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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 14D-1
(AMENDMENT NO. 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
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This Amendment No. 1 amends the Tender Offer Statement on Schedule 14D-1
filed on October 24, 1996 (the "Schedule 14D-1"), by Norfolk Southern
Corporation, a Virginia corporation ("Parent"), and its wholly owned
subsidiary, Atlantic Acquisition Corporation, a Pennsylvania corporation
("Purchaser"), relating to 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. (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 (the
"Offer to Purchase") and in the related Letter of Transmittal (which, together
with any amendments or supplements thereto, constitute the "Offer"), copies of
which were filed as Exhibits (a)(1) and (a)(2) to the Schedule 14D-1,
respectively. Unless otherwise defined herein, all capitalized terms used
herein shall have the respective meanings given such terms in the Offer to
Purchase.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
Item 3 is hereby amended to add the following:
(b) On October 29, 1996, a request was made to the Company pursuant to
the PBCL for the use of the Company's shareholder list and security position
information as well as certain other information regarding the Company and its
directors and officers for purposes of permitting Parent and Purchaser to
communicate with the Company's shareholders relating to their interests as
shareholders, including communicating with the Company's shareholders in order
to solicit offers from such shareholders to tender their Shares in the Offer
and to solicit proxies against the Company's proposed amendment to the Company
Articles to "opt out" of the Pennsylvania Control Transaction Law.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Item 4 is hereby amended to add the following:
(a)-(b) On October 27, 1996, Parent, Purchaser, the Lenders and the
Arrangers agreed to certain modifications to the terms of the Financing
Commitment. The revised Summary of Terms and Conditions of the Financing
Commitment is filed as an exhibit hereto.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
Item 5 is hereby amended to add the following:
(b) On October 29, 1996, Parent sent a letter to Parent's and the
Company's customers (the "Customer Letter") which described Parent's analysis
of the perceived competitive benefits of the Offer and the Proposed Merger as
compared with the Proposed CSX Transaction. In addition, Parent indicated in
the Customer Letter its willingness to dispose of certain of the Company's
railroad assets located in New York in order to foster continued competition.
On October 30, 1996, Parent issued a press release summarizing the
Customer Letter and the competitive analysis contained therein.
ITEM 10. ADDITIONAL INFORMATION.
Item 10 is hereby amended to add the following:
(e) On October 28, 1996, defendants in the Pennsylvania Litigation (the
Company, its directors and CSX, the "Defendants") filed a motion to dismiss
the Pennsylvania Litigation alleging that the plaintiffs (Parent, Purchaser
and a Company shareholder, the "Plaintiffs") failed to state a claim in the
Complaint for which relief can be granted based upon, among other things,
Defendants' allegations that shareholders are not permitted to sue directors
directly for breach of fidicuiary duty under Pennsylvania law; and that, as
a result of Parent's breach of its confidentiality agreement with the Company,
the Plaintiffs' claims for equitable relief are barred. In addition, on
October 28, 1996, Parent issued a press release relating to the foregoing
motion to dismiss the Pennsylvania Litigation.
On October 30, 1996, the Plaintiffs amended the Complaint. In
addition to the allegations cited in the original Complaint, the amended
Complaint alleges, among other things, that the provisions in the CSX
Merger Agreement which prohibit the Company Board from redeeming, amending
or otherwise taking further action with respect to the Rights Agreement,
are ultra vires under Pennsylvania law and constitute a breach of the
Company directors' fiduciary duties of loyalty and care; that the tender
offer materials disseminated by the Company and CSX misrepresent key terms
of the Rights Agreement necessary to an understanding of the effects of the
Rights Agreement; that the provision of the CSX Merger Agreement which
prohibit the Company Board from withdrawing their recommendation that the
Company's shareholders accept and approve the Proposed CSX Transaction and
from terminating the CSX Merger Agreement for a period of 180 days from
execution of the CSX Merger Agreement is ultra vires under Pennsylvania law
and constitutes a breach of the Company directors' fiduciary duties of
loyalty and care; and that CSX has knowingly participated in the illegal
conduct of the Company and its directors.
In the amended Complaint, in addition to the relief sought pursuant to
the original Complaint, 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) taking any action to enforce the provisions in the
CSX Merger Agreement regarding the Rights Agreement described in the
immediately preceding paragraph; (b) failing to take such action as is
necessary to postpone the occurrence of a Distribution Date under the Rights
Agreement; and (c) taking any action to enforce the provisions of the CSX
Merger Agreement regarding the 180-day lock-out restrictions described in
the immediately preceding paragraph.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 is hereby amended to add the following:
(a)(11) Press Release issued by Parent on October 28, 1996.
(a)(12) Customer Letter dated October 28, 1996.
(a)(13) Press Release issued by Parent on October 30, 1996.
(b)(2) Revised Summary of Terms and Conditions of the Financing
Commitment dated October 27, 1996.
(g)(2) Amended Complaint filed by Parent, Purchaser and Kathryn B.
McQuade against the Company, CSX et. al. (dated October 30,
1996, United States District Court for the Eastern District
of Pennsylvania).
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 30, 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
EXHIBIT INDEX
Exhibit
Number Page
- ------- ----
(a)(11) Press Release issued by Parent on October 28, 1996.
(a)(12) Customer Letter dated October 28, 1996.
(a)(13) Press Release issued by Parent on October 30, 1996.
(b)(2) Revised Summary of Terms and Conditions of the Financing
Commitment dated October 27, 1996.
(g)(2) Amended Complaint filed by Parent, Purchaser, and Kathryn B.
McQuade against the Company, CSX et. al. (dated October 30,
1996, United States District Court for the Eastern District of
Pennsylvania).
Exhibit (a)(11)
FOR IMMEDIATE RELEASE
CONTRACT: Robert C. Fort
(757) 629-2714
(757) 463-3276
NORFOLK, VA. -- October 28, 1996 -- Norfolk Southern today released the
following statement with respect to the lawsuit the Company has filed in
federal court in Philadelphia against Conrail and CSX Corporation:
"In its motion to dismiss Norfolk Southern's action, Conrail has once
again shown no regard for the right of its shareholders to decide for
themselves which offer they prefer.
"The purpose of our lawsuit is to ensure that Conrail shareholders have
complete and accurate information about the two offers and the opportunity to
evaluate them on the merits. Given that chance, we're confident they'll
conclude that Norfolk Southern's offer is clearly superior.
"The directors and management of Conrail, in concert with CSX
Corporation, have acted deliberately and illegally to deprive Conrail
stockholders of free choice and the opportunity to maximize the value of their
investments through the Norfolk Southern proposal.
"Through our lawsuit, Norfolk Southern seeks the same result as
purportedly sought by Conrail in its motion -- to `allow the shareholders of
Conrail the opportunity to decide their futures for themselves.'"
###
EXHIBIT (a)(12)
BALANCED RAIL COMPETITION
NORFOLK SOUTHERN S COMMITMENT
TO THE CUSTOMERS OF NS/CONRAIL
October 28, 1996
To All Rail Shippers:
Norfolk Southern s Chairman, President and Chief
Executive Officer David R. Goode announced NS s $100 a share
tender offer for Conrail on October 23. At the same time he
emphasized that NS, in acquiring Conrail, would be receptive to
competitive enhancements going far beyond anything envisaged by
CSX s stonewall advocacy of the status quo. Specifically, he
said that the nation s largest consumer market, the New York/New
Jersey area, had been neglected.
Today we want to spell out, for the benefit of
customers and communities, exactly how Norfolk Southern would be
willing to shape its transaction to improve competition.
Let us say that we provide this outline not entirely
out of altruism. In the first place, Norfolk Southern year in
and year out is the nation s most efficient railroad and does not
fear the impact of balanced competition. In fact, we think we
will thrive in that environment. Secondly, we do not read the
UPSP decision in the narrow, self-serving, hypertechnical way
that CSX does. We read it to say that a region is best served by
having two railroads of comparable size and scope competing for
the business of customers. So we are willing to act consistently
with that interpretation.
These are the principles of balanced competition, the
four fundamentals of competition in reality and not just in name.
FIRST, BALANCED COMPETITION REQUIRES THAT THE COMPETING
SYSTEMS OPERATE WITH COMPARABLE SCALE AND SCOPE, though absolute
equality is unnecessary. While one hesitates to apply a
mathematical formula, the 70-30 split which would result from a
CSX acquisition of Conrail precludes effective competition. NS
and CSX now have, respectively, about 45% and 55% shares of their
total business. The spread of 10 percentage points is already an
advantage for CSX if you credit Conrail it said at the time of
the announcement that one reason for preferring CSX was its wider
market reach. In the West, the respective shares of UP and of
BNSF, before the concessions to BN, were 53/47. A NS/Conrail
combination produces approximately a 60/40 split in the East,
clearly preferable to approximately 70/30 with CSX/Conrail. And,
applying the principles spelled out here, we are willing to work
towards something even closer to an even split than 60/40.
Significant market dominance would exist across all
industry sectors with a CSX/Conrail combination. One glaring
example is that CSX/Conrail would serve approximately 111 power
generating plants and NS would serve only 39.
These are not just numbers. Railroading is a network
business with increasing economies of scale. This reality means
that if you are much smaller than your competitor, you are
competing with a handicap. We can cite case after case in which
our system s ability to compete hinged not on its presence in
some particular market but on the scope of our network and
efficiency of our overall operations.
Perhaps the best example is the most recent. As you
may know, with the present rough parity between NS and CSX, we
recently won a 12-year contract for Ford s new mixing centers.
We were able to give Ford a proposal for NS operation of centers
as far west as Kansas City. And, of course, we serve many Ford
destinations. Our ability to link all these points on our own
rail network clearly appealed to Ford, and Norfolk Southern will
ultimately increase its Ford business by approximately 60% as a
result.
In short, in addition to the volume efficiencies which
permit competitive pricing, our customers are demanding service
which only a network of broad scope can provide. Real
competition, long-term effective competition, depends on having
railroads of comparable scale and scope. NS s acquisition of
Conrail will make this goal much easier to achieve than CSX s,
because the CSX/Conrail combination produces disparities so much
greater than the NS/Conrail combination. Even so, we are willing
to work to reduce our 60/40 disparity.
SECOND, BALANCED COMPETITION REQUIRES THAT THE LARGEST
MARKETS HAVE SERVICE BY TWO RAILROADS. This follows from the
previous discussion of balanced, effective competition a
network cannot compete effectively, cannot meet the demands of
customers operating on a global scale, if it does not reach all
or most of the most important markets. Our customers do not just
ask, can you get me from A to B. They ask, what can you do for
my traffic moving between and among A to Z.
This is why Norfolk Southern recognized at the outset
that it would have to address the New York/New Jersey port area
situation. When the East is served by two railroads, competitive
balance without access to the Port is a contradiction in terms.
If only one large railroad provides good service to New York (or,
in the case of the proposed CSX/Conrail combination, only one big
railroad serves Philadelphia, Baltimore, Newark, Wilmington,
Charleston, Pittsburgh, Indianapolis, Grand Rapids, and
Lordstown), big customers do not really have two viable
alternatives. They will need to use the railroad which has these
big markets to itself.
Speaking more broadly, the port, the big city and the
region which lacks a competitive rail infrastructure not
competition to every station, but competition at and between the
largest markets suffers a real handicap in the contest for
industrial development and economic growth. While one can argue
about the chicken and the egg, we offer for your consideration
the lack of growth of the Port of New York during the Conrail
monopoly epoch compared to the phenomenal growth of the Port of
Hampton Roads, served by NS and CSX. Competitive rail service is
relevant to growth and development. We have an economy and a
rail system grounded on the reality that competition works better
than monopoly.
As with the question of size, one hesitates to be too
precise in prescribing solutions which may be affected by a host
of real world complexities. But we are willing to look at New
York and we are willing to look at the major markets defined by
the Department of Transportation in 1974 in the process which led
to the creation of Conrail. The government did not intend to
fortify a rail monopoly in the Northeast. It did intend, as the
report just cited and the Final System Plan show, to establish
competing systems.
