUTE
AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE
"MINIMUM CONDITION").
According to the CSX Merger Agreement, as of the close of business on
October 10, 1996, (i) 80,178,281 Common Shares were issued and outstanding,
(ii) 5,951,461 Common Shares were reserved for issuance pursuant to the
Company's stock-based incentive plans ("Incentive Shares"), (iii) 9,571,086
Common Shares were reserved for issuance upon conversion of the ESOP
Preferred Shares, and (iv) 9,571,086 ESOP Preferred Shares were issued and
outstanding, which shares are convertible into Common Shares on a one-for-one
basis. Also according to the CSX Merger Agreement, 15,955,477 Common Shares
have been reserved for issuance pursuant to the CSX Lockup Option Agreement.
Upon the transfer of any ESOP Preferred Shares to Purchaser at the time of
acceptance for payment of the ESOP Preferred Shares tendered pursuant to the
Offer, such ESOP Preferred Shares will be automatically converted into Common
Shares.
Based on the foregoing and disregarding for such purposes the 15,955,477
Common Shares purportedly issuable pursuant to the CSX Lockup Option
Agreement, Purchaser believes there are
5
<PAGE>
presently 95,700,828 Shares outstanding on a fully diluted basis.
Accordingly, Purchaser believes that the Minimum Condition would be satisfied
if at least an aggregate of 47,850,415 Common Shares and ESOP Preferred
Shares are validly tendered pursuant to the Offer if no Common Shares are
then issued or validly issuable under the CSX Lockup Option Agreement, or if
at least an aggregate of 55,828,153 Common Shares and ESOP Preferred Shares
are validly tendered pursuant to the Offer if all 15,955,477 Common Shares
issuable under the CSX Lockup Option Agreement have then been issued or are
then validly issuable. For purposes of the Offer, "fully diluted basis"
assumes (i) no dilution due to Rights, (ii) the issuance of all of the
Incentive Shares, (iii) the conversion of the ESOP Preferred Shares into
Common Shares, (iv) that no Shares were issued or acquired by the Company
after October 10, 1996 (other than Common Shares issued pursuant to clauses
(ii) and (iii) above) and no options, warrants, rights or other securities
convertible into or exercisable or exchangeable for Shares were issued or
granted after October 10, 1996 other than the CSX Lockup Option Agreement,
and (v) as of the date of purchase the Company has no other obligations to
issue Shares or other securities convertible into or exercisable for Shares.
THE SUBCHAPTER F CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUBCHAPTER F OF
CHAPTER 25 OF THE PBCL HAS BEEN COMPLIED WITH OR IS INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER (THE "SUBCHAPTER F
CONDITION").
The Proposed Merger, including the timing and details thereof, is subject
to, among other things, the provisions of the PBCL, including Subchapter F of
Chapter 25 thereof ("Subchapter F"). In general, Subchapter F purports to
prohibit a Pennsylvania corporation from engaging in a "Business Combination"
(defined to include a variety of transactions including mergers) with an
"Interested Shareholder" (defined generally as a person owning shares
entitled to cast at least 20% of the voting power of a corporation) for a
period of five years following the date such person became an Interested
Shareholder, unless, among other exceptions described in Section 15, (i)
before such person became an Interested Shareholder, the board of directors
of the corporation approved either the Business Combination or the
transaction in which the Interested Shareholder became an Interested
Shareholder, or (ii) the Business Combination is approved by a majority of
the corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than three months after the Interested Shareholder
became, and provided that at the time of such vote the Interested Shareholder
is, the beneficial owner of shares entitled to cast at least 80% of votes of
the corporation, and the Business Combination satisfies certain fair price
criteria.
The Subchapter F Condition would be satisfied if, prior to the purchase of
Shares pursuant to the Offer, (i) the Company Board approves either the
Proposed Merger or the purchase of Shares pursuant to the Offer, or (ii)
Purchaser, in its sole discretion, were satisfied that Subchapter F was
invalid or otherwise inapplicable to the Proposed Merger for any reason,
including, without limitation, those specified in Subchapter F. See Section
15.
Purchaser believes that, under applicable law and under the circumstances
of the Offer including the Company Board's approval of the CSX Merger
Agreement, the Company Board is obligated by its fiduciary responsibilities
to approve the Offer and the Proposed Merger for purposes of Subchapter F and
that its failure to do so would be a violation of law. Purchaser is hereby
requesting that the Company Board adopt a resolution approving the Offer and
the Proposed Merger for purposes of Subchapter F as promptly as it may do so
without violating its obligations under the CSX Merger Agreement. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, an order
requiring the Company Board to approve the Offer and the Proposed Merger and
thereby render Subchapter F inapplicable. See Section 15.
THE RIGHTS CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE
RIGHTS HAVING BEEN REDEEMED BY THE COMPANY BOARD OR PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER (THE "RIGHTS CONDITION").
The following is based upon the Form 8-K, dated July 31, 1989, filed by
Consolidated Rail Corporation ("CRC"), which is the Company's current
operating subsidiary and which prior to the
6
<PAGE>
Company's adoption of a holding company structure on February 17, 1993
operated on a stand alone basis (the "July 1989 Form 8-K"), the Company's
Form 8-B, dated as of September 25, 1995, and other amendments to the Rights
Agreement filed with the SEC.
On July 19, 1989, the Board of Directors of CRC declared a dividend
distribution of one Right for each share of common stock of CRC and executed
the Rights Agreement. Upon adoption by the Company of a holding company
structure on February 17, 1993, CRC assigned all of CRC's title and interest
under the Rights Agreement to the Company. On October 2, 1995, one Right was
distributed with respect to each outstanding ESOP Preferred Share. Under the
Rights Agreement, each Right entitles the holder to purchase one Common Share
at an exercise price of $205.00, subject to adjustment.
Under the Rights Agreement, until the close of business on the
Distribution Date (which is defined as the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated
persons (the "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 10% or more of the outstanding Shares and
(ii) 10 business days (or such later date as the Company Board shall
determine) following the commencement of a tender offer or exchange offer
which would result in a person or group beneficially owning 10% or more of
the outstanding Shares), the Rights will be evidenced by the certificates
evidencing Shares (the "Share Certificates") and will be transferred with and
only with Share Certificates. As soon as practicable after the Distribution
Date, certificates evidencing the Rights (the "Rights Certificates") will be
mailed to holders of record of the Shares as of the close of business on the
Distribution Date, and thereafter the separate Rights Certificates alone will
evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on September 20, 2005 unless earlier
redeemed by the Company as described below.
At any time prior to the Distribution Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.005 per Right (the
"Redemption Price"). Immediately upon the action of the Company Board
ordering redemption of the Rights, the Rights will terminate, and the only
right to which the holders of Rights will be entitled will be the right to
receive the Redemption Price.
Pursuant to the CSX Merger Agreement, the Company has amended the Rights
Agreement to render the Rights Agreement inapplicable to the CSX Offer, the
CSX Proposed Merger and the other transactions contemplated by the CSX Merger
Agreement and the CSX Lockup Option Agreement and to ensure, among other
things, that CSX is not deemed to be an Acquiring Person and that a
Distribution Date does not occur by reason of such agreements or
transactions. The Company has also agreed in the CSX Merger Agreement that it
may not further amend the Rights Agreement or otherwise take action
thereunder without the prior consent of CSX in its sole discretion.
Based on publicly available information, Purchaser believes that, as of
the date of this Offer to Purchase, the Rights were not exercisable, Rights
Certificates had not been issued and the Rights were evidenced by the Share
Certificates. Purchaser believes that, as a result of Purchaser's public
announcement of the Offer, the Distribution Date will be no later than
November 7, 1996 unless prior to such date the Company Board redeems the
Rights or amends the Rights Agreement to delay the Distribution Date.
Purchaser believes that, under applicable law and under the circumstances
of the Offer, including the Company Board's approval of the CSX Merger
Agreement and the transactions contemplated thereby, the Company Board is
obligated by its fiduciary responsibilities not to redeem the Rights or
render the Rights Agreement inapplicable to any offer by CSX without, at the
same time, taking the same action as to Parent, the Offer and the Proposed
Merger, and that the Company Board's failure to do so would be a violation of
law. In the Pennsylvania Litigation, Purchaser is seeking, among other
things, to enjoin the Company Board from taking any such action or to
invalidate the provision of the Rights Agreement that was added in September
1995 and which limits the power of the Company Board to redeem the Rights
without the approval of a majority of the members of the Company Board who
were members as of September 1995 or their nominated successors. See Section
15.
CSX TERMINATION CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE CSX MERGER
AGREEMENT HAS BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS OR OTHERWISE (THE
"CSX TERMINATION CONDITION").
7
<PAGE>
Purchaser does not intend to consummate the Offer if at the time of such
consummation the Company is obligated to consummate the Proposed CSX Merger.
If the Company's shareholders vote to approve the Proposed CSX Merger and the
CSX Merger Agreement remains in effect, Purchaser will determine what action
to take, which might include withdrawal of the Offer. In the event that the
CSX Merger Agreement has not been terminated and the Company is believed by
Purchaser to be taking steps to seek shareholder approval of the CSX Merger
Agreement, Parent and Purchaser intend to solicit proxies in opposition to
the Proposed CSX Merger.
Certain other conditions to consummation of the Offer are described in
Section 14. Purchaser expressly reserves the right in its sole discretion to
waive any one or more of the conditions to the Offer. See Section 14.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any extension or amendment), Purchaser will accept
for payment and pay for all Shares which are validly tendered prior to the
Expiration Date (as hereinafter defined) and not properly withdrawn in
accordance with Section 4. The term "Expiration Date" means 12:00 Midnight,
New York City time, on Thursday, November 21, 1996, unless and until
Purchaser, in its sole discretion, shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date"
shall refer to the latest time and date at which the Offer, as so extended by
Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Voting Trust Approval Condition, the HSR Condition, the Financing Condition,
the Minimum Condition, the Subchapter F Condition, the Rights Condition and
the CSX Termination Condition. If any or all of such conditions are not
satisfied or if any or all of the other events set forth in Section 14 shall
have occurred prior to the Expiration Date, Purchaser reserves the right (but
shall not be obligated) to (i) decline to purchase any of the Shares tendered
in the Offer and terminate the Offer, and return all tendered Shares to the
tendering shareholders, (ii) waive or reduce the Minimum Condition or waive
or amend any or all other conditions to the Offer to the extent permitted by
applicable law, and, subject to complying with applicable rules and
regulations of the SEC, purchase all Shares validly tendered, or (iii) extend
the Offer and, subject to the right of shareholders to withdraw Shares until
the Expiration Date, retain the Shares which have been tendered during the
period or periods for which the Offer is extended.
Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend for any reason the period of time
during which the Offer is open, including the occurrence of any of the events
specified in Section 14, by giving oral or written notice of such extension
to the Depositary. During any such extension, all Shares previously tendered
and not properly withdrawn will remain subject to the Offer, subject to the
rights of a tendering shareholder to withdraw its Shares in accordance with
the procedures set forth in Section 4.
Subject to the applicable regulations of the SEC, Purchaser also expressly
reserves the right, in its sole discretion, at any time and from time to
time, (i) to delay acceptance for payment of, or, regardless of whether such
Shares were theretofore accepted for payment, payment for, any Shares pending
receipt of any regulatory approval specified in Section 15 (other than
approval by the STB of the acquisition of control of the Company by Parent)
or in order to comply in whole or in part with any other applicable law, (ii)
to terminate the Offer and not accept for payment any Shares if any of the
conditions referred to in Section 14 has not been satisfied or upon the
occurrence of any of the events specified in Section 14 and (iii) to waive
any condition or otherwise amend the Offer in any respect by giving oral or
written notice of such delay, termination, waiver or amendment to the
Depositary and by making a public announcement thereof.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act
requires Purchaser to pay the consideration offered or return the Shares
tendered promptly after the termination or withdrawal of the
8
<PAGE>
Offer, and (ii) Purchaser may not delay acceptance for payment of, or payment
for (except as provided in clause (i) of the first sentence of the preceding
paragraph), any Shares upon the occurrence of any of the conditions specified
in Section 15 without extending the period of time during which the Offer is
open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act, which require that material
changes be promptly disseminated to shareholders in a manner reasonably
designed to inform them of such changes) and without limiting the manner in
which Purchaser may choose to make any public announcement, Purchaser shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release to the Dow Jones
News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will disseminate additional tender offer materials and
extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1
under the Exchange Act. The minimum period during which the Offer must remain
open following material changes in the terms of the Offer or information
concerning the Offer, other than a change in price or a change in percentage
of securities sought, will depend upon the facts and circumstances, including
the relative materiality of the changed terms or information. In the SEC's
view, an offer generally should remain open for a minimum of five business
days from the date a material change is first published, sent or given to
shareholders. With respect to a change in price or a change in percentage of
securities sought, a minimum ten business day period is required to allow for
adequate dissemination to shareholders and investor response. As used in this
Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1
under the Exchange Act. Accordingly, if, prior to the Expiration Date,
Purchaser decreases the number of Shares being sought, or increases or
decreases the consideration offered pursuant to the Offer, and if the Offer
is scheduled to expire at any time earlier than the period ending on the
tenth business day from the date that notice of such increase or decrease is
first published, sent or given to holders of Shares, the Offer will be
extended at least until the expiration of such 10 business day period.
As of the date of this Offer to Purchase, the Rights are evidenced by the
Share Certificates and do not trade separately. Accordingly, by tendering a
Share Certificate, a shareholder is automatically tendering a similar number
of associated Rights. If, however, pursuant to the Rights Agreement or for
any other reason, the Rights detach and separate Rights Certificates are
issued, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of such Share.
A request is being made to the Company for the use of the Company's
shareholder list and security position listing for the purpose of
disseminating the Offer to shareholders. Upon compliance by the Company with
such request, this Offer to Purchase and the Letter of Transmittal will be
mailed to record holders of Shares and Rights and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder list, and
list of holders of Rights, if applicable, who are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares or Rights. A request is also being made to the
ESOP Trustee to transmit this Offer to Purchase and any required election
materials to participants in the ESOP who are beneficial owners of any Shares
owned of record by the ESOP Trustee.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended
or amended, the terms and conditions of any such extension or amendment),
Purchaser will purchase, by accepting for payment, and will pay for, all
Shares which are validly tendered prior to the Expiration Date (and not
properly withdrawn in accordance with Section 4) promptly after the later to
occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the
conditions set forth in Section 14. Purchaser expressly reserves the right,
in its discretion, to delay acceptance for payment of, or, subject to
applicable rules of the SEC, payment for, Shares in order to comply in whole
or in part with any applicable law.
9
<PAGE>
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) the Share
Certificates and Rights Certificates, if the Rights are at such time
separately traded, or timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Shares (and Rights, if applicable), if
such procedure is available, into the Depositary's account at The Depository
Trust Company or the Philadelphia Depository Trust Company (each a
"Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in Section 3, (ii) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, or, in the case of a book-entry transfer, an Agent's Message (as
defined below) and (iii) any other documents required by the Letter of
Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Shares (and Rights, if applicable)
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that Purchaser may enforce such agreement against
the participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares (including the associated Rights)
validly tendered and not properly withdrawn if, as and when Purchaser gives
oral or written notice to the Depositary of Purchaser's acceptance of such
Shares for payment. Payment for Shares (including the associated Rights)
accepted pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering
shareholders for the purpose of receiving payments from Purchaser and
transmitting payments to such tendering shareholders. Under no circumstances
will interest on the purchase price for Shares be paid by Purchaser,
regardless of any delay in making such payment. Upon the deposit of funds
with the Depositary for the purpose of making payments to tendering
shareholders, Purchaser's obligation to make such payment shall be satisfied
and tendering shareholders must thereafter look solely to the Depositary for
payment of amounts owed to them by reason of the acceptance for payment of
Shares pursuant to the Offer. Purchaser will pay any stock transfer taxes
incident to the transfer to it of validly tendered Shares, except as
otherwise provided in Instruction 6 of the Letter of Transmittal, as well as
any charges and expenses of the Depositary and the Information Agent.
If any tendered Shares are not accepted for payment for any reason
pursuant to the terms and conditions of the Offer or if Share Certificates
are submitted evidencing more Shares than are tendered, Share Certificates
evidencing unpurchased Shares will be returned, without expense to the
tendering shareholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth in Section 3, such Shares will be
credited to an account maintained at such Book-Entry Transfer Facility), as
promptly as practicable following the expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Share pursuant to the Offer, Purchaser will pay such increased
consideration for all such Shares purchased pursuant to the Offer, whether or
not such Shares were tendered prior to such increase in consideration.
Purchaser reserves the right to transfer or assign, in whole at any time,
or in part from time to time, to Parent or one or more direct or indirect
wholly owned subsidiaries of Parent, the right to purchase all or any portion
of the Shares tendered pursuant to the Offer, provided that any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer
and will in no way prejudice the rights of tendering shareholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
3. PROCEDURES FOR TENDERING SHARES.
Valid Tender of Shares. In order for Shares to be validly tendered
pursuant to the Offer, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or an Agent's Message (in the case of any book-entry transfer) and any other
required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this
10
<PAGE>
Offer to Purchase prior to the Expiration Date and either (i) the Share
Certificates evidencing tendered Shares must be received by the Depositary at
one of such addresses or Shares must be tendered pursuant to the procedure
for book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date, or
(ii) the tendering shareholder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in either of the Book-Entry
Transfer Facilities' systems may make book-entry delivery of Shares by
causing a Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account at a Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Shares may be effected through book-entry transfer at a
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry delivery of
Shares, and any other required documents must, in any case, be transmitted to
and received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date or the tendering
shareholder must comply with the guaranteed delivery procedures described
below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Signature Guarantee. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the
Securities Transfer Agents Medallion Program (each, an "Eligible
Institution"), unless the Shares tendered thereby are tendered (i) by a
registered holder of Shares who has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Share Certificate is registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or a
Share Certificate not accepted for payment or not tendered is to be returned,
to a person other than the registered holder(s), then the Share Certificate
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name(s) of the registered holder(s) appear on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares may nevertheless
be tendered if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) in the case of a guarantee of Shares, the Share Certificates for
all tendered Shares, in proper form for transfer, or a Book-Entry
Confirmation, together with a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) with any required
signature
11
<PAGE>
guarantee (or, in the case of a book-entry transfer, an Agent's Message)
and any other documents required by such Letter of Transmittal, are
received by the Depositary within three New York Stock Exchange, Inc.
("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will, in all cases, be made only after timely receipt
by the Depositary of (i) the Share Certificates evidencing such Shares, or a
Book-Entry Confirmation of the delivery of such Shares, if available, (ii) a
properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) (or in the case of a book-entry transfer, an
Agent's Message) and (iii) any other documents required by the Letter of
Transmittal.
Distribution of Rights. Holders of Shares will be required to tender one
Right for each Share tendered to effect a valid tender of such Share. Unless
and until the Distribution Date (as defined in Section 12 below) occurs, the
Rights are represented by and transferred with the Shares. Accordingly, if
the Distribution Date does not occur prior to the Expiration Date of the
Offer, a tender of Shares will constitute a tender of the associated Rights.
If a Distribution Date has occurred, certificates representing a number of
Rights equal to the number of Shares being tendered must be delivered to the
Depositary in order for such Shares to be validly tendered. If a Distribution
Date has occurred, a tender of Shares without Rights constitutes an agreement
by the tendering shareholder to deliver certificates representing a number of
Rights equal to the number of Shares tendered pursuant to the Offer to the
Depositary within three NYSE trading days after the date such certificates
are distributed. Purchaser reserves the right to require that it receive such
certificates prior to accepting Shares for payment. Payment for Shares
tendered and purchased pursuant to the Offer will be made only after timely
receipt by the Depositary of, among other things, such certificates, if such
certificates have been distributed to holders of Shares. Purchaser will not
pay any additional consideration for the Rights tendered pursuant to the
Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by Purchaser in its sole discretion, whose determination will be
final and binding on all parties. Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right, in its sole discretion, to waive any of the conditions of the
Offer or any defect or irregularity in any tender with respect to Shares of
any particular shareholder, whether or not similar defects or irregularities
are waived in the case of other shareholders. No tender of Shares will be
deemed to have been validly made until all defects and irregularities have
been cured or waived.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. None of Parent, Purchaser, the Dealer Managers, the
Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or will
incur any liability for failure to give any such notification.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares (including the
associated Rights) tendered by such shareholder and accepted for payment by
Purchaser (and any and all noncash dividends, distributions, rights, other
Shares, or other securities issued or issuable in respect of such Shares on
or after the date of this Offer to Purchase). All such proxies shall be
considered coupled with an interest in the tendered Shares or Rights. This
appointment will be effective if, when, and only to the extent that,
Purchaser accepts such Shares for payment pursuant to the Offer. Upon such
acceptance for payment, all prior proxies given by such shareholder with
respect to such Shares and other
12
<PAGE>
securities will, without further action, be revoked, and no subsequent
proxies may be given. The designees of Purchaser will, with respect to the
Shares and other securities for which the appointment is effective, be
empowered (subject to the terms of Voting Trust Agreement for so long as it
shall be in effect with respect to the Shares or Rights) to exercise all
voting and other rights of such shareholder as they in their sole discretion
may deem proper at any annual, special, adjourned or postponed meeting of the
Company's shareholders, by written consent or otherwise, and Purchaser
reserves the right to require that, in order for Shares or other securities
to be deemed validly tendered, immediately upon Purchaser's acceptance for
payment of such Shares, Purchaser (including through the Voting Trust) must
be able to exercise full voting rights with respect to such Shares.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT
TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE FOR SHARES PURCHASED PURSUANT
TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH
SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP
WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED
TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9
OF THE LETTER OF TRANSMITTAL.
ESOP Preferred Shares. According to documents filed by the Company with
the SEC, all outstanding ESOP Preferred Shares are owned of record by the
ESOP Trustee and, accordingly, only the ESOP Trustee can effect a valid
tender of such shares. The ESOP Trustee is required to request instructions
from each participant in the ESOP as to whether ESOP Preferred Shares
allocated to such participant's account should be tendered pursuant to the
Offer, and to tender such shares in accordance with such instructions.
Pursuant to the organizational documents of the ESOP, the ESOP Trustee may
not tender allocated ESOP Preferred Shares as to which no instructions are
received. Unallocated shares are required to be tendered or not tendered in
the same proportion as allocated shares for which instructions from
participants are received.
Purchaser's acceptance for payment of Shares tendered pursuant to the
Offer will constitute a binding agreement between the tendering shareholder
and Purchaser upon the terms and subject to the conditions of the Offer.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after December 22,
1996.
If Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares or is unable to accept Shares for payment pursuant to the Offer for
any reason, then, without prejudice to Purchaser's rights under the Offer,
the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent that
tendering shareholders are entitled to withdrawal rights as described in this
Section 4. Any such delay will be by an extension of the Offer to the extent
required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary
at one of its addresses set forth on the back cover of this Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder, if different from that of the person
who tendered such Shares. If Share Certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such Share Certificates, the serial
numbers shown on such Share Certificates must be submitted to the Depositary
and the signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution, unless such Shares have been tendered for the account
of an Eligible Institution. If Shares have been tendered pursuant to the
procedure for book-entry transfer as set forth in Section 3, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures.
13
<PAGE>
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. None of Parent,
Purchaser, the Dealer Managers, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered at any time prior to the Expiration Date by following the
procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash pursuant
to the Offer or the Proposed Merger will be a taxable transaction for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"), and may also be a taxable transaction under applicable state, local,
foreign and other tax laws. Generally, for federal income tax purposes, a
tendering shareholder will recognize gain or loss equal to the difference, if
any, between the amount of cash received by the shareholder pursuant to the
Offer or Proposed Merger and the aggregate tax basis in the Shares tendered
by the shareholder and purchased pursuant to the Offer or converted in the
Proposed Merger, as the case may be. Gain or loss will be computed separately
for each block of Shares (i.e., Shares acquired at the same time and price)
tendered and purchased pursuant to the Offer or converted in the Proposed
Merger, as the case may be.
If Shares are held by a shareholder as capital assets, gain or loss
recognized by the shareholder will be capital gain or loss, which will be
long-term capital gain or loss if such shareholder's holding period for the
Shares exceeds one year. Under present law, long-term capital gains
recognized by an individual shareholder generally will be taxed at a maximum
federal marginal tax rate of 28%, and long-term capital gains recognized by a
corporate shareholder will be taxed at a maximum federal marginal tax rate of
35%.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION OR WITH RESPECT TO
HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE,
SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS
AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT
OF INDIVIDUAL CIRCUMSTANCES. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE
APPLICATION AND EFFECT OF ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES) OF THE
OFFER AND THE PROPOSED MERGER.
6. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (the "Company Form
10-K"), the Common Shares are listed and principally traded on the NYSE and
are also listed and traded on the Philadelphia Stock Exchange, and quoted
under the symbol "Conrail". The following table sets forth, for the quarters
indicated, the high and low sales prices per Common Share on the NYSE and the
amount of cash dividends paid per Common Share, as reported in the Company
Form 10-K for periods in 1994 and 1995, and as reported by published
financial sources with respect to periods in 1996:
14
<PAGE>
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDENDS
------ ----- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
First Quarter ............................ $69 1/4 $ 56 1/2 $.325
Second Quarter ........................... 59 1/8 50 3/8 .325
Third Quarter ............................ 58 1/8 48 3/8 .375
Fourth Quarter ........................... 55 1/4 48 1/8 .375
YEAR ENDED DECEMBER 31, 1995:
First Quarter ............................ 57 5/8 50 1/2 .375
Second Quarter ........................... 56 1/4 51 1/8 .375
Third Quarter ............................ 70 1/4 55 1/8 .425
Fourth Quarter ........................... 74 3/8 65 1/2 .425
YEAR ENDING DECEMBER 31, 1996:
First Quarter ............................ 77 1/4 67 5/8 .425
Second Quarter ........................... 73 1/4 66 1/4 .425
Third Quarter ............................ 74 5/8 63 3/4 .475
Fourth Quarter (through October 23, 1996) 98 1/4 68 1/2 N.A.
</TABLE>
On October 22, 1996, the last full trading day prior to the announcement
date of the Offer, the reported closing sales price of the Common Shares on
the NYSE Composite Tape was $84 3/4 per Common Share. SHAREHOLDERS ARE URGED
TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON SHARES.
According to information publicly filed by the Company, all of the
outstanding ESOP Preferred Shares are held of record by the ESOP Trustee.
There is no trading market for the ESOP Preferred Shares. Since issuance of
the ESOP Preferred Shares, the Company has paid quarterly cash dividends on
the ESOP Preferred Shares of $.54125 per share. Each ESOP Preferred Share is
convertible under certain circumstances into one Common Share.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE COMMON SHARES; EXCHANGE
LISTING AND EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS. The purchase of
Common Shares pursuant to the Offer will reduce the number of Common Shares
that might otherwise trade publicly and could reduce the number of holders of
Common Shares, which could adversely affect the liquidity and market value of
the remaining Common Shares held by the public. Following consummation of the
Offer, a large percentage of the outstanding Common Shares will be owned by
Purchaser.
According to the NYSE's published guidelines, the NYSE would consider
delisting the Common Shares if, among other things, the number of record
holders of at least 100 Common Shares should fall below 1,200, the number of
publicly held Common Shares (exclusive of holdings of officers, directors and
their families and other concentrated holdings of 10% or more (the "NYSE
Excluded Holdings")) should fall below 600,000 or the aggregate market value
of publicly held Common Shares (exclusive of NYSE Excluded Holdings) should
fall below $5,000,000. If, as a result of the purchase of Common Shares
pursuant to the Offer or otherwise, the Common Shares no longer meet the
requirements of the NYSE for continued listing and the listing of the Common
Shares is discontinued, the market for the Common Shares could be adversely
affected.
If the NYSE were to delist the Common Shares, it is possible that the
Common Shares would continue to trade on another securities exchange or in
the over-the-counter market and that price or other quotations would be
reported by such exchange or through the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or other sources. The extent of
the public market therefor and the availability of such quotations would
depend, however, upon such factors as the number of shareholders and/or the
aggregate market value of such securities remaining at such time, the
interest in maintaining a market in the Common Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act as described below and other factors. Purchaser cannot predict whether
the reduction in the number of Common Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for
or marketability of the Common Shares or whether it would cause future market
prices to be higher or lower than the Offer Price.
15
<PAGE>
The Common Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the SEC if
the Common Shares are not listed on a national securities exchange and there
are fewer than 300 record holders of the Common Shares. The termination of
registration of the Common Shares under the Exchange Act would substantially
reduce the information required to be furnished by the Company to holders of
Common Shares and to the SEC and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private"
transactions, no longer applicable to the Common Shares. In addition,
"affiliates" of the Company and persons holding "restricted securities" of
the Company may be deprived of the ability to dispose of such securities
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act").
If registration of the Common Shares under the Exchange Act were
terminated, the Common Shares would no longer be eligible for NASDAQ
reporting.
8. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including financial
information, has been taken from or based upon the Company Form 10-K and
other publicly available documents and records on file with the SEC and other
public sources. Neither Parent, Purchaser nor the Dealer Managers assumes any
responsibility for the accuracy or completeness of the information concerning
the Company contained in such documents and records or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to
Parent, Purchaser or the Dealer Managers.
According to information filed by the Company with the SEC, the Company is
a Pennsylvania corporation whose principal executive offices are located at
2001 Market Street, Two Commerce Square, Philadelphia, Pennsylvania 19101.
Through its wholly owned subsidiary, CRC, a Pennsylvania corporation, the
Company provides freight transportation services within the northeast and
midwest United States. The Company interchanges freight with other United
States and Canadian railroads for transport to destinations within and
outside the Company's service region. As of December 31, 1995, CRC (excluding
its subsidiaries) maintained 17,715 miles of track on its 10,701 mile route
system. Of total route miles, 8,860 are owned, 100 are leased or operated
under contract and 1,741 are operated under trackage rights, including
approximately 300 miles operated pursuant to an easement over Amtrak's
Northeast Corridor. Also as of December 31, 1995, the Company had (owned or
subject to capital lease) 2,023 locomotives and 51,404 freight cars
(including 21,948 subject to operating leases), excluding locomotives and
freight cars held by subsidiaries other than CRC, which have an immaterial
number of locomotives and freight cars. The Company operates no significant
line of business other than the freight railroad business and does not
provide common carrier passenger or commuter train service.
According to information filed by the Company, with the SEC, the Company
serves a heavily industrial region that is marked by dense population centers
which constitute a substantial market for consumer durable and non-durable
goods, and a market for raw materials used in manufacturing and by electric
utilities.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the financial statements contained in the
Company Form 10-K, the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1996 (the "Company Form 10-Q") and other documents
filed by the Company with the SEC. More comprehensive financial information
is included in the Company Form 10-K, the Company Form 10-Q and such other
documents filed by the Company with the SEC. The financial information that
follows is qualified in its entirety by reference to the Company Form 10-K,
the Company Form 10-Q and such other documents, including the financial
statements and related notes contained therein. The Company Form 10-K, the
Company Form 10-Q and such other documents may be examined at and copies may
be obtained from the offices of the SEC or the NYSE in the manner set forth
below.
16
<PAGE>
CONRAIL INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .................................. $1,838 $1,812 $3,686 $3,733 $3,453
Operating expenses ........................ 1,715 1,518 3,230 3,127 2,862
Operating income .......................... 123 294 456 606 591
Net income to common shareholders ........ 57 178 264 324 160
INCOME PER COMMON SHARE INFORMATION:
Net earnings per Common Share before the
cumulative effect of changes in
accounting principles
Primary .................................. $ 0.66 $ 2.17 $ 3.19 $ 3.90 $ 2.74
Fully diluted ............................ 0.64 1.98 2.94 3.56 2.51
Net per Common Share cumulative effect of
changes in accounting principles(1)
Primary .................................. -- -- -- -- (.92)
Fully diluted ............................ -- -- -- -- (.81)
Net earnings per Common Share
Primary .................................. 0.66 2.17 3.19 3.90 1.82
Fully diluted ............................ 0.64 1.98 2.94 3.56 1.70
AT JUNE 30, AT DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Current assets ............................ $1,223 $1,124 $1,206 $1,125 $1,062
Property and equipment (net) .............. 6,446 6,660 6,408 6,498 6,313
Total assets .............................. 8,341 8,609 8,424 8,322 7,948
Current liabilities ....................... 1,213 1,250 1,170 1,201 1,075
Long-term debt, excluding current portion 1,887 2,068 1,911 1,940 1,959
Total shareholders' equity ................ 2,899 3,007 2,977 2,925 2,784
</TABLE>
- ------------
(1) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" and SFAS 109, "Accounting
for Income Taxes."
On October 15, 1996, the Company issued its earnings release in which it
reported the following results for the three fiscal quarters ended September
30, 1996 as compared to the comparable period for 1995: revenues, $2,771
million versus $2,735 million; income from operations, $358 million versus
$502 million; net income, $195 million versus $294 million; net income per
Common Share, $2.39 (primary) and $2.21 (fully diluted) versus $3.61
(primary) and $3.28 (fully diluted).
The Company is subject to the information and reporting requirements of
the Exchange Act and is required to file reports and other information with
the SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons
in transactions with the Company and other matters is required to be
17
<PAGE>
disclosed in proxy statements distributed to the Company's shareholders and
filed with the SEC. These reports, proxy statements and other information
should be available for inspection at the public reference facilities of the
SEC located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and also should be available for inspection and copying at prescribed
rates at the following regional offices of the SEC: Seven World Trade Center,
New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of this material may also be obtained by mail, upon
payment of the SEC's customary fees, from the SEC's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an
Internet web site at http://www.sec.gov that contains reports, proxy
statements and other information. Reports, proxy statements and other
information concerning the Company should also be available for inspection at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Certain Operating Relationships. Various subsidiaries of each of Parent,
on the one hand, and the Company, on the other hand, have operating
relationships with each other. The principal interchange points between
railroads of Parent and the Company are located at Hagerstown, Maryland,
Buffalo, New York, and Cincinnati, Cleveland and Toledo, Ohio. In 1993, 1994
and 1995, the percentage of total loads handled by Parent and interchanged to
or from the Company was 6.6%, 6.2% and 6.3%, respectively. In connection with
interchanges, either or both railroads of Parent and the Company may be the
party billing the shipper of such interchange freight, and in cases where one
of the parties bills for the entire shipment, such party periodically will
remit to the other party the net amount of the proceeds due to such other
carrier in accordance with standard industry practice. In addition, Parent
and the Company, together with other railroads, cooperate in terminal
switching operations at certain major locations and also have proprietary
interests in various terminal companies in their service territories.
In addition to the foregoing, the railroads of Parent and the Company are
parties to various trackage rights and haulage agreements. Haulage involves
movement by the owning railroad, with its crews, of traffic in the account of
the using railroad to and from points on the owning railroad. Under trackage
rights agreements the using railroad operates its own trains with its
employees carrying traffic in its account over the lines of the owning
railroad. Among the various cooperative arrangements between Parent and the
Company are: (i) Parent trackage rights on the Company's line between
Cincinnati and Columbus, Ohio, (ii) haulage by Parent of the Company's
automotive traffic from Bloomington, Illinois, to Lafayette, Indiana, and
haulage by Parent of certain other Company traffic between Peoria, Illinois
and Lafayette, Indiana, and (iii) Parent trackage rights on the Company's
line at Cincinnati, Ohio. In addition to the foregoing, Parent and the
Company (together with Union Pacific Railroad) operate a fleet of intermodal
containers that are free to move over the lines of each participant.
Between 1993 and 1995, Parent purchased from the Company, for
approximately $11 million, approximately 120 miles of the Company's Fort
Wayne line extending from Gary to Fort Wayne, Indiana. At various times
during this period, Parent operated over the Company's lines under trackage
rights agreements. Currently, the Company continues to serve several
customers in the Fort Wayne area using trackage rights over former Company
lines now owned by Parent.
Triple Crown Services Company. On April 1, 1993, Parent and the Company
formed Triple Crown Services Company ("TCS"), a Delaware partnership, to
provide intermodal services previously operated by a wholly owned subsidiary
of Parent. The Company paid Parent $15 million for a one-half interest in
TCS. Since 1993 both Parent and the Company have made additional capital
contributions to TCS and guaranteed financing of TCS equipment purchases. TCS
provides intermodal services throughout the eastern United States. Intermodal
services involve the movement of traffic both over the highway and on rail
lines. Major TCS initiatives, policies, budgets, and other matters are
subject to approval by a Management Committee consisting of equal numbers of
Parent and Company senior officers. The TCS Management Committee establishes
overall strategy for TCS. Relationships among TCS, Parent and the Company are
governed by numerous bilateral and trilateral written agreements. TCS's
revenues after April 1, 1993 were $101.7 million; for 1994 and 1995, they
were $148.2 million and $143.0 million, respectively.
Doublestack Clearances. In connection with the creation of the TCS
partnership, Parent and the Company agreed to cooperate to eliminate
doublestack clearance impediments between New Jersey on
18
<PAGE>
the Company's lines and Atlanta, Georgia, on lines of Parent's railroads.
Doublestacking of intermodal containers permits one container to be placed on
top of another container for movement in specialized railcars. However, because
the height of doublestacked containers often is greater than that of a standard
railcar, certain structures over rail lines, such as tunnels, overpasses and
bridges, must be modified to permit doublestack service to be operated.
Elimination of
such clearance restrictions is costly. Parent's cost for clearance work
between its connections with the Company at Hagerstown, Maryland, and
Atlanta, Georgia, was approximately $4 million.
9. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
Purchaser. Purchaser is a newly incorporated Pennsylvania corporation
organized in connection with the Offer and the Proposed Merger and has not
carried on any activities other than in connection with the Offer and the
Proposed Merger. The principal offices of Purchaser are located at Three
Commercial Place, Norfolk, Virginia 23510. The Purchaser is a wholly owned
subsidiary of Parent. Until immediately prior to the time that Purchaser will
purchase Shares pursuant to the Offer, it is not expected that Purchaser will
have any significant assets or liabilities or engage in activities other than
those incident to its formation and capitalization and the transactions
contemplated by the Offer and the Proposed Merger. Because Purchaser is newly
formed and has minimal assets and capitalization, no meaningful financial
information regarding Purchaser is available.
Parent. Parent is a Virginia corporation with its principal executive
offices located at Three Commercial Place, Norfolk, Virginia 23510. Parent is
a Virginia-based holding company that owns all the common stock of and
controls a major freight railroad, Norfolk Southern Railway Company; a motor
carrier, North American Van Lines, Inc. ("North American"); and a natural
resources company, Pocahontas Land Corporation ("Pocahontas Land"). The
railroad system's lines extend over more than 14,400 miles of road in 20
states, primarily in the Southeast and Midwest, and the Province of Ontario,
Canada. North American provides household moving and specialized freight
handling services in the United States and Canada, and offers certain motor
carrier services worldwide. Pocahontas Land manages approximately 900,000
acres of coal, natural gas and timber resources in Alabama, Illinois,
Kentucky, Tennessee, Virginia and West Virginia.
Parent is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Parent's directors and
officers, their remuneration, stock options granted to them, the principal
holders of Parent's securities, any material interests of such persons in
transactions with Parent and other matters is required to be disclosed in
proxy statements distributed to Parent's shareholders and filed with the SEC.
These reports, proxy statements and other information should be available for
inspection and copies may be obtained in the same manner as set forth for the
Company in Section 8. Parent's common stock is listed on the NYSE, and
reports, proxy statements and other information concerning Parent should also
be available for inspection at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
Set forth below is certain selected historical consolidated financial
information relating to Parent and its subsidiaries which has been excerpted
or derived from audited financial statements presented in Parent's 1995
Annual Report to Shareholders and from Parent's unaudited consolidated
financial statements contained in Parent's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1996. More comprehensive financial
information is included in such reports and other documents filed by Parent
with the SEC. The financial information summary set forth below is qualified
in its entirety by reference to such reports and other documents which have
been filed with the SEC, including the financial information and related
notes contained therein, which are incorporated herein by reference. Such
reports and other documents may be inspected at and copies may be obtained
from the offices of the SEC or the NYSE in the manner set forth below.
19
<PAGE>
NORFOLK SOUTHERN CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues ................. $ 2,378.8 $ 2,328.9 $ 4,668.0 $ 4,581.3 $ 4,460.1
Operating expenses ................. 1,807.3 1,789.7 3,581.7 3,515.9 3,599.7
Operating income ................... 571.5 539.2 1,086.3 1,065.4 860.4
Net income to common shareholders . 367.6 351.9 712.7 667.8 772.0
PER SHARE INFORMATION:
Net earnings per common share
before the cumulative effect of
changes in accounting principles . 2.88 2.67 5.44 4.90 3.94
Net per common share cumulative
effect of changes in accounting
principles for:
Income taxes ...................... -- -- -- -- 3.34
Postretirement benefits other than
pensions; and postemployment
benefits .......................... -- -- -- -- (1.74)
NET EARNINGS PER COMMON SHARE ..... 2.88 2.67 5.44 4.90 5.54
AT JUNE 30, AT DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
BALANCE SHEET DATA:
Current assets ..................... $ 1,280.6 $ 1,352.2 $ 1,342.8 $ 1,337.5 $ 1,563.5
Property, less accumulated
depreciation ...................... 9,441.1 9,192.9 9,258.8 8,987.1 8,730.7
Total assets ....................... 11,053.4 10,829.4 10,904.8 10,587.8 10,519.8
Current liabilities ................ 1,230.6 1,176.0 1,205.8 1,131.8 1,197.9
Long-term debt, excluding current
portion ........................... 1,637.8 1,612.6 1,553.3 1,547.8 1,481.5
Total shareholders' equity ......... 4,836.0 4,769.6 4,829.0 4,684.8 4,620.7
</TABLE>
On October 23, 1996, Parent issued its earnings release in which it
reported the following results for its three fiscal quarters ended September
30, 1996 as compared to the comparable period for 1995: revenues, $3,590.1
million versus $3,512.8 million; income from operations, $887.2 million
versus $831.3 million; net income, $569.9 million versus $535.8 million; and
net income per common share, $4.49 versus $4.07.
Parent has identified a number of synergies related to the Proposed Merger
which its management believes can be achieved that will yield aggregate
annual contribution to operating income by the year 2000 (in year 2000
dollars) of approximately $660 million, consisting of approximately $515
million of operating savings and $145 million of operating income from
revenue enhancements. The operating savings are expected to result
from reduced general and administrative expenses ($170 million), improved
equipment utilization and improved equipment maintenance ($107 million) and
improved use of rail yards and routes coupled with maintenance of way
efficiencies ($77 million), and from more efficient transportation operations
($161 million). The net new business revenues totalling $525 million which will
yield the
20
<PAGE>
$145 million of incremental operating income are expected to be
comprised of increased revenues generated by improved single line service
($215 million), revenues generated by new coal traffic ($134 million) and
revenues generated by diverting truck traffic from highways ($316 million, of
which $126 million is expected to come from highway to carload growth and the
balance from conventional intermodal growth), decreased by $140 million of lost
revenue due to enhanced competition. Partially based on such synergies, Parent
projects that the impact of the Offer and the Proposed Merger on its earnings
per share will be modestly accretive in the first year and significantly
accretive in the second and third years, and that on a pro forma basis for
fiscal year 1997 it will have revenues of $9 billion, EBITDA of $3.1 billion, an
EBITDA to interest coverage of 3.1 to 1 and a total debt to total capitalization
ratio of 72%.
The foregoing estimates of cost savings, synergies, projected earnings per
share and pro forma financial information are "forward-looking" and inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of Parent, including: (a) future economic conditions in the markets
in which Parent and the Company operate; (b) financial market conditions; (c)
inflation rates; (d) changing competition; (e) changes in the economic
regulatory climate in the United States railroad industry; (f) the ability to
eliminate duplicative administrative functions; and (g) adverse changes in
applicable laws, regulations or rules governing environmental, tax or
accounting matters. There can be no assurance that the estimated savings,
synergies, projected earnings per share and pro forma financial information
will be achieved and actual savings, synergies, projected earnings per share
and pro forma financial information may vary materially from those estimated.
The inclusion of such estimates herein should not be regarded as an
indication that Parent, Purchaser or any other party considers such estimates
an accurate prediction of future events.
The name, citizenship, business address, principal occupation or
employment and five-year employment history for each of the directors and
executive officers of Purchaser and Parent are set forth in Schedule I
hereto.
On October 18, 1996, Atlantic Investment Company, a wholly owned
subsidiary of Parent ("Atlantic"), purchased in a market transaction 100
Common Shares at a price of $86.00 per Share. On October 23, 1996 Atlantic
transferred such shares to Purchaser. In addition, L.I. Prillaman, the
Executive Vice President-Marketing of Parent, owns 20 Common Shares, and
Kathryn B. McQuade, Vice President-Internal Audit of Parent, owns 50 Common
Shares. Further, the spouse of E.B. Leisenring, Jr., a director of Parent, is
(i) the sole beneficiary of three trusts, the trustee of which is Mellon
Bank, that hold 5,869 Common Shares and (ii) a one-fourth beneficiary of a
trust (the "CSB Trust"), the trustee of which is Core States Bank, that holds
1,500 Common Shares. On October 18, 1996, the CSB Trust sold 500 Common
Shares at $85.625 per Share. Except as set forth in this Offer to Purchase,
none of Parent or Purchaser or, to the best knowledge of Parent or Purchaser,
any of the persons listed in Schedule I hereto, or any associate or
majority-owned subsidiary of such persons, beneficially owns any equity
security of the Company, and none of Parent or Purchaser or, to the best
knowledge of Parent or Purchaser, any of the other persons referred to above,
or any of the respective directors, executive officers or subsidiaries of any
of the foregoing, has effected any transaction in any equity security of the
Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of Parent or Purchaser
or, to the best knowledge of Parent or Purchaser, any of the persons listed
in Schedule I hereto has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, without limitation, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
securities of the Company, joint ventures, loan or option arrangements, puts
or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, none
of Parent or Purchaser or, to the best knowledge of Parent or Purchaser, any
of the persons listed in Schedule I hereto has had any transactions with the
Company, or any of its executive officers, directors or affiliates that would
require reporting under the rules of the SEC.
Except as set forth in this Offer to Purchase, there have been no
contacts, negotiations or transactions between Parent or Purchaser, or their
respective subsidiaries, or, to the best knowledge of Parent or
21
<PAGE>
Purchaser, any of the persons listed in Schedule I hereto, on the one hand,
and the Company or its executive officers, directors or affiliates, on the
other hand, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors, or a sale or other
transfer of a material amount of assets.
10. SOURCE AND AMOUNT OF FUNDS. Purchaser estimates that the total amount
of funds required to purchase Shares pursuant to the Offer and the Proposed
Merger, to pay all related costs and expenses, to refinance Parent's and the
Company's existing debt and for working capital/purposes will be
approximately $11.5 billion. See also Section 16.
Parent and Purchaser intend to obtain the funds from loans to be arranged
by Merrill Lynch & Co. and J.P. Morgan Securities Inc. (in such capacity, the
"Arrangers"). The Arrangers and the Lenders have entered into a commitment
letter with Parent and Purchaser, dated October 22, 1996 (the "Financing
Commitment"), pursuant to which the Lenders have each committed to provide $2
billion of a total of $11.5 billion in required borrowings pursuant to a
senior credit facility (the "Credit Facility") to finance the Offer and the
Proposed Merger, to pay related fees and expenses, to refinance Parent's and
the Company's existing debt and for working capital purposes. It is
anticipated that the Arrangers will arrange and/or syndicate the Credit
Facility with a group of commercial banks.
The Lenders' commitments under the Financing Commitment are subject to the
following conditions, among others: (i) the execution and delivery of
satisfactory definitive documentation with respect to the Credit Facility;
(ii) there having been validly tendered to Purchaser sufficient Shares to
enable Parent to effect the Proposed Merger without the requirement of any
action by any other shareholder of the Company; (iii) all conditions to the
Offer having have been satisfied without waiver or amendment; (iv) Purchaser
having accepted for purchase all such tendered Shares; and (v) the absence of
material adverse change with respect to Parent, with respect to financial,
bank syndication or capital market conditions and with respect to information
disclosed concerning the Company.
The Credit Facility will consist of four facilities. Three of these
facilities are term loan facilities. One term loan will have a principal
amount of $2.5 billion repayable on the earlier of six months from the date
on which the approval of the STB shall have been obtained and the third
anniversary of the execution and delivery of definitive documentation
providing for the Credit Facility (the "Closing Date"). The second term loan
will have a principal amount of $3 billion repayable 24 months after the
maturity of the first term loan. The third term loan will have a principal
amount of $3 billion repayable six and one-half years from the Closing Date.
Each of the term loans will bear interest at a rate per annum equal to, at the
option of Parent and Purchaser, either (i) the Eurodollar rate plus a margin
which will initially be .75% and may be adjusted depending upon Parent's senior
unsecured long-term debt ratings following the announcement of the Offer to
between .875% and .225%, (ii) an adjusted CD rate or (iii) the higher of
Morgan's prime rate or the federal funds rate plus .50% (the "base rate"), and,
depending upon Parent's senior unsecured long-term debt ratings following the
announcement of the Offer, a margin of .25% (the "Variable Rate"). The fourth
facility will be a revolving credit facility of $3 billion, which will bear
interest at the Variable Rate or a money market rate, and will mature five years
after the Closing Date. The Credit Facility also provides for a facility fee
accruing on the total amount available or outstanding thereunder at a rate which
will initially be .25% per annum and may be adjusted depending upon Parent's
senior unsecured long-term debt ratings following the announcement of the Offer
to between .125% and .375% per annum. The Credit Facility will contain certain
financial covenants as well as certain restrictions on, among other things, (i)
maturities or amortization of indebtedness prior to six months after the final
maturity of the loans under the Credit Facility, (ii) indebtedness of
subsidiaries, (iii) liens, (iv) mergers, consolidations, liquidations,
dissolutions and sales of assets, (v) transactions with affiliates, and (vi) the
ability of subsidiaries to pay dividends. The financial covenants require Parent
to maintain specified (i) minimum interest coverage ratios, (ii) minimum net
worth, and (iii) maximum leverage ratios. The financial covenants also restrict
payments, transfers or other distributions from Parent to the Company prior to
the later of the consummation of the Proposed Merger or the date on which the
approval of the STB shall have been obtained.
In connection with the Financing Commitment, Parent has agreed to pay the
Arrangers and the Lenders certain fees, to reimburse the Arrangers and the
Lenders for certain expenses and to provide certain indemnities, as is customary
for commitments of the type described herein.
22
<PAGE>
It is anticipated that the indebtedness incurred by Parent and Purchaser
under the Credit Facility will be repaid from funds generated internally by
Parent and its subsidiaries (including, after the Proposed Merger, if
consummated, funds generated by the Company and its subsidiaries),
through additional borrowings, or through a combination of such sources. No
final decisions have been made concerning the method Parent will employ to
repay such indebtedness. Such decisions when made will be based on Parent's
review from time to time of the advisability of particular actions, as well
as on prevailing interest rates and financial and other economic conditions.
11. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. For a number of
years, certain members of senior management of Parent, including David R.
Goode, Chairman and Chief Executive Officer of Parent, have spoken numerous
times with senior management of the Company, including the Company's former
Chairman and Chief Executive Officer, James A. Hagen, and the Company's
current Chairman and Chief Executive Officer, David W. LeVan, concerning a
possible business combination between Parent and the Company. Ultimately, the
Company's management encouraged such discussions prior to Mr. Hagen's
retirement as Chief Executive Officer of the Company. The Company
discontinued such discussions in September 1994, when the Company announced
that Mr. LeVan would succeed Mr. Hagen.
Prior to 1994, senior management of Parent and the Company 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, including TCS, no decisions were reached
concerning a business combination at that time.
In March of 1994, Mr. Hagen approached Mr. Goode to suggest that, under
the current regulatory environment, the Company's management now believed
that a business combination between the Company and Parent 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
Parent and the Company for the purpose of discussing regulatory issues.
Following that meeting, Mr. Goode met with Mr. Hagen to discuss in general
terms a combination of the Company and Parent. 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 combination of the Company and Parent. The parties entered into a
confidentiality agreement on August 17, 1994. During these discussions, Mr.
Hagen and other representatives of the Company pressed for a premium price to
reflect the acquisition of control over the Company by Parent. Initially,
Parent pressed instead for a stock-for-stock merger of equals in which no
control premium would be paid to the Company's shareholders. The Company's
management insisted on a control premium, however, and ultimately the
negotiations turned toward a premium stock-for-stock acquisition of the
Company.
By early September 1994, the negotiations were in an advanced stage.
Parent had proposed an exchange ratio of 1-to-1, but the Company's management
was still pressing 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 a higher ratio. Mr. Hagen then told Mr.
Goode that they could not reach agreement because the Company Board had
determined to remain independent and pursue the Company's stand alone policy.
The meeting then concluded.
Following the termination of acquisition negotiations between Parent and
the Company in September of 1994, Mr. Goode from time to time had
conversations with Mr. LeVan. During virtually all of these conversations,
Mr. Goode expressed Parent's strong interest in negotiating an acquisition of
the Company. Mr. LeVan responded that the Company wished to remain
independent. Nonetheless, Mr. Goode was led to believe that if and when the
Company Board determined to pursue a sale of the Company, it would pursue
such a transaction through a process in which Parent would have an
opportunity to bid.
At its September 24, 1996 meeting, the Parent Board reviewed its strategic
alternatives and determined that Parent should press for an acquisition of
the Company. Accordingly, Mr. Goode contacted Mr. LeVan to reiterate Parent's
strong interest in acquiring the Company and request a meeting at which he
could present a concrete proposal. Mr. LeVan responded that the Company Board
would be
23
<PAGE>
holding a strategic planning meeting and that he and Mr. Goode would
be in contact after that meeting. Mr. Goode emphasized that he wished to
communicate Parent's proposal so that the Company Board would be aware of it
during the strategic planning meeting. Mr. LeVan stated that it was unnecessary
for Mr. Goode to do so. At this point, the conversation concluded.
Following September 24, Mr. LeVan did not contact Mr. Goode. Finally, on
Friday, October 4, 1996, Mr. Goode telephoned Mr. LeVan. Mr. Goode again
reiterated Parent's strong interest in making a proposal to acquire the
Company. Mr. LeVan responded that the Company Board would be meeting on
October 16, 1996, and that he assumed that he and Mr. Hagen would contact Mr.
Goode following that meeting. Mr. Goode again stated that Parent wanted to
make a proposal so that the Company Board would be aware of it. Mr. LeVan
stated that it was unnecessary to do so.
On October 15, 1996, the Company and CSX announced that they had entered
into the CSX Merger Agreement contemplating the Proposed CSX Transaction.
Integral to the Proposed CSX Transaction are covenants substantially
increasing Mr. LeVan's compensation and severance benefits and guaranteeing
that he will succeed John Snow, the Chairman and Chief Executive Officer of
CSX, as the combined company's Chairman and Chief Executive Officer.
On October 16, 1996, Mr. Goode met in Washington, D.C. with Mr. Snow at
Mr. Snow's invitation to discuss the Proposed CSX Transaction and certain
regulatory issues it raised. Mr. Snow advised Mr. Goode during that meeting
that the Company's counsel and investment bankers had ensured that the
Proposed CSX Transaction is "bulletproof," implying that the sale of control
of the Company to CSX is now a fait accompli. Mr. Snow added that the
Pennsylvania statute, referring to the PBCL, was "great", adding that the
Company's directors have almost no fiduciary duties. Parent believes that Mr.
Snow's comments were intended to discourage Parent from making a competing
offer for control of the Company and to suggest that Parent had no choice but
to negotiate with CSX for access to such portions of the Company's rail
system as would be necessary to address the regulatory concerns that would be
raised by consummation of the Proposed CSX Transaction. After Mr. Snow told
Mr. Goode what CSX was willing to offer to Parent in this regard, the meeting
concluded.
On October 22, the Parent Board met to review its strategic options in
light of announcement of the Proposed CSX Transaction. Because the Parent
Board believes that a combination of Parent and the Company would offer
compelling benefits to both companies, their shareholders, and their other
constituencies, it determined that Parent should make a competing bid for the
Company. On October 23, 1996, Parent publicly announced its intention to
commence the Offer, to be followed by the Proposed Merger. On the same day,
Mr. Goode sent the following letter to Mr. LeVan:
October 23, 1996
Board of Directors
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
Attention: David M. LeVan, Chairman
Dear Members of the Board:
For a number of years, other members of our senior management and I have
spoken numerous times with Mr. LeVan, your current Chairman, and with Mr.
Hagen, your former Chairman, and with other senior officers of your company.
During many of these conversations, we at Norfolk Southern expressed a desire
to join our companies together.
On two recent occasions, in late September and again on October 4, I
contacted Mr. LeVan to reiterate our strong interest in acquiring Conrail and
request a meeting at which I could present a concrete proposal. In each case,
I emphasized that I wished to communicate our proposal so that the Conrail
Board would be aware of it during their next meeting. Also in each case, Mr.
LeVan stated that it was unnecessary for me to do so.
24
<PAGE>
In view of this background, it came as a disappointment to me when it was
announced on October 15 that you had agreed to the proposed acquisition of
Conrail by CSX Corporation. We regret that, despite knowing our long-term
interest in joining Conrail with Norfolk Southern, your Chairman ignored our
long-standing offer to submit a business combination proposal to you.
Since October 15, we have been analyzing the proposed CSX transaction and
have been considering the possibility of making a proposal that would be
demonstrably superior to your proposed transaction with CSX. We now have
completed that process and are using this letter to communicate our
conclusions to you.
On behalf of Norfolk Southern, I am hereby making the following proposal.
Our proposal is that Norfolk Southern would acquire all of the outstanding
shares of Conrail common stock for cash at a price of $100.00 per share. This
would be accomplished by a "first step" cash tender offer for all outstanding
shares of Conrail, followed by a "second step" merger in which Conrail's
remaining shareholders would receive the same cash purchase price per share
paid in the offer. This offer represents a premium of $11.49 (13%) over the
blended value of CSX's proposal based on yesterday's closing price of CSX
shares. Our offer will provide for a voting trust to hold the Conrail shares
acquired in the tender offer and merger and thereby allow Conrail
shareholders to receive immediate payment for all their shares in the tender
offer and merger.
To underscore the seriousness of our intentions, we are commencing
promptly a cash tender offer, which can serve as the "first step" tender
offer contemplated by our proposal. On the other hand, unless and until you
terminate your pending proposed transaction with CSX in a manner permitted
under the terms of your merger agreement with CSX and enter into an agreement
with us, our cash tender offer will stand on its own as an offer made
directly to your shareholders.
Subject to your Board's favorable response to our proposal, we are
prepared to negotiate a merger agreement on substantially the same terms and
conditions as your proposed transaction with CSX, except as it would be
modified to reflect the all-cash consideration that we are offering. In
addition, we are prepared to offer significant representation of Conrail
directors on the Norfolk Southern Board, to consider locating the corporate
headquarters of the combined company in Philadelphia and to discuss an
appropriate position for your Chairman following a transaction with us. We
believe that we offer your senior management opportunities for continued
career growth that appear to us not to exist with CSX. Although we determined
that it was appropriate, under the circumstances, to commence our cash tender
offer, our strong preference would be to negotiate a merger agreement with
you.
The price we are offering in our proposal, $100 per share, clearly
provides significantly greater and more certain value to your shareholders
than the proposed transaction with CSX. In addition, we believe our proposed
transaction can be completed on a more timely basis than the proposed CSX
transaction. Accordingly, we strongly believe that, pursuant to Section 4.2
of your agreement with CSX, you should promptly request and obtain from your
counsel their advice confirming that you are obligated by principles of
fiduciary duty to consider our proposal. Also, we expect that, upon your
receipt of such advice and consistent with your clear fiduciary duties, you
will give us access to at least all the same information you furnished to CSX
in the course of your discussions and negotiations with them and that you
will discuss and negotiate with us the details of our proposal. In addition,
you should take whatever other actions are reasonably necessary or
appropriate so that we may operate on a level playing field with CSX and any
other companies which may be interested in acquiring Conrail.
Besides the benefits for your shareholder constituency, we are confident
that Conrail's employees, suppliers, customers, creditors and the communities
in which Conrail is located will be better served by the combination of
Norfolk Southern and Conrail as compared with the CSX proposal. Moreover,
because a Norfolk Southern merger presents a substantially more favorable
competitive and regulatory picture, our proposal is more consistent with both
the long and short-term interests of Conrail. We look forward to the
opportunity to directly discuss these matters with you in the manner they
would have been communicated before the hasty attempt to lock-up a deal with
CSX. To ensure that your Board fulfills its fiduciary obligations and to
resolve certain other issues, we have today commenced litigation in the
Federal District Court for the Eastern District of Pennsylvania.
25
<PAGE>
Our Board of Directors is fully supportive of our proposal and has
authorized and approved it. Consistent with our Board's action, we and our
advisors stand ready, willing and able to meet with you and your advisors at
your earliest convenience. I want to stress that we are flexible as to all
aspects of our proposal, including the possibility of substituting a
substantial equity component to our present offer so that your shareholders
could have a continuing interest in the combined enterprise, and are anxious
to proceed to discuss and negotiate it with you as soon as possible.
Personally and on behalf of my colleagues at Norfolk Southern, I look
forward to hearing from you soon and working with you on our proposal.
Sincerely,
/s/ David R. Goode
-------------------
David R. Goode
cc: All Directors
In the CSX Merger Agreement, the Company has agreed to the No Negotiation
Provision providing that neither the Company nor any of its subsidiaries,
officers, directors, employees or representatives will, directly or
indirectly through another person, solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, directly or indirectly, any inquiries or the making of any
proposal relating to the acquisition or purchase of more than 50% of the
assets of the Company and its subsidiaries or more than 50% of the equity
securities of the Company entitled to vote generally in the election of
directors, any tender offer or exchange offer that if consummated would
result in any person beneficially owning more than 50% of the equity
securities of the Company entitled to vote generally in the election of
directors, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company (a "Takeover Proposal"), other than the transactions contemplated
by the CSX Merger Agreement or the Lockup Agreements. The No Negotiation
Provision also provides that neither the Company nor any of its subsidiaries,
officers, directors, employees or representatives will participate in any
discussions or negotiations regarding any Takeover Proposal. Notwithstanding
the No Negotiation Provision, the CSX Merger Agreement provides that if, at
any time prior to the earlier of (x) the consummation of the CSX Offer and
(y) the obtaining of the Company Shareholder Approval, in the case of the
Company, or the CSX Shareholder Approval, in the case of CSX, or after 180
days from the date of the CSX Merger Agreement and prior to the Approval Date
(as defined in the next paragraph), the Board of Directors of the Company or
CSX, as applicable, determines in good faith, based on the advice of outside
counsel, that it is necessary to do so to avoid a breach of its fiduciary
duties to the Company under applicable law, the Company or CSX, as
applicable, may, in response to a Takeover Proposal which was not solicited
by it or which did not otherwise result from a breach of the terms of the CSX
Merger Agreement described in this paragraph, and subject to compliance with
certain notice provisions of the CSX Merger Agreement, (x) furnish
information with respect to it and its subsidiaries to any person pursuant to
a customary confidentiality agreement (as determined by the party receiving
such Takeover Proposal after consultation with its outside counsel) the
benefits of the terms of which, if more favorable to the other party to such
confidentiality agreement than those in place with the other party to the CSX
Merger Agreement, shall be extended to the other party to the CSX Merger
Agreement, and (y) participate in negotiations regarding such Takeover
Proposal.
Except as permitted by the CSX Merger Agreement, the Company and CSX have
agreed that neither the Board of Directors of the Company or CSX, as
applicable, nor any committee thereof will (i) withdraw or modify (or propose
publicly to do so), in a manner adverse to the other party, its approval or
recommendation of the CSX Offer or its adoption and approval of the matters
to be considered at the respective shareholders meetings of the Company or
CSX, (ii) approve or recommend (or propose publicly to do so), any Takeover
Proposal, or (iii) cause the Company or CSX, as applicable, to enter into any
Acquisition Agreement related to a Takeover Proposal. However, the CSX Merger
Agreement
26
<PAGE>
provides that if at any time following 180 days after the date of the CSX
Merger Agreement and prior to the earlier of (a) the time that at least 40%
of the outstanding Shares on a fully diluted basis have been deposited in the
voting trust contemplated by the CSX Merger Agreement and (b) the obtaining
of Company Shareholder Approval (in the case of the Company) or CSX
Shareholder Approval (in the case of CSX) (such earlier date referred to in
clause (a) or (b) being the "Approval Date") there exists a Superior Proposal
(as defined below), and such Board of Directors determines that (x) in the
case of the Board of Directors of the Company, there is no substantial
probability that CSX will succeed in acquiring 40% of the Shares in the CSX
Offer and/or the second tender offer contemplated by the CSX Merger Agreement
or otherwise (or if the approval by the Company's shareholders of an
amendment to the Company's Articles to "opt out" of the Pennsylvania Control
Transaction Law has not been obtained, there is no substantial probability
that the Company Shareholder Approval will be obtained), in either case due
to the existence of such Superior Proposal with respect to the Company or (y)
in the case of the Board of Directors of CSX, there is no substantial
probability that the CSX Shareholder Approval will be obtained due to the
existence of such Superior Proposal with respect to CSX, the Board of
Directors of the Company or CSX, as applicable, may (subject to this and the
following sentences) withdraw or modify its approval or recommendation of the
CSX Offer, the Proposed CSX Merger or the adoption and approval of the
matters to be considered at their respective shareholder meetings and approve
or recommend such Superior Proposal or terminate the CSX Merger Agreement
(and concurrently, if it so chooses, cause the Company or CSX, as applicable,
to enter into an Acquisition Agreement with respect to such Superior
Proposal), but only after giving the notice required by the CSX Merger
Agreement. As used in the CSX Merger Agreement, a "Superior Proposal" means
any proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the
voting equity securities of the Company or CSX, as the case may be, or all or
substantially all the assets of the Company or CSX, as the case may be, and
otherwise on terms which the Board of Directors of such party determines in
its good faith judgment (x) (based on the written opinion of a nationally
recognized financial advisor) to be more favorable from a financial point of
view to its shareholders than the CSX Offer and the Proposed CSX Merger and
for which any required financing is then committed and (y) to be more
favorable to such party than the CSX Offer and the Proposed CSX Merger after
taking into account all constituencies (including shareholders) and pertinent
factors permitted under applicable Pennsylvania or Virginia law, as the case
may be.
The CSX Merger Agreement provides that, in the event that (i) a Takeover
Proposal in respect of the Company shall have been made known to the Company
or any of its subsidiaries or has been made directly to its shareholders
generally or any person shall have publicly announced an intention (whether
or not conditional) to make such a Takeover Proposal and thereafter the CSX
Merger Agreement is terminated by either CSX or the Company as a result of
the CSX Merger not having been consummated by December 31, 1998, or if the
Company Shareholder Approval is not obtained in a meeting of the Company's
shareholders duly convened therefor or at any adjournment or postponement
thereof or (ii) the CSX Merger Agreement is terminated (x) by the Company
pursuant to the No Negotiation Provision of the Merger Agreement or (y) by
CSX if (I) the Company Board or, if applicable, any committee thereof,
withdraws or modifies in a manner adverse to CSX its approval or
recommendation of the CSX Offer or the Proposed CSX Merger or the matters to
be considered at the meetings of the Company's shareholders called to approve
the Proposed CSX Merger and the other transactions contemplated by the CSX
Merger Agreement or fails to reconfirm its recommendation within 15 business
days after a written request to do so, or approves or recommends any Takeover
Proposal in respect of the Company or (II) the Company Board or any committee
thereof has resolved to take any of the foregoing actions; then the Company
will (A) promptly, but in no event later than two days after the date of the
termination, pay CSX the Termination Fee (except that no Termination Fee will
be payable pursuant to clause (i) of this sentence unless and until within 24
months of such termination the Company or any of its subsidiaries enters into
an Acquisition Agreement or consummates a Takeover Proposal).
The foregoing description of the CSX Merger Agreement and the CSX Lockup
Option Agreement is qualified in its entirety by reference to the full text
of the CSX Merger Agreement and the CSX Lockup Option Agreement, copies of
which have been included by the Company as exhibits to the Schedule 14D-9 and
may be obtained in the manner described in Section 8 (except that copies may
not be available at regional offices of the SEC).
27
<PAGE>
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; CERTAIN
CONSIDERATIONS.
General. The purpose of the Offer is for Parent to acquire control of, and
the entire equity interest in, the Company. The Offer, as the first step in
the acquisition of the Company, is intended to facilitate the acquisition of
all Shares. Purchaser is seeking to consummate the Proposed Merger with the
Company as promptly as practicable following consummation of the Offer. The
purpose of the Proposed Merger is to acquire all Shares not beneficially
owned by Purchaser following consummation of the Offer.
Pursuant to the Proposed Merger, each Share outstanding (other than Shares
held by the Company or any subsidiary of the Company and Shares owned by
Parent, Purchaser or any direct or indirect subsidiary of Parent) would be
converted into the right to receive an amount in cash equal to the price per
Share paid pursuant to the Offer. Although it is the current intention of
Parent and Purchaser to seek to enter into the Proposed Merger Agreement and
to consummate the Proposed Merger as promptly as practicable following
consummation of the Offer, such consummation depends upon a number of factors
and circumstances, and there can be no assurance that the Proposed Merger
will be consummated, or, if consummated, the timing thereof.
Consummation of the Proposed Merger will require approval by the Company
Board and the affirmative vote of the holders of a majority of the votes cast
by all outstanding Common Shares and ESOP Preferred Shares, voting as a
single class. It is contemplated that the Voting Trust Agreement will
provide, among other things, that, if Purchaser purchases Shares pursuant to
the Offer, the Voting Trustee will seek to obtain maximum representation on
the Company Board and otherwise to exercise control over the business and
affairs of the Company and to vote all Shares held in the Voting Trust in
favor of the Proposed Merger. If Purchaser purchases Shares pursuant to the
Offer and the Minimum Condition is satisfied, the Voting Trustee would have a
sufficient number of Shares to approve the Proposed Merger without the
affirmative vote of any other holder of Shares and to elect directors as
described above. Although the Voting Trustee would seek consummation of the
Proposed Merger as soon as practicable following the purchase of Shares
pursuant to the Offer, the exact timing and details of the Proposed Merger
would depend on a variety of factors and legal requirements, including, among
other things, whether the conditions to the Offer have been satisfied or
waived. As described below, certain provisions of the Company Articles and
the Company's By-Laws (the "Company By-Laws") may impair and delay the
ability of the Voting Trustee to obtain a majority of the Company Board and
to consummate the Proposed Merger.
Alternatively, the "short-form" merger provisions of the PBCL provide that
if, following completion of the Offer, Purchaser owns 80% or more of the
Shares, the Voting Trustee would have the power to consummate the Proposed
Merger without any action by the Company Board and without the vote of any of
the Company's other shareholders.
Although Parent has sought to enter into negotiations with the Company
with respect to the Proposed Merger and continues to pursue such
negotiations, there can be no assurance that such negotiations will occur or,
if such negotiations occur, as to the outcome thereof. Purchaser reserves the
right to amend the Offer (including amending the number of Shares to be
purchased, the purchase price and the proposed second-step merger
consideration) if it enters into the Proposed Merger Agreement or to
negotiate a merger agreement with the Company not involving a tender offer
pursuant to which Purchaser would terminate the Offer and the Shares would,
upon consummation of such merger, be converted into cash, common stock of
Parent and/or other securities in such amounts as are negotiated by Parent
and the Company.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer
and pending the consummation of the Proposed Merger, in accordance with
applicable law and subject to the terms of any merger agreement that it may
enter into with the Company, Parent may explore any and all options which may
be available to it. In this regard, Parent intends to solicit proxies against
the adoption of the Articles Amendment at the Pennsylvania Special Meeting
and has filed preliminary proxy materials with the SEC concerning such
solicitation. Parent may also determine, whether or not the Offer is then
pending, to conduct a proxy contest in connection with the Company's 1997
annual meeting of shareholders seeking to remove the
28
<PAGE>
current members of the Company Board and elect a new slate of directors
designated by Parent. After expiration or termination of the Offer, Parent
may seek to acquire additional Shares, through open market purchases,
privately negotiated transactions, a tender offer or exchange offer or
otherwise, upon such terms and at such prices as it may determine, which may
be higher or lower than the price to be paid pursuant to the Offer and could
be for cash or other consideration.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY ANNUAL OR
OTHER MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH
PARENT OR PURCHASER MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE
EXCHANGE ACT.
Whether or not the Offer is consummated, Purchaser reserves the right,
subject to applicable legal restrictions, to sell or otherwise dispose of any
or all Shares acquired pursuant to the Offer or otherwise. Such transactions
may be effected on terms and at prices as it shall determine, which may be
higher or lower than the price to be paid pursuant to the Offer and could be
for cash or other consideration.
Plans for the Company. In connection with the Offer, Parent and Purchaser
have reviewed, and will continue to review, on the basis of publicly
available information, various possible business strategies that they might
consider in the event that the Parent acquires control of the Company,
whether pursuant to the Proposed Merger or otherwise. In addition, if and to
the extent that Parent acquires control of the Company or, subject to
applicable STB rules and regulations, otherwise obtains access to the books
and records of the Company, Parent and Purchaser intend to conduct a detailed
review of the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management and personnel
and to consider and determine what, if any, changes would be desirable in
light of the circumstances which then exist. Such strategies could include,
among other things, changes in the Company's business, corporate structure,
capitalization, management or dividend policy and changes to the Company
Articles or Company By-Laws.
Except as indicated in this Offer to Purchase, neither Parent nor
Purchaser has any present plans or proposals which relate to or would result
in an extraordinary corporate transaction, such as a merger, reorganization
or liquidation, involving the Company or any of its subsidiaries, a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or
dividend policy or any other material changes in the Company's corporate
structure or business, or the composition of the Company Board or management.
Dissenters' Rights and Other Matters. No appraisal rights are available in
connection with the Offer. In accordance with the United States Supreme Court
decision, Schwabacher v. United States, 334 U.S. 192 (1948), if the Proposed
Merger were approved by the STB in connection with Parent's acquisition of
control of the Company, shareholders of the Company would not have any
dissenters' rights under state law, unless the STB (or any successor agency)
or a court of competent jurisdiction determines that state-law dissenters'
rights are available to holders of Shares. Parent considers it unlikely that
the STB or a court would determine that state-law dissenters' rights are
available to holders of Shares.
If the Proposed Merger is consummated without STB approval and if
dissenters' rights are otherwise available to holders of Shares, such rights
would be provided in accordance with Section 1571 et seq. of the PBCL. In
such event, any issued and outstanding Shares held by persons who object to
the Proposed Merger and comply with all the provisions of the PBCL concerning
the right of holders of Shares to dissent from the Proposed Merger and
require valuation of their Shares (a "Dissenting Shareholder") will not be
converted into the right to receive the consideration to be paid pursuant to
the Proposed Merger but will become the right to receive payment of the "fair
value" of their Shares (exclusive of any element of appreciation or
depreciation in anticipation of the Proposed Merger); provided, however, that
the Shares outstanding immediately prior to the effective time of the
Proposed Merger and held by a Dissenting Shareholder who will, after such
time, withdraw his demand for payment or lose his right to dissent, in either
case pursuant to the PBCL, will be deemed to be converted as of the effective
time of the Proposed Merger into the right to receive the consideration to be
paid pursuant to the Proposed Merger without interest.
29
<PAGE>
Dissenters' rights cannot be exercised at this time. Shareholders who will
be entitled to dissenters' rights, if any, in connection with the Proposed
Merger (or similar business combination) will receive additional information
concerning any available dissenters' rights and the procedures to be followed
in connection therewith before such shareholders have to take any action
relating thereto.
Shareholders who sell shares in the Offer will not be entitled to exercise
any dissenters' rights with respect to Shares purchased but, rather, will
receive the Offer Price.
The Proposed Merger would have to comply with any applicable federal law
operative at the time of its consummation. The SEC has adopted Rule 13e-3
under the Exchange Act which is applicable to certain "going private"
transactions and which may under certain circumstances be applicable to the
Proposed Merger. However, Rule 13e-3 would be inapplicable if (i) the Shares
are deregistered under the Exchange Act prior to the Proposed Merger or other
business combination or (ii) the Proposed Merger or other business
combination is consummated within one year after the purchase of the Shares
pursuant to the Offer and the amount paid per Share in the Proposed Merger or
other business combination is at least equal to the amount paid per Share in
the Offer. If applicable, Rule 13e-3 requires, among other things, that
certain financial information concerning the fairness of the proposed
transaction and the consideration offered to minority shareholders in such
transaction be filed with the SEC and disclosed to shareholders prior to
consummation of the transaction.
The Company Articles and the Company By-Laws. The Company Articles and the
Company By-Laws contain several provisions that may delay a change in control
of the Company following the purchase of Shares by Purchaser pursuant to the
Offer, including, among others, (i) a provision that provides that the
Company Board shall be classified, with each class elected for a term of
three years and one class elected each year at the Company's annual meeting
of shareholders, (ii) a provision requiring advance notice to the Company of
any shareholder nominations for directors at, or shareholder proposals or
business to be brought before, an annual meeting of shareholders, and (iii) a
provision that special meetings of shareholders may be called only by the
Chairman of the Company Board, the Company Board or an Interested
Shareholder.
Pursuant to Article III of the Company By-Laws, the Company Board is
divided into three classes, one of which consists of five members, and two of
which consists of four members each, with each class elected for a term of
three years and one class elected at the Company's annual meeting of
shareholders each year. The number of members of the Company Board is
currently limited to 13 members pursuant to Article III of the Company
By-Laws. Amendment of the foregoing provisions of the Company Articles
requires a majority vote of all shareholders entitled to vote. Amendment of
the foregoing provisions of the Company By-Laws requires a majority vote of
directors present at a meeting at which at least a majority of the directors
is present or a majority vote of all shareholders entitled to vote at a
regular or special meeting.
If, following consummation of the Offer, the members of the Company Board
in office at such time were to refuse to approve the Proposed Merger (or any
other transaction or corporate action proposed by Purchaser that required
approval of the Company Board), the Voting Trustee, in order to consummate
the Proposed Merger (or any such other transaction or corporate action),
would first have to replace at least a majority of the Company Board with its
own designees. Parent believes that in such event the entire Company Board
could be removed with or without cause at the next annual meeting of the
Company's shareholders. Parent may also determine, whether or not the Offer
is then pending, to conduct a proxy contest in connection with the Company's
1997 annual meeting of shareholders seeking to remove the current members of
the Company Board and elect a new slate of directors designated by Parent. In
the Pennsylvania Litigation, Parent and Purchaser are seeking a declaratory
judgment that the members of the Company Board can be removed and replaced
with a new slate of directors proposed by Parent. See "--Certain Litigation"
below.