THIRD, BALANCED COMPETITION REQUIRES THAT EACH RAILROAD
OWN ITS OWN ROUTES TO MAJOR MARKETS WHERE FEASIBLE. At Norfolk
Southern, we pride ourselves on the quality of our fixed plant
and the efficiency of our operations. Our year-in-and-year-out
investment in the maintenance and renewal of our lines, at the
highest level in the industry, is the bedrock of our safety
record (best in the industry), our efficiency (best of any major
railroad), and our highly regarded service. If you do not own
your line, you do not control this investment, so you also lack
control over safety, efficiency, and service. In short, you
cannot stay competitive.
Here is an anecdote which makes the point. Norfolk
Southern has trackage rights over a CSX double-track main line in
Cincinnati. We continually experienced delays and associated
added costs and service failures in trying to move our trains
over these trackage rights. One could attribute this to the
capacity of the CSX line or to the malign influence of CSX, but
in truth the problem was that CSX's priorities and self-interest
are different from our priorities, and CSX owns and controls the
track. So we have cooperated to build a third main through
Cincinnati, which Norfolk Southern owns.
Another example is the CP s attempt to provide
competitive service to the New York area over trackage rights on
Conrail. It never really worked, and CP wants to withdraw from
the market. The route could have been adequate, and in fact had
offered effective competition in the pre-Conrail era. But
trackage rights over an unenthusiastic, competing owner did not
suffice to give customers the service they wanted.
Norfolk Southern is not against trackage rights. We
utilize them and other facilities coordinations widely. They can
work well for short cuts and for access over branches of, say,
up to 100 miles, solidly anchored on the user s own trunk line.
Consider, in connection with BN s existing network, the
combination of owned or jointly owned lines, trackage rights, and
joint facilities prerogatives gained by BN in UPSP. You can see
that contrary to popular understanding, traditional trackage
rights were not accepted as a solution there. Furthermore, we
are fully aware that circumstances such as tax issues, labor
problems, or efficiency (density) considerations may dictate
creative alternatives in which a user controls a non-owned line.
Where trackage rights are the best alternative for
market access, they should be on the CMA, UPSP model, permitting
access to new plants, build-outs, and terminals and other
necessary infrastructure.
All that said, a railroad needs, where feasible, to own
its own trunk lines to and between major markets. In the context of
New York, this means we will be willing to sell a line, and will not
play the game of pretending to wish our competitor success over
extended trackage rights on lines owned and controlled by Norfolk
Southern.
FOURTH, BALANCED COMPETITION REQUIRES THAT EACH
RAILROAD HAVE EFFECTIVE TERMINAL ACCESS. It does not do you any
good to ride the train if you can t get off. A railroad may need
yards, intermodal and multi-modal terminals. It should have
reasonable access from day one so competition will be a reality,
and it should also have the right, where feasible, to build its
own terminals.
* * * *
Now it is much easier to lay out our understanding of
what is necessary for effective competition than to bring it
about. A host of details and problems can interfere.
We see a clear way through some of them. We will not
give any competitor a free ride, but will expect them to pay, on
a formula based on revenues and reflecting the costs of the
acquisition to NS, for the assets they acquire. If they do not
pay a proportionate price, we will not be competing on equal
terms.
The last thing we want to comment on is the UPSP
decision, on which CSX/Conrail had relied. That decision, as we
understand it, is one of the best thought out in the long history
of railroad regulation. It shows a grasp of the realities of
railway economics and operations of the importance of scope and
scale for the efficiencies which permit improving service at
decreasing rates which our regulators have not always had in
the past. It says to us that
(a) a third-place railroad like SP, despite the
intrinsic value of its routes, could not provide effective
competition,
(b) and in fact not even UP could provide competition
comparable to the substantially larger BNSF;
(c) customers are best served when two strong
railroads of comparable size operate to and between all the major
markets in a region;
(d) enhanced trackage rights to particular points,
when grounded on a solid infrastructure of lines owned by a
railroad already having a presence in the area, can work to
provide competition.
The STB decision in UPSP does not hold that a 70-30
split, perhaps not even a 60-40 split, is good for rail
transportation and the customers who use rail transportation. It
was said of the old Romans, they make a desert and call it peace.
We would say of CSX/Conrail, they extend a monopoly and call it
competition. They would have found cold comfort in UPSP for that
kind of grab. Norfolk Southern will acquire Conrail and will
apply, as it must, the real message of UPSP. NS/Conrail
customers will have competitive alternatives in major markets.
NORFOLK SOUTHERN CORPORATION
Exhibit (a)(13)
FOR IMMEDIATE RELEASE
October 30, 1996
Contact: Robert C. Fort
(757) 629-2714
NS OUTLINES BENEFITS OF BALANCED COMPETITION
NORFOLK, VA -- In a letter to shippers, Norfolk Southern
today declared its commitment to balanced competition in the
rail industry and said it would structure its proposed
combination with Conrail to improve competition in the East.
Saying a region is best served by having two
railroads of comparable size and scope competing for the
business of customers, Norfolk Southern Chairman, President
and Chief Executive Officer David R. Goode said Norfolk
Southern would be willing to shape its transaction to
improve competition.
The letter outlined several principles of competition
and reaffirmed the railroad s strong commitment to customer
service. Norfolk Southern, in acquiring Conrail, would be
receptive to competitive enhancements going far beyond
anything envisaged by CSX s stonewall advocacy of the status
quo, adding specifically that the New York/New Jersey area,
the nation s largest consumer market, had been neglected.
Goode noted that balanced, effective competition
requires: rail systems of comparable size and scope; large-
market service by more than one railroad; rail ownership of
major trunk-line routes to ensure safety, efficiency and
service; effective terminal access, and an understanding
that competitive service is not free.
Norfolk Southern last week announced an all-cash tender
offer for Conrail, bidding $100 per share and topping CSX's
cash-and-stock offer of $92.50 a share.
- MORE -
PRINCIPLES OF BALANCED RAIL COMPETITION
NORFOLK SOUTHERN S COMMITMENT
TO NS/CR CUSTOMERS
1. COMPETITION REQUIRES RAIL SYSTEMS OF COMPARABLE SIZE AND SCOPE
Railroads compete with each other, not just trucks
Balance between railroads must not be eliminated by mergers
Customers demand full rail route networks
Mergers should result in balance within regions, not dominance
2. THE LARGEST MARKETS MUST BE SERVED BY (AT LEAST) TWO LARGE RAILROADS
Major markets require competitive service
Rail mergers should not be an excuse to control a market
Competition at ports is especially important
Lack of competition has disadvantaged Northeastern markets
Routes and terminals must be adequate to protect competition
3. OWNED ROUTES ARE ESSENTIAL TO COMPETITION
Railroads need to control their major trunk-line routes
Route ownership enables competition on safety, price and service
Competition on major corridors, such as New York/Philadelphia -
Chicago, should be over owned routes
Trackage rights do work for short-distance industrial access, and as
shortcuts between owned lines
4. COMPETITION DEPENDS ON EFFECTIVE TERMINAL ACCESS
The rail network is anchored by terminals and yards
Terminals are just as important to competition as routes
Competitors must have the right to buy or build their own terminal
facilities
5. COMPETITION IS NOT FREE
Competitors must make a commitment to owning lines and terminals
NS/CR will not subsidize its competitors
Competitors must pay a fair portion of the overall purchase price
# # #
World Wide Web Site - http://www.nscorp.com
Exhibit (b)(2)
I. SUMMARY OF TERMS AND CONDITIONS
I. PARTIES
Borrower: Norfolk Southern Corporation
("NS").
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"), Conrail, Inc. ("Conrail")
(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 Morgan (as defined below) (in such
Agent: capacity, the "Administrative
Agent").
Documentation Merrill (as defined below) (in such
Agent: 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 ("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 date on which the
definitive documentation is signed
(the "Closing Date").
Availability: A portion of Term Loan - I shall be
drawn on the date on which the
shares have been acquired pursuant
to the tender offer (the
"Acquisition 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 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.
III. REVOLVING CREDIT FACILITY
Type and Amount Five-year revolving credit facility
of 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 NS (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 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 The Borrower may request the Agent
Option Description: to solicit 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.
IV. GENERAL PROVISIONS
Fees and Interest See Pricing Grid.
Rates:
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 percent.
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 -
minimum 14 days.
Optional Base Rate Loans may be prepaid at
Prepayments and any time on one business day's
Commitment notice. LIBOR, Adjusted CD and
Reductions: 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 The following amounts shall be
Prepayments and applied, prior to the Acquisition
Commitment Date, to reduce the commitments
Reductions: under the Term Loan Facilities,
and, following the Acquisition
Date, to prepay the Term Loans:
(a) 100 percent 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 NS or any of
its subsidiaries (including, after
Consummation Date, Conrail and its
subsidiaries); and
(b) 100 percent of the net cash
proceeds of any sale or other
disposition after the Closing Date
by NS or any of its subsidiaries
(including, after the Consummation
Date, Conrail 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 certain other
assets the proceeds of which were
projected in NS's base projections
to be received by NS in the 1996
fiscal year).
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
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
prepayment of 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.
V. 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
Conrail, (ii) the shares of all
significant subsidiaries of NS and,
after the Consummation Date, (iii)
the shares of all significant
subsidiaries of Conrail. The
collateral shall be released upon
NS receiving unsecured senior
credit ratings from S&P and Moody s
of at least BBB- and Baa3,
respectively.
VI. CERTAIN CONDITIONS
Initial Borrowing The making of the Loans on the
Conditions: 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 NS sufficient shares of
Conrail common stock to enable NS
to effect a merger of Conrail with
a wholly-owned subsidiary of NS,
without the requirement of any
action by any other Conrail
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 NS shall
have accepted for purchase all such
tendered shares.
(c) Concurrently with the making
of the Loans on the Acquisition
Date, NS 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 Acquisition
Date consolidated NS/Conrail pro
forma financial statements as of
the Closing Date, 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) NS shall have acquired
concurrently with the making of the
final Term Loans, directly or
indirectly, all of the issued and
outstanding common stock of Conrail
(on a fully diluted basis) at a
purchase price (i) not to exceed
$100.00 per share in cash and (ii)
not to exceed $11,500,000,000 in
the aggregate in cash, including
fees.
(i) All material governmental and
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
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 shall have
received copies, certified by NS,
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 NS and its subsidiaries,
(ii) opinions (if any) delivered to
NS by counsel to Conrail,
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 The making of each extension of
Conditions: 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 NS
and Conrail from that set forth in
the information heretofore made
available to the Lenders.
VII. 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:
Representations Corporate existence; financial
and Warranties: 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 The Borrower shall use its best
Acquisition: efforts to cause the merger to be
consummated, the STB approval to be
obtained and the acquisition of
Conrail to be consummated, all at
the earliest practicable times.
Affirmative Delivery of financial statements,
Covenants: 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 Usual and customary for transac-
Covenants: tions of this type including, but
not limited to:
(a) Interest Coverage Ratio (as
defined below).
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 after the
Acquisition Date to be not less
than the sum of (i) 80 percent of
the Net Worth of NS on the
Acquisition Date, (ii) 50 percent
of cumulative Net Income (excluding
any losses) since the Acquisition
Date and (iii) 100 percent 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).
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 NS and the Agents and shall in
each case be subject to adjustments
to be agreed upon by NS 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 NS to Conrail 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 percent of the
principal amount of its outstanding
debt on such terms as are
acceptable to the Lenders.
Negative Limitations on: maturities or
Covenants: amortization of indebtedness
(including preferred stock) prior
to the date which is six months
after the final maturity of the
Loans (subject to a basket for any
such indebtedness having earlier
maturities, e.g., commercial paper,
and other set baskets);
indebtedness of subsidiaries
(subject to a set basket);
investments in Conrail prior to the
STB Approval Date; liens, including
sale/leaseback transactions
(subject to a set basket for liens
and/or sale-leasebacks and other
standard); 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. 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.
VIII. 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 percent 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 percent 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 The Lenders shall be permitted to
Participations: assign and sell participations in
their Loans and commitments,
subject, in the case of assignments
(other than to another Lender or to
an affiliate of the assigning
Lender), to the consent of the
Administrative Agent and NS (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.
Expense and The Borrower shall pay (a) all
Indemnification: 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 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 State of New York.
Forum:
Counsel to the Agents Davis Polk & Wardwell.
and the Arrangers:
Commitment The Closing Date must have occurred
Termination Dates: on or before March 1, 1997, and the
Acquisition Date must have occurred
on or before July 1, 1997.