If the current members of the Company Board oppose the Offer or the
Proposed Merger, it is contemplated that the Voting Trust Agreement will
provide that the Voting Trustee will seek to take any action necessary to
place a majority of its designees on the Company Board, including without
limitation, seeking to amend the Company Articles and the Company By-Laws to
remove the provisions described
30
<PAGE>
above or to increase the number of seats available on the Company Board for
its nominees and to solicit proxies from the shareholders of the Company for
use at the next annual meeting of the Company's shareholders for the purpose
of removing current members of the Company Board and electing new directors
designated by the Voting Trustee.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF SUCH PROXIES AT ANY
MEETING OF THE COMPANY'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR
PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN
COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.
The foregoing description of the Company Articles and the Company By-Laws
is qualified in its entirety by reference to the full text of the Company
Articles and the Company By-Laws, copies of which have been filed by the
Company as exhibits to documents filed with the SEC and may be obtained in
the manner described in Section 8 (except that copies may not be available at
regional offices of the SEC).
The Rights. The following is based upon the July 1989 Form 8-K, the
Company's Form 8-B, dated as of September 25, 1995, and other amendments to
the Rights Agreement filed with the SEC.
On July 19, 1989, the Board of Directors of CRC declared a dividend
distribution of one Right for each share of common stock of CRC and executed
the Rights Agreement. Upon adoption by the Company of a holding company
structure on February 17, 1993, CRC assigned all of CRC's title and interest
under the Rights Agreement to the Company. On October 2, 1995, one Right was
distributed with respect to each outstanding ESOP Preferred Share. Under the
Rights Agreement, each Right entitles the holder to purchase one Common Share
at an exercise price of $205.00, subject to adjustment. Based on publicly
available information, Purchaser believes that, as of October 24, 1996, the
Rights were not exercisable, Rights Certificates have not been issued and the
Rights were evidenced solely by the Share Certificates. A general summary of
certain provisions of the Rights and the Rights Agreement appears below.
Under the Rights Agreement, as amended, until the close of business on the
Distribution Date (which is defined as the earlier of (i) 10 days following a
public announcement that an Acquiring Person has acquired, or obtained the
right to acquire, beneficial ownership of 10% or more of the outstanding
Shares and (ii) 10 business days (or such later date as the Company Board
shall determine) following the commencement of a tender offer or exchange
offer which would result in a person or group beneficially owning 10% or more
of the outstanding Shares), the Rights will be evidenced by the Share
Certificates and will be transferred with and only with such Share
Certificates. As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Shares as of the
close of business on the Distribution Date, and thereafter the separate
Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on September 20, 2005 unless earlier
redeemed by the Company as described below.
In the event that the Company is acquired in a merger or consolidation in
which the Company is not the surviving corporation or 50% or more of the
Company's consolidated assets or earning power is sold or transferred, each
holder of a Right will thereafter have the right to receive, upon the
exercise thereof at then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a value equal to two times the exercise price of the
Right.
In the event that an Acquiring Person becomes the beneficial owner of 10%
or more of the outstanding Shares, each holder of a Right will thereafter
have the right to receive, upon exercise, Common Shares (or, in certain
circumstances, cash, property or other securities of the Company), having a
value equal to two times the exercise price of the Right.
At any time prior to the Distribution Date, the Company may redeem the
Rights in whole, but not in part, at the Redemption Price of $.005 per Right.
Immediately upon the action of the Company Board ordering redemption of the
Rights, the Rights will terminate, and the only right to which the holders of
Rights will be entitled will be the right to receive the Redemption Price.
31
<PAGE>
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including without limitation, the
right to vote or to receive dividends.
The terms of the Rights may be amended by the Company Board without the
consent of the holders of the Rights; provided that from and after such time
that an Acquiring Person becomes such, the Rights may not be amended in any
manner which would adversely affect the interests of holders of Rights or to
shorten or lengthen any time period under the Rights Agreement.
Actions or determinations made by the Company Board in the administration
of the Rights Agreement require the concurrence of a majority of (and at
least two) Continuing Directors. A "Continuing Director" is a director who is
not an Acquiring Person (or a representative or nominee thereof), and who
either (i) was a member of the Company Board prior to September 20, 1995 or
(ii) subsequently became a director of the Company and whose election or
nomination for election is approved or recommended by a majority of the then
Continuing Directors.
Pursuant to the CSX Merger Agreement, the Company has amended the Rights
Agreement to render the Rights Agreement inapplicable to the CSX Offer, the
CSX Proposed Merger and the other transactions contemplated by the CSX Merger
Agreement and the CSX Lockup Option Agreement and to ensure, among other
things, that CSX is not deemed to be an Acquiring Person and that a
Distribution Date does not occur by reason of such agreements or
transactions. The Company has also agreed in the CSX Merger Agreement that it
may not further amend the Rights Agreement without the prior consent of CSX
in its sole discretion.
The foregoing summary of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the July 1989 Form
8-K, the full text of the Rights Agreement as an exhibit thereto filed with
the SEC, the Assignment, and subsequent amendments to the Rights Agreement as
filed with the SEC. Copies of these documents may be obtained in the manner
set forth above.
Based on the foregoing, as a result of Purchaser's public announcement of
the Offer, the Rights will become exercisable on a date no later than
November 7, 1996, unless prior to such date the Company Board redeems the
Rights or amends the Rights Agreement or otherwise takes action thereunder to
delay the Distribution Date.
Purchaser believes that, under applicable law and under the circumstances
of the Offer, including the Company Board's approval of the CSX Merger
Agreement and the transactions contemplated thereby, the Company Board is
obligated by its fiduciary responsibilities not to redeem the Rights or
render the Rights Agreement inapplicable to any offer by CSX without, at the
same time, taking such action as to Parent, the Offer and the Proposed
Merger, and that its failure to do so would be a violation of law. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, to enjoin
the Company Board from taking any such action or to invalidate the provision
of the Rights Agreement that was added in September 1995 and which limits the
power of the Company Board to redeem the Rights without the approval of a
majority of the Continuing Directors. See Section 15.
If the Rights Condition is not satisfied and Purchaser elects, in its sole
discretion, to waive such condition and consummate the Offer, and if there
are outstanding Rights which have not been acquired by Purchaser, Purchaser
will evaluate its alternatives. Such alternatives could include purchasing
additional Rights in the open market, in privately negotiated transactions,
in another tender or exchange offer or otherwise. Any such additional
purchase of Rights could be for cash or other consideration. Under such
circumstances, the Proposed Merger might be delayed or abandoned as
impracticable. The form and amount of consideration to be received by the
holders of Shares in the Proposed Merger, if consummated, might be subject to
adjustment to compensate Purchaser for, among other things, the costs of
acquiring Rights and a portion of the potential dilution cost of Rights not
owned by Purchaser and its affiliates at the time of Proposed Merger. In such
event, the value of the consideration to be exchanged for Shares in Proposed
Merger could be substantially less than the consideration paid in the Offer.
In addition, Purchaser may elect under such circumstances not to consummate
the Proposed Merger.
UNLESS THE RIGHTS ARE REDEEMED, SHAREHOLDERS WILL BE REQUIRED TO TENDER
ONE RIGHT FOR EACH COMMON SHARE AND ESOP PREFERRED SHARE TENDERED IN ORDER TO
EFFECT A VALID TENDER OF SUCH COMMON SHARES AND
32
<PAGE>
ESOP PREFERRED SHARES IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN SECTION
3. IF SEPARATE CERTIFICATES FOR THE RIGHTS ARE NOT ISSUED, A TENDER OF COMMON
SHARES AND ESOP PREFERRED SHARES WILL ALSO CONSTITUTE A TENDER OF THE
ASSOCIATED RIGHTS. SEE SECTIONS 1 AND 3.
Consummation of the Offer is conditioned upon the Rights having been
redeemed by the Company Board or Purchaser otherwise being satisfied, in its
sole discretion, that the Rights are invalid or otherwise inapplicable to the
Offer and to the Proposed Merger.
13. DIVIDENDS AND DISTRIBUTIONS. If, on or after the date of this Offer to
Purchase, the Company should (i) split, combine or otherwise change the
Shares or its capitalization, (ii) issue or sell any additional securities of
the Company or otherwise cause an increase in the number of outstanding
securities of the Company or (iii) acquire currently outstanding Shares or
otherwise cause a reduction in the number of outstanding Shares, then,
without prejudice to Purchaser's rights under Sections 1 and 14, Purchaser,
in its sole discretion, may make such adjustments as it deems appropriate in
the purchase price and other terms of the Offer, including, without
limitation, the amount and type of securities offered to be purchased.
If, on or after the date of this Offer to Purchase, the Company should
declare or pay any dividend on the Shares, other than regular quarterly
dividends, or make any distribution (including, without limitation, the
issuance of additional Shares pursuant to a stock dividend or stock split,
the issuance of other securities or the issuance of rights for the purchase
of any securities) with respect to the Shares that is payable or
distributable to shareholders of record on a date prior to the transfer to
the name of Purchaser or its nominee or transferee on the Company's stock
transfer records of the Shares purchased pursuant to the Offer, then, without
prejudice to Purchaser's rights under Sections 1 and 14, (i) the purchase
price per Share payable by Purchaser pursuant to the Offer will be reduced by
the amount of any such cash dividend or cash distribution and (ii) any such
non-cash dividend, distribution or right to be received by the tendering
shareholders will be received and held by such tendering shareholders for the
account of Purchaser and will be required to be promptly remitted and
transferred by each such tendering shareholder to the Depositary for the
account of Purchaser, accompanied by appropriate documentation of transfer.
Pending such remittance and subject to applicable law, Purchaser will be
entitled to all rights and privileges as owner of any such non-cash dividend,
distribution or right and may withhold the entire purchase price or deduct
from the purchase price the amount of value thereof, as determined by
Purchaser in its sole discretion.
14. CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the
Offer, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time in its sole discretion, Purchaser
shall not be required to accept for payment or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange
Act (relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may
delay the acceptance for payment of or, subject to the restriction referred
to above, the payment for, any tendered Shares, and may terminate the Offer
as to any Shares not then paid for, if, in the sole judgment of Purchaser (1)
at or prior to the expiration of the Offer any one or more of the Voting
Trust Approval Condition, the HSR Condition, the Financing Condition, the
Minimum Condition, the Subchapter F Condition, the Rights Condition or the
CSX Termination Condition has not been satisfied, or (2) at any time on or
after October 24, 1996 and prior to the acceptance for payment of Shares, any
of the following events shall occur:
(a) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim before any court or governmental
regulatory or administrative agency, authority, tribunal or commission,
domestic or foreign, by any government or governmental authority or agency
or commission, domestic or foreign, or by any other person, domestic or
foreign (whether brought by the Company, an affiliate of the Company or
any other person), which (i) challenges or seeks to challenge the
acquisition by Parent or Purchaser or any affiliate of either of them of
the Shares, restrains, delays or prohibits or seeks to restrain, delay or
prohibit the making of the Offer, consummation of the transactions
contemplated by the Offer or any other subsequent business combination,
restrains or prohibits or seeks to restrain or prohibit the performance of
any of the
33
<PAGE>
contracts or other arrangements entered into by Purchaser or any of its
affiliates in connection with the acquisition of the Company or obtains or
seeks to obtain any material damages or otherwise directly or indirectly
relating to the transactions contemplated by the Offer, the Proposed
Merger or any other subsequent business combination, (ii) prohibits or
limits or seeks to prohibit or limit Parent's or Purchaser's ownership or
operation of all or any portion of their or the Company's business or
assets (including without limitation the business or assets of their
respective affiliates and subsidiaries) or to compel or seeks to compel
Parent or Purchaser to dispose of or hold separate all or any portion of
their own or the Company's business or assets (including without
limitation the business or assets of their respective affiliates and
subsidiaries) or imposes or seeks to impose any limitation on the ability
of Parent, Purchaser or any affiliate of either of them to conduct its own
business or own such assets as a result of the transactions contemplated
by the Offer or any other subsequent business combination, (iii) makes or
seeks to make the acceptance for payment, purchase of, or payment for,
some or all of the Shares pursuant to the Offer or the Proposed Merger
illegal or results in a delay in, or restricts, the ability of Parent or
Purchaser, or renders Parent or Purchaser unable, to accept for payment,
purchase or pay for some or all of the Shares or to consummate the
Proposed Merger, (iv) imposes or seeks to impose limitations on the
ability of Parent or Purchaser or any affiliate of either of them
effectively to acquire or hold or to exercise full rights of ownership of
the Shares, including, without limitation, the right to vote the Shares
purchased by them on an equal basis with all other Shares on all matters
properly presented to the shareholders of the Company, (v) in the sole
judgment of Parent or Purchaser, might adversely affect the Company or any
of its subsidiaries or affiliates or Parent, Purchaser, or any of their
respective affiliates or subsidiaries, (vi) in the sole judgment of Parent
or Purchaser, might result in a diminution in the value of the Shares or
the benefits expected to be derived by Parent or Purchaser as a result of
the transactions contemplated by the Offer, (vii) in the sole judgment of
Parent or Purchaser, imposes or seeks to impose any material condition to
the Offer unacceptable to Parent or Purchaser or (viii) otherwise directly
or indirectly relates to the Offer, the Proposed Merger or any other
business combination with the Company;
(b) there shall be any action taken, or any statute, rule, regulation or
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed or become applicable to the Offer, the
Proposed Merger or other subsequent business combination between Purchaser
or any affiliate of Purchaser and the Company or any affiliate of the
Company or any other action shall have been taken, proposed or threatened,
by any government, governmental authority or other regulatory or
administrative agency or commission or court, domestic, foreign or
supranational, that, in the sole judgment of Parent or Purchaser, might,
directly or indirectly, result in any of the consequences referred to in
clauses (i) through (vii) of paragraph (a) above;
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the
business, properties, assets, liabilities, capitalization, shareholders'
equity, condition (financial or otherwise), operations, licenses,
franchises, permits, permit applications, results of operations or
prospects of the Company or any of its subsidiaries or affiliates which,
in the sole judgment of Parent or Purchaser, is or may be materially
adverse to the Company or any of its subsidiaries or affiliates, or Parent
or Purchaser shall have become aware of any fact which, in the sole
judgment of Parent or Purchaser, has or may have material adverse
significance with respect to either the value of the Company or any of its
subsidiaries or the value of the Shares to Parent or Purchaser;
(d) there shall have occurred (i) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (ii) any limitation (whether or not mandatory)
by any governmental authority or agency on, or other event which, in the
sole judgment of Parent or Purchaser, might affect the extension of credit
by banks or other lending institutions, (iii) a commencement of a war,
armed hostilities or other national or international crisis directly or
indirectly involving the United States, (iv) any significant change in
United States or any other currency exchange rates or any suspension of,
or limitation on, the markets therefor (whether or not mandatory), (v) any
significant adverse change in the market price
34
<PAGE>
of the Shares or in the securities or financial markets of the United
States, or (vi) in the case of any of the foregoing existing at the time
of the commencement of the Offer, in the sole judgment of Parent or
Purchaser, a material acceleration or worsening thereof;
(e) other than the redemption of the Rights at the Redemption Price, the
Company or any subsidiary of the Company shall have, at any time after
October 24, 1996, (i) issued, distributed, pledged, sold or authorized,
proposed or announced the issuance of or sale, distribution or pledge to
any person of (A) any shares of its capital stock (other than sales or
issuances pursuant to Options outstanding on October 24, 1996 in
accordance with their terms as disclosed on such date or conversions of
the ESOP Preferred Shares in accordance with their terms) of any class
(including without limitation the Common Shares and the ESOP Preferred
Shares) or securities convertible into any such shares of capital stock,
or any rights, warrants or options to acquire any such shares or
convertible securities or any other securities of the Company, or (B) any
other securities in respect of, in lieu of or in substitution for Common
Shares and ESOP Preferred Shares outstanding on October 24, 1996, (ii)
purchased, acquired or otherwise caused a reduction in the number of, or
proposed or offered to purchase, acquire or otherwise reduce the number
of, any outstanding Common Shares, ESOP Preferred Shares or other
securities, (iii) declared, paid or proposed to declare or pay any
dividend or distribution on any Shares (other than the regular quarterly
dividend on the Common Shares not in excess of the amount per share, and
with record and payment dates, in accordance with recent practice) or on
any ESOP Preferred Shares (other than the regular semi-annual dividend on
the ESOP Preferred Shares not in excess of the amount per share payable in
accordance with recent practice) or on any other security or issued,
authorized, recommended or proposed the issuance or payment of any other
distribution in respect of the Common Shares or the ESOP Preferred Shares,
whether payable in cash, securities or other property, (iv) altered or
proposed to alter any material term of any outstanding security, (v)
incurred any debt other than in the ordinary course of business and
consistent with past practice or any debt containing burdensome covenants,
(vi) issued, sold or authorized or announced or proposed the issuance of
or sale to any person of any debt securities or any securities convertible
into or exchangeable for debt securities or any rights, warrants or
options entitling the holder thereof to purchase or otherwise acquire any
debt securities or incurred or announced its intention to incur any debt
other than in the ordinary course of business and consistent with past
practice, (vii) split, combined or otherwise changed, or authorized or
proposed the split, combination or other change of the Common Shares, the
ESOP Preferred Shares or its capitalization, (viii) authorized,
recommended, proposed or entered into or publicly announced its intent to
enter into any merger, consolidation, liquidation, dissolution, business
combination, acquisition or disposition of a material amount of assets or
securities, any material change in its capitalization, any waiver, release
or relinquishment of any material contract rights or comparable right of
the Company or any of its subsidiaries or any agreement contemplating any
of the foregoing or any comparable event not in the ordinary course of
business, or taken any action to implement any such transaction previously
authorized, recommended, proposed or publicly announced, (ix) transferred
into escrow any amounts required to fund any existing benefit, employment
or severance agreements with any of its employees or entered into any
employment, severance or similar agreement, arrangement or plan with any
of its employees other than in the ordinary course of business and
consistent with past practice or entered into or amended any agreements,
arrangements or plans so as to provide for increased benefits to the
employees as a result of or in connection with the transactions
contemplated by the Offer or any other change in control of the Company,
(x) except as may be required by law, taken any action to terminate or
amend any employee benefit plan (as defined in Section 3(2) of ERISA) of
the Company or any of its subsidiaries, or Parent or Purchaser shall have
become aware of any such action which was not previously disclosed in
publicly available filings, (xi) amended or proposed or authorized any
amendment to its articles of incorporation or bylaws or similar
organizational documents, (xii) authorized, recommended, proposed or
entered into any other transaction that in the sole judgment of Parent or
Purchaser could, individually or in the aggregate, adversely affect the
value of the Shares to Parent or Purchaser or (xiii) agreed in writing or
otherwise to take any of the foregoing actions or Parent or Purchaser
shall have learned about any such action which has not previously been
publicly disclosed by the Company and also set forth in filings with the
SEC;
35
<PAGE>
(f) the Company and Parent or Purchaser shall have reached an agreement
or understanding that the Offer be terminated or amended or Parent or
Purchaser (or one of their respective affiliates) shall have entered into
a definitive agreement or an agreement in principle to acquire the Company
by merger or similar business combination, or purchase of Shares or assets
of the Company;
(g) Parent or Purchaser shall become aware (i) that any material
contractual right of the Company or any of its subsidiaries or affiliates
shall be impaired or otherwise adversely affected or that any material
amount of indebtedness of the Company or any of its subsidiaries shall
become accelerated or otherwise become due prior to its stated due date,
in either case with or without notice or the lapse of time or both, as a
result of the transactions contemplated by the Offer or the Proposed
Merger, or (ii) of any covenant, term or condition in any of the Company's
or any of its subsidiaries' instruments or agreements that are or may be
materially adverse to the value of the Shares in the hands of the
Purchaser or any other affiliate of Parent (including, but not limited to,
any event of default that may ensue as a result of the consummation of the
Offer, consummation of the Proposed Merger or any other business
combination or the acquisition of control of the Company); or
(h) Parent or Purchaser shall not have obtained any waiver, consent,
extension, approval, action or non-action from any governmental authority
or agency (other than approval by the STB of the acquisition of control of
the Company) which in its judgment is necessary to consummate the Offer;
which, in the sole judgment of Parent or Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by Parent
or Purchaser or any of their affiliates), giving rise to any such condition,
makes it inadvisable to proceed with the Offer and/or with such acceptance
for payment or payment. Parent and Purchaser have the right to rely on any
condition set forth in the immediately preceding sentence being satisfied in
determining whether to consummate the Offer; however, if Parent or Purchaser
asserts the failure of any such condition without relying on the exercise of its
reasonable judgment or some other objective criteria, Parent and Purchaser shall
promptly disclose such assertion and the Expiration Date will be (and, if
necessary, will be extended to be) at least five business days after the date of
such disclosure.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser in their sole discretion
regardless of the circumstances (including any action or omission by Parent
or Purchaser) giving rise to any such conditions or may be waived by Parent
or Purchaser in their sole discretion in whole or in part at any time and
from time to time. The failure by Parent or Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Parent or Purchaser
concerning any condition or event described in this Section 14 shall be final
and binding upon all parties.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS; CERTAIN LITIGATION.
General. Except as otherwise disclosed herein, based on a review of
publicly available information by the Company with the SEC, neither Purchaser
nor Parent is aware of (i) any license or regulatory permit that appears to
be material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the acquisition of Shares by
Parent or Purchaser pursuant to the Offer or the Proposed Merger,
respectively, or (ii) any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required for the acquisition or ownership of Shares by Parent or
Purchaser as contemplated herein. Should any such approval or other action be
required, Parent and Purchaser currently contemplate that such approval or
action would be sought. While Purchaser does not currently intend to delay
the acceptance for payment of Shares tendered pursuant to the Offer pending
the outcome of any such matter, there can be no assurance that any such
approval or action, if needed, would be obtained or would be obtained without
substantial conditions or that adverse consequences might not result to the
business of the Company, Purchaser or Parent or that certain parts of the
businesses of the Company, Purchaser or Parent might not have to be disposed
of in the event that such approvals were not obtained or any other actions
were not taken. Purchaser's obligation under the Offer to accept for payment
and pay for Shares is subject to certain conditions. See Section 14.
36
<PAGE>
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and to the
FTC and certain waiting period requirements have been satisfied. The notice
and waiting period requirements of the HSR Act do not apply to the Offer and the
Proposed Merger, provided that information and documentary material filed with
the STB in connection with the seeking of STB approval of the acquisition by
Parent of control of the Company and its subsidiaries are contemporaneously
filed with the Antitrust Division and the FTC. Parent intends to comply with
these contemporaneous filing requirements and therefore believes that the notice
and waiting period requirements of the HSR Act do not apply to the Offer and the
Proposed Merger. Parent and Purchaser believe that the Offer and the Proposed
Merger are not subject to, or are exempt from, the HSR Act. Parent and Purchaser
will request the Premerger Notification Office of the FTC to confirm this
understanding.
STB Matters; The Voting Trust. Certain activities of subsidiaries of the
Company are regulated by the STB. Provisions of subtitle IV, title 49 of the
United States Code require approval of, or the granting of an exemption from
approval by, the STB for the acquisition of control of two or more carriers
subject to the jurisdiction of the STB ("Carriers") by a person that is not a
Carrier and for the acquisition or control of a Carrier by a person that is
not a Carrier but that controls any number of Carriers. STB approval or
exemption is required for, among other things, Purchaser's acquisition of
control of the Company. Purchaser intends, simultaneous with the acquisition
of the Shares pursuant to the Offer, to deposit the Shares purchased pursuant
to the Offer in the Voting Trust in order to ensure that Parent and its
affiliates do not acquire and directly or indirectly exercise control over
the Company and its affiliates prior to obtaining necessary STB approvals or
exemptions. STB approval of the acquisition by Parent of control of the
Company and its subsidiaries is not a condition to the Offer. The Offer is
conditioned upon the issuance by the staff of the STB of an informal,
nonbinding opinion, without the imposition of any conditions unacceptable to
Purchaser, that the use of the Voting Trust is consistent with the policies
of the STB against unauthorized acquisitions of control of a regulated
carrier. Parent will request the staff of the STB to issue such an opinion.
Under STB regulations that have been in effect since 1979, the STB staff has
the power to issue such opinions. The proposed Voting Trust Agreement is
modeled closely upon voting trust agreements that have been approved by the
STB. However, there can be no assurance that the STB will not seek changes
in, or request public comment regarding, the Voting Trust Agreement.
It is possible that the Department of Justice or railroad competitors of
Parent and the Company, or others, may argue that Purchaser should not be
permitted to use the voting trust mechanism to acquire Shares prior to final
STB approval of the acquisition of control of the Company. Purchaser believes
it is unlikely that such arguments would prevail, but there can be no
assurance in this regard, nor can there be any assurance that if such
arguments are made, it will not cause delay in obtaining a favorable STB
staff opinion regarding the Voting Trust Agreement.
Pursuant to the terms of the proposed Voting Trust Agreement, it is
expected that the Voting Trustee would hold such Shares until (i) the receipt
of STB approval or (ii) the Shares are sold to a third party or otherwise
disposed of or (iii) the Voting Trust is otherwise terminated. It is expected
that the Voting Trust Agreement submitted to the staff of the STB for
approval will provide that the Voting Trustee will have sole power to vote
the Shares in the Trust, will vote those Shares in favor of the Proposed
Merger, and in favor of any proposal or action necessary or desirable to
effect, or consistent with the effectuation of, the Proposed Merger, and
against any other acquisition transaction, will vote the Shares in favor of
any permitted disposition of the Shares and, on all other matters, will vote
the Shares in proportion to the vote of all other shareholders of the
Company. It is expected that the Voting Trust Agreement will contain certain
other terms and conditions designed to ensure that neither Purchaser nor
Parent will control the Company during the pendency of the STB proceedings.
In addition, it is expected that the Voting Trust Agreement will provide that
Purchaser or its successor in interest will be entitled to receive any cash
dividends paid by the Company.
STB Matters; Acquisition of Control. Set forth below is information
relating to approval by the STB of the acquisition of control over the
Company by Parent and Purchaser. Parent plans to file an application (the
"STB Application") seeking approval of the STB for the acquisition of control
over the
37
<PAGE>
Company and its affiliates by Parent and its affiliates. Under
applicable law and regulations, the STB will hold a public hearing on such
application, unless it determines that a public hearing is not necessary in
the public interest. In ruling on the STB Application, the STB is expected to
consider at least the following: (a) the effect of the proposed control
transaction on the adequacy of transportation to the public; (b) the
effect on the public interest of including, or failing to include, other rail
carriers in the area involved in the proposed transaction; (c) the total
fixed charges that result from the proposed transaction; (d) the interest of
rail carrier employees affected by the proposed transaction; and (e) whether
the proposed transaction would have an adverse effect on competition among
rail carriers in the affected region or in the national rail system. The STB
has the authority to impose conditions on its approval of a control
transaction to alleviate competitive or other concerns. If such conditions
are imposed, Parent can elect to consummate the control transaction subject
to the conditions or can elect not to consummate the transaction. Parent has
indicated a willingness to agree to conditions to preserve rail competition.
Three of the five factors listed above are, in Parent's view, unlikely to
affect whether the STB Application is approved by the STB. As to factor (b)
- --inclusion of other carriers --in past rail merger proceedings, requests for
inclusion have rarely been made. As to factor (c) --effect on fixed charges
- --the capital structure of the resulting company will be sufficiently strong
that this factor is unlikely, in Parent's view, to be given weight by the STB
in deciding whether to approve a combination of the Company and Parent. As to
factor (d) --the interest of affected carrier employees --the STB has adopted
a standard set of labor protective conditions which it imposes in rail merger
and control transactions, and Parent expects that those conditions would be
imposed upon the acquisition by Parent of control of the Company and that
this would not affect approval of the transaction.
As to factor (a) --effect on the adequacy of transportation --and factor
(e) --effect on rail competition --the STB applies a public interest
balancing test in reviewing railroad mergers like the proposed combination of
Parent and the Company. On the one hand, the STB considers the public
benefits of the transaction in terms of better service to shippers,
efficiencies, cost savings and the like. On the other hand, the STB considers
any public harms from the transaction. The principal harm of concern to the
STB, and the principal issue that is likely to be raised by parties opposing
approval of a merger of Purchaser and the Company or seeking the imposition
of conditions thereto, is reduction in competition. In applying the public
interest balancing test, the STB is guided by Congress' intent to encourage
mergers, consolidations, and joint use of facilities that tend to rationalize
and improve the Nation's rail system.
Parent is willing to provide competitive access to another railroad in
appropriate situations. Such access may take the form of grant of trackage
rights over rail properties, or other forms, any of which could diminish the
value to Parent or the Company of its rail properties. The identity of the
railroad or railroads that will be provided such competitive access, the
forms it will take, and the terms and conditions that would apply thereto
have not been determined and will be subject to negotiations. The STB may
impose and enforce those arrangements, when reached, as conditions to its
approval of the Proposed Merger and may require the modification of such
arrangements or require other arrangements regarding rail competition or
other aspects of the public interest, which could be more burdensome, as
conditions to its approval of the acquisition by Parent of control of the
Company.
Parent intends to present to the STB its case that the acquisition of
control of the Company by Parent satisfies the public interest balancing
test. First, Parent will seek to show that a combination of the Company and
Parent has significant public benefits. Second, Parent will seek to show that
a combination of the Company and Parent, especially with
competition-preserving conditions that Parent is prepared to agree to, will
create a more balanced competitive rail structure in the East, will have no
significant adverse effect on rail competition, and indeed will strengthen
such competition. While Parent will seek to present a highly persuasive case,
there can be no assurance that the STB Application will not be denied, or
will not be granted subject to conditions that are so onerous that the
acquisition by Parent of control of the Company is not consummated.
Under existing law, the STB is required to enter a final order with
respect to the STB Application within approximately 15 months after such
application is accepted. However, the STB can process such cases more
quickly. Parent plans to ask the STB to adopt a more expedited schedule.
Under existing law,
38
<PAGE>
other railroads and other interested parties may seek to
intervene to oppose the STB Application or to seek protective conditions in
the event approval by the STB is granted. In addition, any appeals from the
STB final order might not be resolved for a substantial period of time after
the entry of such order by the STB.
Pending receipt of the STB approval, it is expected that the business and
operations of the Company under the Trustee will be conducted in the usual
and ordinary course of business, and the Company's employees and management
will continue in their present positions.
RECEIPT OF STB APPROVAL (OTHER THAN APPROVAL OF THE VOTING TRUST DESCRIBED
ABOVE) IS NOT A CONDITION TO CONSUMMATION OF THE OFFER OR THE PROPOSED
MERGER. IF THE STB APPROVAL IS NOT OBTAINED OR THE STB IMPOSES UNACCEPTABLE
CONDITIONS, PURCHASER WILL BE REQUIRED TO USE ITS BEST EFFORTS TO SELL OR
OTHERWISE DISPOSE OF THE SHARES DEPOSITED IN THE VOTING TRUST AFTER THE STB
ORDER DENYING SUCH APPROVAL BECOMES FINAL OR PARENT DETERMINES NOT TO
CONSUMMATE THE PROPOSED CONTROL TRANSACTION BECAUSE OF UNACCEPTABLE
CONDITIONS. IN SUCH CASE, PURCHASER WOULD BE ENTITLED TO ANY PROCEEDS OF SUCH
SALE OR OTHER DISPOSITION.
State Takeover Statutes. Various states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable
to attempts to acquire securities of corporations that are incorporated or
have assets, shareholders, executive offices or places of business in such
states. In Edgar v. Mite Corp., the Supreme Court of the United States held
that the Illinois Business Takeover Act, which involved state securities laws
that made the takeover of certain corporations more difficult, imposed a
substantial burden on interstate commerce and therefore was unconstitutional.
In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the
United States held that a state may, as a matter of corporate law and, in
particular, those laws concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without prior approval of the remaining shareholders, provided
that such laws were applicable only under certain conditions.
The Pennsylvania Takeover Disclosure Law (the "PTDL") purports to regulate
certain attempts to acquire a corporation which (1) is organized under the
laws of Pennsylvania or (2) has its principal place of business and
substantial assets located in Pennsylvania. The PTDL requires, among other
things, that the offeror, 20 days prior to any takeover offer, file a
registration statement for the takeover offer with the Pennsylvania
Securities Commission (the "PSC") and publicly disclose the offering price of
the disclosed offer. However, in Crane Co. v. Lam, 509 F. Supp. 782 (E.D. Pa.
1981), the United States District Court for the Eastern District of
Pennsylvania preliminarily enjoined, on grounds arising under the United
States Constitution, enforcement of at least the portion of the PTDL
involving the pre-offer waiting period thereunder.
Chapter 25 of the PBCL contains other provisions relating generally to
takeovers and acquisitions of certain publicly owned Pennsylvania
corporations such as the Company that have a class or series of shares
entitled to vote generally in the election of directors registered under the
Exchange Act (a "registered corporation"). The following discussion is a
general and highly abbreviated summary of certain features of such chapter,
is not intended to be complete or to completely address potentially
applicable exceptions or exemptions, and is qualified in its entirety by
reference to the full text of Chapter 25 of the PBCL.
In addition to other provisions not applicable to the Offer or the
Proposed Merger, Subchapter D of Chapter 25 of the PBCL includes provisions
requiring approval of a merger of a registered corporation with an
"interested shareholder" in which the "interested shareholder" is treated
differently from other shareholders, by the affirmative vote of the
shareholders entitled to cast at least a majority of the votes that all
shareholders other than the interested shareholder are entitled to cast with
respect to the transaction without counting the votes of the interested
shareholders. This disinterested shareholder approval requirement is not
applicable to a transaction (i) approved by a vote of the board of directors,
without counting the votes of directors who are directors or officers of, or
who have a material equity interest in, the interested shareholder, (ii) in
which the consideration to be received by shareholders is not less than the
highest amount paid by the interested shareholder in acquiring his shares, or
(iii) effected without submitting the Proposed Merger to a vote of
shareholders as permitted in Section 1924(b)(1)(ii) of the PBCL.
39
<PAGE>
Purchaser believes that the approval requirements under Subchapter D would
not apply to the Proposed Merger because, among other things, Purchaser
expects that the value of the consideration offered to the Company's
shareholders pursuant to the Proposed Merger would not be less than the
highest amount paid by Purchaser in acquiring Shares pursuant to the Offer.
If the approval requirements under Subchapter D were applicable to the Proposed
Merger, the Proposed Merger would have to be approved by the affirmative vote of
the holders of a majority of the votes which all shareholders other than
Purchaser are entitled to cast. Purchaser reserves the right to challenge the
applicability and validity of Subchapter D.
Subchapter E of Chapter 25, among other things, governs "control
transactions" (defined generally as a transaction in which a person acquires
at least 20% of the voting power of a corporation) involving a "registered
corporation" and provides that the shareholders of such corporation are
entitled to demand that they be paid the fair value of their shares. Pursuant
to Subchapter E, the minimum value the shareholders can receive may not be
less than the highest price paid per share by the control person within the
90-day period ending on and including the date of the control transaction.
Purchaser expects that the value of the consideration offered to the
Company's shareholders pursuant to the Proposed Merger would not be less than
the highest amount paid by Purchaser in acquiring Shares pursuant to the
Offer.
Subchapter F of Chapter 25 purports to prohibit under certain
circumstances a "registered corporation" from engaging in a "Business
Combination" with an "Interested Shareholder" for a period of five years
following the date such person became an "Interested Shareholder" unless: (i)
before such person became an Interested Shareholder, the board of directors
of the corporation approved either the Business Combination or the
transaction in which the Interested Shareholder became an Interested
Shareholder; (ii) the Business Combination is approved by a majority vote of
the corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than three months after the Interested Shareholder
became, and provided that at the time of such vote the Interested Shareholder
is, the beneficial owner of shares entitled to cast at least 80% of votes of
the corporation, and the Business Combination satisfies the "fair price"
criteria (generally, the higher of (a) the highest price per share paid by
the Interested Shareholder at a time when the Interested Shareholder was the
beneficial owner of at least five percent of the voting power of the
corporation and (b) the market value per share on the announcement date with
respect to the Business Combination or on the Interested Shareholder's
acquisition date, whichever is higher, plus, in any case, interest and less
the value of any distributions on the shares); (iii) the Business Combination
is approved by all of the holders of the corporation's outstanding common
shares; (iv) the Business Combination is approved by a majority vote of the
corporation's voting shares, other than shares held by the Interested
Shareholder, no earlier than five years after the Interested Shareholder
became an Interested Shareholder; or (v) the Business Combination is approved
by a majority vote of the corporation's voting shares no earlier than five
years after the Interested Shareholder became an Interested Shareholder and
the Business Combination satisfies the "fair price" criteria described above.
Subchapter F provides that during such five-year period the corporation
may not engage in certain business transactions with the Interested
Shareholder or any affiliate or associate thereof, including, without
limitation, (i) any merger, consolidation, share exchange or division of the
corporation or any subsidiary of the corporation (a) with the Interested
Shareholder or (b) with, involving or resulting in any other corporation
which is, or after the merger, consolidation, share exchange or division
would be, an affiliate or associate of the Interested Shareholder, (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to or
with an Interested Shareholder or any affiliate or associate thereof of
assets having an aggregate market value equal to at least 10% of the
aggregate market value of all assets on a consolidated basis or all
outstanding shares, or representing at least 10% of the net income on a
consolidated basis, in each case of such business corporation, and (iii)
other specified self-dealing transactions between the corporation and an
Interested Shareholder or any affiliate or associate thereof.
Under Subchapter F, the restrictions described above do not apply if,
among other things, (i) the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by
Subchapter F, (ii) the board of directors of a corporation adopted an
amendment to its by-laws by June 21, 1988 (and not subsequently rescinded by
an amendment to the certificate of
40
<PAGE>
incorporation or by-laws) expressly electing not to be governed by Subchapter F,
or (iii) the corporation, by action of its shareholders, adopts an amendment to
its certificate of incorporation expressly electing not to be governed by
Subchapter F, provided that, in addition to any other vote required by law, such
amendment to the certificate of incorporation must be approved by a majority of
the corporation's voting shares, other than shares held by the Interested
Shareholders, which amendment would not be effective until 18 months after the
vote of such shareholders and would not apply to any Business Combination
between the corporation and any person who became an Interested Shareholder
prior to the effective date of the amendment. The Company is not exempt from
operation of Subchapter F by reason of any of the foregoing exceptions.
Purchaser believes that, under applicable law and under circumstances of
the Offer including the Company Board's approval of the CSX Merger Agreement,
the Company Board is obligated by its fiduciary responsibilities to approve
the Offer and the Proposed Merger for purposes of Subchapter F and that its
failure to do so would be a violation of law. Purchaser is hereby requesting
that the Company Board adopt a resolution approving the Offer and the
Proposed Merger for purposes of Subchapter F as promptly as it may do so
without violating its obligations under the CSX Merger Agreement. In the
Pennsylvania Litigation, Purchaser is seeking, among other things, an order
requiring the Company Board to approve the Offer and the Proposed Merger and
thereby render Subchapter F inapplicable. See "Certain Litigation" below.
If Subchapter F applies to the Company, and if Subchapter F is not invalid
on its face or as applied to the Proposed Merger (by action of the Company
Board or otherwise), Subchapter F would prohibit, among other transactions,
consummation of the Proposed Merger for a period of five years after
consummation of the Offer.
CONSUMMATION OF THE OFFER IS CONDITIONED UPON PURCHASER BEING SATISFIED,
IN ITS SOLE DISCRETION, THAT SUBCHAPTER F HAS BEEN COMPLIED WITH OR IS
INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER.
Subchapter 25G of Chapter 25 of the PBCL, relating to "control-share
acquisitions," prevents under certain circumstances the owner of a
control-share block of shares of a registered corporation from voting such
shares unless a majority of the "disinterested" shares approve such voting
rights. Failure to obtain such approval may result in a forced sale by the
control-share owner of the control-share block to the corporation at a
possible loss. The Company Articles specifically provide that Subchapter G
does not apply to the Company.
Subchapter H of Chapter 25 of the PBCL, relating to disgorgement by
certain controlling shareholders of a registered corporation, provides that
under certain circumstances any profit realized by a controlling person from
the disposition of shares of the corporation to any person (including to the
corporation under Subchapter G or otherwise) will be recoverable by the
corporation. The Company Articles specifically provide that Subchapter H does
not apply to the Company.
Subchapter I of Chapter 25 of the PBCL entitles "eligible employees" of a
registered corporation to a lump sum payment of severance compensation under
certain circumstances if the employee is terminated, other than for willful
misconduct, within two years after voting rights lost as a result of a
control-share acquisition are restored by a vote of disinterested
shareholders ("Control-share Approval") or, in the event the termination was
accomplished pursuant to an agreement, arrangement or understanding with the
acquiring person, within 90 days prior to Control-share Approval. Subchapter
J of Chapter 25 of the PBCL provides protection against termination or
impairment under certain circumstances of "covered labor contracts" of a
registered corporation as a result of a "business combination" transaction if
the business operation to which the covered labor contract relates was owned
by the registered corporation at the time voting rights are restored by
shareholder vote after a control-share acquisition. Subchapters I and J apply
only in the event of a "control-share acquisition" specified in Subchapter G.
The Company Articles specifically provide that Subchapter G does not apply to
the Company.
Section 2504 of the PBCL provides that the applicability of Chapter 25 of
the PBCL to a registered corporation having a class or series of shares
entitled to vote generally in the election of directors
41
<PAGE>
registered under the Exchange Act or otherwise satisfying the definition of a
registered corporation under Section 2502(1) of the PBCL shall terminate
immediately upon the termination of the status of the corporation as a
registered corporation. Purchaser intends to seek to cause the Company to
terminate the registration of the Shares under the Exchange Act as soon after
consummation of the Proposed Merger as the requirements for termination of the
registration of the Shares are met.
Neither Purchaser nor Parent has currently complied with any state
takeover statute or regulation. Purchaser reserves the right to challenge the
applicability or validity of any state law purportedly applicable to the
Offer or the Proposed Merger and nothing in this Offer to Purchase or any
action taken in connection with the Offer or the Proposed Merger is intended
as a waiver of such right. If it is asserted that any state takeover statute
is applicable to the Offer or the Proposed Merger and an appropriate court
does not determine that it is inapplicable or invalid as applied to the Offer
or the Proposed Merger, Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state
authorities, and Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer, or be delayed in consummating the
Offer or the Proposed Merger. In such case, Purchaser may not be obliged to
accept for payment or pay for any Shares tendered pursuant to the Offer.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or
have substantial assets, shareholders, principal executive offices or
principal places of business, or whose business operations otherwise have
substantial economic effects, in such states. Purchaser does not know whether
any of these laws will, by their terms, apply to the Offer and has not
complied with any such laws. Should any person seek to apply any state
takeover law, Purchaser will take such action as then appears desirable,
which may include challenging the validity or applicability of any such
statute in appropriate court proceedings. In the event it is asserted that
one or more state takeover laws are applicable, and an appropriate court does
not determine that such law is, or such laws are inapplicable or invalid as
applied to the Offer, Purchaser might be required to file certain information
with, or receive approvals from, the relevant state authorities. In addition,
if enjoined, Purchaser might be unable to accept for payment any Shares
tendered pursuant to the Offer, or be delayed in continuing or consummating
the Offer. In such case, Purchaser may not be obligated to accept for payment
any Shares tendered. See Section 14.
Certain Litigation. On October 23, 1996, Parent, Purchaser and Kathryn B.
McQuade, a shareholder of the Company, filed a Complaint for Declaratory and
Injunctive Relief (the "Complaint") against the Company, its directors and
CSX in the United States District Court for the Eastern District of
Pennsylvania. The Complaint alleges, among other things, that the defendants
have breached their fiduciary duties with respect to the Articles Amendment;
that the defendants have breached their fiduciary duties with respect to the
Rights Agreement; that the defendants have breached their fiduciary duties
with respect to Subchapter F of the PBCL; that the defendants have breached
their fiduciary duties with respect to certain lock-up provisions contained
in the CSX Merger Agreement; that the "Continuing Director" requirement of
the Rights Agreement is void under Pennsylvania law and under the Company's
Articles and By-laws and constitutes a breach of the director defendants'
duty of loyalty; that the defendants have violated Sections 14 (a), (d) and
(e) of the Exchange Act and the rules and regulations promulgated thereunder;
and that the Company and its directors are estopped from effectuating a sale
of the Company without giving Parent an adequate opportunity to present its
competing tender offer.
The plaintiffs seek declaratory relief and an order preliminarily and
permanently enjoining the defendants, their directors, officers, partners,
employees, agents, subsidiaries and affiliates, and all other persons acting
in concert with or on behalf of the defendants directly or indirectly, from:
(a) commencing or continuing a tender offer for Shares or other securities of
the Company; (b) seeking the approval by the Company's shareholders of the
Articles Amendment, or, in the event it has been approved by the Company's
shareholders, from taking any steps to make the Articles Amendment effective;
(c) taking any action to redeem the Rights or render the Rights Agreement
inapplicable as to any offer by CSX without, at the same time, taking the
same action as to the Offer; (d) taking any action to enforce the "Continuing
Director" requirement of the Rights Agreement; (e) taking any action to
enforce the CSX Termination Fee granted to CSX by the Company in the CSX
Merger Agreement or the CSX Lockup Option
42
<PAGE>
Agreement; (f) failing to take such action as is necessary to exempt Parent's
proposed acquisition of the Company from the provisions of Subchapter F of the
PBCL; and (g) holding the Pennsylvania Special Meeting until all necessary
corrective disclosures have been made and adequately disseminated to the
Company's shareholders.
In addition, the plaintiffs seek compensatory damages, the costs and
disbursements of the action and such other and further relief as the court
deems just and proper. The plaintiffs also moved on October 23, 1996 for an
order granting expedited discovery and scheduling concerning their request
for preliminary injunctive relief.
On October 24, 1996, the District Court set a hearing date for November 12,
1996 to hear arguments concerning the plaintiffs' request for a preliminary
injunction.
16. FEES AND EXPENSES. Except as set forth below, neither Parent nor
Purchaser will pay any fees or commissions to any broker, dealer or other
Person for soliciting tenders of Shares pursuant to the Offer. The Dealer
Managers are acting in such capacity in connection with the Offer and are
acting as financial advisors to Parent in connection with its effort to
acquire the Company. Parent has agreed to pay each of the Dealer Managers an
advisory fee of $2,500,000 upon the making of the Offer. Upon the earliest to
occur of (i) the successful closing of any tender offer by Parent for
securities of the Company (defined as the acceptance for payment by Parent of
a majority of the Company's outstanding capital stock), (ii) the execution of
a definitive agreement providing for (a) any merger, consolidation,
reorganization or other business combination pursuant to which the business
of the Company is combined with that of Parent or one or more persons formed
by or affiliated with Parent, including, without limitation, any joint
venture (a "Business Combination"), (b) the acquisition by Parent by way of a
tender or exchange offer, negotiated purchase or other means of a majority of
the then outstanding capital stock of the Company, or (c) the acquisition by
Parent of all or a substantial portion of the assets, revenues or income of
the Company (an "Asset Acquisition"), and (iii) the acquisition by Parent of
control of the Company through a proxy contest (a "Successful Proxy
Contest"), Parent has agreed to pay each of the Dealer Managers an additional
advisory fee of $2,500,000. In addition, Parent has agreed to pay each of the
Dealer Managers a success fee of .125% of the aggregate transaction value
(less any amount of any previously paid advisory fees) upon the consummation
of a Business Combination or Asset Acquisition. Parent has also agreed to
reimburse the Dealer Managers (in their capacities as Dealer Managers and
financial advisors) for their reasonable out-of-pocket expenses, including
the reasonable fees and expenses of their legal counsel, incurred in
connection with their engagement, and to indemnify such firms and certain
related persons against certain liabilities and expenses in connection with
their engagement, including certain liabilities under the federal securities
laws. The Dealer Managers have rendered various investment banking and other
advisory services to Parent and its affiliates in the past and are expected
to continue to render such services, for which they have received and will
continue to receive customary compensation from Parent and its affiliates. The
Dealer Managers and/or their affiliates, in their capacity as Arrangers and/or
Lenders, will also be receiving fees from Parent as described in Section 10.
Purchaser has retained Georgeson & Company Inc. to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders
of Shares and participants in the ESOP by mail, telephone, facsimile,
telegraph and personal interviews and may request brokers, dealers and other
nominee shareholders to forward materials relating to the Offer to beneficial
owners of Shares. The Information Agent will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities
and expenses in connection therewith, including certain liabilities under the
federal securities laws.
In addition, The Bank of New York has been retained as the Depositary. The
Depositary has not been retained to make solicitations or recommendations in
its role as Depositary. The Depositary will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities
and expenses in connection therewith, including certain liabilities under the
federal securities laws. Brokers, dealers, commercial banks and trust
companies will be reimbursed by Purchaser for customary mailing and handling
expenses incurred by them in forwarding offering material to their customers.
43
<PAGE>
17. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of the
Shares pursuant thereto, Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, Purchaser cannot
comply with any such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares in such
state. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall
be deemed to be made on behalf of Purchaser by one or more registered brokers
or dealers which are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Parent and Purchaser have filed with the SEC the Schedule 14D-1, together
with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations
under the Exchange Act, furnishing certain additional information with
respect to the Offer. The Schedule 14D-1, and any amendments thereto, may be
inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 8 (except that they may not be available
at the regional offices of the SEC).
ATLANTIC ACQUISITION CORPORATION
October 24, 1996
44
<PAGE>
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND PURCHASER
1. Directors and Executive Officers of Parent. Set forth below is the
name, current business address, citizenship and the present principal
occupation or employment and material occupations, positions, offices or
employments for the past five years of each director and executive officer of
Parent. Unless otherwise indicated, each person identified below is employed
by Parent. The principal address of Parent and, unless otherwise indicated
below, the current business address for each individual listed below is Three
Commercial Place, Norfolk, Virginia 23510. Directors are identified by an
asterisk. Each such person is a citizen of the United States.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
- --------------------------------- -------------------------------------------------------------------------
<S> <C>
David R. Goode* Chairman, President and Chief Executive Officer (since September 1992); President
(from October 1991 to September 1992); and prior thereto was Executive Vice
President-Administration; Director, Caterpillar, Inc. (since June 1993);
Director, Georgia-Pacific Corporation (since July 1992); Director, TRINOVA
Corporation (since January 1993); Director, Texas Instruments (since February
1996).
D. Henry Watts Vice Chairman (since October 1995); and prior thereto was Executive Vice
President-Marketing.
James C. Bishop, Jr. Executive Vice President-Law (since March 1996); and prior thereto was Vice
President-Law.
R. Alan Brogan Executive Vice President-Transportation Logistics and President, North American
P.O. Box 988 Van Lines, Inc. (since December 1992); Vice President-Quality Management (from
Fort Wayne, IN 46801-0988 April 1991 to December 1992); and prior thereto was Vice President-Material
Management and Property Services.
L. I. Prillaman Executive Vice President-Marketing (since October 1995); Vice
President-Properties (from December 1992 to October 1995); and prior thereto
was Vice President and Controller.
Stephen C. Tobias Executive Vice President-Operations (since July 1994); Senior Vice
President-Operations (from October 1993 to July 1994); Vice President-Strategic
Planning (from December 1992 to October 1993); and prior thereto was Vice
President-Transportation; Director, TTX Company (since January 1993).
Henry C. Wolf Executive Vice President-Finance (since June 1993); and prior thereto was Vice
President-Taxation; Director, Greater Norfolk Corporation (since May 1994);
Director, Shenandoah Life (since November 1995).
William B. Bales Senior Vice President-International (since October 1995); Vice President-Coal
110 Franklin Rd., S.E Marketing (from August 1993 to October 1995); and prior thereto was Vice
Roanoke, VA 24012 President-Coal and Ore Traffic.
Paul N. Austin Vice President-Personnel (since June 1994); Assistant Vice President-Personnel
(from February 1993 to June 1994); and prior thereto was Director-Compensation.
I-1
<PAGE>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
- --------------------------------- -------------------------------------------------------------------------
John F. Corcoran Vice President-Public Affairs (since March 1992); and prior thereto was Assistant
1500 K Street, N.W., Vice President-Public Affairs.
Suite 375
Washington, DC 20005
David A. Cox Vice President-Properties (since December 1995); and prior thereto was Assistant
Vice President-Industrial Development.
Thomas L. Finkbiner Vice President-Intermodal (since August 1993); Senior Assistant Vice
President-International and Intermodal (from April to August 1993); and prior
thereto was Assistant Vice President-International and Intermodal.
John W. Fox, Jr. Vice President-Coal Marketing (since October 1995); Assistant Vice President-Coal
110 Franklin Rd., S.E. Marketing (from August 1993 to October 1995); and prior thereto was General
Roanoke, VA 24042 Manager Eastern Region.
Thomas J. Golian Vice President (since October 1995); Executive Assistant to the Chairman,
President and Chief Executive Officer (from April 1993 to October 1995); and
prior thereto was Special Assistant to the President.
James L. Granum Vice President-Public Affairs (since March 1992); and prior thereto was Assistant
1500 K Street, N.W. Vice President-Public Affairs.
Suite 375
Washington, DC 20005
James A. Hixon Vice President-Taxation (since June 1993); and prior thereto was Assistant
Vice President-Tax Counsel.
Jon L. Manetta Vice President-Transportation & Mechanical (since December 1995); Vice
President-Transportation (from June 1994 to December 1995); Assistant Vice
President-Transportation (from October 1993 to June 1994); Assistant Vice
President-Strategic Planning (from January 1993 to October 1993); Director
Joint Facilities and Budget (from March 1992 to January 1993); and prior thereto
was Assistant Terminal Superintendent-Transportation; Director, Beaver Street
Tower Company (since July 1994); Director, Norfolk and Portsmouth Belt Line
Railroad Company (since July 1994); Director, Belt Railway Company of Chicago
(since September 1994).
Harold C. Mauney, Jr. Vice President-Quality Management (since December 1992); Assistant Vice
President-Quality Management (from April 1991 to December 1992); and prior
thereto was General Manager-Intermodal Transportation Services.
Donald W. Mayberry Vice President-Research and Tests (since December 1995); and prior thereto
110 Franklin Rd., S.E. was Vice President-Mechanical.
Roanoke, VA 24042
James W. McClellan Vice President-Strategic Planning (since October 1993); Assistant Vice
President-Corporate Planning (from March 1992 to October 1993); and prior thereto
was Director-Corporate Development.
Kathryn B. McQuade Vice President-Internal Audit (since December 1992); Director-Income Tax
110 Franklin Rd., S.E. Administration (from May 1991 to December 1992); and prior thereto was
Roanoke, VA 24042 Director-Federal Income Tax Administration.
I-2
<PAGE>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
- --------------------------------- -------------------------------------------------------------------------
Charles W. Moorman Vice President-Information Technology (since October 1993); Vice
President-Employee Relations (from December 1992 to October 1993); Vice
President-Personnel and Labor Relations (from February to December 1992);
Assistant Vice President-Stations, Terminals and Transportation Planning (from
March 1991 to February 1992); and prior thereto was Senior Director Transportation
Planning.
Phillip R. Ogden Vice President-Engineering (since December 1992); and prior thereto was Assistant
99 Spring Street, SW Vice President-Maintenance; Director, Norfolk and Portsmouth Belt Line Railroad
Atlanta, GA 30303 Company (since December 1993).
Magda A. Ratajski Vice-President-Public Relations (since July 1984).
John P. Rathbone Vice President and Controller (since December 1992); and prior thereto was
Assistant Vice President-Internal Audit.
William J. Romig Vice President and Treasurer (since April 1992); and prior thereto was Assistant
Vice President-Finance.
Donald W. Seale Vice President-Merchandise Marketing (since August 1993); Assistant Vice
President-Sales and Service (from May 1992 to August 1993); and prior thereto
was Director-Metals, Waste and Construction.
Robert S. Spenski Vice President-Labor Relations (since June 1994); and prior thereto was Senior
Assistant Vice President-Labor Relations.
William C. Wooldridge Vice President-Law (since March 1996); prior thereto was General
Counsel-Corporate.
Dezora M. Martin Corporate Secretary (since April 1995); Assistant Corporate Secretary (from
October 1993 to April 1995); and prior thereto was Assistant Corporate
Secretary-Planning.
Gerald L. Baliles* Director (since 1990); Partner, Hunton & Williams (since 1990); Director, Dibrell
Hunton & Williams Brothers, Inc. (from March 1992 to March 1995).
951 E. Byrd St.
Riverfront Plaza, East Tower
Richmond, VA 23219-4074
Carroll A. Campbell, Jr.* Director (since July 1996); President and Chief Executive Officer, American
American Council of Life Council of Life Insurance (since January 1995); Governor of South Carolina
Insurance (from January 1987 to January 1995); Director, AVX (since July 1995), Director,
1001 Pennsylvania Ave., N.W. FLUOR (since January 1995).
Washington, D.C. 20004
Gene R. Carter* Director (since 1992); Executive Director, Association for Supervision and
Association for Supervision Curriculum Development (since July 1992); Superintendent of Schools, Norfolk,
and Curriculum Development Virginia (from July 1983 to June 1992).
1250 N. Pitt Street
Alexandria, VA 22314-1403
L. E. Coleman* Director (since 1982); Chairman, The Lubrizol Corporation (from January 1996
14849 Trappers Trail to March 1996); Chairman of the Board and CEO (from April 1982 to December
Novelty, OH 44072 1995); Director, Harris Corporation (since January 1985).
I-3
<PAGE>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
- --------------------------------- -------------------------------------------------------------------------
T. Marshall Hahn, Jr.* Director (since 1985); Honorary Chairman of the Board, Georgia-Pacific Corporation
Georgia-Pacific Corporation (since December 1993), Chairman of the Board (from May 1993 to December 1993),
P. O. Box 105605 Chairman of the Board and Chief Executive Officer (from February 1985 to May 1993);
Atlanta, GA 30348-5605 Director, SunTrust Banks, Inc. (since July 1984); Director, Coca-Cola Enterprises
(since 1987).
Landon Hilliard* Director (since 1992); Partner, Brown Brothers Harriman & Co. (since January
Brown Brothers Harriman & Co. 1979); Director, Owens-Corning Fiberglass Corporation (since April 1989).
59 Wall Street
New York, NY 10005
E. B. Leisenring, Jr.* Director (since 1982); Chairman of the Philadelphia Contributionship (since
Philadelphia Contributionship January 1996) Chairman and Chief Executive Officer, Penn Virginia
One Tower Bridge, Suite 501 Corporation (from December 1988 to April
Philadelphia, PA 19428 1992); Director, Penn Virginia Corporation (from September 1952 to October
1992); Director, Westmoreland Coal Company (from September 1952 to June 1996);
Director, Fidelity Bank, N.A. (a wholly-owned subsidiary of First Fidelity
Bancorporation) (from 1960 to January 1994); Director, PICO Products, Inc.
(since November 1994); Director, SKF USA Inc. (a controlled subsidiary of
Aktiebolaget SKF, Swedish corporation) (from January 1966 to March 1996).
Arnold B. McKinnon* Director (since 1986); Chairman and Chief Executive Officer, Norfolk Southern
Corporation (from September 1991 to August 1992); Chairman, President and Chief
Executive Officer, Norfolk Southern Corporation (from March 1987 to September
1991).
Jane Margaret O'Brien* Director (since 1994); President, St. Mary's College of Maryland (since July
St. Mary's College of Maryland 1996); President, Hollins College (from July 1991 to June 1996); Dean of the
St. Mary's City, MD 20686 Faculty, Middlebury College (from 1989 to 1991); Director, Landmark
Communications, Inc. (since 1994).
Harold W. Pote* Director (since 1988); Partner, The Beacon Group (since April 1993); President,
The Beacon Group PBS Properties, Inc. (since November 1990), President and Chief Executive Officer,
375 Park Ave., 17th Floor First Fidelity Bancorporation (from April 1984 to December 1988); Director,
New York, NY 10152 Turecamo Maritime, Inc. (from June 1990 to June 1996).
</TABLE>
I-4
<PAGE>
2. Directors and Executive Officers of Purchaser. Set forth below is the
name, current business address, citizenship and the present principal
occupation or employment and material occupations, positions, offices or
employments for the past five years of each director and officer of
Purchaser. Unless otherwise indicated, each person identified below is
employed by Purchaser and has held such position since the formation of
Purchaser on October 23, 1996. The principal address of Purchaser and, unless
otherwise indicated below, the current business address for each individual
listed below is Three Commercial Place, Norfolk, Virginia 23510. Directors
are identified by an asterisk. Each such person is a citizen of the United
States.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT
BUSINESS ADDRESS HISTORY
- -------------------------- ---------------------------------------------------------------------
<S> <C>
David R. Goode* ........... President; see part 1 above for five-year employment history.
James C. Bishop, Jr.* .... Vice President and General Counsel; see part 1 above for five-year employment
history.
L.I. Prillaman ............ Vice President; see part 1 above for five-year employment history.
Henry C. Wolf* ............ Vice President and Treasurer; see part 1 above for five-year employment
history.
Dezora M. Martin .......... Corporate Secretary; see part 1 above for five-year employment history.
</TABLE>
I-5
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the
Shares and any other required documents should be sent by each shareholder of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary as follows:
The Depositary for the Offer is:
The Bank of New York
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive & Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Information Telephone:
(800) 507-9357
</TABLE>
Any questions or requests for assistance may be directed to the
Information Agent or the Dealer Managers at their respective telephone
numbers and locations listed below. Additional copies of the Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be obtained from the Information Agent at its address and telephone numbers
set forth below. Holders of Shares may also contact their broker, dealer,
commercial bank or trust company or other nominee for assistance concerning
the Offer.
The Information Agent for the Offer is:
GEORGESON & COMPANY
[LOGO]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
The Dealer Managers for the Offer are:
J.P. MORGAN & CO. MERRILL LYNCH & CO.
60 Wall Street World Financial Center
Mail Stop 2860 North Tower
New York, New York 10260 New York, New York 10281-1305
(800) 576-5070 (toll free) (212) 449-8211 (call collect)
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK AND
SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
PURSUANT TO THE OFFER TO PURCHASE, DATED OCTOBER 24, 1996
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY
OF
NORFOLK SOUTHERN CORPORATION
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME,
ON THURSDAY, NOVEMBER 21, 1996, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive & Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Information Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OR TELEX TRANSMISSION
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST
SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE
SUBSTITUTE FORM W-9 PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL
SHOULD BE READ CAREFULLY BEFORE THIS LETTER
OF TRANSMITTAL IS COMPLETED.
THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED BY SHAREHOLDERS OF CONRAIL
INC. EITHER IF CERTIFICATES EVIDENCING SHARES AND/OR RIGHTS (EACH AS DEFINED
BELOW) ARE TO BE FORWARDED HEREWITH, OR IF DELIVERY OF SHARES AND/OR RIGHTS
IS TO BE MADE BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE
DEPOSITORY TRUST COMPANY OR THE PHILADELPHIA DEPOSITORY TRUST COMPANY (EACH,
A "BOOK-ENTRY TRANSFER FACILITY" AND COLLECTIVELY, THE "BOOK-ENTRY TRANSFER
FACILITIES") PURSUANT TO THE BOOK-ENTRY TRANSFER PROCEDURE DESCRIBED IN
"PROCEDURES FOR TENDERING SHARES" OF THE OFFER TO PURCHASE (AS DEFINED
BELOW). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Holders of Shares will be required to tender one Right for each Share
tendered to effect a valid tender of such Share. Until the Distribution Date
(as defined in the Offer to Purchase) occurs, the Rights are represented by
and transferred with the Shares. Accordingly, if the Distribution Date does
not occur prior to the Expiration Date (as defined in the Offer to Purchase),
a tender of Shares will constitute a tender of the associated Rights. If a
Distribution Date has occurred and (i) Purchaser (as defined below) has
waived that portion of the Rights Condition (as defined in the Offer to
Purchase) requiring
<PAGE>
that a Distribution Date not have occurred and (ii) separate certificates
("Rights Certificates") have been distributed by the Company (as defined
below) to holders of Shares prior to the date of tender pursuant to the Offer
to Purchase, Rights Certificates representing a number of Rights equal to the
number of Shares being tendered must be delivered to the Depositary in order
for such Shares to be validly tendered. If a Distribution Date has occurred
and (i) Purchaser has waived any portion of the Rights Condition (as defined
in the Offer to Purchase) and (ii) Rights Certificates have not been
distributed prior to the time Shares are tendered pursuant to the Offer to
Purchase, a tender of Shares without Rights constitutes an agreement by the
tendering shareholder to deliver Rights Certificates representing a number of
Rights equal to the number of Shares tendered pursuant to the Offer to the
Depositary within three business days after the date Rights Certificates are
distributed. Purchaser reserves the right to require that it receive such
Rights Certificates prior to accepting Shares for payment. Payment for Shares
tendered and purchased pursuant to the Offer to Purchase will be made only
after timely receipt by the Depositary of, among other things, Rights
Certificates, if such certificates have been distributed to holders of
Shares. Purchaser will not pay any additional consideration for the Rights
tendered pursuant to the Offer to Purchase.
Shareholders whose certificates for Shares and, if applicable, Rights, are
not immediately available or who cannot deliver such certificates and all
other documents required hereby to the Depositary prior to the Expiration
Date (as defined in "Terms of the Offer; Expiration Date" of the Offer to
Purchase) or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis and who wish to tender their Shares and Rights
must do so pursuant to the guaranteed delivery procedure described in
"Procedures for Tendering Shares" of the Offer to Purchase. See Instruction
2.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
------------------------------------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
- -----------------------------------------------------------------------------
Transaction Code Number
- -----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED RIGHTS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
------------------------------------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
- -----------------------------------------------------------------------------
Transaction Code Number
- -----------------------------------------------------------------------------
2
<PAGE>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING TENDERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------
Window Ticket No. (if any):
-----------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-----------------------------------------------------------------------
If Delivered by Book-Entry Transfer, Check Box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
- -----------------------------------------------------------------------------
Transaction Code Number
- -----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED RIGHTS ARE BEING TENDERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------
Window Ticket No. (if any):
-----------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-----------------------------------------------------------------------
If Delivered by Book-Entry Transfer, Check Box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number
- -----------------------------------------------------------------------------
Transaction Code Number
- -----------------------------------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) SHARE CERTIFICATE(S) TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------- --------------------------------------------------------
TOTAL NUMBER OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S) TENDERED**
----------- ---------------------- --------------
<S> <C> <C>
----------- ---------------------- --------------
----------- ---------------------- --------------
----------- ---------------------- --------------
----------- ---------------------- --------------
Total Shares
- ------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares being delivered to the
Depositary are being tendered.
See Instruction 4.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION OF RIGHTS TENDERED
- --------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) RIGHTS CERTIFICATE(S) TENDERED*
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------- ----------------------------------------------------------
TOTAL NUMBER OF RIGHTS NUMBER OF
CERTIFICATE REPRESENTED BY RIGHTS
NUMBER(S)** CERTIFICATE(S) TENDERED***
---------------- ---------------------- ---------------
<S> <C> <C>
---------------- ---------------------- ---------------
---------------- ---------------------- ---------------
---------------- ---------------------- ---------------
---------------- ---------------------- ---------------
Total Rights
- --------------------------------------------------------------------------------------------------------
* If the tendered Rights are represented by separate Rights Certificates, provide the certificate
numbers of such Rights Certificates. Shareholders tendering Rights which are not represented by
separate certificates will need to submit an additional Letter of Transmittal if Rights
Certificates are distributed.
** Need not be completed by shareholders tendering by book-entry transfer.
*** Unless otherwise indicated, it will be assumed that all Rights being delivered to the Depositary
are being tendered.
See Instruction 4.
- --------------------------------------------------------------------------------------------------------
</TABLE>
The names and addresses of the registered holders should be printed, if
not already printed above, exactly as they appear on the certificates
representing Shares and/or Rights tendered hereby. The certificates and
number of Shares and/or Rights that the undersigned wishes to tender should
be indicated in the appropriate boxes.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL
CAREFULLY.
4
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Atlantic Acquisition Corporation, a
Pennsylvania corporation ("Purchaser") and a wholly owned subsidiary of
Norfolk Southern Corporation, a Virginia corporation, the above described
shares of common stock, par value $1.00 per share (the "Common Shares"), or
shares of Series A ESOP Convertible Junior Preferred Stock, without par value
(the "ESOP Preferred Shares" and, together with the Common Shares, the
"Shares"), of Conrail Inc., a Pennsylvania corporation (the "Company"),
including, in each case, the associated Common Stock Purchase Rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of July 19, 1989,
as amended, between the Company and First Chicago Trust Company of New York,
as Rights Agent (the "Rights Agreement"), pursuant to Purchaser's offer to
purchase all outstanding shares, including, in each case, the associated
Rights, at a price of $100 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
October 24, 1996 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, as amended from time
to time, together constitute the "Offer"). UNLESS THE CONTEXT REQUIRES
OTHERWISE, ALL REFERENCES HEREIN TO THE COMMON SHARES, ESOP PREFERRED SHARES
OR SHARES SHALL INCLUDE THE ASSOCIATED RIGHTS, AND ALL REFERENCES TO THE
RIGHTS SHALL INCLUDE ALL BENEFITS THAT MAY INURE TO THE HOLDERS OF THE RIGHTS
PURSUANT TO THE RIGHTS AGREEMENT.
The undersigned understands that Purchaser reserves the right to transfer
or assign, in whole at any time, or in part from time to time, to one or more
of its affiliates, the right to purchase all or any portion of the Shares
and/or Rights tendered pursuant to the Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering shareholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
Subject to, and effective upon, acceptance for payment of the Shares and
Rights tendered herewith, in accordance with the terms of the Offer
(including, if the Offer is extended or amended, the terms and conditions of
any such extension or amendment), the undersigned hereby sells, assigns and
transfers to, or upon the order of, Purchaser all right, title and interest
in and to all the Shares and Rights that are being tendered hereby (and any
and all non-cash dividends, distributions, rights, other Shares or other
securities issued or issuable in respect thereof or declared, paid or
distributed in respect of such Shares on or after October 24, 1996
(collectively, "Distributions")), and irrevocably appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares, Rights and all Distributions, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with
an interest), to (i) deliver certificates for such Shares (individually, a
"Share Certificate"), Rights and all Distributions, or transfer ownership of
such Shares, Rights and all Distributions on the account books maintained by
a Book-Entry Transfer Facility, together, in either case, with all
accompanying evidence of transfer and authenticity to, or upon the order of
Purchaser, (ii) present such Shares, Rights and all Distributions for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares, Rights
and all Distributions, all in accordance with the terms of the Offer.
If, on or after October 24, 1996, the Company should declare or pay any
cash or stock dividend or other distribution on (other than regular quarterly
cash dividends), or issue any rights (other than the Rights), or make any
distribution with respect to, the Shares that is payable or distributable to
shareholders of record on a date prior to the transfer to the name of
Purchaser or its nominee or transferee on the Company's stock transfer
records of the Shares accepted for payment pursuant to the Offer, then,
subject to the provisions of Section 13 of the Offer to Purchase, (i) the
purchase price per Share payable by Purchaser pursuant to the Offer will be
reduced by the amount of any such cash dividend or cash distribution and (ii)
any such non-cash dividend, distribution or right to be received by the
tendering shareholder will be received and held by such tendering shareholder
for the account of Purchaser and will be required to be remitted promptly and
transferred by each such tendering shareholder to the Depositary for the
account of Purchaser, accompanied by appropriate documentation of transfer.
Pending such remittance, Purchaser will be entitled to all rights and
privileges as owner of any such non-cash dividend, distribution or right and
may withhold the entire purchase price or deduct from the purchase price the
amount of value thereof, as determined by Purchaser in its sole discretion.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints David R. Goode, James C. Bishop, Jr. and Henry C. Wolf as proxies of
the undersigned, each with full power of substitution, to the full extent of
the undersigned's rights with respect to the Shares and Rights tendered by
the undersigned and accepted for payment by Purchaser (and any and all
Distributions). All such proxies shall be considered coupled with an interest
in the tendered Shares and Rights. This appointment will be effective if,
when, and only to the extent that, Purchaser accepts such Shares and Rights
for payment pursuant to the Offer. Upon such acceptance for payment, all
prior proxies given by the undersigned with respect to such Shares, Rights,
Distributions and other securities will, without further action, be revoked,
and no subsequent proxies may be given. The individuals named above as
proxies will, with respect to the Shares, Rights, Distributions and other
securities for which the appointment is effective, be empowered (subject to
the terms of the Voting Trust Agreement (as defined in the Offer to Purchase)
so long as it shall be in effect with respect to the Shares) to exercise all
voting and other rights of the undersigned as they in their sole discretion
may deem proper at any annual, special, adjourned or postponed meeting of the
5
<PAGE>
Company's shareholders, by written consent or otherwise, and Purchaser
reserves the right to require that, in order for Shares, Rights,
Distributions or other securities to be deemed validly tendered, immediately
upon Purchaser's acceptance for payment of such Shares and Rights, Purchaser
or Purchaser's designee must be able to exercise full voting rights with
respect to such Shares and Rights.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares and
Rights tendered hereby and all Distributions, that the undersigned own(s) the
Shares and Rights tendered hereby and that, when such Shares and Rights are
accepted for payment by Purchaser, Purchaser will acquire good, marketable
and unencumbered title thereto and to all Distributions, free and clear of
all liens, restrictions, charges and encumbrances, and that none of such
Shares, Rights and Distributions will be subject to any adverse claim. The
undersigned, upon request, shall execute and deliver all additional documents
deemed by the Depositary or Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the Shares and Rights tendered
hereby and all Distributions. In addition, the undersigned shall remit and
transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Shares and Rights tendered hereby,
accompanied by appropriate documentation of transfer, and, pending such
remittance and transfer or appropriate assurance thereof, Purchaser shall be
entitled to all rights and privileges as owner of each such Distribution and
may withhold the entire purchase price of the Shares and Rights tendered
hereby or deduct from such purchase price, the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, executors, personal and legal representatives,
administrators, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable, provided that Shares and Rights tendered pursuant to the offer
may be withdrawn at any time prior to their acceptance for payment.
The undersigned understands that tenders of Shares and Rights pursuant to
any one of the procedures described in "Procedures for Tendering Shares" of
the Offer to Purchase and in the Instructions hereto will constitute the
undersigned's acceptance of the terms and conditions of the Offer.
Purchaser's acceptance for payment of Shares and Rights tendered pursuant to
the Offer will constitute a binding agreement between the undersigned and
Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the
Offer to Purchase, Purchaser may not be required to accept for payment any of
the Shares and Rights tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price and/or return
any certificates evidencing Shares or Rights not tendered or accepted for
payment, in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in
the box entitled "Special Delivery Instructions," please mail the check for
the purchase price and/or return any certificates evidencing Shares or Rights
not tendered or accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price and/or return any
certificates for Shares or Rights not purchased or not tendered or accepted
for payment in the name(s) of, and mail such check and/or return such
certificates to, the person(s) so indicated. Unless otherwise indicated
herein in the box entitled "Special Payment Instructions," please credit any
Shares or Rights tendered hereby and delivered by book-entry transfer, but
which are not purchased, by crediting the account at the Book-Entry Transfer
Facility designated above. The undersigned recognizes that Purchaser has no
obligation, pursuant to the Special Payment Instructions, to transfer any
Shares or Rights from the name of the registered holder(s) thereof if
Purchaser does not accept for payment any of the Shares or Rights tendered
hereby.
6
<PAGE>
===============================================================================
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for Shares and/or Rights not tendered
or not purchased and/or the check for the purchase price of Shares and/or
Rights purchased are to be issued in the name of someone other than the
undersigned, or if Shares and/or Rights delivered by book-entry transfer
which are not purchased are to be returned by credit to an account maintained
at a Book-Entry Transfer Facility other than that designated above.
Issue check and/or certificates to:
Name
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Address
- -----------------------------------------------------------------------------
(ZIP CODE)
- -----------------------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
[ ] Credit unpurchased Shares and/or Rights delivered by book-entry transfer
to the Book-Entry Transfer Facility account set forth below:
Check appropriate box:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
------------------------------------------------------------------------
(ACCOUNT NUMBER)
===============================================================================
===============================================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for Shares and/or Rights not
tendered or not purchased and/or the check for the purchase price of
Shares and/or Rights purchased are to be sent to someone other than the
undersigned, or to the undersigned at an address other than that shown
above.
Mail check and/or certificates to:
Name
------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
(ZIP CODE)
------------------------------------------------------------------------
===============================================================================
7
<PAGE>
===============================================================================
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated: , 199_
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Common or ESOP Preferred stock certificate(s) or on a security position
listing or by person(s) authorized to become registered holder(s) by
certificates and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity,
please provide the following information. See Instruction 5 of this Letter of
Transmittal.)
Name(s)
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- -----------------------------------------------------------------------------
Tax Identification or Social Security No.
- -----------------------------------------------------------------------------
(COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5 OF THIS LETTER OF TRANSMITTAL)
Authorized Signature
- -----------------------------------------------------------------------------
Name
- -----------------------------------------------------------------------------
(PLEASE PRINT)
Title
- -----------------------------------------------------------------------------
Name of Firm
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- -----------------------------------------------------------------------------
Dated: , 199_
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which
is a bank, broker, dealer, credit union, savings association, or other entity
that is a member in good standing of the Securities Transfer Agents Medallion
Program (each, an "Eligible Institution"). No signature guarantee is required
on this Letter of Transmittal (a) if this Letter of Transmittal is signed by
the registered holder(s) (which term, for purposes of this document, shall
include any participant in a Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of Shares or Rights) of Shares
and/or Rights tendered herewith, unless such holder(s) has completed either
the box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the reverse hereof, or (b) if such Shares or Rights
are tendered for the account of an Eligible Institution. See Instruction 5.
If a certificate evidencing Shares and/or Rights (a "Certificate") is
registered in the name of a person other than the signer of this Letter of
Transmittal, or if payment is to be made, or a Certificate not accepted for
payment or not tendered is to be returned, to a person other than the
registered holder(s), then the Certificate must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on the Certificate, with the signature(s) on
such Certificate or stock powers guaranteed as described above. See
Instruction 5.