Facility Fee: NS 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
percent above the rate otherwise
applicable thereto. Overdue
interest, fees and other amounts
shall bear interest at 2 percent
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.
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:
EURO- BASE
DOLLAR RATE TOTAL
LOAN LOAN FACILITY USED
MARGIN MARGIN FEE 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 NS's Senior
Unsecured Long-Term Debt Ratings
established by S&P and Moody's as
follows):
Senior unsecured
long-term debt
ratings Eurodollar Base rate Total
---------------- loan loan Facility used
Category S&P Moody's margin 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.
Exhibit (g)(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, :
:
Atlantic Acquisition Corporation :
Three Commercial Place :
Norfolk, VA 23510-2191, :
:
and :
:
Kathryn B. McQuade :
5114 Hunting Hills Drive :
Roanoke, VA 24014, :
:
Plaintiffs, :
:C.A. No. 96-CV-7167
-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, :
:
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 :C.A. No. 96-CV-7167
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
FIRST AMENDED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs, by their undersigned attorneys, as
and for their First Amended 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 (the
"Director Defendants"), and CSX Corporation ("CSX") to
coerce, mislead and fraudulently manipulate Conrail's
shareholders to swiftly deliver control of Conrail to CSX
for eighty-some dollars in cash and stock and to
forestall any competing higher bid for Conrail by
plaintiff Norfolk Southern Corporation ("NS"). Although
defendants have attempted to create the impression that
NS's superior $100 per share all-cash offer for all of
Conrail's stock is a "non-bid" or a "phantom offer," in
reality the only obstacles to the availability of the
$100 per share offered by NS are illegal actions and
ultra vires agreements by defendants. The ultimate
purpose of this action is to establish the illegality of
such actions and agreements so that NS may proceed to
provide superior value to Conrail's shareholders and a
superior transaction to Conrail and all of its
constituencies.
2. Additionally, plaintiffs will seek interim
injunctive relief to maintain the status quo and ensure
that Conrail shareholders will not be coerced, misled and
fraudulently manipulated by defendants' illegal conduct
to deliver control over Conrail to CSX before the Court
can finally determine the issues raised in this action.
3. The event that set this controversy in
motion was the unexpected announcement that CSX would
take over Conrail. In a surprise move on October 15,
1996, defendants Conrail and CSX announced a deal to
rapidly transfer control of Conrail to CSX and foreclose
any other bids for Conrail (the "CSX Transaction"). The
CSX Transaction is to be accomplished through a
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. As of the close of business on
October 29, 1996, the blended value of the CSX
Transaction was slightly more than $85 per Conrail share.
Integral to this deal are executive succession and
compensation guarantees for Conrail management and board
composition covenants effectively ensuring Conrail
directors of continued board seats.
4. Because plaintiff NS believes that a
business combination between Conrail and NS would yield
benefits to both companies and their constituencies far
superior to any benefits offered by the proposed
Conrail/CSX combination, NS on October 23, 1996 announced
its intention to commence, through its wholly-owned
subsidiary, plaintiff Atlantic Acquisition Corporation
("AAC") a cash tender offer (the "NS Offer") for all
shares of Conrail stock at $100 per share, to be followed
by a cash merger at the same price (the "Proposed
Merger," and together with the NS Offer, the "NS
Proposal"). The following day, on October 24, 1996, the
NS Offer commenced.
5. At the heart of this controversy is the
assertion by defendants, both expressly and through their
conduct, that the Director Defendants, as directors of a
Pennsylvania corporation, have virtually no fiduciary
duties. While it is true that Pennsylvania statutory law
provides directors of Pennsylvania corporations with wide
discretion in responding to acquisition proposals,
defendants here have gone far beyond what even
Pennsylvania law permits. Indeed, it appears that
defendants are taking Pennsylvania's statutory regime as
carte blanche to insulate Conrail, through the first half
of the first decade of the next millennium, from any
acquisition by any party (including CSX) other than the
CSX Transaction with its current pricing and other terms,
regardless of how favorable any such other proposed
acquisition might be to Conrail's shareholders,
customers, and other constituencies. As a result, this
battle for control of Conrail presents the most audacious
array of lock-up devices ever attempted:
* The Poison Pill Lock-In. The CSX Merger
Agreement exempts the CSX Transaction from
Conrail's Poison Pill Plan, and purports
to prohibit the Conrail Board from
redeeming, amending or otherwise taking
any further action with respect to the
Plan. Under the terms of the Poison Pill
Plan, the Conrail directors will lose
their power to make the poison pill
inapplicable to any acquisition
transaction other than the CSX Transaction
on November 7, unless CSX agrees to let
them postpone that date. Thus, the Poison
Pill Lock-In threatens to lock-up Conrail,
even from friendly transactions, until the
year 2005, when the poison pill rights
expire. That is, unless the November 7
date is postponed, Conrail will be unable
to be acquired other than through the CSX
Transaction, under its current terms, for
a period of almost nine years. Put
simply, the CSX Merger Agreement purports
to require Conrail to swallow its own
poison pill. The Poison Pill Lock-In is
an unprecedented, draconian and utterly
preclusive lock-up device, is ultra vires
under Pennsylvania law, and constitutes a
total abdication and breach of the Conrail
directors' fiduciary duties of loyalty and
care. To make matters worse, in violation
of the federal securities laws, the
defendants in their tender offer filings
affirmatively misrepresented key terms of
the Conrail Poison Pill Plan bearing
directly upon the Poison Pill Lock-In.
* The 180-Day Lock-Out. The CSX Merger
Agreement audaciously and unashamedly
purports to prohibit Conrail's directors
from withdrawing their recommendation that
Conrail's shareholders accept and approve
the CSX Transaction and from terminating
the CSX Merger Agreement, even if their
fiduciary duties require them to do so,
for a period of 180 days from execution of
the agreement. Put simply, Conrail's
directors have agreed to take a six-month
leave of absence during what may be the
most critical six months in Conrail's
history. The 180-Day Lock-Out is ultra
vires under Pennsylvania law and
constitutes a complete abdication and
breach of the Conrail directors' duties of
loyalty and care.
* The Stock Option Lock-Up And The $300
Million Break-Up Fee. The CSX Merger
Agreement provides, in essence, that
Conrail must pay CSX a $300 million
windfall if the CSX Merger Agreement is
terminated and Conrail is acquired by
another company. Further, a Stock Option
Agreement granted by Conrail to CSX
threatens over $100 million in dilution
costs to any competing bidder for Conrail.
This lock-up option is particularly
onerous because the higher the competing
bid, the greater the dilution it
threatens.
* The Continuing Director Amendments To
Conrail's Poison Pill Plan. Recognizing
that Pennsylvania law permits shareholders
of Pennsylvania corporations to elect a
new board of directors if they disagree
with an incumbent board's decisions
concerning acquisition offers, the Conrail
Board altered the Conrail Poison Pill Plan
in September 1995 to deprive Conrail's
shareholders of the ability to elect new
directors fully empowered to act to render
the poison pill ineffective or
inapplicable to a transaction they deem to
be in the corporation's best interests.
This amendment to the Conrail Poison Pill
Plan is ultra vires under Pennsylvania law
and Conrail's Charter and By-Laws, and
constitutes an impermissible interference
in the stockholder franchise and a breach
of the Conrail directors' duty of loyalty.
At bottom, what defendants have attempted here is to
litter the playing field with illegal, ultra vires
apparent impediments to competing acquisition proposals,
and then coerce Conrail shareholders to swiftly deliver
control of Conrail to CSX before the illegality of such
impediments can be determined and revealed.
6. Accordingly, by this action, plaintiffs
NS, AAC, and Kathryn B. McQuade, a Conrail shareholder,
seek emergency relief against defendants' illegal attempt
to lock-up the rapid sale of control of Conrail to CSX
through their scheme of coercion, deception and
fraudulent manipulation, in violation of the federal
securities laws, Pennsylvania statutory law, and the
fiduciary duties of the Director Defendants. In
addition, to facilitate the NS Proposal, plaintiffs seek
certain declaratory relief with respect to replacement of
Conrail's Board of Directors at Conrail's next annual
meeting of shareholders.
Jurisdiction and Venue
7. This Court has jurisdiction over this
complaint pursuant to 28 U.S.C. SECTIONSECTION 1331 and 1367.
8. Venue is proper in this District pursuant
to 28 U.S.C. SECTION 1391.
The Parties
9. Plaintiff NS is a Virginia corporation
with its principal place of business in Norfolk,
Virginia. NS is a holding company operating rail and
motor transportation services through its subsidiaries.
As of December 31, 1995, NS's railroads operated more
than 14,500 miles of road in the states of Alabama,
Florida, Georgia, Illinois, Indiana, Iowa, Kentucky,
Louisiana, Maryland, Michigan, Mississippi, Missouri, New
York, North Carolina, Ohio, Pennsylvania, South Carolina,
Tennessee, Virginia and West Virginia, and the Province
of Ontario, Canada. The lines of NS's railroads reach
most of the larger industrial and trading centers in the
Southeast and Midwest, with the exception of those in
Central and Southern Florida. In the fiscal year ended
December 31, 1995, NS had net income of $712.7 million on
total transportation operating revenues of $4.668
billion. According to the New York Times, NS "is
considered by many analysts to be the nation's best-run
railroad." NS is the beneficial owner of 100 shares of
common stock of Conrail.
10. Plaintiff AAC is a Pennsylvania
corporation. The entire equity interest in AAC is owned
by NS. AAC was organized by NS for the purpose of
acquiring the entire equity interest in Conrail.
11. Plaintiff Kathryn B. McQuade is and has
been, at all times relevant to this action, the owner of
Conrail common stock.
12. Defendant Conrail is a Pennsylvania
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.
13. 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
Foley Feldstein, David B. Lewis, John C. Marous, David H.
Swanson, E. Bradley Jones, and Raymond T. Schuler are the
remaining directors of Conrail. The foregoing individual
directors of Conrail owe fiduciary duties to Conrail and
its stockholders, including plaintiffs.
14. Defendant CSX is a Virginia corporation
with its principal place of business in Richmond,
Virginia. CSX is a transportation company providing
rail, internodal, 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
15. 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 all shares of Conrail common stock at a price
of $100 cash per share. NS further announced that it
intends, as soon as practicable following the closing of
the NS Offer, to acquire the entire equity interest in
Conrail by causing it to merge with AAC in the Proposed
Merger. In the Proposed Merger, Conrail common stock not
tendered and accepted in the NS Offer would be converted
into the right to receive $100 in cash per share. On
October 24, 1996, NS, through AAC, commenced the NS
Offer. The NS Offer and the Proposed Merger represent a
40.8% premium over the closing market price of Conrail
stock on October 14, 1996, the day prior to announcement
of the CSX Transaction.
16. In a letter delivered on October 23, 1996
to the Defendant Directors, NS stated that it is flexible
as to all aspects of the NS Proposal and expressed its
eagerness to negotiate a friendly merger with Conrail.
The letter indicated, in particular, that while the NS
Proposal is a proposal to acquire the entire equity
interest in Conrail for cash, NS is willing to discuss,
if the Conrail board so desires, including a substantial
equity component to the consideration to be paid in a
negotiated transaction so that current Conrail
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
17. 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.
18. Two circumstances relating to the CSX
Transaction create the current crisis. First, as noted
above, and as explained more fully below, on November 7,
1996, a "Distribution Date" will occur under Conrail's
Poison Pill Plan, after which time Conrail's Board will
lose the ability to remove the poison pill rights as an
obstacle to any transaction other than the CSX
Transaction. This event, if it is allowed to occur, will
irreparably harm Conrail, its shareholders, and other
constituencies by making Conrail incapable of being
acquired until the year 2005, other than through the CSX
Transaction as it is currently proposed.
19. Even if the "Distribution Date" problem
with Conrail's Poison Pill Plan were remedied, 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 Articles 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.
Defendants Were Well Aware That
A Superior Competing Acquisition
Proposal By NS was Inevitable
20. For a number of years, certain members of
senior management of NS, including David R. Goode,
Chairman and Chief Executive Officer of NS, have spoken
numerous times with senior management of Conrail,
including former Conrail Chairman and Chief Executive
Officer, James A. Hagen, and current Conrail Chairman and
Chief Executive Officer, defendant David W. LeVan,
concerning a possible business combination between NS and
Conrail. 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.
21. Prior to 1994, senior management of NS and
Conrail discussed, from time to time, opportunities for
business cooperation between the companies, and, in some
of those discussions, the general concept of a business
combination. While the companies determined to proceed
with certain business cooperation opportunities,
including the Triple Crown Services joint venture, no
decisions were reached concerning a business combination
at that time.
22. In March of 1994, Mr. Hagen approached Mr.
Goode to suggest that under the current regulatory
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
the negotiations turned toward a premium stock-for-stock
acquisition of Conrail.
23. By early September 1994, the negotiations
were in an advanced stage. NS had proposed an exchange
ratio of 1-to-1, but Conrail management was still
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.
24. The 1.1-to-1 exchange ratio proposed by
Mr. Goode in September of 1994 reflected a substantial
premium over the market price of Conrail stock at that
time. If one applies that ratio to NS's stock price on
October 14, 1996 -- the day the Conrail Board approved
the CSX Transaction -- it implies a per share acquisition
price for Conrail of over $101. Thus, there can be no
question that Mr. LeVan, if not Conrail's Board, was well
aware that NS would likely be willing and able to offer
more -- to Conrail's shareholders, rather than
management, that is -- than CSX could offer for an
acquisition of Conrail.
Defendant LeVan Actively Misleads NS
Management In Order To Permit Him To
Lock Up The Sale of Conrail to CSX
25. During the period following September of
1994, Mr. Goode from time to time had conversations with
Mr. LeVan. During virtually all of these conversations,
Mr. Goode expressed NS's strong interest in negotiating
an acquisition of Conrail. Mr. LeVan responded that
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.
26. 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
meeting. Mr. LeVan stated that it was unnecessary for
Mr. Goode to do so. At that point, the conversation
concluded.
27. Following September 24, Mr. LeVan did not
contact Mr. Goode. Finally, on Friday, October 4, 1996,
Mr. Goode telephoned Mr. LeVan. Mr. Goode again
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.
CSX's Chairman Snow Contributes To
LeVan's Deception
28. Several days prior to October 15, CSX's
Chairman, John W. Snow, publicly stated that he did not
expect to see any major business combinations in the
railroad industry for several years. On October 16,
1996, the New York Times reported that "less than a week
ago, Mr. Snow told Wall Street analysts that he did not
expect another big merger in the industry (in the next
few years)."
On the Day Before the Purportedly
Scheduled Meeting of Conrail's Board,
Defendants Announce the CSX Transaction
29. To NS's surprise and dismay, on
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. As
of the close of business on October 29, 1996, the blended
value of the CSX Transaction was slightly more than $85
per Conrail share. The CSX Transaction includes a break-
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 Admits That The Conrail Board Approved
The CSX Transaction Rapidly.
30. On October 16, 1996, the New York Times
reported that CSX's Snow on October 15, 1996, had stated
that the multi-billion dollar sale of Conrail in the CSX
Transaction "came together rapidly in the last two
weeks." The Wall Street Journal reported on October 16
that Mr. Snow stated that negotiations concerning the CSX
Transaction had gone "very quickly," and "much faster
than he and Mr. LeVan had anticipated." On October 24,
1996, the Wall Street Journal observed that "[i]n
reaching its agreement with CSX, Conrail didn't solicit
other bids ... and appeared to complete the accord at
breakneck speed."
31. Thus, Conrail's board approved the CSX
Transaction rapidly without a good faith and reasonable
investigation. Given the nature of the CSX Transaction,
with its draconian and preclusive lock-up mechanisms, the
Conrail Board's rapid approval of the deal constitutes
reckless and grossly negligent conduct.
CSX's Snow Implies That the CSX Transaction
Is a Fait Accompli and States That Conrail's
Directors Have Almost No Fiduciary Duties
32. On October 16, 1996, Mr. Goode met in
Washington, D.C. with Mr. Snow to discuss the CSX
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
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
33. On October 22, the NS Board met to review
its strategic options in light of the announcement of the
CSX Transaction. Because the NS Board believes that a
combination of NS and Conrail would offer compelling
benefits to both companies, their shareholders and their
other constituencies, it determined that NS should make a
competing bid for Conrail. On October 23, 1996, NS
publicly announced its intention to commence a cash
tender offer for all shares of Conrail stock for $100 per
share, to be followed, after required regulatory
approvals, by a cash merger at the same price. On
October 24, 1996, NS, through AAC, commenced the NS
Offer.
CSX Tells The Market That NS's Superior
Proposal To Acquire Conrail Is Not Real
34. CSX responded to the NS Proposal by
attempting to lead the market to believe that the
superior NS Proposal does not represent a real, viable
and actually available alternative to the CSX
Transaction. On October 24, 1996, the Wall Street
Journal reported:
CSX issued a harshly worded statement last
night that called Norfolk's move a "nonbid"
that would face inevitable delays and be
subject to numerous conditions. It said the
Norfolk bid couldn't be approved without
Conrail's board, and notes that merger pact
[with CSX] prohibited Conrail from terminating
its pact until mid-April. It said the present
value of the Norfolk bid was under $90 a share
because of the minimum six-month delay....
On the same day, the New York Times reported that "a
source close to CSX" characterized the NS Proposal as "a
phantom offer."
35. These statements are an integral part of
defendants' scheme to coerce, mislead and manipulate
Conrail's shareholders to rapidly deliver control of
Conrail to CSX by creating the false impression that the
NS Proposal is not a viable and actually available
alternative.
The CSX Transaction
36. Consistent with Mr. Snow's remarks,
discussed above, that Conrail's advisers had ensured that
the CSX Transaction is "bullet-proof" and that Conrail's
directors have almost no fiduciary duties, the CSX Merger
Agreement contains draconian "lock-up" provisions which
are unprecedented. These provisions are designed to
foreclose success by any competing bidder for Conrail and
to protect the lucrative compensation increase and
executive succession deal promised to defendant LeVan by
CSX.
The Poison Pill Lock-In
37. Perhaps the most onerous of these
provisions, in terms of the drastic consequences it
threatens to Conrail, its stockholders and its other
legitimate constituencies, is the poison pill "lock-in"
provision (the "Poison Pill Lock-In"). The CSX Merger
Agreement purports to bind the Conrail board not to take
any action with respect to the Conrail Poison Pill to
facilitate any offer to acquire Conrail other than the
CSX Transaction. At the same time, the Conrail board has
amended the Conrail Poison Pill to facilitate the CSX
Transaction.
38. Because of certain unusual provisions to
the Conrail Poison Pill Plan -- which provisions, as
noted below, not only were not disclosed in the Schedule
14D-1 filed with the Securities and Exchange Commission
or in the Offer to Purchase circulated to Conrail's
stockholders by CSX, or in the Schedule 14D-9 circulated
to Conrail's shareholders by Conrail, but were in fact
affirmatively misdescribed in CSX's Schedule 14D-1 and
Offer to Purchase -- the provision in the CSX Merger
Agreement barring the Conrail Board from taking action
with respect to the Conrail Poison Pill threatens grave,
imminent and irreparable harm to Conrail and all of its
constituencies.
39. The problem is that on November 7, 1996, a
"Distribution Date", as that term is defined in the
Conrail Poison Pill Plan, will occur. Once that happens,
the "Rights" issued under the Plan will no longer be
redeemable by the Conrail Board, and the Plan will no
longer be capable of amendment to facilitate any takeover
or merger proposal. Put simply, once the Distribution
Date occurs, Conrail's directors will have no control
over the Conrail Poison Pill's dilutive effect on an
acquiror. Because of the draconian effects of the poison
pill dilution on a takeover bidder, no bidder other than
CSX will be able to acquire Conrail until the poison pill
rights expire in the year 2005, regardless of whether
such other bidder offers a transaction that is better for
Conrail and its legitimate constituencies than the CSX
Transaction. Further, not even CSX will be able to
acquire Conrail in a transaction other than the CSX
Transaction. In other words, if Conrail is not acquired
by CSX in the CSX Transaction for the level of cash and
stock currently offered by CSX, then it appears that
Conrail will not be capable of being acquired until at
least 2005. In essence, Conrail is about to swallow its
own poison pill.
40. Poison Pills -- typically referred to as
"shareholders rights plans" by the corporations which
adopt them -- are normally designed to make an
unsolicited acquisition prohibitively expensive to an
acquiror by diluting the value and proportional voting
power of the shares acquired.
41. Under such a plan, stockholders receive a
dividend of originally uncertificated, unexercisable
rights. The rights become exercisable and certificated
on the so-called "Distribution Date," which under the
Conrail Poison Pill Plan is defined as the earlier of 10
days following public announcement that a person or group
has acquired beneficial ownership of 10% or more of
Conrail's stock or 10 days following the commencement of
a tender offer that would result in 10% or greater
ownership of Conrail stock by the bidder. On the
Distribution Date, the corporation would issue
certificates evidencing the rights, each of which would
allow the holder to purchase a share of stock at a set
price. Initially, the exercise price of poison pill
rights is set very substantially above market to ensure
that the rights will not be exercised. Once rights
certificates were issued, the rights could trade
separately from the associated shares of stock.
42. The provisions of a poison pill plan that
cause the dilution to an acquiror's position in the
corporation are called the "flip-in" and "flip-over"
provisions. Poison pill rights typically "flip in" when,
among other things, a person or group obtains some
specified percentage of the corporation's stock; in the
Conrail Poison Pill plan, 10% is the "flip-in" level.
Upon "flipping in," each right would entitle the holder
to receive common stock of Conrail having a value of
twice the exercise price of the right. That is, each
right would permit the holder to purchase newly issued
common stock of Conrail at half price (specifically, $410
worth of Conrail stock for $205). The person or group
acquiring the 10% or greater ownership, however, would be
ineligible to exercise such rights. In this way, a
poison pill plan dilutes the acquiror's equity and voting
position. Poison pill rights "flip over" if the
corporation engages in a merger in which it is not the
surviving entity. Holders of rights, other than the
acquiror, would then have the right to buy stock of the
surviving entity at half price, again diluting the
acquiror's position. The Conrail Poison Pill Plan
contains both a "flip-in" provision and a "flip-over"
provision.
43. So long as corporate directors retain the
power ultimately to eliminate the anti-takeover effects
of a poison pill plan in the event that they conclude
that a particular acquisition would be in the best
interests of the corporation, a poison pill plan can be
used to promote legitimate corporate interests. Thus,
typical poison pill plans reserve power in a
corporation's board of directors to redeem the rights in
toto for a nominal payment, or to amend the poison pill
plan, for instance, to exempt a particular transaction or
acquiror from the dilutive effects of the plan.
44. The Conrail Poison Pill Plan contains
provisions for redemption and amendment. However, an
unusual aspect of the Conrail Poison Pill Plan is that
the power of Conrail's directors to redeem the rights or
amend the plan to exempt a particular transaction or
bidder terminates on the Distribution Date. While the
Conrail Poison Pill Plan gives Conrail directors the
power to effectively postpone the Distribution Date, the
CSX Merger Agreement purports to bind them contractually
not to do so. Thus, the Distribution Date under
Conrail's Poison Pill Plan will occur on November 7,
1996 -- ten business days after the date when NS
commenced the Offer -- and Conrail's directors have
entered into an agreement which purports to tie their
hands so that they cannot do anything to prevent it.