2. Delivery of Letter of Transmittal and Share Certificates. This Letter
of Transmittal is to be used either if Certificates are to be forwarded
herewith or if Shares and/or Rights are to be delivered by book-entry
transfer pursuant to the procedure set forth in "Procedures for Tendering
Shares" of the Offer to Purchase. Certificates evidencing all tendered Shares
and/or Rights, or confirmation of a book-entry transfer of such Shares and/or
Rights, if such procedure is available, into the Depositary's account at one
of the Book-Entry Transfer Facilities pursuant to the procedures set forth in
"Procedures for Tendering Shares" of the Offer to Purchase, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message, as defined below) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the reverse hereof prior to
the Expiration Date (as defined in "Terms of the Offer; Expiration Date" of
the Offer to Purchase). If Certificates are forwarded to the Depositary in
multiple deliveries, a properly completed and duly executed Letter of
Transmittal must accompany each such delivery. Shareholders whose
Certificates are not immediately available, who cannot deliver their
Certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot complete the procedure for delivery by
book-entry transfer on a timely basis may tender their Shares or Rights
pursuant to the guaranteed delivery procedure described in "Procedures for
Tendering Shares" of the Offer to Purchase. Pursuant to such procedure: (i)
such tender must be made by or through an Eligible Institution; (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser herewith, must be received by
the Depositary prior to the Expiration Date; and (iii) in the case of a
guarantee of Shares or Rights, the Certificates, in proper form for transfer,
or a confirmation of a book-entry transfer of such Shares or Rights, if such
procedure is available, into the Depositary's account at one of the
Book-Entry Transfer Facilities, together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantees (or, in the case of a book-entry transfer,
an Agent's Message), and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three New York Stock
Exchange, Inc. trading days after the date of execution of the Notice of
Guaranteed Delivery, all as described in "Procedures for Tendering Shares" of
the Offer to Purchase. The term "Agent's Message" means a message,
transmitted by a Book-Entry Transfer Facility to, and received by the
Depositary and forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has received an express acknowledgment from
the participant in such Book-Entry Transfer Facility tendering the Shares or
Rights, that such participant has received and agrees to be bound by the
terms of this Letter of Transmittal and that Purchaser may enforce such
agreement against the participant.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares or Rights will be purchased. By execution of this Letter of
Transmittal (or a facsimile hereof), all tendering shareholders waive any
right to receive any notice of the acceptance of their Shares or Rights for
payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Certificate numbers, the number of Shares
or Rights evidenced by such Certificates and the number of Shares or Rights
tendered should be listed on a separate schedule and attached hereto.
4. Partial Tenders. (Not applicable to shareholders who tender by
book-entry transfer.) If fewer than all the Shares or Rights evidenced by any
Certificate delivered to the Depositary herewith are to be tendered hereby,
fill in the number of
9
<PAGE>
Shares or Rights which are to be tendered in the box entitled "Number of
Shares Tendered." In such cases, new Certificate(s) evidencing the remainder
of the Shares or Rights that were evidenced by the Certificates delivered to
the Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions," as soon as practicable after the expiration or termination of
the Offer. All Shares or Rights evidenced by Certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the
Shares or Rights tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the Certificates evidencing such Shares or
Rights without alteration, enlargement or any other change whatsoever.
If any Shares or Rights tendered hereby is owned of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares or Rights tendered hereby are registered in the names
of different holders, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
such certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares or Rights tendered hereby, no endorsements of Certificates or separate
stock powers are required, unless payment is to be made to, or Certificates
evidencing Shares or Rights not tendered or not purchased are to be issued in
the name of, a person other than the registered holder(s), in which case, the
Certificate(s) evidencing the Shares or Rights tendered hereby must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such
Certificate(s). Signatures on such Certificate(s) and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares or Rights tendered hereby, the Share or
Rights Certificate(s) evidencing the Shares or Rights tendered hereby must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such
Certificate(s). Signatures on such Certificate(s) and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate(s) or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to
act must be submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares or Rights to it or its order pursuant to the Offer.
If, however, payment of the purchase price of any Shares or Rights purchased
is to be made to, or Certificate(s) evidencing Shares or Rights not tendered
or not purchased are to be issued in the name of, a person other than the
registered holder(s), the amount of any stock transfer taxes (whether imposed
on the registered holder(s), such other person or otherwise) payable on
account of the transfer to such other person will be deducted from the
purchase price of such Shares or Rights purchased, unless evidence
satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) EVIDENCING THE SHARES
TENDERED HEREBY.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares or Rights tendered hereby is to be issued, or
Certificate(s) evidencing Shares or Rights not tendered or not purchased are
to be issued, in the name of a person other than the person(s) signing this
Letter of Transmittal or if such check or any such Certificate is to be sent
to someone other than the person(s) signing this Letter of Transmittal or to
the person(s) signing this Letter of Transmittal but at an address other than
that shown in the box entitled "Description of Shares Tendered," the
appropriate boxes on this Letter of Transmittal must be completed. Shares or
Rights tendered hereby by book-entry transfer may request that Shares or
Rights not purchased be credited to such account maintained at a Book-Entry
Transfer Facility as such shareholder may designate in the box entitled
"Special Payment Instructions" on the reverse hereof. If no such instructions
are given, all such Shares or Rights not purchased will be returned by
crediting the account at the Book-Entry Transfer Facility designated on the
reverse hereof as the account from which such Shares or Rights were
delivered.
8. Requests for Assistance or Additional Copies. Requests for assistance
may be directed to the Information Agent or the Dealer Managers at their
respective addresses or telephone numbers set forth below. Additional copies
of the Offer to Purchase, this Letter of Transmittal, the Notice of
Guaranteed Delivery and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 may be obtained from the
Information Agent or the Dealer Managers or from brokers, dealers, commercial
banks or trust companies.
9. Substitute Form W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information"
below, and to certify, under penalties of perjury, that such number is
correct and that such shareholder is not subject to backup
10
<PAGE>
withholding of federal income tax. If a tendering shareholder has been
notified by the Internal Revenue Service that such shareholder is subject to
backup withholding, such shareholder must cross out item (2) of the
Certification box of the Substitute Form W-9, unless such shareholder has
since been notified by the Internal Revenue Service that such shareholder is
no longer subject to backup withholding. Failure to provide the information
on the Substitute Form W-9 may subject the tendering shareholder to 31%
federal income tax withholding on the payment of the purchase price of all
Shares or Rights purchased from such shareholder. If the tendering
shareholder has not been issued a TIN and has applied for one or intends to
apply for one in the near future, such shareholder should write "Applied For"
in the space provided for the TIN in Part I of the Substitute Form W-9, and
sign and date the Substitute Form W-9. If "Applied For" is written in Part I
and the Depositary is not provided with a TIN within 60 days, the Depositary
will withhold 31% on all payments of the purchase price to such shareholder
until a TIN is provided to the Depositary.
10. Lost, Destroyed or Stolen Certificates. If any certificate(s)
representing Shares or Rights has been lost, destroyed or stolen, the
shareholder should promptly notify the Depositary. The shareholder will then
be instructed as to the steps that must be taken in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates
have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR AN
AGENT'S MESSAGE (TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED
AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO
PURCHASE).
11
<PAGE>
IMPORTANT TAX INFORMATION
Under the federal income tax law, a shareholder whose tendered Shares or
Rights are accepted for payment is required by law to provide the Depositary
(as payer) with such shareholder's correct TIN on Substitute Form W-9 below.
If such shareholder is an individual, the TIN is such shareholder's social
security number. If the Depositary is not provided with the correct TIN, the
shareholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such shareholder with respect
to Shares or Rights purchased pursuant to the Offer may be subject to backup
withholding of 31%.
Certain shareholders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such individual must submit a statement, signed under
penalties of perjury, attesting to such individual's exempt status. Forms of
such statements can be obtained from the Depositary. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies with respect to a shareholder, the
Depositary is required to withhold 31% of any payments made to such
shareholder. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares or Rights purchased pursuant to the Offer, the
shareholder is required to notify the Depositary of such shareholder's
correct TIN by completing the form below certifying (a) that the TIN provided
on Substitute Form W-9 is correct (or that such shareholder is awaiting a
TIN), and (b) that (i) such shareholder has not been notified by the Internal
Revenue Service that such shareholder is subject to backup withholding as a
result of a failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified such shareholder that such shareholder is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
or Rights tendered hereby. If the Shares or Rights are in more than one name
or are not in the name of the actual owner, consult the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9
for additional guidance on which number to report. If the tendering
shareholder has not been issued a TIN and has applied for a number or intends
to apply for a number in the near future, the shareholder should write
"Applied For" in the space provided for the TIN in Part I, and sign and date
the Substitute Form W-9. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% of all payments of the purchase price to such shareholder until
a TIN is provided to the Depositary.
12
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
<S> <C> <C>
PAYER'S NAME: , AS DEPOSITARY
- ----------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part I --PLEASE PROVIDE YOUR TIN IN THE BOX AT ----------------------------
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
Department of the Treasury OR
Internal Revenue Service ----------------------------
Employer Identification
Number
(If awaiting TIN write
"Applied For")
- ------------------------------ -------------------------------------------------- ---------------------------
PAYER'S REQUEST FOR PART II -- For Payees Exempt From Backup Withholding, see the enclosed
TAXPAYER IDENTIFICATION Guidelines and complete as instructed therein.
NUMBER (TIN) CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or a Taxpayer Identification Number has not been issued to me and
either (a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue
Service ("IRS") or Social Security Administration office or (b) I intend
to mail or deliver an application in the near future. I understand that
if I do not provide a Taxpayer Identification Number within sixty (60)
days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a
number), and
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding, (b) I have not been notified by the IRS that I am
subject to backup withholding as a result of failure to report all
interest or dividends or (c) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATE INSTRUCTIONS --You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- ---------------------------------------------------------------------------------------------------------------
SIGNATURE _________________________________ DATE _______________, 199_
===============================================================================
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be
directed to the Information Agent or the Dealer Manager as set forth below:
The Information Agent for the Offer is:
GEORGESON & COMPANY INC.
[LOGO]
Wall Street Plaza
New York, New York 10005
(800) 223-2064 (Toll-Free)
Banks and Brokers Call: (212) 440-9800 (Collect)
The Dealer Managers for the Offer are:
J.P. MORGAN & CO. MERRILL LYNCH & CO.
60 Wall Street World Financial Center
Mail Stop 2860 North Tower
New York, New York 10260 New York, New York 10281-1305
(800) 576-5070 (toll free) (212) 449-8211 (call collect)
13
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
TO
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) if (i)
certificates ("Share Certificates") evidencing shares of common stock, par
value $1.00 per share (the "Common Shares"), or shares of Series A ESOP
Convertible Junior Preferred Stock, without par value (the "ESOP Preferred
Shares" and, together with the Common Shares, the "Shares"), of Conrail Inc.,
a Pennsylvania corporation (the "Company"), including the associated Common
Stock Purchase Rights (the "Rights") issued pursuant to the Rights Agreement,
dated July 19, 1989, as amended, between the Company and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agreement"), are not
immediately available, (ii) time will not permit all required documents to
reach The Bank of New York, as Depositary (the "Depositary"), prior to the
Expiration Date (as defined in the Offer to Purchase) or (iii) the procedure
for book-entry transfer cannot be completed on a timely basis. All references
herein to the Common Shares, ESOP Preferred Shares or Shares include the
associated Rights. This Notice of Guaranteed Delivery may be delivered by
hand or transmitted by telegram, facsimile transmission or mail to the
Depositary. See "Procedures for Tendering Shares" of the Offer to Purchase.
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or by Overnight Delivery:
By Mail: By Facsimile Transmission: Tender & Exchange Department
Tender & Exchange Department (for Eligible Institutions Only) 101 Barclay Street
P.O. Box 11248 (212) 815-6213 Receive and Deliver Window
Church Street Station New York, New York 10286
New York, New York 10286-1248
For Information Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
===============================================================================
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Atlantic Acquisition Corporation, a
Pennsylvania corporation and a wholly owned subsidiary of Norfolk Southern
Corporation, a Virginia corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated October 24, 1996 (the
"Offer to Purchase"), and the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer"), receipt of
each of which is hereby acknowledged, the number of Shares specified below
pursuant to the guaranteed delivery procedures described in "Procedures for
Tendering Shares" of the Offer to Purchase.
Number of Shares (including the associated Rights):
---------------------------------------------------------------------------
Name(s) of Record Holder(s)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
PLEASE TYPE OR PRINT
Address(es):
---------------------------------------------------------------------------
ZIP CODE
Area Code and Tel. No.:
---------------------------------------------------------------------------
Certificate No(s). (if available)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Check ONE box if Shares or Rights will be tendered by book-entry transfer:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Signature(s):
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Account Number
---------------------------------------------------------------------------
Dated _______________, 199_
===============================================================================
2
<PAGE>
===============================================================================
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in
the United States, hereby guarantees delivery to the Depositary, at
one of its addresses set forth above, of certificates evidencing the Shares
and Rights tendered hereby in proper form for transfer, or confirmation of
book-entry transfer of such Shares and Rights into the Depositary's
accounts at The Depository Trust Company or the Philadelphia Depository
Trust Company, in each case with delivery of a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees, or an Agent's Message (as defined in "Acceptance for
Payment and Payment for Shares" of the Offer to Purchase), and any other
documents required by the Letter of Transmittal, (x) in the case of Shares,
within three New York Stock Exchange, Inc. trading days after the date of
execution of this Notice of Guaranteed Delivery, or (y) in the case of
Rights, within a period ending the latter of (i) three New York Stock
Exchange, Inc. trading days after the date of execution of this Notice of
Guaranteed Delivery or (ii) three business days after the date Rights
Certificates are distributed to shareholders.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares and Rights to the Depositary within the time period
shown herein. Failure to do so could result in financial loss to such
Eligible Institution.
Name of Firm:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AUTHORIZED SIGNATURE
Address:
---------------------------------------------------------------------------
(ZIP CODE)
Area Code and
Tel. No.:
---------------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
PLEASE TYPE OR PRINT
Title:
---------------------------------------------------------------------------
Date ______________, 199_
NOTE: DO NOT SEND CERTIFICATES FOR SHARES OR RIGHTS WITH THIS NOTICE. SUCH
CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
===============================================================================
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$100 NET PER SHARE
by
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME
ON THURSDAY, NOVEMBER 21, 1996 UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
October 24, 1996
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been engaged by Atlantic Acquisition Corporation, a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of Norfolk Southern
Corporation, a Virginia corporation ("Parent"), to act as Dealer Managers in
connection with Purchaser's offer to purchase all outstanding 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 (the
"ESOP Preferred Shares" and, together with the Common Shares, the "Shares"),
of Conrail Inc., a Pennsylvania corporation (the "Company"), including in
each case, the associated Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement, dated July 19, 1989, by and between the
Company and First Chicago Trust Company of New York, as Rights Agent (as
amended, the "Rights Agreement") at a price of $100 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated October 24, 1996 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer") enclosed herewith.
Unless the Rights are redeemed prior to the Expiration Date (as defined in
the Offer to Purchase) of the Offer, holders of Shares will be required to
tender one associated Right for each Share tendered in order to effect a
valid tender of such Share. Accordingly, shareholders who sell their Rights
separately from their Shares and do not otherwise acquire Rights may not be
able to satisfy the requirements of the Offer for the tender of Shares. If
the Distribution Date (as defined in the Offer to Purchase) has not occurred
prior to the Expiration Date, a tender of Shares will also constitute a
tender of the associated Rights. If the Distribution Date has occurred and
Purchaser has waived that portion of the Rights Condition (as defined in the
Offer to Purchase) requiring that a Distribution Date not have occurred and
Rights Certificates (as defined in the Offer to Purchase) have been
distributed to holders of Shares prior to the time a holder's Shares are
purchased pursuant to the Offer, in order for Rights (and the corresponding
Shares) to be validly tendered, Rights Certificates representing a number of
Rights equal to the number of Shares tendered must be delivered to the
Depositary (as defined in the Offer to Purchase) or, if available, a
Book-Entry Confirmation (as defined in the Offer to Purchase) must be
received by the Depositary with
<PAGE>
respect thereto. If the Distribution Date has occurred and Purchaser has
waived that portion of the Rights Condition requiring that a Distribution
Date not have occurred and Rights Certificates have not been distributed
prior to the time Shares are purchased pursuant to the Offer, Rights may be
tendered prior to a shareholder receiving Rights Certificates by use of the
guaranteed delivery procedure described in Section 3 of the Offer to
Purchase. In any case, a tender of Shares constitutes an agreement by the
tendering shareholder to deliver Rights Certificates representing a number of
Rights equal to the number of Shares tendered pursuant to the Offer to the
Depositary within three business days after the date that Rights Certificates
are distributed. Purchaser reserves the right to require that the Depositary
receive Rights Certificates, or a Book-Entry Confirmation, if available, with
respect to such Rights prior to accepting the relating Shares for payment
pursuant to the Offer if the Distribution Date has occurred prior to the
Expiration Date.
If a shareholder desires to tender Shares and Rights pursuant to the Offer
and such shareholder's Share Certificates (as defined in the Offer to
Purchase) or, if applicable, Rights Certificates are not immediately
available (including, if the Distribution Date has occurred and Purchaser
waives that portion of the Rights Condition requiring that a Distribution
Date not have occurred, because Rights Certificates have not yet been
distributed) or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares or Rights may
nevertheless be tendered according to the guaranteed deliver procedures set
forth in Section 3 of the Offer to Purchase. See Instruction 2 of the Letter
of Transmittal. Delivery of documents to a Book-Entry Transfer Facility (as
defined in the Offer to Purchase) in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THE RECEIPT BY
PURCHASER, PRIOR TO THE EXPIRATION OF THE OFFER, OF AN INFORMAL WRITTEN
OPINION IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO PURCHASER FROM THE
STAFF OF THE SURFACE TRANSPORTATION BOARD (THE "STB"), WITHOUT THE IMPOSITION
OF ANY CONDITIONS UNACCEPTABLE TO PURCHASER, THAT THE USE OF A VOTING TRUST
IN CONNECTION WITH THE OFFER AND THE PROPOSED MERGER (AS DEFINED IN THE OFFER
TO PURCHASE) IS CONSISTENT WITH THE POLICIES OF THE STB AGAINST UNAUTHORIZED
ACQUISITIONS OF CONTROL OF A REGULATED CARRIER, (2) THE RECEIPT BY PURCHASER,
PRIOR TO THE EXPIRATION OF THE OFFER, OF AN INFORMAL STATEMENT FROM THE
PREMERGER NOTIFICATION OFFICE OF THE FEDERAL TRADE COMMISSION THAT THE
TRANSACTIONS CONTEMPLATED BY THE OFFER AND THE PROPOSED MERGER ARE NOT
SUBJECT TO, OR ARE EXEMPT FROM, THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976, AS AMENDED (THE "HSR ACT"), OR, IN THE ABSENCE OF THE RECEIPT OF
SUCH INFORMAL STATEMENT, ANY APPLICABLE WAITING PERIOD UNDER THE HSR ACT
HAVING EXPIRED OR BEEN TERMINATED PRIOR TO THE EXPIRATION OF THE OFFER, (3)
PARENT AND PURCHASER HAVING OBTAINED, PRIOR TO THE EXPIRATION OF THE OFFER,
ON TERMS REASONABLY ACCEPTABLE TO PARENT, SUFFICIENT FINANCING TO ENABLE
CONSUMMATION OF THE OFFER AND THE PROPOSED MERGER, (4) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF COMMON SHARES AND ESOP PREFERRED SHARES WHICH TOGETHER CONSTITUTE
AT LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS, (5)
PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUBCHAPTER F OF
CHAPTER 25 OF THE PENNSYLVANIA BUSINESS CORPORATION LAW HAS BEEN COMPLIED
WITH OR IS INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED
MERGER, (6) THE RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF THE
COMPANY OR PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH
RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED
MERGER AND (7) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE
PREVIOUSLY ANNOUNCED AGREEMENT AND PLAN OF MERGER BETWEEN THE COMPANY AND CSX
CORPORATION HAS BEEN TERMINATED IN ACCORDANCE WITH ITS TERMS OR OTHERWISE.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following
documents:
1. Offer to Purchase, dated October 24, 1996;
2. Letter of Transmittal to be used by holders of shares in accepting the
Offer and tendering Shares and Rights;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
certificates evidencing such Shares and Rights are not immediately
available or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominees, with space
provided for obtaining such clients' instructions with regard to the
Offer;
2
<PAGE>
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. Return envelope addressed to the Depositary.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such
extension or amendment), Purchaser will purchase, by accepting for payment,
and will pay for, all Shares (and, if applicable, Rights) validly tendered
prior to the Expiration Date promptly after the later to occur of (i) the
Expiration Date and (ii) the satisfaction or waiver of the conditions set
forth in "Conditions of the Offer" of the Offer to Purchase. For purposes of
the Offer, Purchaser will be deemed to have accepted for payment, and thereby
purchased, tendered Shares and Rights if, as and when Purchaser gives oral or
written notice to the Depositary of Purchaser's acceptance of such Shares and
Rights for payment. In all cases, payment for Shares and Rights purchased
pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) the certificates evidencing such Shares and Rights or
timely confirmation of a book-entry transfer of such Shares and Rights, if
such procedure is available, into the Depositary's account at The Depository
Trust Company or the Philadelphia Depository Trust Company pursuant to the
procedures set forth in "Procedures for Tendering Shares" of the Offer to
Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, or an Agent's Message (as defined in the Offer
to Purchase) and (iii) any other documents required by the Letter of
Transmittal.
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person (other than the Dealer Managers and the Information Agent as
described in "Fees and Expenses" of the Offer to Purchase) in connection with
the solicitation of tenders of Shares and Rights pursuant to the Offer.
Purchaser will, however, upon request, reimburse you for customary mailing
and handling expenses incurred by you in forwarding the enclosed materials to
your clients.
Purchaser will pay any stock transfer taxes incident to the transfer to it
of validly tendered Shares, except as otherwise provided in Instruction 6 of
the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, NOVEMBER 21, 1996, UNLESS THE
OFFER IS EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Depositary, and certificates evidencing the tendered Shares should be
delivered or such Shares and Rights should be tendered by book-entry
transfer, all in accordance with the Instructions set forth in the Letter of
Transmittal and the Offer to Purchase.
If holders of Shares and Rights wish to tender, but it is impracticable
for them to forward their certificates or other required documents prior to
the Expiration Date, a tender may be effected by following the guaranteed
delivery procedures specified under "Procedures for Tendering Shares" of the
Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed
to the Dealer Managers or the Information Agent at their respective addresses
and telephone numbers set forth on the back cover page of the Offer to
Purchase.
Additional copies of the enclosed materials may be obtained from J.P.
Morgan Securities Inc. at 60 Wall Street, New York, New York 10260, telephone
(800) 576-5070 (Toll Free), Merrill Lynch & Co., at World Financial Center,
North Tower, New York, New York 10281-1305, telephone (212) 449-8211
(Collect) or by calling the Information Agent, Georgeson & Company Inc., at
Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064 (Toll
Free), or from brokers, dealers, commercial banks or trust companies.
Very truly yours,
J.P. MORGAN & CO. MERRILL LYNCH & CO.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF PARENT, PURCHASER, THE DEPOSITARY, THE
INFORMATION AGENT OR THE DEALER MANAGERS, OR ANY AFFILIATE OF ANY OF THE
FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER
THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$100 NET PER SHARE
by
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME
ON THURSDAY, NOVEMBER 21, 1996 UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
October 24, 1996
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated October 24,
1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
as amended from time to time, together constitute the "Offer") in connection
with the offer by Atlantic Acquisition Corporation, a Pennsylvania
corporation ("Purchaser") and a wholly owned subsidiary of Norfolk Southern
Corporation, a Virginia corporation ("Parent"), to purchase all of the
outstanding 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 (the "ESOP Preferred Shares" and, together with the Common
Shares, the "Shares"), of Conrail Inc., a Pennsylvania corporation (the
"Company"), including, in each case, the associated Common Stock Purchase
Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of
July 19, 1989, as amended, between the Company and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agreement") at a price of
$100 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer. All references herein to the Common
Shares, ESOP Preferred Shares, or Shares shall, unless the context otherwise
requires, include the associated Rights.
Unless the Rights are redeemed prior to the Expiration Date (as defined in
the Offer to Purchase), holders of Shares will be required to tender one
associated Right for each Share tendered in order to effect a valid tender of
such Share. Accordingly, shareholders who sell their Rights separately from
their Shares and do not otherwise acquire Rights may not be able to satisfy
the requirements of the Offer for the tender of Shares. If the Distribution
Date (as defined in the Offer to Purchase) has not occurred prior to the
Expiration Date, a tender of Shares will also constitute a tender of the
associated Rights. If the Distribution Date has occurred and (i) Purchaser
has waived that portion of the Rights Condition (as defined in the Offer to
Purchase) requiring that a Distribution Date not have occurred and (ii)
Rights Certificates (as defined in the Offer to Purchase) have been
distributed to holders of Shares prior to the time a holder's Shares are
purchased pursuant to the Offer, in order for Rights (and the corresponding
Shares) to be validly tendered, Rights Certificates representing a number of
Rights equal to the number of Shares tendered must be delivered to the
Depositary (as defined in the Offer to Purchase) or, if available, a
Book-Entry Confirmation (as defined in the Offer to Purchase) must be
received by the
<PAGE>
Depositary with respect thereto. If the Distribution Date has occurred and
(i) Purchaser has waived that portion of the Rights Condition requiring that
a Distribution Date not have occurred and (ii) Rights Certificates have not
been distributed prior to the time Shares are purchased pursuant to the
Offer, Rights may be tendered prior to a shareholder receiving Rights
Certificates by use of the guaranteed delivery procedure described in Section
3 of the Offer to Purchase. In any case, a tender of Shares constitutes an
agreement by the tendering shareholder to deliver Rights Certificates
representing a number of Rights equal to the number of Shares tendered
pursuant to the Offer to the Depositary within three business days after the
date that Rights Certificates are distributed. Purchaser reserves the right
to require that the Depositary receive Rights Certificates, or a Book-Entry
Confirmation, if available, with respect to such Rights prior to accepting
the related Shares for payment pursuant to the Offer if the Distribution Date
has occurred prior to the Expiration Date.
If a shareholder desires to tender Shares and Rights pursuant to the Offer
and such shareholder's Share Certificates (as defined in the Offer to
Purchase) or, if applicable, Rights Certificates are not immediately
available (including, if the Distribution Date has occurred and Purchaser
waives that portion of the Rights Condition requiring that a Distribution
Date not have occurred, because Rights Certificates have not yet been
distributed) or time will not permit all required documents to reach the
Depositary prior to the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, such Shares or Rights may
nevertheless be tendered according to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase. See Instruction 2 of the Letter
of Transmittal. Delivery of documents to a Book-Entry Transfer Facility (as
defined in the Offer to Purchase) in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
THE MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES HELD
BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF
RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE
MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND
CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms
and subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $100 per Share, net to the seller in cash.
2. The Offer, and withdrawal rights will expire at 12:00 Midnight, New
York City time, on Thursday, November 21, 1996, unless the Offer is extended.
3. The Offer is being made for all of the outstanding Shares.
4. The Offer is conditioned upon, among other things, (1) the receipt by
Purchaser, prior to the expiration of the Offer, of an informal written
opinion in form and substance reasonably satisfactory to Purchaser from the
staff of the Surface Transportation Board (the "STB"), without the imposition
of any conditions unacceptable to Purchaser, that the use of a voting trust
in connection with the Offer and the Proposed Merger (as defined in the Offer
to Purchase) is consistent with the policies of the STB against unauthorized
acquisitions of control of a regulated carrier, (2) the receipt by Purchaser,
prior to the expiration of the Offer, of an informal statement from the
Premerger Notification Office of the Federal Trade Commission that the
transactions contemplated by the Offer and the Proposed Merger are not
subject to, or are exempt from, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), or, in the absence of the receipt of
such informal statement, any applicable waiting period under the HSR Act
having expired or been terminated prior to the expiration of the Offer, (3)
Parent and Purchaser having obtained, prior to the expiration of the Offer,
on terms reasonably acceptable to Parent, sufficient financing to enable
consummation of the Offer and the Proposed Merger, (4) there being validly
tendered and not properly withdrawn prior to the expiration of the Offer a
number of Common Shares and ESOP Preferred Shares which together constitute
at least a majority of the Shares outstanding on a fully diluted basis, (5)
Purchaser being satisfied, in its sole discretion, that Subchapter F of
Chapter 25 of the Pennsylvania Business Corporation Law has been complied
with or is invalid or otherwise inapplicable to the Offer and the Proposed
Merger, (6) the Rights having been redeemed by the Board of Directors of the
Company or Purchaser being satisfied, in its sole discretion, that such
Rights are invalid or otherwise inapplicable to the Offer and the Proposed
Merger and (7) Purchaser being satisfied, in its sole discretion, that the
previously announced Agreement and Plan of Merger between the Company and CSX
Corporation has been terminated in accordance with its terms or otherwise.
<PAGE>
5. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by Purchaser
pursuant to the Offer.
The Offer is made solely by the Offer to Purchase and the related Letter
of Transmittal and is being made to all holders of Shares. Purchaser is not
aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of
the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a
good faith effort to comply with such state statute. If, after such good
faith effort, Purchaser cannot comply with such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the
holders of Shares in such state. In any jurisdiction where the securities,
blue sky or other laws require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on behalf of Purchaser by the
Dealer Managers or one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
If you wish to have us tender any or all of your Shares, please so
instruct us by completing, executing and returning to us the instruction form
contained in this letter. An envelope in which to return your instructions to
us is enclosed. If you authorize the tender of your Shares, all such Shares
will be tendered unless otherwise specified on the instruction form set forth
in this letter. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
OFFER.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER
TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK
AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
OF
CONRAIL INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated October 24, 1996, and the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer"), in connection with the offer by Atlantic Acquisition Corporation, a
Pennsylvania corporation ("Purchaser") and a wholly owned subsidiary of
Norfolk Southern Corporation, a Virginia corporation ("Parent"), to purchase
all outstanding 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 (the "ESOP Preferred Shares" and, together with the Common
Shares, the "Shares"), of Conrail Inc., a Pennsylvania corporation (the
"Company"), including, in each case, the associated Common Stock Purchase
Rights (the "Rights") issued pursuant to the Rights Agreement, dated July 19,
1989, as amended, between the Company and First Chicago Trust Company of New
York, as Rights Agent. All references herein to the Common Shares, ESOP
Preferred Shares or Shares shall include the associated Rights.
This will instruct you to tender to Purchaser the number of Shares and
Rights indicated below (or, if no number is indicated in either appropriate
space below, all Shares and Rights) held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offer.
NUMBER OF SHARES AND RIGHTS
TO BE TENDERED:*
________________Shares and Rights
Account Number:
- -----------------------------------------------------------------------------
Dated: _____________, 199_
SIGN HERE
-------------------------------
-------------------------------
Signature(s)
-------------------------------
-------------------------------
Please Type or Print Name(s)
-------------------------------
-------------------------------
Please Type or Print
Address(es) Here
-------------------------------
Area Code and Telephone Number
-------------------------------
Taxpayer Identification or
Social Security Number(s)
- ------------
* Unless otherwise indicated, it will be assumed that all Shares and
Rights held by us for your account are to be tendered.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: TAXPAYER IDENTIFICATION
NUMBER OF--
- --------------------------------------- ----------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the account
(joint account) or, if combined funds, any one
of the individuals(1)
3. Husband and wife The actual owner of the account
(joint account) or, if joint funds, either
person(2)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is
the only contributor, the
minor(1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent
minor, or incompetent person(3)
7. a. The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust under
State law
8. Sole proprietorship account The owner(4)
- --------------------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: TAXPAYER IDENTIFICATION
NUMBER OF--
- --------------------------------------- -----------------------------------
<S> <C>
9. A valid trust, estate, or pension Legal entity (Do not furnish the
trust identifying number of the personal
representative or trustee unless
the legal entity itself is not
designated in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
- --------------------------------------- ----------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's, or incompetent person's name and furnish
such person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600
or more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Payments of mortgage interest to you.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 20% on any portion of
an underpayment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
<PAGE>
[LOGO] Norfolk Southern NEWS RELEASE
FOR IMMEDIATE RELEASE
October 23, 1996
Contact: Robert C. Fort
(804) 629-2714
NORFOLK SOUTHERN PLANS ALL CASH $100 PER SHARE
OFFER FOR CONRAIL, INC.
NEW YORK, NY -- Norfolk Southern Corporation (NYSE:NSC) announced today that
it will be commencing an all cash tender offer for all of the outstanding
common shares and Series A ESOP convertible junior preferred shares of
Conrail, Inc. (NYSE:CRR), at a price of $100 per share. Following the
completion of the tender offer, Norfolk Southern intends to effect a merger in
which all remaining Conrail shareholders will also receive the same cash price
paid in the tender offer.
"This proposal is better on every point than the CSX/Conrail proposal
announced last week. A combined Norfolk Southern-Conrail will create a more
balanced eastern rail system and will do so by increasing, rather than
diminishing, competition in the industry," said David R. Goode, Chairman,
President and Chief Executive Officer of Norfolk Southern.
-more-
<PAGE>
"For customers, it provides single-line access to some of the largest markets
in the world. It combines Conrail with the industry leader in safety,
efficiency, innovation and service. For Norfolk Southern shareholders and
employees of both companies, the merger provides the opportunities that come
with greater growth -- more than either company could have achieved on its
own. And, for Conrail shareholders, this offer is superior."
Based upon the per share closing price of the CSX (NYSE: CSX) shares
yesterday, Norfolk Southern's $100 per share offer represents a premium of
$11.49 (13%) over the blended value of CSX's 40% cash and 60% stock proposal.
Norfolk Southern's offer will provide for a voting trust to hold the Conrail
shares acquired in the tender offer and merger and thereby allow Conrail
shareholders to receive immediate payment for their shares in the tender offer
and merger.
The tender offer will be conditioned upon, among other things, the receipt by
Norfolk Southern of an informal written opinion from the staff of the Surface
Transportation Board that the use of the voting trust is consistent with the
policies of the STB, Norfolk Southern having obtained sufficient financing for
the tender offer and subsequent merger, the valid tender of a majority of
Conrail's shares on a fully diluted basis, Subchapter 25F of Pennsylvania's
Business Corporation Law not being applicable to the offer,
-more-
<PAGE>
Conrail's poison pill having been redeemed or otherwise made inapplicable to
Norfolk Southern's tender offer, the merger agreement between CSX and Conrail
having been terminated in accordance with its terms and other customary
conditions. The complete terms and conditions of the tender offer will be set
forth in the offering documents to be filed shortly with the Securities and
Exchange Commission.
Norfolk Southern already has commitments for $4 billion of the necessary
financing from Merrill Lynch and JP Morgan and a letter indicating they are
highly confident that the balance is available.
Norfolk Southern is a transportation holding company which operates a 14,500
mile rail system in 20 states and one Canadian province, as well as a trucking
company.
Following is the complete text of a letter sent from David R. Goode to the
Board of Directors of Conrail.
CAPITAL PRINTING SYSTEMS]
<PAGE>
October 23, 1996
Board of Directors
Conrail Inc.
2001 Market Street
Two Commerce Square
Philadelphia, Pennsylvania 19101
Attention: David M. LeVan, Chairman
Dear Members of the Board:
For a number of years, other members of our senior management and I
have spoken numerous times with Mr. LeVan, your current Chairman, and with Mr.
Hagen, your former Chairman, and with other senior officers of your company.
During many of these conversations, we at Norfolk Southern expressed a desire
to join our companies together.
On two recent occasions, in late September and again on October 4, I
contacted Mr. LeVan to reiterate our strong interest in acquiring Conrail and
request a meeting at which I could present a concrete proposal. In each case,
I emphasized that I wished to communicate our proposal so that the Conrail
Board would be aware of it during their next meeting. Also in each case, Mr.
LeVan stated that it was unnecessary for me to do so.
In view of this background, it came as a disappointment to me when it
was announced on October 15 that you had agreed to the proposed acquisition of
Conrail by CSX Corporation. We regret that, despite knowing our long-term
interest in joining Conrail with Norfolk Southern, your Chairman ignored our
long-standing offer to submit a business combination proposal to you.
Since October 15, we have been analyzing the proposed CSX transaction
and have been considering the possibility of making a proposal that would be
demonstrably superior to your proposed transaction with CSX. We now have
completed that process and are using this letter to communicate our
conclusions to you.
<PAGE>
Board of Directors
October 23, 1996
Page 2
On behalf of Norfolk Southern, I am hereby making the following
proposal. Our proposal is that Norfolk Southern would acquire all of the
outstanding shares of Conrail common stock for cash at a price of $100.00 per
share. This would be accomplished by a "first step" cash tender offer for all
outstanding shares of Conrail, followed by a "second step" merger in which
Conrail's remaining shareholders would receive the same cash purchase price
per share paid in the offer. This offer represents a premium of $11.49 (13%)
over the blended value of CSX's proposal based on yesterday's closing price of
CSX shares. Our offer will provide for a voting trust to hold the Conrail
shares acquired in the tender offer and merger and thereby allow Conrail
shareholders to receive immediate payment for all their shares in the tender
offer and merger.
To underscore the seriousness of our intentions, we are commencing
promptly a cash tender offer, which can serve as the "first step" tender offer
contemplated by our proposal. On the other hand, unless and until you
terminate your pending proposed transaction with CSX in a manner permitted
under the terms of your merger agreement with CSX and enter into an agreement
with us, our cash tender offer will stand on its own as an offer made directly
to your shareholders.
Subject to your Board's favorable response to our proposal, we are
prepared to negotiate a merger agreement on substantially the same terms and
conditions as your proposed transaction with CSX, except as it would be
modified to reflect the all-cash consideration that we are offering. In
addition, we are prepared to offer significant representation of Conrail
directors on the Norfolk Southern Board, to consider locating the corporate
headquarters of the combined company in Philadelphia and to discuss an
appropriate position for your Chairman following a transaction with us. We
believe that we offer your senior management opportunities for continued
career growth that appear to us not to exist with CSX. Although we determined
that it was appropriate, under the
<PAGE>
Board of Directors
October 23, 1996
Page 3
circumstances, to commence our cash tender offer, our strong preference would
be to negotiate a merger agreement with you.
The price we are offering in our proposal, $100 per share, clearly
provides significantly greater and more certain value to your shareholders
than the proposed transaction with CSX. In addition, we believe our proposed
transaction can be completed on a more timely basis than the proposed CSX
transaction. Accordingly, we strongly believe that, pursuant to Section 4.2 of
your agreement with CSX, you should promptly request and obtain from your
counsel their advice confirming that you are obligated by principles of
fiduciary duty to consider our proposal. Also, we expect that, upon your
receipt of such advice and consistent with your clear fiduciary duties, you
will give us access to at least all the same information you furnished to CSX
in the course of your discussions and negotiations with them and that you will
discuss and negotiate with us the details of our proposal. In addition, you
should take whatever other actions are reasonably necessary or appropriate so
that we may operate on a level playing field with CSX and any other companies
which may be interested in acquiring Conrail.
Besides the benefits for your shareholder constituency, we are
confident that Conrail's employees, suppliers, customers, creditors and the
communities in which Conrail is located will be better served by the
combination of Norfolk Southern and Conrail as compared with the CSX proposal.
Moreover, because a Norfolk Southern merger presents a substantially more
favorable competitive and regulatory picture, our proposal is more consistent
with both the long and short-term interests of Conrail. We look forward to the
opportunity to directly discuss these matters with you in the manner they
would have been communicated before the hasty attempt to lockup a deal with
CSX. To ensure that your Board fulfills its fiduciary obligations and to
resolve certain other issues, we have today commenced litigation in the
Federal District Court for the Eastern District of Pennsylvania.
<PAGE>
Board of Directors
October 23, 1996
Page 4
Our Board of Directors is fully supportive of our proposal and has
authorized and approved it. Consistent with our Board's action, we and our
advisors stand ready, willing and able to meet with you and your advisors at
your earliest convenience. I want to stress that we are flexible as to all
aspects of our proposal, including the possibility of substituting a
substantial equity component to our present offer so that your shareholders
could have a continuing interest in the combined enterprise, and are anxious
to proceed to discuss and negotiate it with you as soon as possible.
Personally and on behalf of my colleagues at Norfolk Southern, I look
forward to hearing from you soon and working with you on our proposal.