45. Ironically, the specific provisions of the
CSX Merger Agreement which purport to prevent the Conrail
directors from postponing the Distribution Date are the
very same sections which require Conrail to exempt the
CSX Transaction from the Conrail Poison Pill -- Sections
3.1(n) and 5.13. Section 3.1(n) provides, in pertinent
part:
Green Rights Agreement and By-laws. (A) The
Green Rights Agreement has been amended (the
"Green Rights Plan Amendment") to (i) render
the Green Rights Agreement inapplicable to the
Offer, the Merger and the other transactions
contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither
White nor any of its wholly owned subsidiaries
is an Acquiring Person (as defined in the Green
Rights Agreement) pursuant to the Green Rights
Agreement and (z) a Shares Acquisition Date,
Distribution Date or Trigger Event (in each
case as defined in the Green Rights Agreement)
does not occur by reason of the approval,
execution or delivery of this Agreement, and
the Green Stock Option Agreement, the
consummation of the Offer, the Merger or the
consummation of the other transactions
contemplated by this Agreement and the Green
Stock Option Agreement, and the Green Rights
Agreement may not be further amended by Green
without the prior consent of White in its sole
discretion. (emphasis added)
Section 5.13 provides, in pertinent part:
The Board of Directors of Green shall take all
further action (in addition to that referred to
in Section 3.1(n)) reasonably requested in
writing by White (including redeeming the Green
Rights immediately prior to the Effective Time
or amending the Green Rights Agreement) in
order to render the Green Rights inapplicable
to the Offer, the Merger and the other
transactions contemplated by this Agreement and
the Green Stock Option Agreement. Except as
provided above with respect to the Offer, the
Merger and the other transactions contemplated
by this Agreement and the Green Stock Option
Agreement, the Board of Directors of Green
shall not (a) amend the Green Rights Agreement
or (b) take any action with respect to, or make
any determination under, the Green Rights
Agreement, including a redemption of the Green
Rights or any action to facilitate a Takeover
Proposal in respect of Green.
46. Thus, although under the Conrail Poison
Pill Plan the Conrail Board is empowered to "determine[]
by action ... prior to such time as any person becomes an
Acquiring Person" that the Distribution Date will occur
on a date later than November 7, the Conrail board has
contractually purported to bind itself not to do so.
47. If the Distribution Date is permitted to
occur, Conrail, its shareholders, and its other
constituents face catastrophic irreparable injury. If
the Distribution Date occurs and then the CSX Transaction
does not occur for any number of reasons -- for instance,
because (i) the Conrail shareholders do not tender
sufficient shares in the CSX offer, (ii) the Conrail
shareholders do not approve the CSX merger, (iii) the
merger does not receive required regulatory approvals, or
(iv) CSX exercises one of the conditions to its
obligation to complete its offer -- Conrail will be
essentially incapable of being acquired or engaging in a
business combination until 2005. This would be so
regardless of the benefits and strategic advantages of
any business combination which might otherwise be
available to Conrail. In the present environment of
consolidation in the railroad industry, such a disability
would plainly be a serious irremediable disadvantage to
Conrail, its shareholders and all of its constituencies.
48. The irreparable harm that will befall
Conrail and all of its constituencies if the Distribution
Date is permitted to occur is manifest.
The 180-Day Lock-Out
49. Setting aside the Poison Pill Lock-In, the
CSX Merger Agreement also contains an unprecedented
provision purporting to bind Conrail's directors not to
terminate the CSX Merger Agreement for 180 days
regardless of whether their fiduciary duties require them
to do so. The pertinent provisions appear in Section 4.2
of the CSX Merger Agreement. Under that section, Conrail
covenants not to solicit, initiate or encourage other
takeover proposals, or to provide information to any
party interested in making a takeover proposal. The CSX
Merger Agreement builds in an exception to this
prohibition -- it provides that prior to the earlier of
the closing of the CSX Offer and Conrail shareholder
approval of the CSX Merger, or after 180 days from the
date of the CSX Merger Agreement, if the Conrail board
determines upon advice of counsel that its fiduciary
duties require it to do so, Conrail may provide
information to and engage in negotiations with another
bidder. Thus, the drafters of the CSX Merger Agreement -
- no doubt counsel for Conrail and CSX -- recognize that
there are circumstances in which Conrail's directors
would be required by their fiduciary duties to consider a
competing acquisition bid.
50. However, despite the recognition in the
CSX Merger Agreement that the fiduciary duties of the
Conrail Board may require it to do so, Section 4.2(b) of
the agreement (the "180-Day Lock-Out") purports to
prohibit the Conrail Board from withdrawing its
recommendations that Conrail shareholders tender their
shares in the CSX Offer and approve the CSX Merger for a
period of 180 days from the date of the CSX Merger
Agreement. Likewise, it prohibits the Conrail Board from
terminating the CSX Merger Agreement, even if the Conrail
Board's fiduciary duties require it to do so, for the
same 180-day period.
51. Thus, despite the plain contemplation of
circumstances under which the Conrail Board's fiduciary
duties would require it to entertain competing offers and
act to protect Conrail and its constituencies by (i)
withdrawing its recommendation that Conrail shareholders
approve the CSX Transaction and (ii) terminating the CSX
Merger Agreement, Conrail's Board has seen fit to disable
itself contractually from doing so.
52. As with the Poison Pill Lock-In, this
"180-Day Lock-Out" provision amounts to a complete
abdication of the duty of Conrail's directors to act in
the best interests of the corporation. With the 180-day
Lock-Out, the Conrail directors have determined to take a
six-month leave of absence despite their apparent
recognition that their fiduciary duties could require
them to act during this critical time.
53. The effect of this provision is to lock
out competing superior proposals to acquire Conrail for
at least six months, thus giving the CSX Transaction an
unfair time value advantage over other offers and adding
to the coercive effects of the CSX Transaction.
54. Because it purports to restrict or limit
the exercise of the fiduciary duties of the Conrail
directors, the 180-Day Lock-Out provision of the CSX
Merger Agreement is ultra vires, void and unenforceable.
Further, by agreeing to the 180-Day Lock-Out as part of
the CSX Merger Agreement, the Conrail directors breached
their fiduciary duties of loyalty and care.
Rapid Transfer of Control
55. The CSX Transaction is structured to
include (i) a first-step cash tender offer for up to
19.9% of Conrail's stock, (ii) an amendment to Conrail's
charter to opt out of coverage under Subchapter 25E of
Pennsylvania's Business Corporation Law (the "Charter
Amendment"), which requires any person acquiring control
of over 20% or more of the corporation's voting power to
acquire all other shares of the corporation for a "fair
price," as defined in the statute, in cash, (iii)
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.
56. 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 Securities and Exchange Commission,
Conrail stated that if CSX acquires 40% of Conrail's
stock, approval of the merger will be "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."
57. The swiftness with which the CSX
Transaction is designed to transfer control over Conrail
to CSX can only be viewed as an attempt to lock up the
CSX Transaction and 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
58. Conrail's Preliminary Proxy Materials for
the November 14, 1996 Special Meeting set forth the
resolution to be voted upon by Conrail's shareholders as
follows:
An amendment (the "Amendment") of the Articles
of Incorporation of Conrail is hereby approved
and adopted, by which, upon the effectiveness
of such amendment Article Ten thereof will be
amended and restated in its entirety as
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.
59. 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.
60. Thus, if Conrail shareholders fail to
tender sufficient shares to CSX to permit CSX to acquire
in excess of 20% of the shares, for example, because they
wish to instead accept the superior NS Proposal, the
Defendant Directors are actually asking Conrail
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.
The $300 Million Breakup Fee
61. The CSX Merger Agreement provides for a
$300 million break-up fee. This fee would be triggered
if the CSX Merger Agreement were terminated following a
competing takeover proposal.
62. This breakup fee is disproportionally
large, constituting over 3.5% of the aggregate value of
the CSX 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.
The Lock-Up Stock Option
63. Concurrently with the CSX 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.
64. If, during the time that the option under
the Stock Option Agreement is exercisable, Conrail enters
into an agreement pursuant to which all of its
outstanding common shares are to 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
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.
65. 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.
66. 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
$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!
67. 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 Director Defendants' fiduciary duty of
loyalty.
Selective Discriminatory
Treatment of Competing Bids
68. Finally, the Conrail board has breached
its fiduciary duties by selectively (i) rendering
Conrail's Poison Pill Plan inapplicable to the CSX
Transaction, (ii) approving the CSX Transaction and thus
exempting it from the 5-year merger moratorium under
Pennsylvania's Business Combination Statute, and (iii),
as noted above, purporting to approve the Charter
Amendment in favor of CSX only.
69. While Pennsylvania law does not require
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.
70. Thus, Conrail's directors are required to
act evenhandedly, redeeming the poison pill rights and
rendering anti-takeover statutes inapplicable only to
permit the best competing control transaction to prevail.
Directors cannot take such selective and discriminatory
defensive action to favor corporate executives' personal
interests over those of the corporation, its
shareholders, and other legitimate constituencies.
LeVan's Deal
71. As an integral part of the CSX
Transaction, CSX, Conrail and defendant LeVan have
entered into an employment agreement dated as of October
14, 1996 (the "LeVan Employment Agreement"), covering a
period of five-years from the effective date of any
merger between CSX and Conrail. The LeVan 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
Employment Segment"), Mr. LeVan will additionally serve
as Chairman of the Board of the combined CSX/Conrail
company.
72. 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.
73. If CSX terminates Mr. LeVan's employment
for a reason other than cause or disability or Mr. LeVan
terminates employment for good reason (as those terms are
defined in the LeVan Employment Agreement), Mr. LeVan
will be entitled to 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.
Defendants' Campaign Of Misinformation
74. 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.
75. Conrail's Preliminary Proxy Statement
contains the following misrepresentations of fact:
(a) Conrail states that "certain
provisions of Pennsylvania law effectively preclude
... CSX from 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
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 near-
term for 40% of [Conrail's] shares," and that "[t]he
Board of Directors believes it is in the best
interests of shareholders that they have the
opportunity to receive cash for 40% of their shares
in the near term." These statements are false.
First of all, the Conrail Board believes that
Conrail shareholders should have the opportunity to
receive cash in the near-term for 40% of Conrail's
shares only if such transaction will swiftly deliver
effective control of Conrail to CSX. Second, the
Conrail Board of Directors does not believe that
such swift transfer of control to CSX is in the best
interests of Conrail shareholders; rather, the
Conrail Board of 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.
76. CSX's Schedule 14D-1 contains the
following misrepresentations of fact:
(a) CSX states that:
At any time prior to the announcement
by [Conrail] or an Acquiring Person that
an Acquiring Person has become such,
[Conrail] may redeem the [Conrail Poison
Pill Plan] rights ....
This statement is false. In fact, the Conrail
Poison Pill rights are redeemable any time prior to
the Distribution Date. After the Distribution Date,
they cannot be redeemed. CSX further states that:
The terms of the [Conrail Poison
Pill] rights may be amended by the
[Conrail Board] without the consent of the
holders of the Rights ... to make any
other provision with respect to the Rights
which [Conrail] may deem desirable;
provided that from and after such time as
Acquiring Person becomes such, the Rights
may not be amended in any manner which
would adversely affect the interests of
holders of Rights.
This statement is also false. The Conrail Board's
power to freely amend the poison pill rights
terminates on the Distribution Date, not the date
when someone becomes an Acquiring Person. These
misrepresentations operate to conceal the fact that
the Conrail Board will lose its power to control the
drastic effects of the poison pill ten days
following commencement of a competing tender offer.
(b) CSX states that the "purpose of the
[CSX] Offer is for [CSX] . . . to acquire a
significant equity interest in [Conrail] as the
first step in a business 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.
(c) CSX states that "the Pennsylvania
Control Transaction Law effectively precludes [CSX,
through its acquisition subsidiary] from purchasing
20% or more of Conrail's shares pursuant to the
[CSX] Offer." This statement is false. The
provisions of Pennsylvania law to which Conrail is
referring are those of Subchapter 25E of the
Pennsylvania Business Corporation Law. This law
does not "effectively preclude" CSX from purchasing
20% or more of Conrail's stock other than through
the CSX Merger. Rather, it simply requires a
purchaser of 20% or more of Conrail's voting stock
to pay a fair price in cash, on demand, to the
holders of the remaining 80% of the shares. The
real reason that CSX will not purchase 20% or more
of Conrail's voting stock absent the Charter
Amendment is that, unlike NS, CSX is unable or
unwilling to pay a fair price in cash for 100% of
Conrail's stock.
77. Conrail's Schedule 14D-9 states that "the
[CSX Transaction] . . . is being structured as a true
merger-of-equals transaction." This statement is false.
The CSX Transaction is being structured as a rapid,
locked-up sale of control of Conrail to CSX involving a
significant, albeit inadequate, control premium.
78. Each of the Conrail Preliminary Proxy
Statement, the CSX Schedule 14D-1 and the Conrail
Schedule 14D-9 omit to disclose the following material
facts, the disclosure of which are necessary to make the
statements made in such documents not misleading:
(a) That the Conrail Board will lose its
power to redeem or freely amend the Conrail Poison
Pill Plan rights on the "Distribution Date," which
will occur 10 business days from the date when a
competing tender offer for Conrail is commenced.