Sincerely,
David R. Goode
cc: All Directors
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made
solely by the Offer to Purchase, dated October 24, 1996, and the related
Letter of Transmittal and is being made to all holders of Shares. The Offer
is not being made to (nor will tenders be accepted from or on behalf of)
holders of Shares in any jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. In those jurisdictions where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall
be deemed to be made on behalf of Atlantic Acquisition Corporation by J.P.
Morgan Securities Inc., Merrill Lynch & Co., or one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES
OF
COMMON STOCK AND SERIES A ESOP CONVERTIBLE JUNIOR PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
CONRAIL INC.
AT
$100 NET PER SHARE
BY
ATLANTIC ACQUISITION CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
NORFOLK SOUTHERN CORPORATION
Atlantic Acquisition Corporation ("Purchaser"), a Pennsylvania corporation
and a wholly owned subsidiary of Norfolk Southern Corporation, a Virginia
corporation ("Parent"), hereby offers to purchase all of the outstanding
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
(the "ESOP Preferred Shares" and, together with the Common Shares, the
"Shares"), of Conrail Inc., a Pennsylvania corporation (the "Company"),
including, in each case, the associated Common Stock Purchase Rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of July 19, 1989,
as amended, between the Company and First Chicago Trust Company of New York,
as Rights Agent (the "Rights Agreement"), at a price of $100 per Share, net
to the seller in cash, without interest thereon (the "Offer Price"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
October 24, 1996 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, as amended from time to time, together constitute
<PAGE>
the "Offer"). Unless the context otherwise requires, all references to Common
Shares, ESOP Preferred Shares or Shares shall include the associated Rights,
and all references to the Rights shall include the benefits that may inure to
holders of the Rights pursuant to the Rights Agreement, including the right
to receive any payment due upon redemption of the Rights.
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, NOVEMBER 20, 1996, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, PRIOR TO THE EXPIRATION OF
THE OFFER, (1) THE RECEIPT BY PURCHASER OF AN INFORMAL WRITTEN OPINION IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO PURCHASER FROM THE STAFF OF THE
SURFACE TRANSPORTATION BOARD (THE "STB"), WITHOUT THE IMPOSITION OF ANY
CONDITIONS UNACCEPTABLE TO PURCHASER, THAT THE USE OF A VOTING TRUST IN
CONNECTION WITH THE OFFER AND THE PROPOSED MERGER (AS DEFINED HEREIN) IS
CONSISTENT WITH THE POLICIES OF THE STB AGAINST UNAUTHORIZED ACQUISITIONS OF
CONTROL OF A REGULATED CARRIER, (2) THE RECEIPT BY PURCHASER OF AN INFORMAL
STATEMENT FROM THE PREMERGER NOTIFICATION OFFICE OF THE FEDERAL TRADE
COMMISSION THAT THE TRANSACTIONS CONTEMPLATED BY THE OFFER AND THE PROPOSED
MERGER ARE NOT SUBJECT TO, OR ARE EXEMPT FROM, THE HART-SCOTT-RODINO
ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"), OR, IN THE
ABSENCE OF THE RECEIPT OF SUCH INFORMAL STATEMENT, ANY APPLICABLE WAITING
PERIOD UNDER THE HSR ACT HAVING EXPIRED OR BEEN TERMINATED, (3) PARENT AND
PURCHASER HAVING OBTAINED, ON TERMS REASONABLY ACCEPTABLE TO PARENT,
SUFFICIENT FINANCING TO ENABLE CONSUMMATION OF THE OFFER AND THE PROPOSED
MERGER, (4) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO
THE EXPIRATION OF THE OFFER A NUMBER OF COMMON SHARES AND ESOP PREFERRED
SHARES WHICH TOGETHER CONSTITUTE AT LEAST A MAJORITY OF THE SHARES
OUTSTANDING ON A FULLY DILUTED BASIS, (5) PURCHASER BEING SATISFIED, IN ITS
SOLE DISCRETION, THAT SUBCHAPTER F OF CHAPTER 25 OF THE PENNSYLVANIA BUSINESS
CORPORATION LAW HAS BEEN COMPLIED WITH OR IS INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, (6) THE RIGHTS HAVING BEEN
REDEEMED BY THE BOARD OF DIRECTORS OF THE COMPANY OR PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT SUCH RIGHTS ARE INVALID OR OTHERWISE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER AND (7) PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT THE PREVIOUSLY ANNOUNCED AGREEMENT
AND PLAN OF MERGER BETWEEN THE COMPANY AND CSX CORPORATION HAS BEEN
TERMINATED IN ACCORDANCE WITH ITS TERMS OR OTHERWISE.
The purpose of the Offer is for Parent to acquire control of, and the entire
equity interest in, the Company. Parent is seeking to negotiate with the
Company a definitive merger agreement pursuant to which the Company would, as
soon as practicable following consummation of the Offer, consummate a merger
or similar business combination with Purchaser or another direct or indirect
subsidiary of Parent (the "Proposed Merger"). In the Proposed Merger, each
Common Share and ESOP Preferred Share then outstanding (other than Shares
held by the Company or any subsidiary of the Company and Shares owned by
Parent, Purchaser or any direct or indirect subsidiary of Parent) would be
converted into the right to receive an amount in cash equal to the price per
Share paid pursuant to the Offer.
Purchaser expressly reserves the right, in its sole judgment, at any time and
from time to time and regardless of whether any of the events set forth in
Section 14 of the Offer to Purchase shall have occurred or shall have been
determined by Purchaser to have occurred, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of,
and the payment for, any Shares, by giving oral or written notice of such
extension to the Depositary (as defined in the Offer to Purchase) and (ii) to
amend the Offer in any respect by giving oral or written notice of such
amendment to the Depositary. Any such extension or amendment will be followed
as promptly as practicable by a public announcement thereof, such
announcement in the case of an extension, to be issued not later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date (as defined in the Offer to Purchase). During any
such extension, all Shares previously tendered and not withdrawn will remain
subject to the Offer, subject to the right of a tendering shareholder to
withdraw such shareholder's Shares.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment pursuant to
the Offer. In all cases, upon the terms and subject to the conditions of the
Offer, payment for Shares purchased pursuant to the Offer will be made by
<PAGE>
deposit of the aggregate purchase price therefor with the Depositary, which
will act as agent for tendering shareholders for the purpose of receiving
payment from Purchaser and transmitting payment to validly tendering
shareholders. Under no circumstances will interest on the purchase price for
Shares be paid by Purchaser by reason of any delay in making such payment.
In all cases, payment for Shares purchased pursuant to the Offer will be made
only after timely receipt by the Depositary of (i) certificates for such
Shares ("Certificates") or a book-entry confirmation of the book-entry
transfer of such Shares into the Depositary's account at The Depository Trust
Company or the Philadelphia Depository Trust Company (collectively, the
"Book-Entry Transfer Facilities"), pursuant to the procedures set forth in
Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or
facsimile thereof) properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry transfer, and (iii) any other
documents required by the Letter of Transmittal.
If, for any reason whatsoever, acceptance for payment of any Shares tendered
pursuant to the Offer is delayed, or if Purchaser is unable to accept for
payment or pay for Shares tendered pursuant to the Offer, then, without
prejudice to Purchaser's rights set forth in the Offer to Purchase, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares
and such Shares may not be withdrawn except to the extent that the tendering
shareholder is entitled to and duly exercises withdrawal rights as described
in Section 4 of the Offer to Purchase. Any such delay will be followed by an
extension of the Offer to the extent required by law.
Except as otherwise provided in Section 4 of the Offer to Purchase, tenders
of Shares made pursuant to the Offer are irrevocable. Shares tendered
pursuant to the Offer may be withdrawn at any time prior to 12:00 Midnight,
New York City time, on Wednesday, November 20, 1996 (or if Purchaser shall
have extended the period of time for which the Offer is open, at the latest
time and date at which the Offer, as so extended by Purchaser, shall expire)
and unless theretofore accepted for payment and paid for by Purchaser
pursuant to the Offer, may also be withdrawn at any time after December 22,
1996. In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer
to Purchase. Any notice of withdrawal must specify the name of the person who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn,
and, if Certificates for Shares have been tendered, the name of the
registered holder of the Shares as set forth in the tendered Certificate, if
different from that of the person who tendered such Shares. If Certificates
for Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, then prior to the physical release of such Certificates, the
serial numbers shown on such Certificates evidencing the Shares to be
withdrawn must be submitted to the Depositary and the signature on the notice
of withdrawal must be guaranteed by a firm which is a bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of the Securities Transfer Agent's Medallion Program (an "Eligible
Institution"), unless such Shares have been tendered for the account of an
Eligible Institution. If Shares have been tendered pursuant to the procedures
for book-entry transfer set forth in Section 3 of the Offer to Purchase, any
notice of withdrawal must also specify the name and number of the account at
the appropriate Book-Entry Transfer Facility to be credited with the
withdrawn Shares and otherwise comply with such Book-Entry Transfer
Facility's procedures. Withdrawal of tenders of Shares may not be rescinded,
and any Shares properly withdrawn will be deemed not to be validly tendered
for purposes of the Offer. Withdrawn Shares may, however, be retendered by
repeating one of the procedures set forth in Section 3 of the Offer to
Purchase at any time before the Expiration Date. Purchaser, in its sole
judgment, will determine all questions as to the form and validity (including
time of receipt) of notices of withdrawal, and such determination will be
final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is contained in the Offer to Purchase and is
incorporated herein by reference.
A request is being made to the Company pursuant to Rule 14d-5 of the Exchange
Act for the use of the Company's shareholder list, its list of holders of
Rights, if any, and security position listings for the purpose of
disseminating the Offer to the holders of Shares. The Offer to Purchase and
the Letter of Transmittal and other relevant materials will be mailed to
record holders of Shares and Rights and will be furnished to brokers,
dealers, commercial banks, trust companies and similar persons whose names,
or the names of whose nominees, appear on the shareholder lists and list of
holders of Rights or, if applicable, who are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
<PAGE>
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone
numbers as set forth below. Additional copies of the Offer to Purchase, the
Letter of Transmittal or other tender offer materials may be obtained from
the Information Agent. Such copies will be furnished promptly at Purchaser's
expense. No fees or commissions will be paid to brokers, dealers or other
persons (other than the Information Agent and the Dealer Managers) for
soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
GEORGESON & COMPANY INC.
[LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Bankers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (800) 223-2064
The Dealer Managers for the Offer are:
J.P. MORGAN & CO.
60 Wall Street
Mail Stop 2860
New York, New York 10260
800 576-5070 (toll free)
MERRILL LYNCH & CO.
World Financial Center
North Tower
New York, New York 10251-1305
(212) 449-8211 (Call Collect)
October 24, 1996
NEWS RELEASE
Norfolk Southern Corporation
FOR IMMEDIATE RELEASE
October 24, 1996
Contact: Robert C. Fort
(804) 629-2714
NORFOLK SOUTHERN COMMENCES TENDER OFFER
TO ACQUIRE CONRAIL SHARES FOR $100 PER SHARE
NORFOLK, VA -- October 24, 1996 -- Norfolk Southern
Corporation (NYSE: NSC) announced today that a wholly owned subsidiary is
commencing today its previously announced all cash tender offer for all of the
outstanding Common Shares and Series A ESOP Convertible Junior Preferred
Shares of Conrail Inc. (NYSE: CRR) at a price of $100 per share. The tender
offer will expire on Thursday, November 21, 1996 at 12:00 midnight, New York
City time, unless the offer is extended.
Following completion of the tender offer, Norfolk Southern
intends to consummate a merger in which all remaining Conrail shares would be
converted into the right to receive the same cash price per share paid in the
tender offer.
Norfolk Southern is a transportation holding company which
operates a 14,500 mile rail system in 20 states and one Canadian province, as
well as a diversified motor carrier.
###
<PAGE>
Norfolk Southern
Financial Analyst Presentation
October 23, 1996
<PAGE>
Presentation Outline
Summary of Offer
Strategic Rationale
Pro Forma Financial Effects
Summary of Transaction Benefits
<PAGE>
Summary of Conrail Offer
Financial Terms
$100 per share for a total transaction value of $11.2 billion
100% cash
Offer conditions
All shares in voting trust - - cash upfront
Financing commitments:
J.P. Morgan, Merrill Lynch
Tender to commence promptly
Other Issues
Letter to Conrail Board
Lawsuit in Federal Court
Final regulatory approval
<PAGE>
Strategic Rationale - Overview of Norfolk Southern Advantages
A. Strategic Value
Market Balance: Stronger, more competitive Eastern market
Combined System
to Best Operator: With the consistently lowest operating ratio in the
industry, Norfolk Southern is the best choice to
achieve the most efficient rail system in the East
B. Financial Value
Best Value for
CR Shareholders: $100 vs. $84.75 (current market)
All cash
Payment upfront with closure into voting trust
Best Value for
NS Shareholders: Maximizes future earnings accretion
Confidence in achieving synergy
Strong balance sheet
C. Value to Other Constituencies
Customers Communities
General Public Suppliers
Employees
<PAGE>
Strategic Rationale: The Combined System
[GRAPHIC-MAP SHOWING THE COMBINED SYSTEM OF NORFOLK SOUTHERN AND CONRAIL]
<PAGE>
Financial Effects: Overview
($ in billions)
Pro Forma Results for Fiscal Year 1997
Revenues $9.0
EBITDA 3.1
Interest 1.0
Total Debt (1/1/97) $13.2
EBITDA/Interest 3.1x
Total Debt/Total Capitalization (1/1/79) 72%
Total Debt/Total Market Capitalization 53%
<PAGE>
Financial Effects: Highlights
EPS Impact
Modestly accretive in Year 1 (1998): 3% - 4%
Significantly accretive in Years 2 and 3 when full synergies
realized: 20% and 30%, respectively
Substantial increase in EPS growth rate
Transaction Synergies 1998 1999 2000
---- ---- ----
Operating Savings
(net of add'l costs) $145 $320 $515
Profit from Revenue Enhancements
(net of diversions) 30 75 145
---- ---- ----
Total Operating Impact: $175 $395 $660
==== ==== ====
Cash Flows for Debt Repayment (after dividends)
1st 3 Years: $2.85 billion
1st 5 Years: $5.75 billion
<PAGE>
Transaction Benefits: Net Revenue Synergies
($ in millions)
Net Revenue Change:
------------------------
1998 1999 2000
---- ---- ----
Revenues $105 $285 $525
==== ==== ====
Operating Income $30 $75 $145
==== ==== ====
New Business Revenue:
Single Line Service $215
New Coal Traffic 134
Highway-to-Intermodal 190
Highway-to-Carload 126
Losses-Enhanced Competition (140)
----
Total: $525
====
<PAGE>
Transaction Benefits: Operating Expense Synergies
($ in millions)
1998 1999 2000
---- ---- ----
General and Administrative $48 $106 $170
Transportation 45 100 161
Equipment Savings 30 67 107
Way & Structures 22 47 77
---- ---- ----
Total Operating Expense $145 $320 $515
(net of add'l costs incurred) ==== ==== ====
<PAGE>
Summary
Best Deal for the U.S. Transportation Industry
Best operator should run this combined railroad
Best competitive balance in the East
Best Deal for Conrail Shareholders
All cash
Our confidence of realizing synergies = upfront payment
Best Deal for Norfolk Southern Shareholders
Significant accretion from transaction synergies
Accelerated 5-year growth rate -- synergies and deleveraging
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
60 Wall Street
New York, NY 10260
J.P. MORGAN SECURITIES INC.
60 Wall Street
New York, NY 10260
MERRILL LYNCH CAPITAL CORPORATION
World Financial Center
North Tower
New York, NY 10281
MERRILL LYNCH & Co.
World Financial Center
North Tower
New York, NY 10281
October 22, 1996
COMMITMENT LETTER
Mr. William J. Romig
Vice President and Treasurer
Norfolk Southern Corporation
Norfolk, VA 23510-2191
Dear Bill:
You have advised us that Norfolk Southern Corporation ("NSC") intends to
acquire the company previously identified to us as "Mainline" (the
"Acquisition") by means of a cash tender offer (the "Tender Offer") and
subsequent merger (the "Merger"). We understand that you will require up to
$11,500,000,000 of senior bank debt facilities (the "Credit Facilities") to
finance the Acquisition, to refinance your existing bank facilities, to
refinance existing debt of Mainline, to pay related fees and expenses, and for
general corporate purposes. You have requested us to arrange the Credit
Facilities.
J.P. Morgan Securities Inc. ("JPMSI") and Merrill Lynch & Co. ("ML&Co.";
together with JPMSI, the "Arrangers") are pleased to advise you that we are
willing to use our best efforts to arrange a syndicate of financial
institutions (the "Lenders") to provide the Credit Facilities. In addition,
Morgan Guaranty Trust Company of New York ("Morgan") and Merrill Lynch Capital
Corporation ("Merrill") hereby severally commit that each will, or will cause
an affiliate to, provide up to $2,000,000,000 of the Credit Facilities. JPMSI
and ML&Co. are highly confident of our ability under market conditions
currently prevailing to successfully arrange the balance of the Credit
Facilities, all upon the terms and subject to the conditions hereinafter set
forth.
Attached as Exhibit A to this letter is a Summary of Terms and Conditions
(the "Term Sheet") setting forth the principal terms and conditions on and
subject to which Morgan and Merrill are willing to make their respective
portions of the Credit Facilities available.
<PAGE>
It is agreed that Morgan and Merrill will act as the sole agents for, and
that JPMSI and ML&Co. will act as sole arrangers of, the Credit Facilities and
that no additional agents, co-agents or arrangers will be appointed without the
prior written consent of Morgan, JPMSI, Merrill and ML&Co. All aspects of the
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the tiering and allocations of
the commitments among the Lenders and the amount, timing and distribution of
fees among the Lenders shall, in each case, be subject to mutual agreement of
the Arrangers and NSC.
You agree to assist JPMSI and ML&Co. in forming any such syndicate and to
provide Morgan, JPMSI, Merrill, ML&Co. and the other Lenders, promptly upon
request, all information deemed reasonably necessary by them to complete
successfully the syndication, including, but not limited to, (a) an information
package for delivery to potential syndicate members and participants and (b)
all information and projections prepared by you or your advisers relating to
the transactions described. You agree that any other financings during the
syndication process will be subject to approval by Morgan, JPMSI, Merrill and
ML&Co. You further agree to make your officers and representatives available to
participate in information meetings for potential syndicate members at such
times and places as Morgan, JPMSI, Merrill and ML&Co. may reasonably request.
You represent and warrant and covenant that no written information and no
information (written or otherwise) given at information meetings for potential
syndicate members (collectively, the "Information") which has been or is
hereafter furnished by or on behalf of NSC to Morgan, JPMSI, Merrill and/or
ML&Co. in connection with the transactions contemplated hereby contained (or,
in the case of Information furnished after the date hereof, will contain) as of
the time it was furnished (or is furnished) any material misstatement of fact
or omitted (or will omit) as of such time to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were (or will be) made, not misleading; provided, that the foregoing
representation and warranty is made only to the best of your knowledge in the
case of Information relating to Mainline and its subsidiaries, which knowledge
is principally based upon public disclosure by Mainline; and provided, further,
that, with respect to Information consisting of statements, estimates and
projections regarding the future performance of NSC and Mainline and their
respective subsidiaries (collectively, the "Projections"), no representation or
warranty is made other than that the Projections have been (or will be)
prepared in good faith utilizing due and careful consideration and the best
information available to NSC at the time of preparation thereof. You agree to
supplement the Information and the Projections from time to time until the
Closing Date (as defined in the Term Sheet) as appropriate, so that the
representations and warranties in the preceding sentence remain correct. In
arranging and syndicating the Credit Facilities, Morgan, JPMSI, Merrill and
ML&Co. will use and rely on the Information and the Projections without
independent verification thereof.
Morgan's and Merrill's commitments hereunder are subject to the
conditions that (a) after the date hereof there shall not have occurred (i) any
Material Adverse Change (as defined in the Term Sheet) or (ii) any material
change in or material disruption of financial. bank syndication or capital
market conditions that in the opinion of Morgan, JPMSI, Merrill or ML&Co. could
materially and adversely affect the syndication of the Credit Facilities; (b)
the offer to purchase for the Tender Offer (the "Offer to Purchase") shall be
in form and substance satisfactory to Morgan and Merrill and shall include,
without limitation, conditions to the effect that any "poison pill" or similar
security or contractual arrangement of Mainline, any Pennsylvania statutory
provisions restricting the ability of NSC to effect the Merger or other
transaction with Mainline and other provisions of law or contract which might
materially impede or delay the Merger (other than the requirement of STB
approval) or otherwise materially adversely affect
<PAGE>
the Acquisition or the parties to the Acquisition, shall have been effectively
rendered inapplicable to the Tender Offer and the Merger; (c) the merger
agreement for the Merger and all other documents and materials publicly filed
with respect to the Acquisition shall be reasonably acceptable to Morgan and
Merrill; (d) the voting trust referred to in the Offer to Purchase (the "Voting
Trust") shall have been approved by all of the required governmental and
regulatory bodies, including, but not limited to, the Surface Transportation
Board; (e) the Voting Trust shall be acceptable in form and substance to Morgan
and Merrill and shall contain no provisions which, in the reasonable opinion of
Morgan or Merrill, could affect NSC's ability to perform its obligations with
regard to the Credit Facilities, including, but not limited to, provisions
which could prohibit Mainline from paying dividends consistent with its
historical practices; and (f) Morgan and Merrill shall not discover any
information with respect to Mainline which is inconsistent in a material and
adverse manner with information supplied by NSC. In addition, Morgan's and
Merrill's commitment is subject to the negotiation, execution and delivery
prior to March 1, 1997 of definitive documentation with respect to the Credit
Facilities satisfactory in form and substance to Morgan, Merrill and their
counsel. Such documentation shall contain the terms and conditions set forth in
the Term Sheet and such other indemnities, covenants, representations and
warranties, events of default, conditions precedent, security arrangements and
other terms and conditions (which in each case shall not be inconsistent with
the Term Sheet) as shall be satisfactory in all respects to Morgan, Merrill and
you. Matters which are not covered by the provisions of this letter and the
Term Sheet are subject to the approval of Morgan, Merrill and you.
You agree to pay all reasonable out-of-pocket expenses of the Agents and
the Arrangers associated with the syndication of the Credit Facilities and the
preparation, execution and delivery of this letter and the definitive financing
agreements (including the reasonable fees and disbursements and other charges
of counsel). You agree to indemnify and hold harmless each of Morgan, JPMSI,
Merrill, ML&Co. and each director, officer, employee, affiliate and agent
thereof (each, an "Indemnified Person") against, and to reimburse each
Indemnified Person, upon its demand, for, any losses, claims, damages,
liabilities or other expenses ("Losses") to which such Indemnified Person may
become subject insofar as such Losses arise out of or in any way relate to or
result from the Acquisition, this letter or the financing contemplated hereby,
including, without limitation, Losses consisting of legal or other expenses
incurred in connection with investigating, defending or participating in any
legal proceeding relating to any of the foregoing (whether or not such
Indemnified Person is a party thereto); provided that the foregoing will not
apply to any Losses to the extent they are found by a final decision of a court
of competent jurisdiction to have resulted from the gross negligence or willful
misconduct of such Indemnified Person. Your obligations under this paragraph
shall remain effective whether or not definitive financing documentation is
executed and notwithstanding any termination of this letter. Neither Morgan,
JPMSI, Merrill, ML&Co. nor any other Indemnified Person shall be responsible or
liable to any other person for consequential damages which may be alleged as a
result of this letter or the financing contemplated hereby.
This letter may not be changed except pursuant to a written
agreement signed by each of the parties hereto. This letter shall be governed
by, and construed in accordance with, the laws of the State of New York.
<PAGE>
This letter is delivered to you on the understanding that neither this
letter nor any of its terms or substance shall be disclosed, directly or
indirectly, to any other person except (a) to your employees, directors, agents
and advisers who are directly involved in the consideration of this matter, (b)
to Mainline and its employees, directors, agents and advisers or (c) as
disclosure may be compelled in a judicial or administrative proceeding or as
otherwise required by law. All descriptions of and references to the Credit
Facilities in any filing with a governmental authority or in any press release,
advertisement or other public disclosure shall be subject to the prior review
of each of Morgan and Merrill.
If you are in agreement with the foregoing, please sign and return to
Morgan the enclosed copies of this letter and the Fee Letter no later than
11:59 p.m. New York time on October 22, 1996. This offer shall terminate at
such time unless prior thereto we shall have received signed copies of such
letters.
We look forward to working with you on this transaction.
MORGAN GUARANTY TRUST COMPANY MERRILL LYNCH CAPITAL
OF NEW YORK CORPORATION
By: /s/ Douglas A. Cruikshank By: /s/ Christopher Birosak
------------------------------- -------------------------------
Title: Vice President Title: Vice President
J.P. MORGAN SECURITIES INC. MERRILL LYNCH & CO.
By: /s/ Suzanne Waltman By: /s/ Christopher Birosak
------------------------------- -------------------------------
Title: Vice President Title: Director
Accepted and agreed to as of the date first above written:
NORFOLK SOUTHERN CORPORATION
By: William J. Romig
-------------------------------
Title: Vice President &
Treasurer
<PAGE>
PROJECT LIBERTY
$11,500,000,000 SENIOR CREDIT FACILITIES
Summary of Terms and Conditions
October 22, 1996
-------------------------------
The company identified to us as "Ironhorse" intends to acquire the
company identified to us as "Mainline" in an "unsolicited" transaction. A
credit agreement providing for the Credit Facilities described below will be
executed and delivered by the Borrower and the Lenders referred to below (the
date of such execution and delivery, the "Closing Date") prior to the date of
consummation of the Tender Offer (the "Acquisition Date"), but the initial
extensions of credit thereunder shall not be made until the Acquisition Date.
I. Parties
-------
Borrower: Ironhorse.
Guarantors: All direct and indirect Significant
Subsidiaries of the Borrower, (including,
without limitation, Norfolk Southern Railway
and North American Van Lines, Inc.) and,
following the date on which the approval of
the Surface Transportation Board (the "STB")
shall have been obtained (the "STB Approval
Date") and the Merger shall have been
consummated (the "Merger Date", and the later
of such dates, the "Consummation Date"),
Mainline (in such capacities, the
"Guarantors"; the Borrower and the Guarantors,
collectively, the "Credit Parties").
Arrangers: J.P. Morgan Securities Inc. and Merrill Lynch
& Co. (collectively, in such capacities, the
"Arrangers").
Administrative Agent: Morgan (as defined below) (in such capacity,
the "Administrative Agent").
Documentation Agent: Merrill (as defined below) (in such capacity,
the "Documentation Agent"; together with the
Administrative Agent, the "Agents").
Lenders: The banks, financial institutions and other
entities, including Morgan Guaranty Trust
Company of New York
<PAGE>
("Morgan") and Merrill Lynch Capital Corporation
("Merrill") selected in the syndication effort
(collectively, the "Lenders").
II. Types and Amounts of Credit Facilities
--------------------------------------
1. Term Loan Facility - I
----------------------
Amount: $2,500,000,000 (the loans thereunder, "Term
Loan - I").
Maturity: Term Loan - I shall be payable on the earlier
of six months from the STB Approval Date and
three years from the Closing Date.
Availability: A portion of Term Loan - I shall be drawn on the
Acquisition Date and a portion on the Merger
Date. The commitments under the Term Loan
Facility - I shall terminate on the Merger Date
immediately after the final funding of Term Loan
- I.
Purpose: The proceeds of Term Loan - I shall be used to
finance the Acquisition and to pay related
fees and expenses.
2. Term Loan Facility - II
-----------------------
Amount: $3,000,000,000 (the loans thereunder, "Term
Loan - II").
Maturity: Term Loan - II shall be payable in full 24
months after the maturity of Term Loan - I.
Availability: A portion of Term Loan - II shall be drawn on
the Acquisition Date and a portion on the Merger
Date. The commitments under the Term Loan
Facility - II shall terminate on the Merger Date
immediately after the final funding of Term Loan
- II.
Purpose: The proceeds of Term Loan - II shall be used
to finance the Acquisition and to pay related
fees and expenses.
3. Term Loan Facility - III
------------------------
Amount: $3,000,000,000 (the loans thereunder, "Term
Loan - III"; together with Term Loan - I and
Term Loan - II, the "Term Loans"). The Term
Loan Facility - I, Term Loan
<PAGE>
Facility - II and Term Loan Facility - III are
collectively referred to herein as the "Term
Loan Facilities".
Maturity: Term Loan - III shall be payable six and
one-half years from the Closing Date.
Availability: A portion of Term Loan - III shall be drawn on
the Acquisition Date and a portion on the Merger
Date. The commitments under the Term Loan
Facility - III shall terminate on the Merger
Date immediately after the final funding of Term
Loan - III.
Amortization: [To be determined, but substantially equal
quarterly payments].
Purpose: The proceeds of Term Loan - III shall be used
to finance the Acquisition and to pay related
fees and expenses.
3. Revolving Credit Facility
-------------------------
Type and Amount of Facility: Five-year revolving credit facility (the
"Revolving Credit Facility") in the amount of
$3,000,000,000 (the loans thereunder, the
"Revolving Credit Loans"). The Term Loan
Facilities and the Revolving Credit Facility are
collectively referred to herein as the "Credit
Facilities".
Maturity: The Revolving Credit Facility shall mature
five years after the Closing Date (the
"Revolving Credit Termination Date").
Availability: The Revolving Credit Facility shall be
available on a fully revolving basis
commencing on the Acquisition Date and ending
on the Revolving Credit Termination Date.
Purpose: The proceeds of the Revolving Credit Loans shall
be used to finance the Acquisition, to pay
related fees and expenses, to refinance a
portion of the existing bank debt of Ironhorse
(including under the existing credit agreement),
and for general corporate purposes.
Drawdowns: Minimum amounts of $25,000,000 with additional
increments of $1,000,000 . Drawdowns are at
the Borrower's option with same day notice for
Base Rate Loans, one business day's for Money
Market Absolute
<PAGE>
Rate Loans, two business days for Adjusted CD
Loans, three business days for LIBOR Loans, and
five business days for Money Market LIBOR Loans.
Money Market Option The Borrower may request the Agent to solicit
Description: competitive bids from the Banks at a margin over
LIBOR or at an absolute rate, for interest
periods of 30 days or more. Each Bank will bid
at its own discretion for amounts up to the total
amount of commitments and the Borrower will be
under no obligation to accept any of the bids.
Any Money Market advances made by a Bank
shall be deemed usage of the facility for the
purpose of fees and availability. However, each
Bank's advance shall not reduce such Bank's
obligation to lend its pro rata share of the
remaining undrawn commitment.
Bid Selection Mechanism: The Borrower will
determine the aggregate amount of bids, if any,
it will accept. Bids will be accepted in order
of the lowest to the highest rates ("Bid
Rates"). If two or more Banks bid at the same
Bid Rate and the amount of such bids accepted is
less than the aggregate amount of such bids,
then the amount to be borrowed at such Bid Rate
will be allocated among such Banks in proportion
to the amount for which each Bank bid at such
Bid Rate. If the bids are either unacceptably
high to the Borrower or are insufficient in
amount, the Borrower may cancel the auction.
III. General Provisions
------------------
Fees and Interest Rates: See Pricing Grid.
Borrowing Options: LIBOR, Adjusted CD, Base Rate and for the
Revolving Credit Facility only, Money Market.
CD will be automatically adjusted for reserves
and other regulatory requirements. LIBOR
adjustments for Regulation D will be charged by
Banks individually.
Base Rate means the higher of Morgan's prime
rate or the federal funds rate + 0.50%.
<PAGE>
Interest Periods: Syndicated Borrowings:
LIBOR Loans - 1, 2, 3, or 6 months.
Adjusted CD Loans - 30, 60, 90, or 180 days.
Non-Syndicated Borrowings:
Money Market LIBOR Loans - minimum 1 month.
Money Market Absolute Rate Loans - min. 14
days.
Optional Prepayments and
Commitment Reductions: Base Rate Loans may be prepaid at any time on
one business day's notice. LIBOR, Adjusted CD
and Money Market Loans may not be prepaid
before the end of an Interest Period.
Optional prepayments of the Term Loans may not
be reborrowed. Money Market Loans may not be
prepaid without the consent of the relevant
Lender.
Mandatory Prepayments and
Commitment Reductions: The following amounts shall be applied, prior
to the Acquisition Date, to reduce the
commitments under the Term Loan Facilities, and,
following the Acquisition Date, to prepay the
Term Loans:
(a) 100% of the net cash proceeds of any sale or
issuance of equity or incurrence of indebtedness
(subject to customary exceptions, including an
exception for the net cash proceeds from the
issuance of stock in connection with employee
benefit plans and dividend reinvestment plans)
after the Closing Date by Ironhorse or any of
its subsidiaries (including, after Consummation
Date, Mainline and its subsidiaries); and
(b) 100% of the net cash proceeds of any sale or
other disposition after the Closing Date by
Ironhorse or any of its subsidiaries (including,
after the Consummation Date, Mainline and its
subsidiaries) of any assets (excluding (i) the
sale of inventory in the ordinary course of
business, and (ii) individual asset sales the
proceeds of which do not exceed $10,000,000, and
(iii) sales of those assets listed on Annex II
hereto, the proceeds of which were projected in
Ironhorse's base projections to be received by
Ironhorse in the 1996 fiscal year); and
Mandatory Term Loan commitment reductions shall
be applied first, to the reduction of the
commitments under the Term Loan Facility - I,
second, to the reduction of the
<PAGE>
commitments under the Term Loan Facility - II
and third, to the reduction of the commitments
under the Term Loan Facility - III. In the event
of any reduction of the commitments under any
Term Loan Facility, the installments specified
for the relevant Term Loan herein shall be
reduced ratably. Mandatory Term Loan prepayments
shall be applied first, to the prepayment of
Term Loan - I, second, to the prepayment of Term
Loan - II and third, to the reduction of the
commitments under the Term Loan Facility - III.
Each such prepayment shall be applied to the
installments of the relevant Term Loan ratably
in accordance with the then outstanding amounts
thereof. Mandatory prepayments of the Term Loans
may not be reborrowed.
IV. Guarantees and Collateral
-------------------------
Guarantees: All obligations of the Borrower under the
Credit Documentation shall be unconditionally
guaranteed by the Guarantors.
Collateral: The Credit Facilities shall be secured by a
perfected first priority security interest in
(i) the voting trust certificates of Mainline,
(ii) the shares of all significant
subsidiaries of Ironhorse and, after the
Consummation Date, (iii) the shares of all
significant subsidiaries of Mainline. The
collateral shall be released upon Ironhorse
receiving unsecured senior credit ratings from
S&P and Moody's of at least BBB- and Baa3,
respectively.
V. Certain Conditions
------------------
Initial Borrowing Conditions: The making of the Loans on the Acquisition
Date shall be conditioned upon satisfaction of
each of the following conditions precedent:
(a) Each Credit Party shall have executed and
delivered satisfactory definitive financing
documentation with respect to the Credit
Facilities (the "Credit Documentation").
(b) There shall have been validly tendered to
Ironhorse sufficient shares of Mainline common
stock to enable Ironhorse to effect a merger of
Mainline with a wholly-owned subsidiary of
Ironhorse, without the requirement
<PAGE>
of any action by any other Mainline security
holder; all conditions to purchase set forth in
the Offer to Purchase shall have been satisfied
without waiver or amendment (except with the
prior written consent of the Required Lenders),
and Ironhorse shall have accepted for purchase
all such tendered shares.
(c) Concurrently with the making of the Loans on
the Acquisition Date, Ironhorse's existing
credit agreement shall have been terminated and
all amounts outstanding thereunder shall
have been repaid.
(d) The Lenders, the Agents and the Arrangers
shall have received all fees and expenses
required to be paid on or before the Acquisition
Date.
(e) The Lenders shall have received prior to the
[Closing Date] consolidated Ironhorse/Mainline
pro forma financial statements as of [September
30, 1996], adjusted to give effect to the
consummation of the Acquisition and the
financings contemplated hereby (as if such
events had occurred on such date).
(f) The Agents and the Lenders shall be
satisfied that the Credit Facilities, the use of
proceeds thereof and the collateral security
therefor comply in all respects with Regulations
G, T and U of the Board of Governors of the
Federal Reserve System.
(g) The STB shall have approved the terms of the
Voting Trust and such terms shall be acceptable
to the Lenders.
(h) Ironhorse shall have acquired concurrently
with the making of the Term Loans, directly or
indirectly, all of the issued and outstanding
common stock of Mainline (on a fully diluted
basis) at a purchase price (i) not to exceed
$100.00 per share and (ii) not to exceed
$11,500,000,000 in the aggregate, including fees
and assumption of debt.
(i) All governmental and material third party
approvals (including approvals under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976 and other consents [but excluding STB
approval]) necessary in connection with the
Acquisition and the financing contemplated
<PAGE>
hereby shall have been obtained and be in full
force and effect, and all applicable waiting
periods shall have expired without any action
being taken by any competent authority which has
restrained, prevented or otherwise imposed
materially adverse conditions on the Acquisition
or the financing thereof. The Agents and the
Lenders shall have received copies, certified by
Ironhorse, of all filings made with any
governmental authorities in connection with the
Acquisition.
(j) The Lenders shall have received such legal
opinions (including (i) opinions from counsel to
Ironhorse and its subsidiaries, (ii) opinions
(if any) delivered to Ironhorse by counsel to
Mainline, accompanied by reliance letters in
favor of the Lenders and (iii) opinions from
such special counsel as may be required by the
Agents), documents and other instruments as are
customary for transactions of this type or as
they may reasonably request.
Ongoing Conditions: The making of each extension of credit (that
increases principal outstanding) shall be
conditioned upon (a) all representations and
warranties in the Credit Documentation
(including, without limitation, the material
adverse change representation) being true and
correct in all material respects and (b) there
being no default or Event of Default (as
defined below) in existence at the time of, or
after giving effect to the making of, such
extension of credit. The "material adverse
change representation" shall be to the effect
that there has been no material adverse change
(a "Material Adverse Change") in the
consolidated financial condition, operations,
assets, business or prospects taken as a whole
of Ironhorse and Mainline from that set forth
in the information heretofor made available to
the Lenders.
VI. Representations, Warranties,
----------------------------
Covenants and Events of Default
-------------------------------
The Credit Documentation shall contain
representations, warranties, covenants and
events of default customary for financings of
this type and other terms deemed appropriate by
the Lenders, including, without limitation:
<PAGE>
Representations and Warranties: Corporate existence; financial condition and
statements (including pro forma financial
statements); no material adverse change; no
litigation; no default; no conflict with law
or contractual obligations; corporate action
and enforceability of Credit Documentation;
approvals; use of proceeds (Federal Reserve
regulations); ERISA; taxes; Investment Company
Act; Public Utility Holding Company Act;
environmental matters; subsidiaries; accuracy
of disclosure; ownership of property;
intellectual property; and creation and
perfection of security interests.
Consummation of Acquisition: The Borrower shall use its best efforts to
cause the STB approval to be obtained and the
Merger to be consummated at the earliest
practicable time.
Affirmative Covenants: Delivery of financial statements, reports
filed with the SEC or delivered to
shareholders, officers' certificates and other
information reasonably requested by the
Lenders; notices of defaults, litigation and
other material events; continuation of
business and maintenance of existence and
material rights and privileges; compliance
with laws (including environmental laws) and
material contractual obligations; payment of
taxes and other obligations; maintenance of
property and insurance; maintenance of books
and records; and right of the Lenders to
inspect books and records.
Financial Covenants: Usual and customary for transactions of this
type including, but not limited to:
(a) Interest Coverage Ratio (as defined below)
at the end of any fiscal quarter to be not
less than the ratios to be mutually agreed
upon.
As used herein, "Interest Coverage Ratio"
shall mean the ratio of (EBITDA-Capital
Expenditures) to Interest Expense determined
on a rolling four quarter basis; provided,
that until four full fiscal quarters have
passed since the Acquisition Date the Interest
Coverage Ratio shall be measured for the
three, six, and nine month periods commencing
with the first full fiscal quarter after the
Acquisition Date.
(b) Net Worth on the last day of any fiscal
quarter ending
<PAGE>
after the Acquisition Date to be not less than
the sum of (i) 80% of the Net Worth of
Ironhorse/Mainline on the [Acquisition Date],
(ii) 50% of cumulative Net Income (excluding any
losses) since the Acquisition Date and (iii)
100% of the net proceeds of any equity issuances
since the Acquisition Date, as at the end of
such fiscal quarter.
(c) Leverage Ratio (as defined below) at the end
of any fiscal quarter to be not greater than
ratios to be mutually agreed upon.
As used herein, "Leverage Ratio" shall mean the
ratio of Total Debt (including guarantees of
third-party Debt) to EBITDA.
"Interest Expense", "Net Worth", "Net Worth",
"Capital Expenditures", "EBITDA" and "Net
Income" shall be determined on a consolidated
basis in accordance with GAAP unless otherwise
agreed by Ironhorse and the Agents and shall in
each case be subject to adjustments to be agreed
upon by Ironhorse and the Agents.
(d) Restricted Investments (as defined below)
shall not be permitted. As used herein,
"Restricted Investments" shall mean payments,
transfers or other distributions of cash or
other assets from Ironhorse to Mainline prior to
the Consummation Date.
(e) Within 45 days of Closing, the Borrower will
have entered into and thereafter maintain
interest rate agreements fixing the interest
rate on at least [40%] of the principal amount
of its outstanding debt on such terms as are
acceptable to the Lenders.
Negative Covenants: Limitations on: maturities or amortization of
indebtedness (including preferred stock) prior
to the date which is six months after the
final maturity of the Loans (subject to a
mutually agreed upon basket for any such
indebtedness having earlier maturities and
other exceptions to be agreed upon, e.g.
commercial paper); indebtedness of
subsidiaries (subject to a mutually agreed
upon basket); investments in Mainline prior to
the STB Approval Date; liens, including
sale/leaseback transactions (subject to a
mutually agreed upon general
<PAGE>
basket for liens and/or sale-leasebacks and
other exceptions to be agreed upon); mergers,
consolidations, liquidations, dissolutions and
sales of assets; ability of subsidiaries to pay
dividends; transactions with affiliates; and
changes in fiscal year.
Events of Default: Nonpayment of principal when due; nonpayment
of interest, fees or other amounts when due;
material inaccuracy of representations and
warranties; violation of covenants: cross
event of default; bankruptcy; certain ERISA
events; material judgments; actual or asserted
invalidity of any guarantee or security
document or security interest; and a change of
control. Certain of the events of default
shall include customary thresholds and grace
periods to be mutually agreed upon. For the
purposes hereof, "Event of Default" refers to
any of the foregoing events so long as any
requirement for the giving of notice or the
lapse of time shall have been satisfied.
VII. Certain Other Terms:
--------------------
Voting: Amendments and waivers with respect to the
.Credit Documentation shall require the
approval of Lenders (the "Required Lenders")
holding Loans and commitments representing not
less than 51% of the aggregate amount of the
Loans and commitments under the Credit
Facilities, except that (a) the consent of
each Lender affected thereby shall be required
with respect to (i) reductions in the amount
of any scheduled payment (including scheduled
installment payments), or extensions of the
scheduled maturity date (including scheduled
installment dates), of any Loan, (ii)
reductions in the rate of interest or any fee
or extensions of any due date thereof and
(iii) increases in the amount or extensions of
the expiry date of any Lender's commitment and
(b) the consent of 100% of the Lenders shall
be required with respect to (i) modifications
to any of the voting percentages and (ii)
releases of all or substantially all of the
collateral (except as provided as above).
Assignments and Participations: The Lenders shall be permitted to assign and
sell participations in their Loans and
commitments, subject, in the case of
assignments (other than to another Lender
<PAGE>
or to an affiliate of the assigning Lender), to
the consent of the Administrative Agent and
Ironhorse (which consent in each case shall not
be unreasonably withheld, and which consent
shall not be required if there exists a Default
or Event of Default). Non-pro rata assignments
shall be permitted. The minimum assignment
amount shall be $10,000,000 and the aggregate
commitments and/or Loans retained by any
assigning Lender shall equal at least
$25,000,000, unless (in either case) the
assigning Lender's commitments and Loans are
being reduced to $0. Participants shall have the
same benefits as the Lenders with respect to
yield protection and increased cost provisions.
Voting rights of participants shall be limited
to those matters with respect to which the
affirmative vote of the Lender from which it
purchased its participation would be required as
described under "Voting" above. Promissory notes
shall be issued under the Credit Facilities only
upon request.
Yield Protection: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
loss of yield resulting from changes in reserve,
tax, capital adequacy and other requirements of
law and from the imposition of withholding or
other taxes and (b) indemnifying the Lenders for
"breakage costs" incurred in connection with,
among other things, prepayment of a Eurodollar
Loan on a day other than the last day of an
interest period with respect thereto.
Expenses and Indemnification: The Borrower shall pay (a) all reasonable
out-of-pocket expenses of the Agents and the
Arrangers associated with the syndication of the
Credit Facilities and the preparation,
execution, delivery and administration of the
Credit Documentation and any amendment or waiver
with respect thereto (including the reasonable
fees and disbursements and other charges of
counsel) and (b) all out-of-pocket expenses of
the Agents and the Lenders in connection with
the enforcement of the Credit Documentation
(including the fees and disbursements and other
charges of counsel).
The Borrower shall indemnify, pay and hold
harmless the Agents, the Arrangers and the
Lenders (and their respective directors,
officers, employees and agents) against any
loss, liability, cost or expense incurred in
<PAGE>
respect of the financing contemplated hereby or
the use or the proposed use of proceeds thereof
(except to the extent resulting from the gross
negligence or willful misconduct of the
indemnified party).
Governing Law and Forum: State of New York.
Counsel to the Agents and the
Arrangers: Davis Polk & Wardwell
Commitment Termination Date: The Closing Date must have occurred on or
before March 1, 1997.
Facility Fee: Ironhorse shall pay a per annum fee calculated
on a 360 day basis payable on each Lender's
commitment irrespective of usage, quarterly in
arrears, at the rate set forth on the Pricing
Grid attached hereto.
Default Rate: At any time when either Borrower is in default
in the payment of any amount due under the
Credit Facilities, the principal of all Loans
shall bear interest at 2% above the rate
otherwise applicable thereto. Overdue
interest, fees and other amounts shall bear
interest at 2% above the rate applicable to
Base Rate Loans.
Rate and Fee Basis: All per annum rates shall be calculated on the
basis of a year of 360 days (or 365/366 days, in
the case of Base Rate Loans the interest rate
payable on which is then based on the Prime
Rate) for actual days elapsed.
<PAGE>
PRICING GRID
Until such time as the Borrower's ratings shall have been affirmed by S&P
and Moody's following the announcement of the Offer to Purchase (the "Initial
Pricing Period"), pricing shall be as follows:
- -------------------------------------------------------------------------------
EURODOLLAR BASE RATE LOAN FACILITY TOTAL USED
LOAN MARGIN MARGIN FEES COST
- -------------------------------------------------------------------------------
75 bps 0 bps 25 bps L + 100 bps
===============================================================================
The Eurodollar Loan Margin, the Base Rate Loan Margin and the facility
fee rate shall be determined in accordance with this Pricing Grid based upon
Ironhorse's Senior Unsecured Long-Term Debt Ratings established by S&P and
Moody's as follows):
- -------------------------------------------------------------------------------
SENIOR UNSECURED LONG-
TERM DEBT RATINGS
- -------------------------------------------------------------------------------
S&P MOODY'S EURODOLLAR BASE RATE FACILITY TOTAL USED
CATEGORY LOAN MARGIN LOAN MARGIN FEE COST
- -------------------------------------------------------------------------------
1 BBB+ Baa1 22.5 bps 0 bps 12.5 bps L + 35 bps
- -------------------------------------------------------------------------------
2 BBB Baa2 35 bps 0 bps 15 bps L + 50 bps
- -------------------------------------------------------------------------------
3 BBB- Baa3 47.5 bps 0 bps 17.5 bps L + 65 bps
- -------------------------------------------------------------------------------
4 BB+ Ba1 75 bps 0 bps 25 bps L + 100 bps
- -------------------------------------------------------------------------------
5 BB Ba2 87.5 bps 25 bps 37.5 bps L + 125 bps
- -------------------------------------------------------------------------------
If the Borrower is split-rated and the ratings differential is one level,
the higher rating will apply, unless one of the ratings is sub-investment
grade, in which case the lower rating will apply. If the Borrower is
split-rated and the ratings differential is two levels or more, the rating
at the midpoint will apply. If there is no midpoint rating, the higher of
the two intermediate ratings will apply, unless one of the ratings is
sub-investment grade, in which case the lower of the two intermediate
ratings will apply.
<PAGE>
THE VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT, dated as of , 1996, by and among Norfolk
Southern Corporation, a Virginia corporation ("Parent"), Atlantic Acquisition
Corporation, a Pennsylvania corporation and a wholly owned subsidiary of
Parent ("Acquiror"), and the Bank (the "Trustee"),
W I T N E S S E T H:
WHEREAS, Acquiror owns on the date hereof 100 shares of common stock,
$1.00 par value ("Common Shares"), of Conrail Inc., a Pennsylvania
corporation (the "Company"), and has commenced a tender offer (the "Tender
Offer") to acquire additional (i) Common Shares, and (ii) shares of Series A
ESOP Convertible Junior Preferred Stock, no par value (the "ESOP Preferred
Shares" and, together with the Common Shares, the "Shares"), including, in
each case, the associated Common Stock Purchase Rights issued pursuant to the
Rights Agreement, dated as of July 19, 1989, between the Company and First
Chicago Trust Company of New York, as Rights Agent at a price of $100 per
Share, net to the seller in cash, that may be sufficient to empower the
Parent or the Acquiror to control the Company (the "Acquired Shares").
WHEREAS, the Acquiror wishes to deposit all Shares presently owned and
intends simultaneously with the acceptance for payment of such Acquired
Shares pursuant to the Tender Offer, or otherwise, to deposit such Shares in
an independent, irrevocable voting trust, pursuant to the rules of the
Surface Transportation Board (the "STB"), in order to avoid any allegation or
assertion that the Parent or the Acquiror is controlling or has the power to
control the Company prior to the receipt of any required STB approval or
exemption;
WHEREAS, the Parent intends to place the common stock of the Acquiror in
such voting trust at or immediately prior to a merger (the "Merger") of the
Acquiror with and into the Company pursuant to an Agreement and Plan of
Merger to be entered into by and among the Parent, the Acquiror and the
Company, as it may be amended from time to time (the "Acquisition
Agreement"), in order to avoid any allegation or assertion that the Merger
would result in the Parent controlling or having the power to control the
Company prior to receipt of any required STB approval;
WHEREAS, neither the Trustee nor any of its affiliates has any officers or
board members in common or any direct or indirect business arrangements or
dealings (as described in Paragraph 9 hereof) with the Parent or the Acquiror
or any of their affiliates; and
WHEREAS, the Trustee is willing to act as voting trustee pursuant to the
terms of this Trust Agreement and the rules of the STB,
NOW THEREFORE, the parties hereto agree as follows:
1. Creation of Trust--The Parent and the Acquiror hereby appoint the
Bank as Trustee hereunder, and the Bank hereby accepts said appointment and
agrees to act as Trustee under this Trust Agreement as provided herein.
2. Trust Is Irrevocable--This Trust Agreement and the nomination of the
Trustee during the term of the trust shall be irrevocable by the Parent and
the Acquiror and their affiliates and shall terminate only in accordance
with, and to the extent of, the provisions of Paragraphs 8 and 14 hereof.
3. Deposit of Trust Stock--The Parent and the Acquiror agree that, prior
to acceptance of Acquired Shares purchased pursuant to the Tender Offer, the
Acquiror will direct the depositary for the Tender Offer to transfer to the
Trustee any such Acquired Shares purchased pursuant to the Tender Offer. The
Parent and the Acquiror also agree that simultaneously with receipt,
acquisition or purchase of any additional Shares by either of them, directly
or indirectly, or by any of their affiliates, they will transfer to the
Trustee the certificate or certificates for such Shares. All such
certificates shall be duly endorsed or accompanied by proper instruments duly
executed for transfer thereof to the Trustee or otherwise validly and
properly transferred, and shall be exchanged for one or more Voting Trust
Certificates substantially in the form attached hereto as Exhibit A (the
"Trust Certificates"), with the blanks therein appropriately
1
<PAGE>
filled in. All Shares at any time delivered to the Trustee hereunder are
called the "Trust Stock." The Trustee shall present to the Company all
certificates representing Trust Stock for surrender and cancellation and for
the issuance and delivery to the Trustee of new certificates registered in
the name of the Trustee or its nominee.
Parent agrees that, at or immediately prior to the Merger, it will
transfer to the Trustee all issued and outstanding shares of the common stock
of the Acquiror owned by the Parent, which certificates shall be duly
endorsed or accompanied by proper instruments duly executed for transfer
thereof to the Trustee, in exchange for one or more Voting Trust Certificates
substantially in the form attached hereto as Exhibit B (the "Acquiror Trust
Certificates"), with the blanks therein appropriately filled. All shares of
the common stock of the Acquiror at any time delivered to the Trustee
hereunder are hereinafter called the "Acquiror Trust Stock." The Trustee
shall present to the Acquiror all certificates representing the Acquiror
Trust Stock for surrender and cancellation by the Acquiror, and for the
issuance and delivery to the Trustee of new certificates registered in the
name of the Trustee or its nominee.
4. Powers of Trustee--The Trustee shall be present, in person or
represented by proxy, at all annual and special meetings of shareholders of
the Company so that all Trust Stock may be counted for the purposes of
determining the presence of a quorum at such meetings. Parent and Acquiror
agree, and the Trustee acknowledges, that the Trustee shall not participate
in or interfere with the management of the Company and shall take no other
actions with respect to the Company except in accordance with the terms
hereof. The Trustee shall exercise all voting rights in respect of the Trust
Stock to approve and effect the Merger (including, without limitation, by
means of a "short-form" merger pursuant to Section 1924(b)(ii) of the
Pennsylvania Business Corporation Law), and in favor of any proposal or
action necessary or desirable to effect, or consistent with the effectuation
of, the Parent and Acquiror's acquisition of the Company, pursuant to the
Acquisition Agreement, and without limiting the generality of the foregoing,
if there shall be with respect to the Board of Directors of the Company an
"Election Contest" as defined in the Proxy Rules of the Securities and
Exchange Commission (the "SEC"), in which one slate of nominees shall support
the effectuation of the Merger and another oppose it, vote in favor of the
removal of any directors opposing the Merger and in favor of the election of
the slate supporting the effectuation of the Merger. In addition, for so long
as the Acquisition Agreement is in effect, the Trustee shall exercise all
voting rights in respect of the Trust Stock, to cause any other proposed
merger, business combination or similar transaction (including, without
limitation, any consolidation, sale or purchase of assets, reorganization,
recapitalization, liquidation or winding up of or by the Company) involving
the Company, but not involving the Parent or one of its subsidiaries or
affiliates (otherwise than in connection with a disposition pursuant to
Paragraph 8), not to be effected. In addition, the Trustee shall exercise all
voting rights in respect of the Trust Stock in favor of any proposal or
action necessary or desirable to dispose of Trust Stock in accordance with
Paragraph 8 hereof. Except as provided in the three immediately preceding
sentences or in Paragraph 5 hereof, prior to the Merger, the Trustee shall vote
all shares of Trust Stock with respect to all matters, including without
limitation the election or removal of directors, voted on by the shareholders of
the Company (whether at a regular or special meeting or pursuant to a unanimous
written consent) in the same proportion as all Shares (other than Trust Stock)
are voted with respect to such matters. In exercising its voting rights in
accordance with this Paragraph 4, the Trustee shall take such actions at all
annual, special or other meetings of stockholders of the Company or in
connection with any and all consents of shareholders in lieu of a meeting.
5. Further Provisions Concerning Voting of Trust Stock--The Trustee shall
be entitled and it shall be its duty to exercise any and all voting rights in
respect of the Trust Stock either in person or by proxy, as hereinafter
provided (including without limitation Paragraphs 4 and 8(b) hereof), unless
otherwise directed by the STB or a court of competent jurisdiction. Subject
to Paragraph 4, the Trustee shall not exercise the voting powers of the Trust
Stock in any way so as to create any dependence or intercorporate
relationship between (i) any or all of the Parent, the Acquiror and their
affiliates, on the one hand, and (ii) the Company or its affiliates, on the
other hand. The term "affiliate" or "affiliates" wherever used in this Trust
Agreement shall have the meaning specified in Section 11323(c) of Title 49 of
the United States Code, as amended. The Trustee shall not, without the prior
approval of the STB, vote the Trust Stock to elect any officer, director,
nominee or representative of the Parent, the Acquiror or their affiliates as
an
2
<PAGE>
officer or director of the Company or of any affiliate of the Company. The
Trustee shall be kept informed respecting the business operations of the
Company by means of the financial statements and other public disclosure
documents periodically filed by the Company and affiliates of the Company
with the SEC and the STB, and by means of information respecting the Company
contained in such statements and other documents filed by the Parent with the
SEC and the STB, copies of which shall be promptly furnished to the Trustee
by the Company or the Parent, as the case may be, and the Trustee shall be
fully protected in relying upon such information. The Trustee shall not be
liable for any mistakes of fact or law or any error of judgment, or for any
act or omission, except as a result of the Trustee's willful misconduct or
gross negligence. Notwithstanding the foregoing provisions of this Paragraph
5, however, the registered holder of any Trust Certificate may at any time
with the prior written approval of Parent--but only with the prior
written approval of the STB--instruct the Trustee in writing to vote the
Trust Stock represented by such Trust Certificate in any manner, in which
case the Trustee shall vote such shares in accordance with such instructions.
6. Transfer of Trust Certificates--All Trust Certificates shall be
transferable on the books of the Trustee by the registered holder upon the
surrender thereof properly assigned, in accordance with rules from time to
time established for the purpose by the Trustee. Until so transferred, the
Trustee may treat the registered holder as owner for all purposes. Each
transferee of a Trust Certificate issued hereunder shall, by his acceptance
thereof, assent to and become a party to this Trust Agreement, and shall
assume all attendant rights and obligations.
7. Dividends and Distributions--Pending the termination of this Trust as
hereinafter provided, the Trustee shall, immediately following the receipt of
each cash dividend or cash distribution as may be declared and paid upon the
Trust Stock, pay the same over to or as directed by the Acquiror or to or as
directed by the holder of the Trust Certificates hereunder as then appearing
on the books of the Trustee. The Trustee shall receive and hold dividends and
distributions other than cash upon the same terms and conditions as the Trust
Stock and shall issue Trust Certificates representing any new or additional
securities that may be paid as dividends or otherwise distributed upon the
Trust Stock to the registered holders of Trust Certificates in proportion to
their respective interests.
8. Disposition of Trust Stock; Termination of Trust--(a) This Trust is
accepted by the Trustee subject to the right hereby reserved in the Parent at
any time to sell or make any other disposition of the whole or any part of
the Trust Stock, whether or not an event described in subparagraph (b) below
has occurred. The Trustee shall take all actions reasonably requested by the
Parent (including, without limitation, exercising all voting rights in
respect of Trust Stock in favor of any proposal or action necessary or
desirable to effect, or consistent with the effectuation of or with respect
to any proposed sale or other disposition of the whole or any part of the
Trust Stock by the Acquiror or Parent that is otherwise permitted pursuant to
this Paragraph 8. In the event of a permitted sale of Trust Stock by the
Acquiror, the Trustee shall, to the extent the consideration therefor is
payable to or controllable by the Trustee, promptly pay, or cause to be paid,
upon the order of the Acquiror the net proceeds of such sale to the
registered holders of the Trust Certificates in proportion to their
respective interests. It is the intention of this Paragraph that no violation
of 49 U.S.C. Section 11323 will result from a termination of this Trust.
(b) In the event the STB by final order shall (i) approve or exempt the
acquisition of control of the Company by the Acquiror, the Parent or any of
their affiliates or (ii) approve or exempt a merger between the Company and
the Acquiror, the Parent or any of their affiliates, then immediately upon
the direction of the Parent and the delivery of a certified copy of such
order of the STB or other governmental authority with respect thereof, or, in
the event that Subtitle IV of Title 49 of the United States Code, or other
controlling law, is amended to allow the Acquiror, the Parent or their
affiliates to acquire control of the Company without obtaining STB or other
governmental approval, upon delivery of an opinion of independent counsel
selected by the Trustee that no order of the STB or other governmental
authority is required, the Trustee shall either (x) transfer to or upon the
order of the Acquiror, the Parent or the holder or holders of Trust
Certificates hereunder as then appearing on the records of the Trustee, its
right, title and interest in and to all of the Trust Stock then held by it in
accordance with the terms, conditions and agreements of this Trust Agreement
and not theretofore transferred by it as provided in subparagraph (a) hereof,
or (y) if shareholder approval has not previously been obtained, vote the
Trust
3
<PAGE>
Stock with respect to any such merger between the Company and the Acquiror,
the Parent or any affiliate of either as directed by the holder or holders of
a majority in interest of the Trust Certificates, and upon any such merger
this Trust shall cease and come to an end.
(c) In the event that the STB should issue an order denying, or approving
subject to conditions unacceptable to the Parent, any application or petition
by the Acquiror, the Parent or their affiliates to merge with or otherwise
exercise control over the Company or the surviving corporation in the Merger,
and such order becomes final after judicial review or failure to appeal, Parent
shall use its best efforts to sell, distribute or otherwise to dispose of the
Trust Stock or all of the assets of the Company or the surviving corporation in
the Merger, to one or more eligible purchasers, during a period
of two years after such order becomes final after judicial review or failure
to appeal, and subject to any jurisdiction of the STB to oversee Parent's
divestiture of Trust Stock. At all times, the Trustee shall continue to
perform its duties under this Trust Agreement and, should Parent be
unsuccessful in its efforts to sell or distribute the Trust Stock during the
period referred to, the Trustee shall then as soon as practicable sell the
Trust Stock for cash to eligible purchasers in such manner and for such price
as the Trustee in its discretion shall deem reasonable after consultation
with Parent. (An "eligible purchaser" hereunder shall be a person or entity
that is not affiliated with Parent and which has all necessary regulatory
authority, if any, to purchase the Trust Stock.) Parent agrees to cooperate
with the Trustee in effecting such disposition and the Trustee agrees to act
in accordance with any direction made by Parent as to any specific terms or
method of disposition, to the extent not inconsistent with any of the terms
of this Trust Agreement and with the requirements of the terms of any STB or
court order. The proceeds of the sale shall be distributed to or upon the
order of Parent or, on a pro rata basis, to the holder or holders of the
Trust Certificates hereunder as then known to the Trustee. The Trustee may,
in its reasonable discretion, require the surrender to it of the Trust
Certificates hereunder before paying to the holder his share of the proceeds.
Upon disposition of all the Trust Stock pursuant to this paragraph 8(c), this
Trust shall cease and come to an end.
(d) Unless sooner terminated pursuant to any other provision herein
contained, this Trust Agreement shall terminate on , , and may be
extended by the parties hereto, so long as no violation of 49 U.S.C. Section
11323 will result from such termination or extension. All Trust Stock and any
other property held by the Trustee hereunder upon such termination shall be
distributed to or upon the order of the Acquiror. The Trustee may, in its
reasonable discretion, require the surrender to it of the Trust Certificates
hereunder before the release or transfer of the stock interests evidenced
thereby.
(e) The Trustee shall promptly inform the STB of any transfer or
disposition of Trust Stock pursuant to this Paragraph 8.
(f) Except as expressly provided in this Paragraph 8, the Trustee shall
not dispose of, or in any way encumber, the Trust Stock, and any transfer,
sale or encumbrance in violation of the foregoing shall be null and void.
9. Independence of the Trustee--Neither the Trustee nor any affiliate of
the Trustee may have (i) any officers, or members of their respective boards
of directors, in common with the Acquiror, the Parent, or any affiliate of
either, or (ii) any direct or indirect business arrangements or dealings,
financial or otherwise, with the Acquiror, the Parent or any affiliate of
either, other than dealings pertaining to the establishment and carrying out
of this voting trust. Mere investment in the stock or securities of the
Acquiror or the Parent or any affiliate of either by the Trustee, short of
obtaining a controlling interest, will not be considered a proscribed
business arrangement or dealing, but in no event shall any such investment by
the Trustee in voting securities of the Acquiror, the Parent or their
affiliates exceed five percent of their outstanding voting securities and in
no event shall the Trustee hold a proportion of such voting securities so
substantial as to permit the Trustee in any way to control or direct the
affairs of the Acquiror, the Parent or their affiliates. Neither the
Acquiror, the Parent nor their affiliates shall purchase the stock or
securities of the Trustee or any affiliate of the Trustee.
10. Compensation of the Trustee--The Trustee shall be entitled to receive
reasonable and customary compensation for all services rendered by it as
Trustee under the terms hereof and said compensation to the Trustee, together
with all counsel fees, taxes, or other expenses reasonably incurred
hereunder, shall be promptly paid by the Acquiror or the Parent.
4
<PAGE>
11. Trustee May Act Through Agents--The Trustee may at any time or from
time to time appoint an agent or agents and may delegate to such agent or
agents the performance of any administrative duty of the Trustee.
12. Concerning the Responsibilities and Indemnification of the
Trustee--The Trustee shall not be answerable for the default or misconduct of
any agent or attorney appointed by it in pursuance hereof if such agent or
attorney has been selected with reasonable care. The duties and
responsibilities of the Trustee shall be limited to those expressly set forth
in this Trust Agreement. The Trustee shall not be responsible for the
sufficiency or the accuracy of the form, execution, validity or genuineness
of the Trust Stock, or of any documents relating thereto, or for any lack of
endorsement thereon, or for any description therein, nor shall the Trustee be
responsible or liable in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver any such Trust Stock or document or endorsement or this Trust
Agreement, except for the execution and delivery of this Trust Agreement by
this Trustee. The Acquiror and the Parent agree that they will at all times
protect, indemnify and save harmless the Trustee from any loss, cost or
expense of any kind or character whatsoever in connection with this Trust
except those, if any, growing out of the negligence or willful misconduct of
the Trustee, and will at all times themselves undertake, assume full
responsibility for, and pay all costs and expense of any suit or litigation
of any character, including any proceedings before the STB, with respect to
the Trust Stock of this Trust Agreement, and if the Trustee shall be made a
party thereto, the Acquiror or the Parent will pay all costs and expenses,
including reasonable counsel fees, to which the Trustee may be subject by
reason thereof; provided, however, that the Acquiror and the Parent shall not
be responsible for the cost and expense of any suit that the Trustee shall
settle without first obtaining the Parent's written consent. The Trustee may
consult with counsel and the opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or
omitted or suffered by the Trustee hereunder in good faith and in accordance
with such opinion.
13. Trustee to Give Account to Holders--To the extent requested to do so
by the Acquiror or any registered holder of a Trust Certificate, the Trustee
shall furnish to the party making such request full information with respect
to (i) all property theretofore delivered to it as Trustee, (ii) all property
then held by it as Trustee, and (iii) all actions theretofore taken by it as
Trustee.
14. Resignation, Succession, Disqualification of Trustee--The Trustee, or
any trustee hereafter appointed, may at any time resign by giving sixty days'
written notice of resignation to the Parent and the STB. The Parent shall at
least fifteen days prior to the effective date of such notice appoint a
successor trustee which shall (i) satisfy the requirements of Paragraph 9
hereof and (ii) be a corporation organized and doing business under the laws
of the United States or of any State thereof and authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of
at least $50,000,000 and subject to supervision or examination by federal or
state authority. If no successor trustee shall have been appointed and shall
have accepted appointment at least fifteen days prior to the effective date
of such notice of resignation, the resigning Trustee may petition any
competent authority or court of competent jurisdiction for the appointment of
a successor trustee. Upon written assumption by the successor trustee of the
Trustee's powers and duties hereunder, a copy of the instrument of assumption
shall be delivered by the Trustee to the Parent and the STB and all
registered holders of Trust Certificates shall be notified of its assumption,
whereupon the Trustee shall be discharged of the powers and duties of the
Trustee hereunder and the successor trustee shall become vested with such
powers and duties. In the event of any material violation by the Trustee of
the terms and conditions of this Trust Agreement, the Trustee shall become
disqualified from acting as trustee hereunder as soon as a successor trustee
shall have been selected in the manner provided by this paragraph.
15. Amendment--Subject to the requirements of the Acquisition Agreement,
this Trust Agreement may from time to time be modified or amended by
agreement executed by the Trustee, the Acquiror (if executed prior to the
Merger), the Parent and all registered holders of the Trust Certificates (i)
pursuant to an order of the STB, (ii) with the prior approval of the STB,
(iii) in order to comply with any order of the STB or (iv) upon receipt of an
opinion of counsel satisfactory to the Trustee and the holders of Trust
Certificates that an order of the STB approving such modification or
amendment is not required and that the amendment is consistent with the STB's
regulations regarding voting trusts.
5
<PAGE>
16. Governing Law; Powers of the STB--The provisions of this Trust
Agreement and of the rights and obligations of the parties hereunder shall be
governed by the laws of the [Commonwealth of Pennsylvania,] except that to
the extent any provision hereof may be found inconsistent with subtitle IV,
title 49, United States Code or regulations promulgated thereunder, such
statute and regulations shall control and such provision hereof shall be
given effect only to the extent permitted by such statute and regulations. In
the event that the STB shall, at any time hereafter by final order, find that
compliance with law requires any other or different action by the Trustee
than is provided herein, the Trustee shall act in accordance with such final
order instead of the provisions of this Trust Agreement.
17. Counterparts--This Trust Agreement may be executed in counterparts,
each of which shall constitute an original, and one of which shall be held by
each of the Parent and the Acquiror and two shall be held by the Trustee, one
of which shall be subject to inspection by holders of Trust Certificates on
reasonable notice during business hours.
18. Filing With the STB--A copy of this Agreement and any amendments or
modifications thereto shall be filed with the STB by the Acquiror.
19. Successors and Assigns--This Trust Agreement shall be binding upon the
successors and assigns to the parties hereto, including without limitation
successors to the Acquiror and the Parent by merger, consolidation or
otherwise. The parties agree that the Company shall be an express third party
beneficiary of this Trust Agreement. Except as otherwise expressly set forth
herein, any consent required from the Company hereunder shall be granted or
withheld in the Company's sole discretion.
20. Succession of Functions--The term "STB" includes any successor agency
or governmental department that is authorized to carry out the
responsibilities now carried out by the STB with respect to the consideration
of the consistency with the public interest of rail mergers and combinations,
the regulation of voting trusts in respect of the acquisition of securities
of rail carriers or companies controlling them, and the exemption of approved
rail mergers and combinations from the antitrust laws.
21. Notices--Any notice which any party hereto may give to the other
hereunder shall be in writing and shall be given by hand delivery, or by
first class registered mail, or by overnight courier service, or by facsimile
transmission confirmed by one of the aforesaid methods, sent,
If to Purchaser or Acquiror, to
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510
Attention: Vice President--Law
If to the Trustee, to
And if to the holders of Trust Certificates, to them at their addresses as
shown on the records maintained by the Trustee.
22. Remedies--Each of the parties hereto acknowledges and agrees that in
the event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in
any action for specific performance, the defense of adequacy of a remedy at
law and (b) shall be entitled, in addition to any other remedy to which they
may be entitled at law or in equity, to an order compelling specific
performance of this Agreement in any action instituted in any state or
federal court sitting in Philadelphia, Pennsylvania. Each party hereto
consents to personal jurisdiction in any such action brought in any state or
federal court sitting in Philadelphia, Pennsylvania.
6
<PAGE>
IN WITNESS WHEREOF, Norfolk Southern Corporation and Atlantic Acquisition
Corporation have caused this Trust Agreement to be executed by their
authorized officers and their corporate seals to be affixed, attested by
their Secretaries or Assistant Secretaries, and the Bank has caused this
Trust Agreement to be executed by one of its Assistant Vice Presidents and
its corporate seal to be affixed, attested to by one of its Assistant
Corporate Trust Officers, all as of the day and year first above written.
Attest: NORFOLK SOUTHERN CORPORATION
- ------------------------------- -------------------------------------
By
-------------------------------------
Secretary
Attest: ATLANTIC ACQUISITION CORPORATION
- ------------------------------- -------------------------------------
By
-------------------------------------
Secretary
Attest: BANK
- ------------------------------- -------------------------------------
-------------------------------------
7
<PAGE>
EXHIBIT A
NO. SHARES
VOTING TRUST CERTIFICATE
FOR
COMMON STOCK,
$1.00 PAR VALUE
OF
CONRAIL INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF PENNSYLVANIA
THIS IS TO CERTIFY that will be entitled, on the surrender of this
Certificate, to receive on the termination of the Voting Trust Agreement
hereinafter referred to, or otherwise as provided in Paragraph 8 of said
Voting Trust Agreement, a certificate or certificates for shares of the
Common Stock, $1.00 par value, of Conrail Inc. (the "Company"). This
Certificate is issued pursuant to, and the rights of the holder hereof are
subject to and limited by, the terms of a Voting Trust Agreement, dated as of
, 1996, executed by Norfolk Southern Corporation, a Virginia
corporation, Atlantic Acquisition Corporation, a Pennsylvania corporation,
and the Bank, as Voting Trustee, a copy of which Voting Trust Agreement
is on file in the registered office of said corporation at , and open
to inspection of any stockholder of the Company and the holder hereof. The
Voting Trust Agreement, unless earlier terminated (or extended) pursuant to
the terms thereof, will terminate on , , so long as no violation of 49
U.S.C. Section 11323 will result from such termination.
The holder of this Certificate shall be entitled to the benefits of said
Voting Trust Agreement, including the right to receive payment equal to the
cash dividends, if any, paid by the Company with respect to the number of
shares represented by this Certificate.
This Certificate shall be transferable only on the books of the
undersigned Voting Trustee or any successor, to be kept by it, on surrender
hereof by the registered holder in person or by attorney duly authorized in
accordance with the provisions of said Voting Trust Agreement, and until so
transferred, the Voting Trustee may treat the registered holder as the owner
of this Voting Trust Certificate for all purposes whatsoever, unaffected by
any notice to the contrary.
By accepting this Certificate, the holder hereof assents to all the
provisions of, and becomes a party to, said Voting Trust Agreement.
IN WITNESS WHEREOF, the Voting Trustee has caused this Certificate to be
signed by its officer duly authorized.
Dated:
THE BANK
By
-----------------------------------
Authorized Officer
A-1
<PAGE>
FORM OF BACK OF VOTING TRUST CERTIFICATE
FOR VALUE RECEIVED hereby sells, assigns, and transfers unto
the within Voting Trust Certificate and all rights and interests
represented thereby, and does hereby irrevocably constitute and appoint
Attorney to transfer said Voting Trust Certificate on the books
of the within mentioned Voting Trustee, with full power of substitution in
the premises.
-----------------------------------
Dated:
In the Presence of:
- -----------------------------------------------------------------------------
A-2
<PAGE>
EXHIBIT B
NO. SHARES
VOTING TRUST CERTIFICATE
FOR
COMMON STOCK,
$1.00 PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF PENNSYLVANIA
THIS IS TO CERTIFY that will be entitled, on the surrender of
this Certificate, to receive on the termination of the Voting Trust Agreement
hereinafter referred to, or otherwise as provided in Paragraph 8 of said
Voting Trust Agreement, a certificate or certificates for shares of the
Common Stock, $ par value, of , a Pennsylvania corporation (the
"Company"). This Certificate is issued pursuant to, and the rights of the
holder hereof are subject to and limited by, the terms of a Voting Trust
Agreement, dated as of , 1996, executed by Norfolk Southern Corporation,
a Virginia corporation, Altantic Acquisition Corporation, a Pennsylvania
corporation, and the Bank, as Voting Trustee, a copy of which Voting
Trust Agreement is on file in the registered office of said corporation at
, and open to inspection of any stockholder of the Company and the
holder hereof. The Voting Trust Agreement, unless earlier terminated (or
extended) pursuant to the terms thereof, will terminate on , , so long
as no violation of 49 U.S.C. Section 11323 will result from such termination.
The holder of this Certificate shall be entitled to the benefits of said
Voting Trust Agreement, including the right to receive payment equal to the
cash dividends, if any, paid by the Company with respect to the number of
shares represented by this Certificate.
This Certificate shall be transferable only on the books of the
undersigned Voting Trustee or any successor, to be kept by it, on surrender
hereof by the registered holder in person or by attorney duly authorized in
accordance with the provisions of said Voting Trust Agreement, and until so
transferred, the Voting Trustee may treat the registered holder as the owner
of this Voting Trust Certificate for all purposes whatsoever, unaffected by
any notice to the contrary.
By accepting this Certificate, the holder hereof assents to all the
provisions of, and becomes a party to, said Voting Trust Agreement.
IN WITNESS WHEREOF, the Voting Trustee has caused this Certificate to be
signed by its officer duly authorized.
Dated:
THE BANK
By
-----------------------------------
Authorized Officer
B-1
<PAGE>
FORM OF BACK OF VOTING TRUST CERTIFICATE
FOR VALUE RECEIVED hereby sells, assigns, and transfers
unto the within Voting Trust Certificate and all rights and
interests represented thereby, and does hereby irrevocably constitute and
appoint Attorney to transfer said Voting Trust Certificate on the
books of the within mentioned Voting Trustee, with full power of substitution
in the premises.
-----------------------------------
Dated:
In the Presence of:
- -------------------------------
B-2
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, :
:
New Acquisition Corporation :
Three Commercial Place :
Norfolk, VA 23510-2191, :
:
and :
:
Kathryn B. McQuade :
5114 Hunting Hills Drive :
Roanoke, VA 24014, :
:
Plaintiffs, :
: C.A. No. _____
-against- :
:
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, :
:
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>
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
-----------------------------------------------
Plaintiffs, by their undersigned attorneys, as and for their
complaint, allege upon knowledge 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, and CSX Corporation ("CSX") to coerce, mislead, and
fraudulently manipulate Conrail's shareholders to swiftly deliver control of
Conrail to CSX and to forestall any competing higher bid for Conrail by
plaintiff Norfolk Southern Corporation ("NS"). Defendants' actions are in
violation of the federal securities laws governing proxy solicitations and
tender offers. Further, several of defendants' actions are illegal and ultra
vires under Pennsylvania statutory law. Finally, defendants' actions are in
plain breach of the defendant Conrail directors' fiduciary duties of care and
loyalty.
2. 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
3
<PAGE>
other bids for Conrail (the "CSX Transaction"). The CSX Transaction is to be
accomplished through a complicated 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 receive stock and, under certain circumstances, cash.
According to the October 16, 1996 Wall Street Journal, the blended value of the
CSX Transaction was $89 per Conrail share. Integral to this deal are executive
succession and compensation guarantees for Conrail management and board
composition covenants effectively ensuring Conrail directors of continued board
seats.