(b) That both Conrail (and its senior
management) and CSX (and its senior management) knew
(i) that NS was keenly interested in acquiring
Conrail, (ii) that NS has the financial capacity and
resources to pay a higher price for Conrail than CSX
could, and (iii) that a financially superior
competing bid for Conrail by NS was inevitable.
(c) That Conrail management led NS to
believe that if and when the Conrail Board
determined to sell Conrail, it would do so through a
process in which NS would be given the opportunity
to bid, and that in the several weeks prior to the
announcement of the CSX Transaction, defendant LeVan
on two occasions prevented Mr. Goode from presenting
an acquisition proposal to Conrail by stating to him
that making such a 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.
(d) That in September of 1994, NS had
proposed a stock-for-stock acquisition of Conrail at
an exchange ratio of 1.1 shares of NS stock for each
share of Conrail stock, which ratio, if applied to
the price of NS stock on the day before announcement
of the CSX Transaction, October 14, 1996, implied a
bid by NS worth over $101 per Conrail share.
(e) That the CSX Transaction was
structured to swiftly transfer effective, if not
absolute voting control over Conrail to CSX, and to
prevent any other bidders from acquiring Conrail for
a higher price.
(f) That although Conrail obtained
opinions from Morgan Stanley and Lazard Freres that
the consideration to be received by Conrail
stockholders in the CSX Transaction was "fair" to
such shareholders from a financial point of view,
Conrail's Board did not ask its investment bankers
whether the CSX Transaction consideration was
adequate, from a financial point of view, in the
context of a sale of control of Conrail such as the
CSX Transaction.
(g) That although in arriving at their
"fairness" opinions, both Morgan Stanley and Lazard
Freres purport to have considered the level of
consideration paid in comparable transactions, both
investment bankers failed to consider the most
closely comparable transaction -- NS's September
1994 merger proposal, which as noted above, would
imply a price per Conrail share in excess of $101.
(h) That, if asked to do so, Conrail's
investment bankers would be unable to opine in good
faith that the consideration offered in the CSX
Transaction is adequate to Conrail's shareholders
from a financial point of view.
(i) That Conrail's Board failed to seek a
fairness opinion from its investment bankers
concerning the $300 million breakup fee included in
the CSX Transaction.
(j) That Conrail's Board failed to seek a
fairness opinion from its investment bankers
concerning the Stock Option Agreement granted by
Conrail to CSX in connection with the CSX
Transaction.
(k) That the Stock Option Agreement is
structured so as to impose increasingly severe
dilution costs on a competing bidder for control of
Conrail for progressively higher acquisition bids.
(l) That the Conrail Board intends to
withhold the filing of the Charter Amendment
following its approval by Conrail's stockholders if
the effectiveness of such amendment would facilitate
any bid for Conrail other than the CSX Transaction.
(m) That the Charter Amendment and/or its
submission to a vote of the Conrail shareholders is
illegal and ultra vires under Pennsylvania law.
(n) That the Conrail Board's
discriminatory (i) use of the Charter Amendment,
(ii) amendment of the Conrail Poison Pill and (iii)
action exempting the CSX Transaction from
Pennsylvania's Business Combination Statute, all to
facilitate the CSX Transaction and to preclude
competing financially superior offers for control of
Conrail, constitute a breach of the Director
Defendants' fiduciary duty of loyalty.
(o) That Conrail's Board failed to
conduct a 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.
(p) That in recommending that Conrail's
shareholders tender their shares to CSX in the CSX
Offer, Conrail's Board did not conclude that doing
so would be in the best interests of Conrail's
shareholders.
(q) That in recommending that Conrail's
shareholders approve the Charter Amendment, the
Conrail Board did not conclude that doing so would
be in the best interests of Conrail's shareholders.
(r) That in recommending that Conrail
shareholders tender their shares to CSX in the CSX
Offer, primary weight was given by the Conrail Board
to interests of persons and/or groups other than
Conrail's shareholders.
(s) That in recommending that Conrail
shareholders tender their shares to CSX in the CSX
Offer, primary weight was given to the personal
interests of defendant LeVan in increasing his
compensation and succeeding Mr. Snow as Chairman and
Chief Executive Officer of the combined CSX/Conrail
company.
(t) That the Continuing Director
Requirement in Conrail's Poison Pill (described
below in paragraphs 80 through 88, adopted by
Conrail's board in September 1995 and publicly
disclosed at that time, is illegal and ultra vires
under Pennsylvania law and therefore is void and
unenforceable.
79. Each of the misrepresentations and omitted
facts detailed above are material to the decisions of
Conrail's shareholders concerning whether to vote in
favor of the Charter Amendment and whether, in response
to the CSX Offer, to hold, sell to the market, or tender
their shares, because such 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.
Conrail's Directors Attempt To Override
Fundamental Principles of Corporate Democracy
By Imposing A Continuing Directors
Requirement in Conrail's Poison Pill
80. As noted above, Conrail's directors have
long known that it was an attractive business combination
candidate to other railroad companies, including NS.
81. Neither Conrail management nor its Board,
however, had any intention to give up their control over
Conrail, unless the acquiror was willing to enter into
board composition, 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
redeem the rights issued pursuant to the Rights Plan (the
"Continuing Director Requirement").
82. Prior to adoption of the Continuing
Director Requirement, the Conrail Poison Pill Plan was a
typical "flip-in, flip-over" plan, designed to make an
unsolicited acquisition of Conrail prohibitively
expensive to an acquiror, and reserving power in
Conrail's duly elected board of directors to render the
dilutive effects of the rights ineffective by redeeming
or amending them.
83. The September 20, 1995 adoption of the
Continuing Director Requirement changed this reservation
of power. It added an additional requirement for
amendment of the plan or redemption of the rights. For
such action to be effective, at least two members of the
Board must be "Continuing Directors," and the action must
be approved by a majority of such "Continuing Directors."
"Continuing Directors" are defined as members of the
Conrail Board as of September 20, 1995, i.e., the
incumbents, or their hand-picked successors.
84. By adopting the Continuing Director
Requirement, the Director Defendants intentionally and
deliberately have attempted to destroy the right of
stockholders of Conrail to replace them with new
directors who would have the power to redeem the rights
or amend the Rights Agreement in the event that such new
directors deemed such action to be in the best interests
of the company. That is, instead of vesting the power to
accept or reject an acquisition in the duly elected Board
of Directors of Conrail, the Rights Plan, as amended,
destroys the power of a duly elected Board to act in
connection with acquisition offers, unless such Board
happens to consist of the current incumbents or their
hand-picked successors. Thus, the Continuing Director
Requirement is the ultimate entrenchment device.
85. The Continuing Director Requirement is
invalid per se under Pennsylvania statutory law, in that
it purports to limit the discretion of future Boards of
Conrail. Pennsylvania law requires that any such
limitation on Board discretion be set forth in a By-Law
adopted by the stockholders. See Pa. BCL SECTION 1721. Thus,
the Director Defendants were without power to adopt such
a provision unilaterally by amending the Rights
Agreement.
86. Additionally, the Continuing Director
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 plan, it conflicts with
Section 3.5 of Conrail's By-Laws and is therefore of no
force or effect. Article Eleven of Conrail's Articles of
Incorporation permits Conrail's entire board to be
removed without cause by stockholder vote. Read together
with Section 3.5 of Conrail's By-Laws, Article Eleven
enables Conrail's stockholders to replace the entire
incumbent board with a new board fully empowered to
direct the management of Conrail's business and affairs,
and, specifically, to redeem the rights or amend the
plan. Insofar as the Continuing Director Requirement
purports to render such action impossible, it conflicts
with Conrail's Articles of Incorporation and is therefore
of no cause or effect.
87. Furthermore, the adoption of the
Continuing Director Requirement constituted a breach of
the Director Defendants' 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.
88. Moreover, while the Director Defendants
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
choice in connection with the special meeting, the CSX
Offer, and (if they have not successfully locked up
voting control of Conrail by then) in the next annual
election of directors. The Director Defendants' conduct
is thus fraudulent, in that they have failed to act
fairly and honestly toward the Conrail stockholders, and
intended to preserve their incumbency and that of current
management, to the detriment of Conrail's stockholders
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
89. 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).
90. The Director Defendants adopted the
Continuing Director Requirement in part because they
recognized that under Conrail's Articles, its entire
Board, even though staggered, may be removed without
cause at Conrail's next annual meeting.
91. Section 3.1 of Conrail's By-Laws provides
that the Conrail Board shall consist of 13 directors, but
presently there are only 11. The Conrail Board is
classified into three classes. Each class of directors
serves for a term of three years, which terms are
staggered.
92. Article 11 of Conrail's Articles of
Incorporation 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.
93. 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
pursuant to Article 11, the entire Conrail Board, or any
one or more of Conrail's directors, may be removed
without cause at Conrail's next annual meeting.
Declaratory Relief
94. The Court may grant the declaratory relief
sought herein pursuant to 28 U.S.C. SECTION 2201. The Director
Defendants' adoption of the CSX Transaction (with its
discriminatory Charter Amendment poison pill, and state
anti-takeover statute treatment and draconian lock-up
provisions) as well as their earlier adoption of the
Continuing Director Requirement, clearly demonstrate
their bad faith entrenchment motivation and, in light of
the NS Proposal, that there is a substantial controversy
between the parties. Indeed, given the NS Proposal, the
adverse legal interests of the parties are real and
immediate. Defendants can be expected to vigorously
oppose each judicial declaration sought by plaintiffs, in
order to maintain their incumbency and defeat the NS
Proposal -- despite the benefits it would provide to
Conrail's stockholders and other constituencies.
95. 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.
Irreparable Injury
96. The Director Defendants' 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 threaten to deny Conrail's stockholders of
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
97. Plaintiffs bring each of the causes of
action reflected in Counts One through Seven and Fourteen
and Fifteen below individually and directly.
Alternatively, to the extent required by law, plaintiffs
bring such causes of action derivatively on behalf of
Conrail.
98. No demand has been made on Conrail's Board
of Directors to prosecute the claims set forth herein
since, for the reasons set forth below, any such demand
would have been a vain and useless act since the Director
Defendants constitute the entire Board of Directors of
Conrail and have engaged in fraudulent conduct to further
their personal interests in entrenchment and have
ratified defendant LeVan's self-dealing conduct:
a. The Director Defendants 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
their fiduciary duty of loyalty and rendering the
business judgment rule inapplicable.
d. The Director Defendants' adoption of
the breakup fee and stock option lock-ups in favor
of CSX was motivated by their personal interest in
entrenchment, 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 by-
laws, 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
ultimate in entrenchment devices, the Director
Defendants would take action that would eliminate
it.
g. Additionally, the Director Defendants
have acted fraudulently, in that they intentionally
have failed to disclose the plain illegality of
their conduct.
h. There exists no reasonable prospect
that the Director Defendants would take action to
invalidate the Continuing Director Requirement.
First, pursuant to 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 Director Defendants would certainly
not commence legal proceedings to invalidate the
Continuing Director Requirement.
99. Plaintiffs are currently beneficial owners
of Conrail common stock. Plaintiffs' challenge to the
CSX 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 Director Defendants have
deliberately and intentionally, without justification,
acted to foreclose free choice by Conrail's shareholders.
If this action were not maintained, serious injustice
would result, in that defendants would be permitted
illegally and in pursuit of personal, rather than proper
corporate interests to deprive Conrail stockholders of
free choice and a unique opportunity to maximize the
value of their investments through the NS Proposal, and
to deprive plaintiff NS of a unique acquisition
opportunity.
100. This action is not a collusive one to
confer jurisdiction on a Court of the United States that
it would not otherwise have.
COUNT ONE
(Breach of Fiduciary Duty with
Respect to the Charter Amendment)
101. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
102. The Conrail directors were and are
obligated by their fiduciary duties of due care and
loyalty, to act in the best interests of the corporation.
103. In conjunction with the proposed merger,
the Conrail board of directors has approved, and
recommended that the shareholders approve, an amendment
to Conrail's Charter. The amendment is required to allow
a third party to acquire more than 20% of Conrail's
stock.