3. 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 Conrail/CSX combination,
NS is today announcing its intention to commence, through its wholly-owned
subsidiary, plaintiff NEW ACQUISITION CORPORATION ("NAC") a cash tender offer
(the "NS Offer") for any and all shares of Conrail stock at $100 per share, to
be followed by a cash merger at the same price (the "Proposed Merger," and
together with the NS Offer, the "NS Proposal").
4
<PAGE>
4. By this action, plaintiffs NS, NAC, 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 fraudulent manipulation. Specifically, plaintiffs seek:
o Injunctive relief with respect to defendants' violations of the
federal securities laws, including preliminary injunctive relief
enjoining the special meeting of Conrail's shareholders scheduled for
November 14, 1996 and enjoining the consummation of CSX's tender offer
until corrective disclosures are made and adequately disseminated.
o Declaratory and injunctive relief with respect to illegal and ultra
vires acts by Conrail and its directors, including a proposed
amendment to Conrail's charter and the September 1995 amendment of
Conrail's Poison Pill Plan to include a "Continuing Director"
limitation on amendment and redemption.
o Declaratory and injunctive relief concerning breach of the Conrail
directors' fiduciary duties of loyalty and care in attempting to lock
up the sale of control of Conrail to CSX.
In addition, to facilitate the NS Proposal, plaintiffs seek certain declaratory
relief with respect to replacement of Conrail's Board of Directors at Conrail's
next annual meeting of shareholders.
5
<PAGE>
Jurisdiction and Venue
----------------------
5. This Court has jurisdiction over this complaint pursuant to 28
U.S.C. ss.ss. 1331 and 1367.
6. Venue is proper in this District pursuant to 28 U.S.C. ss. 1391.
The Parties
-----------
7. Plaintiff NS is a Virginia corporation with its principal place
of business in Norfolk, Virginia. NS is a holding company operating rail and
motor transportation services through its subsidiaries. As of December 31,
1995, NS' 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' 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 billion. According to the New York Times, NS "is
considered by many analysts to be the nation's best-run
6
<PAGE>
railroad." NS is the beneficial owner of 100 shares of common stock of Conrail.
8. Plaintiff NAC is a Pennsylvania corporation. The entire equity
interest in NAC is owned by NS. NAC was organized by NS for the purpose of
acquiring the entire equity interest in Conrail.
9. Plaintiff Kathryn B. McQuade is and has been, at all times
relevant to this action, the owner of Conrail common stock.
10. Defendant Conrail is a Pennsylvania corporation with its
principal place of business in Philadelphia, Pennsylvania. Conrail is the major
freight railroad serving America's Northeast-Midwest region, operating 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 announcement of the CSX Transaction, the closing
per share price of Conrail common stock was $71.
11. Defendant David M. LeVan is President, Chief Executive Officer,
and Chairman of Conrail's Board of Directors. Defendants H. Furlong Baldwin,
Daniel B. Burke, Roger S. Hillas, Claude S. Brinegar, Kathleen
7
<PAGE>
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 defendant directors of Conrail (collectively, the
"Defendant Directors") owe fiduciary duties to Conrail and its stockholders,
including plaintiffs.
12. Defendant CSX is a Virginia corporation with its principal place
of business in Richmond, Virginia. CSX is a transportation company providing
rail, intermodal, ocean container-shipping, barging, trucking and contract
logistic services. CSX's rail transportation operations serve the southeastern
and midwestern United States.
Factual Background
------------------
The Offer
- ---------
13. In response to the surprise October 15 announcement of the CSX
Transaction, on October 23, 1996, NS announced its intention to commence a
public tender offer for any and all shares of Conrail common stock at a price
of $100 in cash per share. NS further announced that it intends, as soon as
practicable following the closing of the Offer, to acquire the entire equity
interest in Conrail by causing it to merge with NAC in the Proposed Merger. In
the Proposed Merger, Conrail
8
<PAGE>
common stock not tendered and accepted in the Offer would be converted into the
right to receive $100 in cash per share. The 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.
14. In a letter to be delivered on October 23, 1996 to the Defendant
Directors, NS states that it is flexible as to all aspects of the NS proposal
and expresses its eagerness to negotiate a friendly merger with Conrail. The
letter indicates, 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 shareholders could have a continuing interest in the combined
NS/Conrail enterprise.
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, And
Conrail Schedules A Special Meeting Of Its
Shareholders On Short Notice To Approve A
Discriminatory Charter Amendment Designed To
Facilitate Quick Completion Of The Lock-Up Deal
- -----------------------------------------------
9
<PAGE>
15. After many months of maintaining that Conrail 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 control over Conrail to a voting
trustee who would be contractually required to vote to approve CSX's
acquisition of the entire equity interest in Conrail through a follow-up stock
merger.
16. Indeed, if the relief requested herein is not granted, the fate
of Conrail could be effectively determined on November 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
certificate of incorporation designed to facilitate 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
manipulative tactics to sell Conrail to the low bidder.
10
<PAGE>
Defendants Were Well Aware That
A Superior Competing Acquisition
Proposal By NS was Inevitable
- --------------------------------
17. For a number of years, certain members of senior management of
NS, including David R. Goode, Chairman and Chief Executive Officer of Norfolk
Southern, have spoken numerous times with senior management of Conrail,
including former Conrail Chairman and CEO, James A. Hagen and current Conrail
Chairman and CEO, defendant David W. LeVan concerning a possible business
combination between NS and Conrail. Ultimately, Conrail management encouraged
such discussions prior to Mr. Hagen's retirement as Chief Executive Officer of
Conrail. Conrail discontinued such discussions 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.
18. 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, including the Triple Crown Services joint venture,
no
11
<PAGE>
decisions were reached concerning a business combination at that time.
19. In March of 1994, Mr. Hagen approached Mr. Goode to suggest that
under the current regulatory environment, 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 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 combination 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 acquisition 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 shareholders. Conrail management insisted on a control
premium, however, and ultimately
12
<PAGE>
the negotiations turned toward a premium stock-for-stock acquisition of
Conrail.
20. 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 pressing 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 had determined to remain
independent and to pursue a stand alone policy. The meeting then concluded.
21. 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 management, that is -- than CSX could offer for an acquisition of Conrail.
13
<PAGE>
Defendant LeVan Actively Misleads NS
Management In Order To Permit Him To
Lock Up The Sale of Conrail to CSX
- ------------------------------------
22. 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 Conrail 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 would do so
through a process in which NS would have an opportunity to bid.
23. At its September 24, 1996 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 concrete 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
14
<PAGE>
meeting. Mr. LeVan stated that it was unnecessary for Mr. Goode to do so. At
that point, the conversation concluded.
24. Following September 24, Mr. LeVan did not contact Mr. Goode.
Finally, on Friday, October 4, 1996, Mr. Goode telephoned Mr. LeVan. Mr. Goode
again reiterated 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
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.
On the Day Before the Purportedly
Scheduled Meeting of Conrail's Board,
Defendants Announce the CSX Transaction
- ---------------------------------------
25. To NS's surprise and dismay, on October 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 (the "CSX Transaction"). The Wall Street Journal reported on October
16, 1996 that the CSX Transaction, in which
15
<PAGE>
Conrail shareholders would receive cash and stock consideration, was valued at
$89 per Conrail share. The CSX Transaction includes a break-up fee of $300
million and a lock-up stock option agreement threatening substantial dilution
to any rival bidder for control of Conrail. Integral to the CSX Transaction are
covenants substantially increasing Mr. LeVan's compensation 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's Snow Implies That the CSX Transaction
Is a Fait Accompli and States That Conrail's
Directors Have Almost No Fiduciary Duties
- --------------------------------------------
26. On October 16, 1996, Mr. Goode met in Washington, D.C. with Mr.
Snow to discuss the CSX Transaction and certain regulatory issues that its
consummation 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 "Pennsylvania statute," referring
to Pennsylvania's Business Corporation Law, was "great," and that Conrail's
directors have almost no fiduciary duties. Mr. Snow's comments were intended to
discourage NS from
16
<PAGE>
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 portions 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.
NS Responds With a
Superior Offer for Conrail
- --------------------------
27. On October 22, the NS Board met to review its strategic options
in light of 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, the date
of this Complaint, NS is publicly announcing its intention to commence a cash
tender offer for any and all shares of Conrail stock for $100 per share, to be
followed, after required regulatory approvals, by a cash merger at the same
price.
17
<PAGE>
The CSX Transaction
-------------------
Rapid Transfer of Control
- -------------------------
28. 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 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) following 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.
29. Thus, once the Charter Amendment is approved, CSX will be in a
position to acquire either effective or absolute control over Conrail. Conrail
admits that the CSX Transaction contemplates a sale of control of Conrail. In
its preliminary proxy materials filed with the SEC, Conrail stated that if CSX
acquires 40% of Conrail's stock, approval of the merger will be
18
<PAGE>
"virtually certain." CSX 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."
30. 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 benefits it provides to Conrail management, despite
the fact that a better deal, financially and otherwise, is available for
Conrail, its shareholders, and its other legitimate constituencies. The Charter
Amendment
31. 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
19
<PAGE>
follows: 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.
32. Further, the preliminary proxy materials state that
Pursuant to the Merger Agreement and in order to facilitate the
transactions contemplated thereby, if the [Charter Amendment] is
approved, Conrail 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 acquisition (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.
33. 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
20
<PAGE>
shareholders to grant them the authority to discriminatorily withhold the
filing of the Charter Amendment, and thereby attempt to prevent consummation of
the NS Proposal.
LeVan's Deal
- ------------
34. 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
Employment Agreement provides 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
21
<PAGE>
Employment Segment"), Mr. LeVan will additionally serve as Chairman of the
Board of the combined CSX/Conrail company.
35. Defendant LeVan received a base salary from Conrail of $514,519
and a bonus of $24,759 during 1995. The LeVan Employment Agreement ensures
substantially enhanced compensation for defendant LeVan. It provides that
during the First Employment Segment, Mr. LeVan shall receive annual base
compensation 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 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 compensation in an amount no less
than that received by the Chief Executive Officer during the First Employment
Segment, but not less than $900,000.
22
<PAGE>
36. 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 significant lump sum cash payments based on his compensation during
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. The $300 Million Break-Up Fee
37. 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.
38. This breakup fee is disproportionally large, constituting over
3.5% of the aggregate value of the CSX Transaction. The breakup fee
unreasonably tilts the playing field in favor of the CSX Transaction -- a
transaction that the defendant 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.
23
<PAGE>
The Lock-Up Stock Option
- ------------------------
39. Concurrently with the Merger Agreement, Conrail and CSX entered
into an option agreement (the "Stock Option 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 an exercise price of $92.50 per
share, subject to adjustment.
40. 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 be 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 person, other than CSX or a direct or indirect
subsidiary thereof, to
24
<PAGE>
merge into or consolidate with Conrail in a series of transactions 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 as
those described in the Stock Option Agreement, appropriately adjusted for such
transaction.
41. CSX and Conrail also entered into a similar option 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.
42. The exercise price of the option under the Stock Option Agreement
is $92.50 per share. The Stock Option Agreement contemplates that 15,955,477
authorized but unissued Conrail 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 potential dilution. At NS's offer of $100 per
share, the dilution attributable to the Stock Option would be $119,666,077.50.
At a hypothetical offering price of
25
<PAGE>
$101 per share, the dilution would total $135,621,554.50. This lock-up
structure serves no legitimate corporate purpose, as it imposes increasingly
severe dilution penalties the higher the competing bid!
43. At the current $100 per share level of NS's bid, the sum of the
$300 million break-up fee and 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 defendant directors' fiduciary duty of
loyalty.
Selective Discriminatory
Treatment of Competing Bids
- ---------------------------
44. Finally, the Conrail board has breached its fiduciary duties by
selectively (i) rendering Conrail's poison pill rights 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),
26
<PAGE>
as noted above, purporting to approve the Charter Amendment in favor of CSX
only.
45. While Pennsylvania law does not require directors 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 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.
46. 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
favor corporate executives' personal interests over those of the corporation,
its shareholders, and other legitimate constituencies.
27
<PAGE>
Defendants' Campaign Of Misinformation
--------------------------------------
47. On October 15, 1996, Conrail and CSX issued press releases
announcing the CSX transaction, and Conrail published 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 coerce, mislead and fraudulently
manipulate such shareholders to swiftly deliver control of Conrail to CSX and
effectively frustrate any competing higher bid.
48. Conrail's Preliminary Proxy Statement contains the following
misrepresentations of fact:
(a) Conrail states that "certain provisions of Pennsylvania law
effectively preclude ... CSX from purchasing 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
28
<PAGE>
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.
(b) Conrail states that its "Board of Directors believes that
Conrail shareholders should have the opportunity to receive cash in the
nearterm 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 Conrail to CSX. Second, the Conrail Board of
Directors does not believe that such swift transfer of control to CSX is in
the best
29
<PAGE>
interests of Conrail shareholders; rather, the Conrail Board of 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 Conrail.
49. CSX's Schedule 14D-1 contains the following misrepresentations of
fact:
(a) 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 combination of [CSX] and [Conrail]." This statement is
false. The purpose of the CSX Offer is to swiftly transfer 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.
(b) 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
30
<PAGE>
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. 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.
50. 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 Transaction is being structured as a rapid, locked-up sale of
control of Conrail to CSX involving a significant, albeit inadequate, control
premium.
51. 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:
31
<PAGE>
(a) 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.
(b) 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 proposal 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 purportedly scheduled for October 16, 1996.
(c) 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
32
<PAGE>
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.
(d) 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.
(e) 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.
(f) That although in arriving at their "fairness" opinions, both
Morgan Stanley and Lazard Freres purport to have considered the level of
consideration paid in comparable transactions, both investment bankers
failed to consider the most
33
<PAGE>
closely comparable transaction -- NS's September 1994 merger proposal,
which as noted above, would imply a price per Conrail share in excess of
$101.
(g) That, if asked to do so, Conrail's investment bankers would
be unable to opine in good faith that the consideration offered in the CSX
Transaction is adequate to Conrail's shareholders from a financial point of
view.
(h) That Conrail's Board failed to seek a fairness opinion from
its investment bankers concerning the $300 million break-up fee included in
the CSX Transaction.
(i) 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.
(j) 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 acquisition bids.
(k) That the Conrail Board intends to withhold the filing of the
Charter Amendment following its approval by Conrail's stockholders if
34
<PAGE>
the effectiveness of such amendment would facilitate any bid for Conrail
other than the CSX Transaction.
(l) That the Charter Amendment and/or its submission to a vote
of the Conrail shareholders is illegal and ultra vires under Pennsylvania
law.
(m) 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 superior offers for control of Conrail, constitute a
breach of the defendant directors' fiduciary duty of loyalty.
(n) That Conrail's Board failed to conduct a reasonable, good
faith investigation of all reasonably available material information prior
to approving the CSX transaction and related agreements, including the
lock-up Stock Option Agreement.
(o) That in recommending that Conrail's shareholders tender
their shares to CSX in the CSX Offer, Conrail's Board did not conclude that
doing
35
<PAGE>
so would be in the best interests of Conrail's shareholders.
(p) That in recommending that Conrail's shareholders approve the
Charter Amendment, the Conrail Board did not conclude that doing so would
be in the best interests of Conrail's shareholders.
(q) 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.
(r) 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 increasing his compensation and succeeding
Mr. Snow as Chairman and Chief Executive Officer of the combined
CSX/Conrail company.
(s) That the Continuing Director Requirement in Conrail's Poison
Pill (described below in paragraphs 54 through 60, adopted by Conrail's
board in September 1995 and publicly disclosed at that time, is illegal and
ultra vires
36
<PAGE>
under Pennsylvania law and therefore is void and unenforceable.
52. 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
misrepresentations and omitted facts bear upon (i) the good faith of the
Conrail directors in recommending that Conrail shareholders 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 Conrail
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.
37
<PAGE>
Conrail's Directors Attempt To Override
Fundamental Principles of Corporate
Democracy By Imposing A Continuing
Directors Requirement in Conrail's Pill
---------------------------------------
53. As noted above, Conrail's directors have long known that it was
an attractive business combination candidate to other railroad companies,
including NS.
54. Neither Conrail management nor its Board, however, had any
intention to give up their control over Conrail, unless the acquiror was
willing to enter into board compensation, executive succession, and
compensation and benefit arrangements satisfying the personal interests of
Conrail management and the defendant directors, such as the assignments
provided for in the CSX Transaction. They were aware, however, that through a
proxy contest, they could be replaced by directors 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
eliminate the threat to their continued incumbency posed by the free exercise
of Conrail's stockholders' franchise. They drastically altered Conrail's
existing Poison Pill Plan, by adopting a "Continuing Director" limitation to
the Board's power to
38
<PAGE>
redeem the rights issued pursuant to the Rights Plan (the "Continuing Director
Requirement").
55. Prior to adoption of the Continuing Director Requirement,
Conrail's Rights Plan was a typical "flip-in, flip-over" plan, designed to make
an unsolicited acquisition of Conrail prohibitively expensive to an acquiror.
56. Under the plan, stockholders received a dividend of originally
uncertificated, unexercisable rights. The rights would become exercisable and
certificated on the so-called "Distribution Date," which under the Rights
Agreement 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, Conrail would issue certificates evidencing the rights, each
of which would allow the holder to purchase a share of Conrail stock at a price
set above market. Once certificates were issued, the rights could trade
separately from the associated shares of Conrail stock.
39
<PAGE>
57. The rights would "flip in" when, among other things, a person or
group obtained 10% ownership of Conrail stock. 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. The
person or group acquiring the 10% or greater ownership, however, would be
ineligible to exercise such rights. Thus, the Rights Plan would dilute the
acquiror's equity and voting position. The rights would "flip over" if Conrail
were to engage in a merger in which it was 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.
58. At any time prior to the Distribution Date, the Board of
Directors of Conrail could either redeem the rights for a nominal payment or
amend the Rights Agreement to render the rights inapplicable to an acquiror
approved by the Board. By virtue of its redemption and amendment provisions,
the original Rights Plan placed the power to approve or prevent an acquisition
in Conrail's duly elected Board of Directors.
40
<PAGE>
59. The September 20, 1995 adoption of the Continuing Director
Requirement changed this reservation of power. It added an additional
requirement for amendment of the Rights Agreement 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
"Continuing Directors." "Continuing Directors" are defined as members of the
Conrail Board as of September 20, 1995, i.e., the incumbents, or their
handpicked successors.
60. By adopting the Continuing Director Requirement, the Defendant
Directors 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 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
41
<PAGE>
hand-picked successors. Thus, the Continuing Director Requirement is the
ultimate entrenchment device.
61. 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 ss. 1721. Thus, the Defendant Directors were without power to adopt such a
provision unilaterally by amending the Rights Agreement.
62. Additionally, the Continuing Director Requirement is invalid
under Conrail's By-Laws and Articles of Incorporation. 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 rights or amend the
Rights Agreement, it conflicts with Section 3.5 of Conrail's By-Laws and is
therefore of no cause or effect. Article Eleven of Conrail's Articles of
Incorporation permits Conrail's entire board to be removed without cause by
stockholder
42
<PAGE>
vote. Read together with Section 3.5 of Conrail's ByLaws, 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, specifically, to redeem the rights or amend the Rights Agreement.
Insofar as the Continuing Director Requirement purports to render such action
impossible, it conflicts with Conrail's Articles of Incorporation and is
therefore of no cause or effect.
63. Furthermore, the adoption of the Continuing Director Requirement
constituted a breach of the Defendant Directors' fiduciary duty of loyalty.
There existed no justification for the directors to attempt to negate the right
of stockholders to elect a new Board in the event the stockholders disagree
with the incumbent Board's policies, including their response to an acquisition
proposal.
64. Moreover, while the Defendant Directors disclosed the adoption of
the Continuing Director Requirement, 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
43
<PAGE>
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 Defendant Directors' 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 and 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
- --------------------------------------
65. As noted above, plaintiff NS intends to facilitate the NS
Proposal by replacing the Conrail board at Conrail's next annual meeting.
Conrail's next annual meeting is scheduled to be held on May 21, 1997
(according to Conrail's April 3, 1996 Proxy Statement, as filed with the
Securities and Exchange Commission).
66. The Defendant Directors adopted the Continuing Director
Requirement in part because they recognized that under Conrail's Articles, its
entire
44
<PAGE>
Board, even though staggered, may be removed without cause at Conrail's next
annual meeting.
67. 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.
68. Article 11 of Conrail's Articles 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
director 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.
69. Under the plain language of Article 11, the entire 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 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
45
<PAGE>
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
------------------
70. The Court may grant the declaratory relief sought herein pursuant
to 28 U.S.C. ss. 2201. The Defendant Directors' 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.
71. The granting of the requested declaratory relief will serve the
public interest by affording relief from uncertainty and by avoiding delay and
will conserve judicial resources by avoiding piecemeal litigation.
46
<PAGE>
Irreparable Injury
------------------
72. The Defendant Directors' adoption of the CSX Transaction (with
its discriminatory Charter Amendment, poison pill and state antitakeover
statute treatment and draconian lock-up provisions) as well as their earlier
adoption of the Continuing Director Requirement threatens to deny Conrail's
stockholders their right to exercise their corporate franchise without
manipulation, coercion or false and misleading disclosures and to deprive them
of a unique opportunity to receive maximum value for their stock. The resulting
injury to plaintiffs and all of Conrail's stockholders would not be adequately
compensable in money damages and would constitute irreparable harm.
Derivative Allegations
----------------------
73. 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 derivatively on behalf of Conrail.
74. No demand has been made on Conrail's Board of Directors to
prosecute the claims set forth herein
47
<PAGE>
since, for the reasons set forth below, any such demand would have been a vain
and useless act:
a. The Defendant Directors have acted fraudulently by pursuing
defendants' campaign of misinformation, described above, in order to
coerce, mislead, and manipulate Conrail shareholders to swiftly deliver
control of Conrail to the low bidder.
b. The form of resolution by which the shareholders are being
asked to approve the Charter Amendment is illegal and ultra vires in that
it purports to authorize the Conrail Board to discriminatorily withhold
filing the certificate of amendment even after shareholder approval. Thus,
its submission to the shareholders is illegal and ultra vires and therefore
not subject to the protections of the business judgment rule.
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 personal interest in entrenchment, constituting a breach
of
48
<PAGE>
their fiduciary duty of loyalty and rendering the business judgment rule
inapplicable.
d. The defendant directors' adoption of the break-up fee and
stock option lock-ups in favor of CSX was motivated by their personal
interest in entrenchment, constituting a breach of their duty of loyalty
and rendering the business judgment rule inapplicable.
e. The Continuing Director Requirement is illegal and ultra
vires under Pennsylvania statutory law and under Conrail's charter and
bylaws, rendering the business judgment rule inapplicable to its adoption
by the Director Defendants.
f. In adopting the Continuing Director Requirement, 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
preserve their own incumbency, 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
49
<PAGE>
ultimate in entrenchment devices, the Defendant Directors would take action
that would eliminate it.
g. Additionally, the Defendant Directors 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 Defendant
Directors would take action to invalidate the Continuing Director
Requirement. First, pursuant to Pennsylvania 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
Defendant Directors would certainly not commence legal proceedings to
invalidate the Continuing Director Requirement.
75. Plaintiffs are currently beneficial owners of Conrail common
stock. Plaintiffs' challenge to the CSX Transaction (including the illegal
Charter Amendment, discriminatory treatment, and lock-ups) and to the
Continuing Director Requirement presents a strong prima facie case, insofar as
the Defendant Directors have deliberately and intentionally, without
justification, acted to foreclose free choice by Conrail's shareholders.
50
<PAGE>
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 depriving plaintiff NS of a unique acquisition opportunity.
76. This action is not a collusive one to confer jurisdiction on a
court of the United States which it would not otherwise have.
COUNT ONE
---------
(Breach of Fiduciary Duty with
Respect to the Charter Amendment)
77. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
78. 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.
79. 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.
51
<PAGE>
80. The Conrail directors have publicly stated their intention to
file the amendment only if the requisite number of shares are tendered to CSX.
81. By adopting the illegal Charter Amendment and then discriminately
applying it to benefit themselves, the Conrail directors have breached their
fiduciary duties of care and loyalty.
82. Plaintiffs have no adequate remedy at law.
COUNT TWO
---------
(Breach of Fiduciary Duty
With Respect to the Poison Pill)
83. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
84. The Conrail board of directors adopted its Poison Pill Plan with
the ostensible purpose of protecting its shareholders against the consummation
of unfair acquisition proposals that may fail to maximize shareholder value.
85. The Conrail Board has announced its intention to merge with CSX
and the Conrail Board has also sought to exempt CSX from the provisions in the
poison pill.
52
<PAGE>
86. Additionally, the Conrail Board has committed itself to not
pursue any competing offer for the Company.
87. 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 directors have breached their fiduciary duties of
care and loyalty.
88. Plaintiffs have no adequate remedy at law.
COUNT THREE
-----------
(Breach of Fiduciary Duty
with Respect to the Pennsylvania
Business Combinations Statute)
89. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
90. By approving the CSX Offer prior to its consummation, the
Defendant Directors have rendered the 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.
53
<PAGE>
91. 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 Conrail to the low bidder, the Defendant Directors have breached
their fiduciary duties of care and loyalty.
92. Plaintiffs have no adequate remedy at law.
COUNT FOUR
----------
(Breach of Fiduciary Duty with
Respect to the Lockup Provisions)
93. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
94. In conjunction with the merger agreement, the Conrail Board has
agreed to termination fees of $300 million and to the lock-up Stock Option
Agreement.
95. These provisions confer no benefit upon Conrail's shareholders
and in fact operate and are intended to operate to impede or foreclose further
bidding for Conrail.
96. The Conrail directors have adopted these provisions without
regard to what is in the best interest of the Company and its shareholders, in
violation of their fiduciary duties.
54
<PAGE>
97. Plaintiffs have no adequate remedy at law.
COUNT FIVE
----------
Declaratory Relief Against
Conrail and Defendant Directors
(The Continuing Director Requirement
Is Void Under Pennsylvania Law)
98. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
99. Under Pennsylvania law, the business and affairs 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 ss. 1721.
100. Under Pennsylvania law, agreements restricting the managerial
discretion of directors are permissible only in statutory close corporations.
101. No statute countenances Conrail's and the current Board's
adoption of the Continuing Director 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.
102. Adoption of the Continuing Director Requirement constitutes an
unlawful attempt by the Defendant Directors to limit the discretion of a future
55
<PAGE>
Board of Directors with respect to the management of Conrail. In particular,
under the Continuing Director Requirement, a duly elected Board of Directors
which includes less than two continuing directors would be unable to redeem or
modify Conrail's poison pill even upon determining that to do so would be in
Conrail's best interests.
103. Plaintiffs seek a declaration that the Continuing Director
Requirement is contrary to Pennsylvania statute and therefore null and void.
104. Plaintiffs have no adequate remedy at law.
COUNT SIX
---------
Declaratory Relief Against
Conrail and Defendant Directors
(The Continuing Director Requirement
Is Void Under Conrail's Articles
of Incorporation And By-Laws)
105. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
106. Under Section 3.5 of Conrail's By-Laws,
The business and affairs of the Corporation 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 required to
be exercised and done by the shareholders.
56
<PAGE>
107. Pursuant to Section 1505 of the Pennsylvania Business Corporation
Law, the By-Laws of a Pennsylvania corporation 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 issued thereunder are
subject to and affected by Conrail's ByLaws.
108. 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 directly conflicts with Section 3.5 of Conrail's By-Laws,
and is therefore void and unenforceable.
109. Article Eleven of Conrail's Articles of Incorporation 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 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
57
<PAGE>
Rights Agreement. The Continuing Director Requirement purports to prevent the
stockholders from doing so, and is therefore void and unenforceable.
110. Plaintiffs have no adequate remedy at law.
COUNT SEVEN
-----------
Declaratory Relief Against
Conrail and Defendant Directors
(Adoption of the Continuing Director Requirement
Constituted A Breach of the Duty of Loyalty)
111. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
112. Adoption of the Continuing Director Requirement constituted a
breach of the duty of loyalty on the part of the Defendant Directors. 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
Continuing Director Requirement, the Defendant Directors have purported to
circumvent the Conrail stockholders' fundamental franchise rights, and thus
have failed to act honestly and fairly toward Conrail and its stockholders.
Moreover, the Defendant Directors adopted the Continuing Director Requirement
without first conducting a reasonable investigation.
58
<PAGE>
113. 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 invalidated, believe that the nominees of plaintiffs will be
powerless to redeem the poison pill rights in the event they conclude that
redemption is in the best interests of the corporation. Thus, stockholders may
believe that voting in favor of plaintiffs' nominees would be futile. The
Defendant Directors intended their actions to cause Conrail's stockholders to
hold such belief.
114. Plaintiffs seek a declaration that the Defendant Directors'
adoption of the Continuing Director Requirement was in violation of their
fiduciary duty and, thus, null, void and unenforceable.
115. Plaintiffs have no adequate remedy at law.
COUNT EIGHT
-----------
(Declaratory and Injunctive Relief
Against Conrail and the Defendant
Directors for Violation of Section 14(a)
of the Exchange Act and Rule 14a-9
Promulgated Thereunder)
116. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
59
<PAGE>
117. 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. ss.
78n(a).
118. 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. ss.
240.14a-9.
119. Conrail's Preliminary Proxy Statement contains the
misrepresentations detailed in paragraph 48 above. It also omits to disclose
the material facts detailed in paragraph 51 above.
120. 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.
121. The defendants' false and misleading statements and omissions
described above are essential
60
<PAGE>
links in defendants' effort to deprive Conrail's shareholders of their ability
to exercise choice concerning their investment in Conrail and their voting
franchise.
122. Plaintiffs have no adequate remedy at law.
COUNT NINE
----------
(Against Defendant CSX For Violation
Of Section 14(d) Of The Exchange Act And
Rules Promulgated Thereunder)
123. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
124. 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, 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
61
<PAGE>
title, and such additional information as the Commission may by rules and
regulations prosecute ...." 15 U.S.C.
ss. 78n(d).
125. On October 16, 1996, defendant CSX filed with the SEC its
Schedule 14D-1 pursuant to Section 14(d).
126. CSX's Schedule 14D-1 contains each of the false and misleading
material misrepresentations of fact detailed in paragraph 49 above.
Furthermore, CSX's Schedule 14D-1 omits disclosure of the material facts
detailed in paragraph 51 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.
127. CSX made the material misrepresentations and omissions described
above intentionally and knowingly, for the purpose of fraudulently coercing,
misleading, and manipulating Conrail's shareholders to tender their shares into
the CSX tender offer.
128. Plaintiffs have no adequate remedy at law.
62
<PAGE>
COUNT TEN
---------
(Against Defendant Conrail For Violation
Of Section 14(d) Of The Exchange Act And
Rules Promulgated Thereunder)
129. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
130. Section 14(d)(4) provides in pertinent part: "Any solicitation or
recommendation to the holders of [securities for which a tender offer has been
made] to accept or reject a tender offer or request or invitation for tender
shall be made in accordance with such rules and regulations as the [S.E.C.] 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 [S.E.C.] eight copies of a Tender
Offer Solicitation/Recommendation Statement on Schedule 14D-9."
131. On October 16, 1996, Conrail (i) published its board of
directors' recommendation that Conrail
63
<PAGE>
shareholders tender their shares in the CSX Offer and (ii) filed with the SEC
its Schedule 14D-9.
132. Conrail's Schedule 14D-9 contains each of the false and
misleading material misrepresentations detailed in paragraph 50 above. Further,
Conrail's Schedule 14D-9 omits disclosure of the material facts detailed in
paragraph 51 above. As a consequence of the foregoing, Conrail has violated,
and unless enjoined will continue to violate, Section 14(d) of the Exchange Act
and the rules and regulations promulgated thereunder.
133. Conrail made the material misrepresentations and omissions
described above intentionally and knowingly, for the purpose of fraudulently
coercing, misleading and manipulating Conrail's shareholders to tender their
shares into the CSX Offer.
134. Plaintiffs have no adequate remedy at law.
COUNT ELEVEN
------------
(Against Conrail and CSX for Violation
of Section 14(e) of the Exchange Act
and Rules Promulgated Thereunder)
135. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
64
<PAGE>
136. 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 circumstances 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 solicitation 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).
137. The CSX Schedule 14D-1 constitutes a communication made under
circumstances reasonably calculated to result in the procurement of tenders
from Conrail shareholders in favor of the CSX Offer.
138. 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.
139. The CSX Schedule 14D-1 contains the false and misleading material
misrepresentations detailed in paragraph 49 above. The CSX Schedule 14D-1 omits
65
<PAGE>
disclosure of the material facts detailed in paragraph 51 above.
140. The Conrail Schedule 14D-9 contains the false and misleading
material misrepresentations detailed in paragraph 50 above. The Conrail
Schedule 14D-9 omits disclosure of the material facts detailed in paragraph 51
above.
141. The Conrail Proxy Statement contains the false and misleading
material misrepresentations detailed in paragraph 48 above. The Conrail Proxy
Statement omits disclosure of the material facts detailed in paragraph 51
above.
142. These omitted facts are material to the decisions of Conrail
shareholders to hold, sell to market, or tender their shares in the CSX tender
offer.
143. The defendants intentionally and knowingly made the material
misrepresentations and omissions described above, for the purpose of coercing,
misleading, and manipulating Conrail shareholders to swiftly transfer control
over Conrail to CSX by tendering their shares in the CSX Tender Offer.
144. Absent declaratory and injunctive relief requiring adequate
corrective disclosure, plaintiffs, as well as all of Conrail's shareholders,
will be
66
<PAGE>
irreparably harmed. Conrail shareholders will be coerced by defendants'
fraudulent and manipulative conduct to sell Conrail to the low bidder.
Plaintiffs NS and NAC will be deprived of the unique opportunity to acquire and
combine businesses with Conrail.
145. Plaintiffs have no adequate remedy at law.
COUNT TWELVE
------------
(Against Defendants Conrail and CSX For
Civil Conspiracy To Violate Section 14
Of The Exchange Act And Rules
Promulgated Thereunder)
146. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
147. Defendants Conrail and CSX conspired and agreed to conduct the
campaign of misinformation described in paragraphs 48 through 51 above for the
purpose of coercing, misleading and manipulating Conrail shareholders to
swiftly transfer control over Conrail to CSX. As set forth in Counts Eight
through Eleven above, which are incorporated by reference herein, the
defendants' campaign of misinformation is violative of Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder.
148. Plaintiffs have no adequate remedy at law.
67
<PAGE>
COUNT THIRTEEN
--------------
(Against Conrail for
Estoppel/Detrimental Reliance)
149. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
150. By his actions, silence and statements during the period from
September 1994 to October 15, 1996, and particularly by his statements to Mr.
Goode in September and October 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.
151. 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 Board or initiating a tender offer of its own for Conrail
shares.
152. Mr. LeVan and Conrail knew or should have known that their
actions, silence, statements and representations to NS would induce NS to
believe that
68
<PAGE>
Conrail's board was not interested in selling the company and that NS would be
given an opportunity to bid if Conrail's Board decided that Conrail would be
sold.
153. 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.
154. NS did in fact rely upon LeVan's and Conrail's 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.
155. Conrail and its Board are estopped from effectuating a sale of
the company without giving NS an adequate opportunity to present its competing
tender offer to the board of directors and Conrail shareholders. Similarly, any
provision in the Merger Agreement between CSX and Conrail that would impede
directors' or shareholders' ability to approve a competing tender offer or
takeover proposal, such as that made by NS, is null and void.
156. By virtue of NS's justifiable reliance on Conrail's and Mr.
LeVan's actions, silence and
69
<PAGE>
statements, it has suffered and will continue to suffer irreparable harm.
157. Plaintiffs have no adequate remedy at law.
COUNT FOURTEEN
--------------
(Unlawful And Ultra Vires Amendment
of Conrail's Articles of Incorporation)
158. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
159. The Conrail Board of Directors are attempting to freeze out any
competing tender offers and lock-up the CSX deal, to the detriment of
shareholders, by improperly maneuvering to "opt-out" of the "antitakeover"
provisions of The Pennsylvania Business Corporation Law in a discriminatory
fashion. This procedure distorts and subverts the provisions of the
Pennsylvania statute.
160. At the Special Meeting of Conrail shareholders, such shareholders
will be asked to approve the following amendment to Conrail's articles of
incorporation, which has already been approved by the Conrail 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."
70
<PAGE>
161. The defendant directors are also asking for authorization to
exercise discretion in deciding whether or not to file the amendment. According
to the proposed proxy materials, the defendant directors only intend to file
the amendment if CSX is in a position to purchase more than 20% of Conrail's
shares. Consequently, in effect, this amendment becomes a "deal specific"
opt-out.
162. The PBCL does not allow for such a discriminatory application of
an opt-out provision. Section 2541(a) of the PBCL provides that Subchapter 25E
will not apply to corporations 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.
163. Conrail's Board is trying to distort and subvert the provisions
of the Pennsylvania statute by keeping a shareholder approved opt-out from
taking effect unless the CSX deal is moving forward. The PBCL is quite
71
<PAGE>
clear -- it allows corporations to exercise general, not selective, opt-outs.
Therefore, any action taken at the November 14, 1996 shareholder meeting would
be a nullity.
164. If the November 14, 1996 shareholder meeting is allowed to take
place and the amendment is passed, NS will suffer irreparable harm.
165. Plaintiffs have no adequate remedy at law.
COUNT FIFTEEN
-------------
Declaratory Relief Against
Conrail and the Defendant Directors
(Removal of the Entire Conrail Board, Or Any One
or More of Conrail's Directors, Without Cause)
166. Plaintiffs repeat and reallege each of the foregoing allegations
as if fully set forth in this paragraph.
167. 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 Directors.
168. There is presently a controversy among Conrail, the Defendant
Directors and the plaintiffs as to 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.
72
<PAGE>
169. Plaintiffs seek a declaration that Article 11 of Conrail's
Articles permits the removal of the entire Conrail Board, or any one or more of
Conrail's directors, without cause by a majority vote of the Conrail
stockholders entitled to cast a vote at an annual election.
170. 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 regulations promulgated thereunder;
(b) defendants' use of the Charter Amendment is violative of
Pennsylvania statutory law and their fiduciary duties;
(c) defendants' discriminatory use of Conrail's poison pill
rights plan violates the director defendants' fiduciary duties;
(d) the termination fees and stock option agreements granted by
Conrail to CSX are violative of the defendants' fiduciary duties;
73
<PAGE>
(e) the "Continuing Director" Requirement of Conrail's poison
pill rights plan is ultra vires and illegal under Pennsylvania Law and
Conrail's Articles of Incorporation and Bylaws; and is illegal because its
adoption constitutes a breach of the defendants' fiduciary duties;
(f) Conrail's entire staggered or any one or more of its
directors, can be removed without cause at Conrail's next annual meeting of
stockholders; and
(g) The defendants have engaged in a civil conspiracy to violate
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder.
B. Preliminarily and permanently enjoining the defendants, their
directors, officers, partners, employees, agents, subsidiaries and affiliates,
and all other persons acting 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 stockholders 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;
74
<PAGE>
(c) taking any action to redeem rights issued pursuant to
Conrail's poison pill rights 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 rights plan;
(e) taking any action to enforce the termination 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 Pennsylvania Business Combination Statute;
and
(g) holding the Conrail Special Meeting until all necessary
corrective disclosures have been made and adequately disseminated to Conrail's
stockholders.
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.
75
<PAGE>
E. Granting plaintiffs such other and further relief as the court
deems just and proper.
Respectfully submitted,
By:
-----------------------------
Mary A. McLaughlin, Esquire
Attorney I.D. No. 24923
George G. Gordon, Esquire
Attorney 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 23, 1996
76