104. The Conrail directors have publicly stated
their intention to file the amendment only if the
requisite number of shares are tendered to CSX.
105. By adopting the illegal Charter Amendment
and then discriminately applying it to benefit
themselves, the Conrail directors have breached their
fiduciary duties of care and loyalty.
106. Plaintiffs have no adequate remedy at law.
COUNT TWO
(Breach of Fiduciary Duty
With Respect to the Poison Pill)
107. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
108. The Conrail board of directors adopted its
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.
109. The Conrail Board has announced its
intention to merge with CSX, and the Conrail Board has
also sought to exempt CSX from the provisions of the
Poison Pill.
110. Additionally, the Conrail Board has
committed itself to not pursue any competing offer for
the Company.
111. By selectively and discriminately
determining to exempt CSX, and only CSX, from the Poison
Pill provisions, to the detriment to Conrail's
shareholders, the Conrail directors have breached their
fiduciary duties of care and loyalty.
112. Plaintiffs have no adequate remedy at law.
COUNT THREE
(Breach of Fiduciary Duty
with Respect to the Pennsylvania
Business Combinations Statute)
113. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
114. By approving the CSX Offer prior to its
consummation, the Director Defendants 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.
115. By selectively and discriminately
exempting the CSX Transaction from the five-year merger
ban, for the purpose of facilitating a transaction that
will provide substantial personal benefits to Conrail
management while delivering Conrail to the low bidder,
the Director Defendants have breached their fiduciary
duties of care and loyalty.
116. Plaintiffs have no adequate remedy at law.
COUNT FOUR
(Declaratory Judgment Against All
Defendants that the Poison Pill
Lock-In is Void Under Pennsylvania Law)
117. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
118. By purporting to bind Conrail and its
directors not to amend or take any action with respect to
the Conrail Poison Pill Plan without CSX's consent, the
CSX Merger Agreement purports to restrict the managerial
discretion of Conrail's directors.
119. Under Pennsylvania law, agreements
restricting the managerial discretion of the board of
directors are permissible only in statutory close
corporations. Conrail is not a statutory close
corporation.
120. No statute countenances Conrail's and the
Director Defendants' adoption of the Poison Pill Lock-In
terms of the CSX Merger Agreement. No Conrail By-Law
adopted by the Conrail shareholders provides that
Conrail's directors may contractually abdicate their
fiduciary duties and managerial powers and
responsibilities with respect to the Conrail Poison Pill
Plan.
121. Plaintiffs, as well as all of Conrail's
shareholders and other legitimate constituencies, face
imminent irreparable harm unless the poison pill lock-in
provisions are declared ultra vires, void and
unenforceable, and Conrail's directors are enjoined to
take such action as is necessary to postpone the
"Distribution Date" under the Conrail Poison Pill Plan
and retain their power to redeem and/or amend the poison
pill rights.
122. Plaintiffs have no adequate remedy at law.
COUNT FIVE
(Against the Defendant Directors
for Breach of Fiduciary Duty with
Respect to the Poison Pill Lock-In)
123. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
124. By entering into the Poison Pill Lock-In
provisions of the CSX Merger Agreement, the Director
Defendants purported to relinquish their power to act in
the best interests of Conrail in connection with proposed
acquisitions of Conrail, and, unless they are enjoined to
take such action as is necessary to postpone the
occurrence of a "Distribution Date" under the Conrail
Poison Pill Plan, will by their inaction lock Conrail
into a situation in which it cannot be acquired,
regardless of how beneficial the proposed transaction is,
until the year 2005, other than through the CSX
Transaction at its current price.
125. Thus, by entering into the CSX Transaction
and by failing to postpone the "Distribution Date", the
Director Defendants have intentionally, in violation of
their duty of loyalty, completely abdicated their
fiduciary duties and responsibilities. Alternatively,
the Director Defendants, by entering into the Poison Pill
Lock-In provision of the CSX Merger Agreement without
adequate investigation and comprehension of the
consequences of their action, and by failing to take
action to rescind the Poison Pill Lock-In provision and
postpone the "Distribution Date", have acted and are
acting recklessly and with gross negligence.
126. Absent prompt injunctive relief,
plaintiffs, as well as Conrail and all of its legitimate
constituencies, face imminent irreparable harm.
127. Plaintiffs have no adequate remedy at law.
COUNT SIX
(Declaratory Judgment Against All
Defendants That the 180-Day Lock-Out
is Void Under Pennsylvania Law)
128. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
129. By purporting to bind Conrail and its
directors from acting to protect the interests of
Conrail, its shareholders and its other legitimate
constituencies by withdrawing its recommendation that
Conrail's shareholders accept the CSX Offer and approve
the CSX Merger even when the fiduciary duties of
Conrail's directors would require them to do so, the 180-
Day Lock-Out provision of the CSX Merger Agreement
purports to restrict the managerial discretion of
Conrail's directors.
130. By purporting to prohibit Conrail's
directors from terminating the CSX Merger Agreement when
their fiduciary duties would require them to do so, the
180-Day Lock-Out provision of the CSX Merger Agreement
purports to restrict the managerial discretion of
Conrail's directors.
131. Under Pennsylvania law, agreements
restricting the managerial discretion of the board of
directors are permissible only in statutory close
corporations. Conrail is not a statutory close
corporation.
132. No statute countenances Conrail's and the
Director Defendants' adoption of the 180-Day Lock-Out
terms of the CSX Merger Agreement. No Conrail By-Law
adopted by the Conrail shareholders provides that
Conrail's directors may contractually abdicate their
fiduciary duties and managerial powers and
responsibilities.
133. Unless the 180-Day Lock-Out provision is
declared ultra vires and void and defendants are enjoined
from taking any action enforcing it, Conrail and its
legitimate constituencies face irreparable harm.
134. Plaintiffs have no adequate remedy at law.
COUNT SEVEN
(Against the Defendant Directors
for Breach of Fiduciary Duty with
Respect to the 180-Day Lock-Out)
135. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
136. By entering into the 180-Day Lock-Out
provision of the CSX Merger Agreement, the Director
Defendants purported to relinquish their power to act in
the best interest of Conrail in connection with proposed
acquisitions of Conrail.
137. Thus, by entering into the 180-Day Lock-
Out provision, the Conrail directors have abdicated their
fiduciary duties, in violation of their duties of loyalty
and care.
138. Plaintiffs have no adequate remedy at law.
COUNT EIGHT
(Breach of Fiduciary Duty with
Respect to the Lock-Up Provisions)
139. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
140. In conjunction with the CSX Merger
Agreement, the Conrail Board has agreed to termination
fees of $300 million and to the lock-up Stock Option
Agreement.
141. 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.
142. 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.
143. Plaintiffs have no adequate remedy at law.
COUNT NINE
(Declaratory Relief Against
Conrail and Director Defendants That
The Continuing Director Requirement
Is Void Under Pennsylvania Law)
144. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
145. Under Pennsylvania law, the business and
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 SECTION 1721.
146. Under Pennsylvania law, agreements
restricting the managerial discretion of directors are
permissible only in statutory close corporations.
147. No statute countenances Conrail's and the
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.
148. Adoption of the Continuing Director
Requirement constitutes an unlawful attempt by the
Director Defendants to limit the discretion of a future
Board of Directors with respect to the management of
Conrail. In particular, under the Continuing Director
Requirement, a duly elected Board of Directors that
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.
149. Plaintiffs seek a declaration that the
Continuing Director Requirement is contrary to
Pennsylvania statute and, therefore, null and void.
150. Plaintiffs have no adequate remedy at law.
COUNT TEN
(Declaratory Relief Against Conrail
and The Director Defendants That
The Continuing Director Requirement
Is Void Under Conrail's Articles
of Incorporation And By-Laws)
151. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
152. 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.
153. 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 By-
Laws.
154. Insofar as it purports to remove from the
duly elected board of Conrail the power to redeem the
rights or amend the Rights Plan, the Continuing Director
Requirement directly conflicts with Section 3.5 of
Conrail's By-Laws, and is therefore void and
unenforceable.
155. 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
Rights Agreement. The Continuing Director Requirement
purports to prevent the stockholders from doing so, and
is therefore void and unenforceable.
156. Plaintiffs have no adequate remedy at law.
COUNT ELEVEN
(Declaratory Relief Against Conrail
and The Director Defendants That Adoption
of the Continuing Director Requirement
Constituted A Breach of the Duty of Loyalty)
157. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
158. Adoption of the Continuing Director
Requirement constituted a breach of the duty of loyalty
on the part of the Director Defendants. Such adoption
was the result of bad faith entrenchment motivation
rather than a belief that the action was in the best
interests of Conrail. In adopting the Continuing
Director Requirement, the Director Defendants 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 Director Defendants adopted the Continuing
Director Requirement without first conducting a
reasonable investigation.
159. The Continuing Director Requirement not
only impedes acquisition of Conrail stock in the NS
Offer, it also impedes any proxy solicitation in support
of the NS Proposal because Conrail stockholders will,
unless the provision is 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 Director
Defendants intended their actions to cause Conrail's
stockholders to hold such belief.
160. Plaintiffs seek a declaration that the
Director Defendants' adoption of the Continuing Director
Requirement was in violation of their fiduciary duties
and, thus, null, void and unenforceable.
161. Plaintiffs have no adequate remedy at law.
COUNT TWELVE
(Against Conrail And The Director
Defendants For Actionable Coercion)
162. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
163. The Director Defendants owe fiduciary
duties of care and loyalty to Conrail. Furthermore,
Conrail and the Director Defendants, insofar as they
undertake to seek and recommend action by Conrail's
shareholders, for example with respect to the Charter
Amendment, the CSX Offer or the NS Offer, stand in a
relationship of trust and confidence vis a vis Conrail's
shareholders, and accordingly have a fiduciary obligation
of good faith and fairness to such shareholders in
seeking or recommending such action.
164. Conrail and its directors are seeking the
approval by Conrail's shareholders of the Charter
Amendment and are recommending such approval.
165. Conrail and its directors are seeking the
tender by Conrail's shareholders of their shares into the
CSX Offer and are recommending such tender.
166. In seeking such action and making such
recommendations, Conrail and its directors have sought to
create the impression among the Conrail shareholders that
the NS Proposal is not a financially superior, viable,
and actually available alternative to the CSX
Transaction. This impression, however, is false. The
only obstacles to the NS Proposal are the ultra vires,
illegal impediments constructed by defendants, including
the Poison Pill Lock-In, the 180-Day Lock-Out, and the
continuing director provisions of the Conrail Poison Pill
Plan.
167. The purpose for which defendants' seek to
create this impression is to coerce Conrail shareholders
into delivering control over Conrail swiftly to CSX.
Furthermore, the effect of this false impression is to
coerce Conrail shareholders into delivering control over
Conrail to CSX.
168. This coercion of the Conrail shareholders
constitutes a breach of the fiduciary relation of trust
and confidence owed by the Corporation and its directors
to shareholders from whom they seek action and to whom
they recommend the action sought.
169. The conduct of defendants Conrail and its
directors is designed to, and will, if not enjoined,
wrongfully induce Conrail's shareholders to sell their
shares to CSX in the CSX Offer not for reasons related to
the economic merits of the sale, but rather because the
illegal conduct of defendants has created the appearance
that the financially (and otherwise) superior NS Proposal
is not available to them, and that the CSX Transaction is
the only opportunity available to them to realize premium
value on their investment in Conrail.
170. Plaintiffs have no adequate remedy at law.
COUNT THIRTEEN
(Against CSX For Aiding And Abetting)
171. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
172. Defendant CSX, through its agents, was
aware of and knowingly and actively participated in the
illegal conduct and breaches of fiduciary duty committed
by Conrail and the Director Defendants and set forth in
Counts One through Nine and Count Twelve of this
complaint.
173. CSX's knowing and active participation in
such conduct has harmed plaintiffs and threatens
irreparable harm to plaintiffs if not enjoined.
174. Plaintiffs have no adequate remedy at law.
COUNT FOURTEEN
(Declaratory and Injunctive Relief Against
Conrail and the Director Defendants for
Violation of Section 14(a) of the Exchange Act
and Rule 14a-9 Promulgated Thereunder)
175. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
176. Section 14(a) of the Exchange Act provides
that it is unlawful to use the mails or any means or
instrumentality of interstate commerce to solicit proxies
in contravention of any rule promulgated by the SEC.
15 U.S.C. SECTION 78n(a).
177. Rule 14a-9 provides in pertinent part:
"No solicitation subject to this regulation shall be made
by means of any ... communication, written or oral,
containing any statement which, at the time, and in light
of the circumstances under which it is made, is false and
misleading with respect to any material fact, or which
omits to state any material fact necessary in order to
make the statements therein not false or misleading...."
17 C.F.R. SECTION 240.14a-9.
178. Conrail's Preliminary Proxy Statement
contains the misrepresentations detailed in paragraph 75
above. It also omits to disclose the material facts
detailed in paragraph 78 above.
179. Unless defendants are required by this
Court to make corrective disclosures, Conrail's
stockholders will be deprived of their federal right to
exercise meaningfully their voting franchise.
180. The defendants' false and misleading
statements and omissions described above are essential
links in defendants' effort to deprive Conrail's
shareholders of their ability to exercise choice
concerning their investment in Conrail and their voting
franchise.
181. Plaintiffs have no adequate remedy at law.
COUNT FIFTEEN
(Against Defendant CSX For Violation
Of Section 14(d) Of The Exchange Act
And Rules Promulgated Thereunder)
182. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
183. Section 14(d) provides in pertinent part:
"It shall be unlawful for any person, directly or
indirectly by use of the mails or by any means or
instrumentality of interstate commerce ... to make a
tender offer for ... any class of any equity security
which is registered pursuant to section 78l 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
title, and such additional information as the Commission
may by rules and regulations prosecute ...." 15 U.S.C.
SECTION 78n(d).
184. On October 16, 1996, defendant CSX filed
with the SEC its Schedule 14D-1 pursuant to Section
14(d).
185. CSX's Schedule 14D-1 contains each of the
false and misleading material misrepresentations of fact
detailed in paragraph 76 above. Furthermore, CSX's
Schedule 14D-1 omits disclosure of the material facts
detailed in paragraph 78 above. As a consequence of the
foregoing, CSX has violated, and unless enjoined will
continue to violate, Section 14(d) of the Exchange Act
and the rules and regulations promulgated thereunder.
186. CSX made the material misrepresentations
and omissions described above intentionally and
knowingly, for the purpose of fraudulently coercing,
misleading and manipulating Conrail's shareholders to
tender their shares into the CSX Offer.
187. Plaintiffs have no adequate remedy at law.
COUNT SIXTEEN
(Against Defendant Conrail For Violation
Of Section 14(d) Of The Exchange Act
And Rules Promulgated Thereunder)
188. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
189. Section 14(d)(4) provides in pertinent
part: "Any solicitation or recommendation to the holders
of [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 [SEC] may prescribe as necessary
or appropriate in the public interest of investors."
Rule 14d-9 provides in pertinent part: "No solicitation
or recommendation to security holders shall be made by
[the subject company] with respect to a tender offer for
such securities unless as soon as practicable on the date
such solicitation or recommendation is first published or
sent or given to security holders such person ... file[s]
with the [SEC] eight copies of a Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9."
190. On October 16, 1996, Conrail (i) published
its board of directors' recommendation that Conrail
shareholders tender their shares in the CSX Offer and
(ii) filed with the SEC its Schedule 14D-9.
191. Conrail's Schedule 14D-9 contains each of
the false and misleading material misrepresentations
detailed in paragraph 77 above. Further, Conrail's
Schedule 14D-9 omits disclosure of the material facts
detailed in paragraph 78 above. As a consequence of the
foregoing, Conrail has violated, and unless enjoined will
continue to violate, Section 14(d) of the Exchange Act
and the rules and regulations promulgated thereunder.
192. 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.
193. Plaintiffs have no adequate remedy at law.
COUNT SEVENTEEN
(Against Conrail and CSX for Violation
of Section 14(e) of the Exchange Act
and Rules Promulgated Thereunder)
194. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
195. Section 14(e) provides in pertinent part:
"It shall be unlawful for any person to make any untrue
statement of a material fact or omit to state any
material fact necessary in order to make the statements
made, in the light of the 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).
196. 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.
197. The Conrail Schedule 14D-9 and Proxy
Statement constitute communications made under
circumstances reasonably calculated to result in the
procurement of tenders from Conrail shareholders in favor
of the CSX Offer.
198. The CSX Schedule 14D-1 contains the false
and misleading material misrepresentations detailed in
paragraph 76 above. The CSX Schedule 14D-1 omits
disclosure of the material facts detailed in paragraph 78
above.
199. The Conrail Schedule 14D-9 contains the
false and misleading material misrepresentations detailed
in paragraph 77 above. The Conrail Schedule 14D-9 omits
disclosure of the material facts detailed in paragraph 78
above.
200. The Conrail Proxy Statement contains the
false and misleading material misrepresentations detailed
in paragraph 75 above. The Conrail Proxy Statement omits
disclosure of the material facts detailed in paragraph 78
above.
201. These omitted facts are material to the
decisions of Conrail shareholders to hold, sell to
market, or tender their shares in the CSX tender offer.
202. The defendants intentionally and knowingly
made the material misrepresentations and omissions
described above, for the purpose of coercing, misleading,
and manipulating Conrail shareholders to swiftly transfer
control over Conrail to CSX by tendering their shares in
the CSX Tender Offer.
203. Absent declaratory and injunctive relief
requiring adequate corrective disclosure, plaintiffs, as
well as all of Conrail's shareholders, will be
irreparably harmed. Conrail shareholders will be coerced
by defendants' fraudulent and manipulative conduct to
sell Conrail to the low bidder. Plaintiffs NS and AAC
will be deprived of the unique opportunity to acquire and
combine businesses with Conrail.
204. Plaintiffs have no adequate remedy at law.
COUNT EIGHTEEN
(Against Defendants Conrail and CSX
For Civil Conspiracy To Violate
Section 14 Of The Exchange Act
And Rules Promulgated Thereunder)
205. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
206. Defendants Conrail and CSX conspired and
agreed to conduct the campaign of misinformation
described in 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 Fourteen through Seventeen
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.
207. Plaintiffs have no adequate remedy at law.
COUNT NINETEEN
(Against Conrail for
Estoppel/Detrimental Reliance)
208. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
209. By his actions, silence and statements
during the period from September 1994 to October 15,
1996, and 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.
210. Prior to October 15, 1996, NS had
justifiably relied on Mr. LeVan's false statements and
representations in refraining from making a proposal to
Conrail's Board or initiating a tender offer of its own
for Conrail shares.
211. Mr. LeVan and Conrail knew or should have
known that their actions, silence, statements and
representations to NS would induce NS to believe that
Conrail's board was not 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.
212. Mr. LeVan and Conrail knew or should have
known that NS would rely upon their actions, silence,
statements and representations to its detriment in
refraining from making a proposal to Conrail's Board or
initiating a tender offer of its own for Conrail shares.
213. NS did in fact rely upon LeVan's and
Conrail's actions, silence, statements and
representations to its detriment in refraining from
making a proposal to Conrail's Board or initiating a
tender offer of its own for Conrail shares.
214. Conrail and its Board are estopped from
effectuating a sale of the company without giving NS an
adequate opportunity to present its competing tender
offer to the Conrail Board of Directors and Conrail
shareholders. Similarly, any provision in the CSX Merger
Agreement 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.
215. By virtue of NS's justifiable reliance on
Conrail's and Mr. LeVan's actions, silence and
statements, it has suffered and will continue to suffer
irreparable harm.
216. Plaintiffs have no adequate remedy at law.
COUNT TWENTY
(Unlawful And Ultra Vires Amendment
of Conrail's Articles of Incorporation)
217. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
218. The Conrail Board of Directors is
attempting to freeze out any competing tender offers and
lock up the CSX deal, to the detriment of shareholders,
by improperly maneuvering to "opt-out" of the "anti-
takeover" provisions of the Pennsylvania Business
Corporation Law in a discriminatory fashion. This
procedure distorts and subverts the provisions of the
Pennsylvania statute.
219. At the special meeting of Conrail
shareholders, such shareholders will be asked to approve
the following 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."
220. The Director Defendants are also asking
for authorization to exercise discretion in deciding
whether or not to file the Charter Amendment. According
to the proposed proxy materials, the defendant directors
only intend to file the Charter Amendment if CSX is in a
position to purchase more than 20% of Conrail's shares.
Consequently, in effect, the Charter Amendment becomes a
"deal specific" opt-out.
221. The PBCL does not allow for such a
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.
222. 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
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.
223. If the November 14, 1996 shareholder
meeting is allowed to take place and the amendment is
passed, NS will suffer irreparable harm.
224. Plaintiffs have no adequate remedy at law.
COUNT TWENTY-ONE
(Declaratory Judgment Against Conrail and the
Director Defendants That the Entire Conrail
Board, Or Any One or More of Conrail's
Directors, Can Be Removed Without Cause)
225. Plaintiffs repeat and reallege each of the
foregoing allegations as if fully set forth in this
paragraph.
226. Plaintiffs intend, if necessary to
facilitate the NS Proposal, to solicit proxies to be used
at Conrail's next annual meeting to remove Conrail's
current Board of Directors.
227. There is presently a controversy among
Conrail, the Director Defendants 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.
228. Plaintiffs seek a declaration that Article
11 of Conrail's Articles of Incorporation permits the
removal of the entire Conrail Board, or any one or more
of Conrail's directors, without cause by a majority vote
of the Conrail stockholders entitled to cast a vote at an
annual election.
229. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs respectfully request that
this Court enter judgment against all defendants, and all
persons in active concert or participation with them, as
follows:
A. Declaring that:
(a) defendants have violated Sections
14(a), 14(d) and 14(e) of the Exchange Act and the rules
and 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 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;
(e) the Continuing Director Requirement
of Conrail's Poison Pill 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 board or
any one or more of its directors, can be removed without
cause at Conrail's next annual meeting of stockholders;
(g) the defendants have engaged in a
civil conspiracy to violate Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder;
(h) the Poison Pill Lock-In provisions in
the CSX Merger Agreement are ultra vires and, therefore,
void under Pennsylvania Law;
(i) the 180-Day Lock-Out provision in the
CSX Merger Agreement is ultra vires under Pennsylvania
law and, therefore, void; and
(j) the Director Defendants, by approving
the CSX Merger Agreement, breached their fiduciary duties
of care and loyalty.
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;
(c) taking any action to redeem rights
issued pursuant to Conrail's Poison Pill Plan or render
the rights plan inapplicable as to any offer by CSX
without, at the same time, taking such action as to NS's
outstanding offer;
(d) taking any action to enforce the
Continuing Director Requirement of Conrail's Poison Pill
Plan;
(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;
(g) holding the Conrail special meeting
until all necessary corrective disclosures have been made
and adequately disseminated to Conrail's stockholders;
(h) taking any action to enforce the
Poison Pill Lock-In and/or the 180-Day Lock-Out
provisions of the CSX Merger Agreement;
(i) failing to take such action as is
necessary to ensure that a Distribution Date does not
occur under the terms of the Conrail Poison Pill Plan;
and
(j) failing to take any action required
by the fiduciary duties of the Director Defendants.
C. Granting compensatory damages for all
incidental injuries suffered as a result of defendants'
unlawful conduct.
D. Awarding plaintiffs the costs and
disbursements of this action, including attorneys' fees.
E. Granting plaintiffs such other and further
relief as the court deems just and proper.
Respectfully Submitted:
/s/ MARY A. MCLAUGHLIN
Mary A. McLaughlin
I.D. No. 24923
George G. Gordon
I.D. No. 63072
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
(215) 994-4000
Attorneys for Plaintiffs
Of Counsel:
Steven J. Rothschild
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, DE 19899
(302) 651-3000
DATED: October 30, 1996
VERIFICATION
Pursuant to Federal Rule of Civil Procedure
23.1 and 28 U.S.C. SECTION 1746, I, Henry C. Wolf, hereby
verify under penalty of perjury that the allegations and
averments in the foregoing First Amended Complaint for
Declaratory and Injunctive Relief are true and correct.
/s/ HENRY C. WOLF
Henry C. Wolf
Executive Vice President
Norfolk Southern Corporation
Executed on October 29, 1996.
